Fearing the loss of another large in-state banking company, Indiana banking groups are pushing legislation that would reduce taxes for multistate banks and thrifts.

The Indiana Bankers Association, the Community Bankers Association of Indiana, and the Indiana League of Savings Institutions are promoting legislation that would tax in-state and out-of-state banks equally. Currently, banks chartered in Indiana pay taxes to the state on income generated at all branches-even those in other states. Out-of-state banks, however, pay Indiana tax only on the income generated there.

"If we don't make this state friendly, all of our home-grown institutions are going to move," said William H. King, president of the Indiana Bankers Association.

Indiana has just lost CNB Bancshares of Evansville, which last month consolidated its eight subsidiaries under one Michigan charter. CNB, the $6.9 billion-asset parent of Citizens National Bank, had held an Indiana charter since 1874. The switch to a single charter in Michigan is expected to save it about $1.6 million in taxes per year.

First Financial Corp., Terre Haute, may drop its Indiana charter for one from Illinois, which would save it "six figures" on income taxes per year, said senior vice president John W. Perry.

The $1.7 billion-asset company pays Indiana's 8.5% tax on earnings from both its Indiana banks and its three Illinois subsidiaries. Moving all the charters to Illinois, which charges just 7.2%, First Financial would pay the 8.5% rate only on its income from Indiana.

"As a public company, we would have a lot of incentive from shareholders to move," said Mr. Perry.

The trade groups want to change the law so that Indiana banks pay the state tax only on income earned in the state. Income earned in other states would be taxed at that state's rate, eliminating the incentive to relocate banks' charters.

The proposed legislation would change Indiana's tax structure retroactive to Jan. 1-a provision that persuaded companies such as First Financial to give the Indiana Legislature a chance to act before they bolt.

"We look at this as an economic development issue," said Mr. King. "We don't want to chase our larger institutions out."

Identical bills have been introduced in both the state House and Senate. Committee hearings on the Senate version begin today. Indiana Gov. Frank O'Bannon supports the legislation, Mr. King said.

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