Community banks in California paid state and local income taxes last year equal to 13.42% of pretax income and extra items, according to data supplied by Sheshunoff Information Services Inc. That's the biggest such tax bite in the nation; the national average was 3.85%. In addition, 35% of California community bank income went to federal taxes. The heavy state and local taxes put small banks at a disadvantage, said Rob Fuller, president and chairman of Commercial Bank of San Francisco. "Banks our size don't have the option of doing business in other states, such as Arizona, that have lower rates, like some big banks can," he said. "It's tough, because banking is a fairly thin-margin operation." However, not all West Coast banks of $3 billion or less have to grapple with high state and local taxes. Oregon community banks are taxed at a rate of just 6.35% on income - and Washington is the only state in which community banks pay no state or local tax. But Michael H. Lippman, a partner with KPMG Peat Marwick in Washington, D.C., said Washington State's numbers may be deceiving. Though Washington has no state sales tax, Mr. Lippman said, "it does have a business-and-occupation tax, and it's a gross-receipts tax." States with low sales taxes often have higher taxes of other kinds, he noted. Just behind Washington in lowest taxes were Louisiana, with a 0.009% sales tax on gross income, followed by Vermont, Kentucky, and Virginia. At the other end of the scale, New York was close behind California, at 13.1%, followed by Massachusetts, Minnesota, and Indiana. According to Mr. Lippman, the recent trend toward individual states' taking on more fiscal responsibility has resulted in a general rise of state and local taxes. Federal taxes for most states were between 25% and 30%. The national average was 28.1%. Mr. Lippman said that though state and local income taxes affect the bottom line, "the real burden for some banks can be property taxes."
Save $400 off your subscription. Special offer ends April 30, 2017.
No credit card required. Complete access to articles, breaking news and industry data.
Have an account? Sign In