Minnesota bankers are steaming over a bill in the state's Legislature that would nearly double taxes on their profits.
State Rep. James Rice said he introduced the bill as a "replacement tax" for refunds some banks are getting from a recent court ruling.
The state must pay more than $327 million to banks and other corporations for taxes paid from 1979 to 1982 and part of 1983 on federal bonds. The state lost a 10-year court battle in which a law that taxed federally issued but not state-issued debt was ruled unconstitutional.
Rep. Rice's bill, now in the House tax committee, would raise the tax on profits for institutions that accept deposits to 18%, from 9.8%, for 1995 through 2000. However, Rep. Rice said he would consider a smaller increase for a longer period, such as 10 years. The revenues would be used to finance education.
"The fact that they bought these federal instruments in anticipation of paying the tax on them makes me know that (the proposed increase is) fair," said Rep. Rice, a Democrat.
The banking industry begs to differ and is fighting the bill.
Allen I. Olson, president of the Independent Community Bankers of Minnesota, called the bill "retribution" and "revenge."
"I think it's obvious we're going to oppose this legislation and encourage the governor to veto it" if it passes, he said.
Truman L. Jeffers, executive vice president of the Minnesota Bankers Association, said his group also opposes the "totally unfair" proposal.
The increase would target only financial institutions, while refunds affect other corporations, said Mr. Jeffers. Furthermore, he said, some financial institutions are ineligible for the refunds, and some of the eligible have not applied for them.
He added that the tax could be unconstitutional.
George O. Erickson, president of $68 million-asset Cambridge State Bank, one of the lead banks in the lengthy tax refund case, called the bill "more bad laws."
And a spokesman for Gov. Arne Carlson - who won re-election in November promising no new taxes - said the governor opposes the bill and would probably veto it if it passed, because reducing banks' capital could affect jobs and bank customers.
"This kind of tax sends absolutely the wrong signal," the spokesman said.