Utah Senate Panel Votes 5-3 for Tax Bill; Moves it to the Next Stage

SALT LAKE CITY – The bill to tax three Utah credit unions, seen by the U.S. credit union industry as a dire harbinger of banking’s attack on CUs in state legislatures, has moved a step closer in the Utah Senate with committee passage of a first-time-ever 5% corporate franchise tax. The House-passed bill, to levy a tax on three CUs-America First Credit Union, Riverdale; Mountain America CU of Salt Lake City and Goldenwest CU of Ogden-cleared the Senate Business and Labor Committee on a 5-3 vote Feb. 25. The panel’s vote was closer than expected with at least one vote swinging in favor of the Utah League of Credit Unions which has pushed hard-so far unsuccessfully-to defeat the bill in either chamber. Nonetheless, it appeared the full Senate acting early this week before the legislature was to adjourn March 5 might indeed pass the unprecedented 5% bill and send it on to Gov. Michael Leavitt, a Republican. The Utah chief executive remains noncommittal on the bill so far but pressure on Leavitt is sure to mount from both the League and the Utah Bankers Assn. which drafted the tax bill and has held sway over key Utah lawmakers in pushing its passage. The bill, while levying the tax starting in May, does provide for creation of a year-long legislative task force to study CU taxation with the prospect that the $100 million threshold would be lowered and that another section of the bill creating a second 30% “competitive equity” tax on retained earnings would be levied at a later date. The three CUs impacted by the bill, as well as numerous other smaller CUs, have already signaled their intent to file for a federal charter should the bill become law. Citing such moves, the League has warned the tax bill, sponsored by House Majority Whip Rep. Jeff Alexander (R-Provo) could destroy the dual charter system in Utah as perhaps a substantial number of the 87 state CUs make the switch. During the Senate committee vote, the president of the Utah League, Scott Earl, warned Utah lawmakers of “far reaching political and legal consequences” to the state if the bill is finally enacted. He said the 5% franchise tax on the three large CUs is “openly and undeniably hostile to all Utah credit unions and their 1.3 million members” and was drafted without any input from the organizations “it seeks to damage.” The president of the Utah Bankers Assn., Howard Headlee, meanwhile, told the panel “we welcome competition as long as it’s fair competition.” One key Senator voting against the bill was Majority Leader Michael Waddoups (R. Taylorville) who urged amending the bill removing the tax on the three CUs this year but putting them “on notice” they could be taxed next year. Waddoups said he could not vote for a bill he sees as slanted against CUs. “It’s bad policy to punish credit unions that have been successful,” he said. One other committee vote which went to the League Tuesday was that of Sen. Ed Mayne (D-West Valley City) who reportedly had heard from labor unions including firefighter and police constituents. The League has mounted an intensive e-mail and media campaign over the last two weeks to urge the public contact senators to vote against the bill. One series of TV ads running over the Feb. 22-23 weekend were described as a “somber” series of commercials warning of banking’s undue “power” to control the financial marketplace and injure consumers. -