Iowa Banks: Tax Credit Unions

By Montgomery, Jeff | Telegraph - Herald (Dubuque), January 22, 2015 | Go to article overview

Iowa Banks: Tax Credit Unions


Montgomery, Jeff, Telegraph - Herald (Dubuque)


Aiming to address what they view as an unfair playing field, Iowa bankers will push state lawmakers to adopt tougher tax policies on credit unions in 2015.

Credit unions have been exempt from paying federal and state income taxes since the Federal Credit Union Act of 1934. While some credit unions have evolved into larger, full-service institutions, they've hung onto their tax exempt status. Local banking leaders say that evolution puts other financial service providers at a disadvantage while allowing credit unions to grow at a rapid rate.

In response, Iowa credit unions say these tax advantages remain necessary, largely because credit unions cannot offer all of the products and services provided by banks.

Legislative landscape

While both sides are keeping a close eye on the issue, it remains unclear what kind of legislative traction it will gain in the year ahead.

Iowa Senate President Pam Jochum, D-Dubuque, said this is far from the first time the issue has arisen in the state Legislature.

"This is not a new issue," Jochum said. "It is something that has been talked about for the past 20 years."

Sharon Presnall, senior vice president of government relations and compliance for Iowa Bankers Association, said members have been in conversations with state lawmakers, but she is not certain whether a new bill will be introduced this year.

"We are still talking about how to position ourselves and what (the legislation) would look like," she said. "We have talked about including the issue in (broader) corporate tax reform if that occurs in the next year. There are some legislators who think it should be addressed sooner rather than later."

One issue that could come to the forefront is how the state defines which credit unions can earn a low-income designation, Presnall said. Credit unions with this designation can raise secondary capital and do not have any restrictions on commercial loans.

There are 11 Iowa credit unions with the designation, including Dubuque-based Dupaco Credit Union. The state of Iowa largely relies on federal guidelines to determine which credit unions earn the low- income designation; the National Credit Union Administration dictates that the designation is available to credit unions in which a majority of the membership has a family income 80 percent or less than the median family income for the metropolitan area where they live or national metropolitan area, whichever is greater. …

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