Pennsylvania became the main battleground over credit union taxation last week when the state's Supreme Court agreed to review a challenge to the tax exemption for credit unions there.
The Pennsylvania Bankers Association filed suit last year against the Pennsylvania Department of Banking and others for granting broad, five-county charters to two Philadelphia-area credit unions. The tax challenge, brought by the bankers group and the $6.6 billion-asset Northwest Savings Bank in Warren, grew out of that suit.
The case could have severe ramifications for credit unions. The Pennsylvania Department of Revenue estimates that the exemption saves credit unions as much as $20 million a year in corporate taxes and other levies.
The American Bankers Association, which has been leading the tax fight nationally, lauded the court's decision to review the exemption.
"We're certainly glad to see that the Pennsylvania Supreme Court is now positioned to potentially rule on the constitutionality of the tax-exempt status of credit unions under Pennsylvania law," said Charlotte Birch, an ABA spokeswoman.
Bankers have argued that the exemption violates the state's constitution, which delineates exactly which entities the legislature may exempt. The bankers say that credit unions are not among those entities and, therefore, that their tax exemption is unconstitutional.
The Pennsylvania Commonwealth Court dismissed that argument last year, but after an appeal, the high court agreed to hear it.
"We are encouraged that the court here in Pennsylvania will hear this question of taxation," said James Biery, the president and chief executive officer of the Pennsylvania Bankers Association. "It is one that we think should be given greater consideration."
Michael Wishnow, a spokesman for the Pennsylvania Credit Union Association, said that the lower court has already dismissed the bankers' argument, and he predicted that the high court would reject their claims.
"We are reasonably confident at the end of the day it will rule in our favor," he said.
