Showing posts with label Taxes. Show all posts
Showing posts with label Taxes. Show all posts

Monday, March 3, 2014

NAFCU Overstates the Impact of Taxing CUs

The National Association of Federal Credit Unions (NAFCU) last week released a dubious study claiming that taxing credit unions would hurt the economy by reducing GDP and job growth.

The study states that the annual reduction in GDP would equal $14.8 billion per year and 150,000 jobs would be lost per year, if credit unions were taxed. The study contends that this will occur because reduced competition in the financial services industry will result in higher loan rates and lower savings rates, which will depress personal income and reduce spending.

The NAFCU study also said that the taxation of credit unions would actually increase the federal deficit by almost $1 billion per year as federal tax revenues would fall by more than the revenues collected from taxing credit unions. Oh really.

But why should higher loan rates and lower savings rates be the outcome of taxation?

As a financial cooperative, credit unions claim they operate in their members best interest and have a choice regarding the pricing of their products.

I would contend that some, maybe many, credit unions would not change their pricing policy even after being taxed. They would recognize that it is not in their members best interest to raise loan rates and cut to savings rates and would accept a lower return and a slower pace of growth.

I recognize that there are some credit unions that would try to shift a portion of their tax burden onto their members; but I doubt that the full tax could be passed through to the credit union members. However, these credit unions are putting their profits and growth ahead of their members.

In addition, I believe that even after being taxed there would still be intense competition in the financial services industry. Technology is eroding barriers of entry, making the market place for deposits and loans more competitive.

In conclusion, the study grossly exaggerates the economic impact of the taxation of credit unions.

Monday, February 24, 2014

Radio Ad: Why Should You Pay More Taxes So Credit Unions Can Pay None?

The credit union industry is gathering in Washington, D.C., this week to lobby Congress for preserving its outdated tax exemption. To counter their efforts, ABA is running a drive time radio ad recorded by President and CEO Frank Keating as part of "It's Time to Pay" campaign.

Credit unions are “abusing their taxpayer subsidy, using their untaxed profits to buy huge corporate headquarters and naming rights to stadiums,” Keating says in the ad. “Ask yourself: why should you pay more taxes so that credit unions can pay none?”

Listen to the Radio Ad.

Monday, September 9, 2013

Americans for Tax Reform Confuse CU Tax Exemption with Tax Treatment of Pass-Through Businesses

Americans for Tax Reform last week likened the tax exemption of credit unions to the tax treatment of pass-through businesses, such as partnerships and S-corporations.

Ryan Ellis, who wrote the piece, stated that the only difference is the incidence of the tax.

Unfortunately, Mr. Ellis does not seem to understand the difference in the tax treatment of credit unions versus pass-through businesses.

The owners of partnerships and S-corporations are responsible for paying taxes on the earnings (profits) of the business.

In contrast, credit unions do not pay taxes at the corporate level on their retained earnings (profits), nor do they have an outstanding tax liability that is passed through to their members.



Friday, August 23, 2013

Effective Tax Rate on S Corporations Is 31.6 Percent

A new study from the National Federation of Independent Business found that S corporations will face a 31.6 percent effective tax rate this year.

Read the study.

Friday, May 10, 2013

Does Director Pay and Taxes Impact Rates and Fees?

At one time, NCUA required that any converting credit union include the following information in any disclosure to its members.

EXPENSES AND THEIR EFFECT ON RATES AND SERVICES. Most credit union directors and committee members serve on a volunteer basis. Directors of a mutual savings bank are compensated. Credit unions are exempt from federal tax and most state taxes. Mutual savings banks pay taxes, including federal income tax. If [insert name of credit union] converts to a mutual savings bank, these ADDITIONAL EXPENSES MAY CONTRIBUTE TO LOWER SAVINGS RATES, HIGHER LOAN RATES, OR ADDITIONAL FEES FOR SERVICES.

While it is true that federal credit union directors and committee members serve on a volunteer basis, it is not true for all state-chartered credit unions. Some states, including Pennsylvania, Rhode Island, Indiana, and Texas, currently allow their state-chartered credit unions the option to pay their board members.

In addition, some states tax their state-chartered credit unions. For example, Indiana and Oklahoma tax their state-chartered credit unions. In addition, state-chartered credit unions are subject to the unrelated business income tax.

If it is true that these additional expenses impact interest rates and fees, then there should be differences in the interest rates and fees between federal credit unions and state-chartered credit unions in states that allow for directors to be paid or where state chartered credit unions pay taxes.

