Texas CUs Win 1st Round In Tax Battle

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State-chartered credit unions were victorious last week in the first round of what promises to be a multi-stage tax fight, helping defeat a bill that would have dragged them into a new payroll tax on employers.

The bill was introduced in a special session of the state legislature, called because of a court ruling requiring that the state equalize educational funding between rich and poor school districts. Texas is one of a handful of states without an income tax, meaning the vast majoity of school funding comes from property taxes.

"We're not out of the woods yet, but were out of the House bill right now," said Buddy Gill, chief lobbyist for the Texas CU League, after the state's lower chamber gutted the bill to finance education that would have eliminated the state's franchise tax and replaced it with new levies on payrolls and slot machines, which would be legalized under the proposal.

The threat was far from over, stressed Gill, as the deliberations moved over to the Senate.

Because there was little consensus in the House, credit unions remain at risk from a number of possibilities, including a broadening of the franchise tax to include credit unions or the revival of the payroll proposal.

The House bill would have assessed a $150 per quarter or $500 per year levy on all employees, both full-time and part-time, costing state-chartered credit unions an estimated $3.8 million a year.

Credit unions joined a broad-based lobby against the proposal, which included opponents of slot machine gambling, as well as businesses now exempt from the franchise tax, which only applies to one in six businesses, but who would have been hit by the payroll tax.

The Texas CU League organized a new grassroots lobbying effort that included participation of rank-and-file credit union members, as well as paid employees, the traditional participants in legislative campaigns. Several credit unions made telephones available in their lobbies, at teller lines or drive-through lanes with pre-programmed numbers of state representatives who they called to voice their opposition to the measure.

"We turned out some grassroots against it," said Gill. "We weren't the only voices against it, but we did turn out the grassroots. The timing was just right."

Credit union lobbyists also argued a new tax including credit unions could help drive many of the state's 250 state charters to federal charters, exempting them from the new levy and depriving the state of millions of dollars in sales tax revenue, as well as fees that finance the Texas Credit Union Department, the state regulator.

The bill passed by the House would still hit credit unions with higher sales taxes, which are paid by all state charters, but the toll would be less expensive than the payroll proposal.

An early amendment to the bill would have hit credit unions, as well as banks, with a 6.75% tax on financial services. But that proposal was short-lived, as it raised the ire of the powerful banking lobby.

The Senate began deliberations late last week on the funding proposal, which were expected to include broadening the base for the franchise tax, or even a business activity tax, similar to the value added tax popular in Europe.

The 30-day special session is scheduled to end May 19.

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