WASHINGTON–The Tax Foundation has published a new op-ed critical of the credit union acquisitions of banks.
Authored by Manish Bhatt, senior policy analyst with the Foundation’s Center for State Tax Policy,
wrote that when a tax-exempt credit union acquires a bank, “state or local governments can lose much of the tax revenue that the bank was paying. A tax preference originally designed to level the playing field now has the opposite effect, creating preferences for one class of financial institutions even though the distinctions between credit unions and banks are increasingly blurred.”
‘Strayed from Mission’
After providing some history on credit unions, Bhatt stated credit unions have “strayed from their original mission” and do not have to comply with CRA rules.
“The pace of credit union–bank acquisitions signals that credit unions are no longer alternatives to banking, but competitors with similar product offerings and client bases,” the op-ed reads. “For banks, selling to credit unions can mean greater returns for shareholders, as credit union deals are all cash and often above what other banks would offer (as bank acquisition costs must be justified to shareholders). Of course, the more cash paid means that banks structured as C corporations will see the acquisition amount taxed at the corporate level and then again when distributions are made to shareholders. Nevertheless, the premium that credit unions offer is attractive to many.”
State-Level Examples Cited
Bhatt went on to suggest, “Ending credit union tax exemptions helps protect local and state coffers and could provide additional revenue that could be used to make a state’s tax code more competitive,” and noted that regulators in Minnesota, Nebraska and Tennessee have in the past blocked such acquisitions, while Mississippi has banned CU purchases of banks.
He further notes that, as the CU Daily was first to report here https://thecudaily.com/bill-in-washington-state-would-impose-taxes-on-cus-that-buy-banks/ Washington State has passed legislation that would subject state-chartered credit unions to the business and occupation (B&O) tax at a rate of 1.2% if they acquire a bank regulated by the state. While the B&O tax represents unsound tax policy as it is levied on gross revenue, the current preference for credit unions is difficult to justify.
‘States Cannot Act Alone’
“States cannot act alone to reverse the distortionary results of preferencing credit unions,” Bhatt argued. “Congress should revisit and reexamine the assumptions that underpin the federal credit union tax exemption and the consequences that have resulted from the policy.”
The full piece can be found here https://taxfoundation.org/blog/credit-union-bank-acquisition/