NCUA's Chief Economist John Worth should conduct a statistical analysis comparing savings rates, loan rates, and fees between federal credit unions and state-chartered credit unions and publish the results.

Wednesday, February 27, 2013

Time Magazine: Should CUs Pay Taxes?

In case you missed it, check out a Times Magazine article on Should Credit Unions Have to Pay Income Tax?

The article notes that credit unions were given their tax exempt status because "they were often the sole source of financing for disadvantaged communities whose members had few assets and no way to prove their creditworthiness."

However, the author states "not all credit unions focus intently on bringing banking services to low-income communities" and points out that expanding the credit union business loan cap does nothing to further their public policy purpose.

The author concludes "with so many millions of Americans relying on check-cashing services and payday lenders, shouldn’t Congress be focusing on policies that aid credit unions in helping those folks?"

Monday, December 10, 2012

Tax Foundation Says Taxing CUs Among the Least Harmful Revenue Raising Options

Taxing credit unions is among the least harmful revenue raising options, according to The Tax Foundation.

According to the December 5 Fiscal Fact, "[i]f lawmakers decide that new revenues must be part of any long-term effort to solve the budget crisis, they must choose the least harmful way of raising new revenues or else they risk compounding the crisis by slowing economic growth."

The Tax Foundation wrote:
"As a second-best option to asset sales, require Government Sponsored Enterprises (GSEs) and federally-owned businesses to pay federal income taxes. TVA, for example, has operating revenues of $11 billion and $47 billion in assets. It should pay federal income taxes. The tax benefit to credit unions has been estimated at $2 billion to $3 billion per year."

Elsewhere in the report the Tax Foundation stated:
"#4 Tax certain non-taxed business activities: There are a number of non-taxed businesses or industries that compete directly with private businesses but have the advantage of not paying federal income taxes. These include: credit unions; rural electric coops; nonprofit hospitals; and certain types of insurance firms. These businesses should be taxed as any for-profit enterprise."

The report also notes that if Congress looks to broaden the tax base, it should look to eliminate industry subsidies, targeted tax preferences, and refundable credits first, including the special exemption for credit unions.

Tax Foundation briefing paper.

Wednesday, April 11, 2012

Kansas Court Rules that CU Due Refund on Sales Tax

The Kansas Court of Appeals overturned a Kansas Court of Tax Appeals' decision and said that Cessna Employees Credit Union should be granted a refund on the state's retail sales tax.

At issue is whether the retail sales tax can be applied to the reimbursement of travel, hotel and meals expenses passed on to the credit union as part of its final invoice from a third party vendor.

Cessna Employees CU contracted with Jack Henry and Associates (JHA) for a computer upgrade. JHA invoiced the credit union for the services, hardware and software and separately invoiced the credit union for the Travel Purchases (JHA employees' transportation, meals, and lodging).

Cessna Employees CU was seeking a refund from the Kansas retail sales tax in the amount of $3,333.05 it paid to JHA on the costs of the Travel Purchases. The credit union claimed that JHA's travel expenses were not taxable as part of JHA's gross receipts.

The Kansas Court of Tax Appeals found that that the reimbursement of the seller's travel expenses was part of the total amount of consideration in the transaction for which the taxable goods and services were sold by JHA and thus subject to the retail sales tax.

However, the state appellate court disagreed. The state appellate court found that the reimbursement for travel expenses does not constitute a retail sale and thus not subject to the retail sales tax.

The court wrote: "the reimbursement and associated tax amounts are not ... subject to retail sales tax in Kansas because they were not sold at retail, they were not a part of the sale of goods and services, and they were not a part of the selling price of the goods and services."

Read the decision.
 

The content is provided for educational purposes only, with the understanding that neither the authors, contributors, nor the publishers of this site are engaged in rendering legal, accounting or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

Comments appearing in response to articles appearing on this site do not necessarily reflect the views of the ABA. ABA makes no representations regarding the truth or accuracy of commentary or opinions that may be posted in response to the articles that appear on this website.

The inclusion herein of any link to a website, either in the text of an article or in a comment, does not denote any approval, sponsorship, or endorsement by the ABA, and ABA is not responsible for the content or opinions expressed on those linked websites or related commentary. This content is not licensed to third parties sites and is not affiliated with any third party site. Any reference to the author or this content on any third party site on the Internet is not authorized by the ABA.

It is the policy of the American Bankers Association to comply fully with all antitrust laws. Certain discussions should be considered off-limits, including those that contain competitively sensitive data such as price and cost information, or statements that could be construed as reflecting an attempt or desire to control or influence a particular market or markets. Future pricing or other prospective competitive information should never be shared.