Texas' Credit Unions Spared In Reform Of Biz Tax System

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After a week of debate over reform of the state's business tax system, the Texas House voted last week to retain an exemption from business taxes for the state's credit unions.

The bill now moves over to the state Senate, which has vowed to make changes, but credit union lobbyists were confident last week the Senate will retain the tax exemption for credit unions. "The bill is not likely to remain in its current form; the Senate has said all along it will do something very different, but they have indicated they will protect our franchise tax exemption," said Buddy Gill, chief lobbyist for the Texas league.

Gill attributed the passage of the exemption to a deluge of correspondence by credit union executives to lawmakers in the days leading up to the final vote on the bill, which included thousands of emails, letters and telephone calls.

Among the winning arguments were threats that state-chartered credit unions would seek to convert en masse to the tax-exempt shield of the federal charter, as they did in Utah in the face of the tax threat, costing state coffers in Texas millions of dollars in lost sales taxes and other revenues paid by credit unions.

Despite continued pressure from the bankers, Gill said he is confident the Senate will continue to exempt credit unions, especially because Lt. Gov. David Dewhurst, who is the presiding officer over the Senate, has pledged to protect the tax exemption. "We're gratified he's said he will protect credit unions," said Gill.

The tax bill, part of a move to lower the state's property taxes by $5 billion, was designed to be revenue neutral. But there is still peril ahead for credit unions as the state, one of the few without a personal income tax, continues to grapple with a court order to equalize school funding. That probably means there will be subsequent efforts to raise revenues to help increase state aid to poorer school districts, a fight that has occurred in several other states without income taxes.

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