New CU Tax Fire Doused Before Reaching Congress

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A bid to pierce the federal credit union shield from state sales taxes was soundly defeated here last week during the National Conference of State Legislatures' annual convention.

The bid, launched by a Utah lawmaker frustrated by the escape of three large credit union's from the banks' tax trap, called on the organization of state lawmakers to urge Congress to rollback the federal credit union charter's protections from state taxes.

While the resolution by state lawmakers took the form of a non-binding recommendation to Congress it would have held significant weight because the vast majority of Congress members once served in their own state legislatures.

David Clark, a Republican State Rep. from Utah and a vice president with credit union nemesis Zions Bank, insisted his motive in proposing the resolution was to insure that federal preemptions, such as those included in the Federal CU Act, do not favor one charter over another. "Why should a state chartered credit union have to pay these taxes and not a federally chartered credit union," said Clark, who sponsored unsuccessful legislation last year that would have banned participation by Utah credit unions in the CO-OP Newtork. "I just don't think the states want the federal government to tell them who and what they can tax."

"I think this is a state's rights issue, not a credit union versus banks issue," said Clark. "There is no larger conspiracy, as people have asked me in the process."

The resounding defeat of the initiative, on a 14-to-5 vote in the group's Financial Services Standing Committee, followed a concerted lobby at the NCSL by CUNA and NASCUS and a debate on the credit union tax issue by CUNA economist Bill Hampel and Keith Leggett, economist for the American Bankers Association, and a highly visible critic of CUs.

Clark conceded he, like many credit union opponents in Utah, were frustrated by this spring's flight by the three large credit unions-America First CU, Mountain America CU and Goldenwest CU-to federal charters to avoid the banker-inspired initiative to tax large credit unions. The controversial conversion to federal charters stunned credit union opponents by also providing an exemption from state sales taxes for the three at a cost of almost $3 million to the state.

The target of Clark's resolution were provisions in the Federal CU Act preempting taxing authority for states and local governments for federally chartered credit unions. Clark insisted the ability to levy taxes within states' borders should be a prerogative of the individual states.

Clark was chief sponsor of unsuccessful legislation in Utah this spring,which would have banned participation in ATM networks setting limits on fees, such as the CO-OP's surcharge-free requirements.

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