Community bankers and state officials are claiming victory after successfully lobbying to delay for three years the implementation of the new interstate branching law.
As a result, states will be given more time to rewrite their tax laws so they don't lose corporate tax revenues to the home states of large, out-of-state banking companies.
"This was an absolutely critical win for us," said Doyle
Bartlett, vice president find general counsel of the Conference of State Bank Supervisors. "It [immediate implementation] would have crippled state control over local banking."
The conference teamed up with the National Conference of State Legislatures, the National Governors Association, and the Independent Bankers Association' of America, to help prevent big banks from consolidating branches until June 1, 1997.
The implementation date was originally scheduled for 18 months after passage of the law. The extension will allow nearly all states at least two legislative sessions to address the rather complex issue of corporate tax structures.
This is a key issue for states that host a large out-of-state bank presence and for community banks, who believe the playing field would no longer be equal if tax structures remain unchanged.
"We want to make sure community bankers get a fair shake in the whole thing," said Jerry Sage, executive director of the Missouri Independent Bankers Association, who added that the group will likely push for opting out of interstate branching.
"We don't want to suffer for the betterment of Hugh McColl [chairman of NationsBank]. There are some that are saying this is one of the greatest special interest bills that's ever been passed," added Mr, Sage.
Because banks traditionally have been taxed where they are domiciled, the consolidation allowed by the interstate law means that big banks will no longer have to have separate corporations in each state where they operate.
The result: superregional banks like NationsBank, based in Charlotte, N.C., would have to pay corporate taxes only in their home state.
North Carolina, which is home to several large banks with branches throughout the region, and other states like it would not see a draining of tax revenues, unlike states such as Texas and Florida, which have a large number of out-of-state banks, bankers and industry analysts said.
Under the original timeframe,. states that do not have legislative sessions this year, such as Arkansas and Texas, would have had insufficient time to address the issue, lobbyists said.
"Some argued for five years," said Neal Osten, committee director of commerce and communication at the National Conference of State Legislatures. "But three years is the best we were going to do. We're still concerned that a lot of work is going to have-to be done."
Bankers associations and the states are only just beginning to address the issue.
The Multistate Tax Commission, an association of state tax commissioners, plans to develop a model and proposals for new state tax systems by the end of 1995, Mr. Osten said.
Texas, which threw its doors open in the mid-1980s to the big nationwide banks such as Bank One of Ohio, Chemical Bank of New York, and NationsBank, plans to develop a new tax structure in time for the next legislative session in January, said Catherine Ghiglieri, the state's banking commissioner.
"If we're going to have interstate branching, we will have to move away from the franchise tax," Ms. Ghiglieri said.
"We're in the process of formulating some sort of different revenue-gathering system. We can't afford to let that revenue go out of state," she said.
In Wisconsin, a legislative committee to address the corprate tax issue is just being formed, said Lee Swanson, president of State Bank of CroSs Plains in Cross Plains, Wis.
"No one seems to have a handle on what the bottom line is on this yet," Mr. Swanson said. "But we have a strong banking environment here at the moment, and it's incumbent on us to protect that."
A sprinkling of states, such as Indiana and Minnesota, already has a tax system in place that will prohibit tax outflow from the expected branch consolidation.
The Indiana law, which was became effective in 1990, was designed to cope with other interstate corporations.
It taxes corporations based on receipts where they do business, regardless of where they are incorporated.