S-corporation banks in Minnesota are fighting to win a tax break already enjoyed by other types of S corporations there.

State law exempts S corporations from paying corporate income tax, placing the burden on the shareholders instead. The exemption does not, however, extend to Minnesota's 146 S corporation banks, which still pay 10% of their profits to the state.

"We're a family business just like almost any other S corporation, and we shouldn't be treated any differently," said Douglas H. Lewis, chairman of North Shore Bank of Commerce in Duluth.

The S corporation bankers have been meeting with legislators for months to persuade them to change the law during the 1999 session.

To get their message across, about 40 of the S corporation banks formed a lobbying group called Banks for Tax Equality. Armed with $120,000, the group has teamed up with the Minnesota Bankers Association and the Independent Community Bankers of Minnesota in a grassroots lobbying campaign.

Federal regulators first allowed banks to become S corporations in 1996. Minnesota is one of the few states that does not extend a full tax break to S corporation banks, though the state's banks are exempt from federal income tax.

Ray Bentdahl, who heads Banks for Tax Equality and is chairman and chief executive of Excel Bank in Edina, said Minnesota legislators are beginning to empathize with the bankers. In past years, the lawmakers rejected their requests for the tax break, arguing that it would be too expensive.

"The reception is better today than it was last (year)," said Mr. Bentdahl, who said his bank would save $120,000 annually if the law were changed.

Whether the bankers have enough support to get a bill passed next year is still unclear. Much will depend on who wins next month's election, said Jenny Engh, lobbyist for the Minnesota Bankers Association. While both leading candidates for governor have said they would support a change in the S-corporation law, by January bankers may have many new lawmakers to lobby.

"The reeducation process may have to start all over again," she said. "But this is the third time we've asked, so maybe we'll get it."

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