CU Tax Bill Passes Utah House; Race on to Fight Bill in Senate

Register now

SALT LAKE CITY - Utah, one of the most popular states for credit union membership, came closer to passing a credit union levy last week when a credit union tax bill was passed by the House.

The measure, which would apply the state's 5% corporate franchise tax to three of the state's largest credit unions, now goes to the Senate, which is racing against a March 4 conclusion to the state's annual 45-day legislative session.

The bill passed by the House, even though it scrapped an onerous 30% "competitive equity fee" to be added to the franchise tax, represented a stunning reversal for the credit union lobby, which thought it had the tax issue conquered just hours before. That's when lawmakers approved a bill that would create a legislative task force to study the matter before assessing any taxes.

But House members, many of them confused, reconvened a short time later and voted 42-to-32 to pass the bill with the franchise assessment and a study of the competitive equity fee.

"We thought we had it well in hand," said a disappointed Scott Earl, president of the Utah League of CUs, which has organized a broad-based grassroots campaign against the tax measure in this state where as many as one-in-two residents clam credit union membership. "We were pretty sure the Senate would not put the taxes back."

But several provisions, including standards for paying the franchise fee, and field of membership (FOM) allowances for exempt credit unions, appeared to confound lawmakers, who decided to take the bill back up.

"What appeared to happen was people were confused over the language on exempt and non-exempt credit unions and the 5% franchise tax," said Rep. Jeff Alexander (R-Provo), sponsor of the tax bill. "After the discussions went forward, it confused enough people that we circled it (for further deliberations), took a short recess, then came back and considered our actions and brought the 5% franchise tax back."

The bill passed by the House would strip out the $100 million assets cut-off for taxable credit unions, leaving only a requirement that credit unions operating in more than one county pay the franchise levy. That would apply to just three institutions immediately: America First CU,Mountain America CU and Goldenwest CU, costing the three roughly $2.2 million in the first year.

The bill must now be passed by the Senate, which is expected to take it up in its Business and Labor Committee early this week. While committee business in the Senate will end late this week, the bill will be voted on by the legislative upper body, even if it doesn't get a committee hearing, according to Earl.

The confusion in the House should help the credit union side when the Senate debate commences, suggested Earl. "It leaves the House with a cloud of confusion," he said. "That puts us in good shape as it heads to the Senate."

The bill was passed even in the face of unprecedented opposition by the credit union lobby, which organized a massive call-in campaign to lawmakers and tied up State House switchboards in the days before the vote. Hundreds of credit union loyalists, employees and members, fanned out across the Capitol to try and dissuade House members from voting the tax, which many fear will become a model for other states, especially those facing growing budget deficits.

The credit union lobby was matched just as fiercely by the banks, especially Zions Bank, the state's largest financial institution, which brought hundreds of its employees to the Capitol, as well.

The credit union lobby did succeed in removing from the bill the punitive competitive equity fee, an Alexander invention that could have claimed as much as 30% of credit unions' annual earnings. Instead, the task force will study that issue and report back next year to the legislative whether to add that levy and how it would be calculated.

"We worked, I felt, very hard over the last four weeks to bring different groups together and have them be a part of the bill," said Alexander. "This will give us good direction (heading into the Senate). People over there have been very interested in it."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER