Should Utah credit unions: continue to maintain their tax-exempt status?

• Position: Counter Point

Scott Earl

President

Utah League of Credit Unions

Utah, for all its natural wonders, does not really have its own version of the swallows returning to Capistrano--unless, of course, you count the battle between banks and credit unions.

As predictable as the swallows are the banks' attacks on the not-for-profit status of credit unions. Each year, the banks renew their call for terminating the tax exemption for Utah's member-owned financial cooperatives, saying the tax exemption has "outlived its original purpose." This year, they will cite budget pressures, and claim that credit unions' tax-free status is harming Utah school children. "Tax them for the kids," they will say. Many people are surprised to learn that state-chartered credit unions pay all taxes--including sales, property, payroll, etc.--except corporate income tax.

Would adding one tax to credit unions really benefit Utah families? Repeated studies nationally have demonstrated the benefits credit unions bring members. A recent Utah study showed that credit unions save Utah families some $106 million each year in fees and interest. Banks have no answer for that, so they shift the argument.

Banks spend thousands of dollars each year attacking not-for-profit credit unions. The "tax for education" argument is a straw man; the real reason for their attacks is the competition of lower fees and interest rates that credit unions offer their members/owners. The mere presence of credit unions helps keep consumer costs down, even for bank customers. If you think bank fees are too high now, imagine what they would be if there were no credit unions.

Credit unions are cooperatives, owned by their members, with volunteer boards of directors. Credit unions do not pay taxes on undivided earnings, because those earnings provide backing for deposits, as required by law. No individual or group has access to those funds. They are not used for buildings, technology or executive salaries. If members/owners chose to close the credit union, all of those retained earnings would be paid out to the members and taxed. This process is different for a bank, which is not owned by customers. Bank earnings accrue to stockholders and are taxable.

We at the Utah League of Credit Unions are proud of the many contributions our member institutions make to the lives of Utahns. The best thing we can do is to continue to provide sound financial services to Utah families at much lower costs than banks. As long as we do...