Banks Not as Vocal about Their Attempts To Avoid Taxes through Subchapter S Conversions, NY CU CEO Counters

ALBANY, N.Y. – It “was only a matter of time” that the bankers’ Operation Credit Union would make its way to the capital of New York, one credit union CEO recently wrote. In a Jan. 21 letter to the Albany Business Review, Michael Castellana CEO of the $1.2 billion State Employees CU of New York, wrote “beyond the fact that (credit unions and banks) are not the same in motivation, measures of success, and business model, the issue of taxation and competition is weak on its face.” “There is the continued rotation of ammunition used in the attacks, often including issues like regulation, membership eligibility and, in this most recent case, taxation,” Castellana wrote. “The real issue continues to be one of competition with the argument that we are on an unequal playing field.” In a Jan. 17 letter to the same publication, John Scarchilli, president/CEO, Pioneer Savings Bank, wrote “the credit union income tax exemption will cost taxpayers and the U.S. Treasury $1.36 billion in the coming fiscal year and $7.88 billion cumulatively through 2009.” Scarchilli also wrote that “credit unions today have amassed $623 billion in assets nationally, comfortably passing the $257 billion in assets of the 785 taxpaying mutual savings institutions – less than half the size of the credit union industry.” Castellana countered “at the same time that banks are trying to get credit unions taxed, they have been successful in avoiding taxation by converting to Subchapter S corporations, with more than 2,000 having this status,” citing a NAFCU study that showed the annual loss of tax revenue from Subchapter S banks approximates $600 million and is “dramatically on the climb.” “It is true that credit unions have enjoyed strong asset growth as more consumers choose to become owners of their financial institutions.” Castellana wrote. “Our entire industry assets amount to less than 7% of the assets of the banks. To illustrate, there is a single bank that has more assets than the entire credit union industry.” “There is no taxable corporate entity such that any tax will come directly from the member-owners,” Castellana said. “In a bank, the customers have none of these rights, obligations, risks or benefits. With all due respect, the banks’ trade association is trying to level a playing field when the reality is that we are playing a different game.”