By Mark D. Cummins
President & CEO of the Minnesota
Credit Union Network
I am writing in response to a letter you received from the Minnesota Bankers Association that questioned the validity of credit unions’ tax exempt status. Within the letter, Mr. Witt presented inaccurate and misleading arguments, and I am writing to set the record straight.
First, it is important to review the reason why Congress granted credit unions’ their tax exempt status. In 1937, Congress exempted credit unions from federal income taxes because they are non-profit, democratically controlled cooperatives that return earnings to the people they serve. In fact, Congress encouraged the success of credit unions to, among other things, foster the development of a system of financial cooperatives that would serve as a valuable alternative to the for-profit banking system. Credit unions’ tax exemption was deliberated, reviewed and reaffirmed by Congress in 1951 and again in 1998. Since credit unions’ structure has not changed, the reasons for the affirmation of credit unions’ tax exempt status are as valid, if not more valid, today.
Second, it is necessary to examine Minnesota banks’ tax contributions. In Minnesota, nearly 70 percent of banks are designated as Subchapter S corporations, which means that they are not required to pay federal income taxes. While the bankers are advocating for a review of credit unions’ tax exemption, they themselves are not paying these taxes. While Subchapter S status is not the same as a tax exemption, it results in significant loss of government revenue. If these Minnesota Subchapter S banks were to pay federal income taxes, the amount of taxes they would pay would be $35.1 million.
Lastly, I want to discuss how consumers benefit from credit unions’ tax exemption. As organizations owned by members, any benefits credit unions receive from their tax exemption status are passed onto those they serve. These benefits are given in the form of fewer fees, lower rates on loans and higher savings rates. Therefore, a tax on credit unions would reduce the financial savings they can pass onto everyday consumers. In reality, this tax would be a tax on consumers.
The substantial savings Minnesota credit unions provide to consumers far outweighs any revenue that would be raised by taxing credit unions. It is estimated that each year Minnesota credit unions provide $80 million in direct financial benefits to the state’s 1.5 million credit union members. These benefits translates into saving the average member $54 a year and the average member household $102 a year.
As financial cooperatives, credit unions offer consumers a valid financial alternative. Taxing credit unions would actually do more harm than good. Credit unions are not-for-profit entities whose products and services benefit consumers all around the state. For the sake of all consumers, credit unions’ tax doesn’t need to be fought — it needs to be protected and upheld.