CUs Dodge Tax But Lose Powers In Utah; Iowa Targets Earnings

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Taking a page from Utah bankers, the Iowa Bankers Association succeeded in getting lawmakers to introduce a proposal in the state legislature last week that would tax the growth in retained earnings (reserves) by the largest credit unions.

The bill, with separate versions introduced in the House and Senate, takes aim at the state's six largest credit unions, those over $150 million in assets and operating under multiple common bonds.

The proposal would expand taxation for the state-chartered credit unions in Iowa, one of just five states to tax credit unions. Credit unions, of which all but one of the 176 are state-chartered, already pay a Moneys and Credit Tax to the state that amounts to 0.5% of reserves.

Rep. Lance Horbach (R-Tama), the chief sponsor of the bill, said the proposal would benefit credit union members because it would require CUs to pay out more of their retained earnings in dividends or in lower fees in order to lower their taxes. "If you take the money and give it back in increased dividends or fee reductions there's no tax," he said. "The whole idea was to go back to the original credit union motive of years ago where they truly shared profits with the membership."

But Pat Jury, chief lobbyists for the Iowa CU League, said the issue of setting of dividends and fees is the domain of the management and directors of individual credit unions, not state legislators. "Ultimately, credit union members own that money," he said. "If they don't like the way they pay it out they can vote out the board of directors and replace them with someone who they agree with."

The new tax proposal, said Jury, would hurt credit unions by limiting their ability to build reserves, the target of the Horbach bill. Though Horbach insisted that other Iowa cooperatives, like agricultural co-ops, have their net earnings taxed, Jury noted that those institutions don't have net worth requirements, like credit unions.

"If you're talking about financial institutions, all the rules are different," said Jury.

Jury was confident that despite the state's tight fiscal situation they will be able to defeat the bill. "The (legislative) leadership doesn't want a tax increase and the members don't want a tax increase," he said.

The Iowa league has initiated a major media campaign aimed at solidifying public opinion against the new tax proposal. The league has begun taking out radio and print ads featuring testimonials from members and urging people to contact their lawmaker and oppose the bill.

The House version of the bill has 19 co-sponsors on it, including Horbach, and the Senate version has eight co- sponsors.

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