Guest Columnist

Clarity on credit union tax

University of Iowa Community Credit Union at 716 A Ave NE in Cedar Rapids on Friday, Mar. 2, 2018. (Stephen Mally/The Gazette)
University of Iowa Community Credit Union at 716 A Ave NE in Cedar Rapids on Friday, Mar. 2, 2018. (Stephen Mally/The Gazette)

As executive director of the Iowa Institute for Cooperatives, I am proud to serve the state’s nearly 500 cooperatives and promote businesses that choose the cooperative ownership structure. When discussing cooperatives, folks commonly picture Iowa’s agricultural co-ops, with the big concrete grain storage tanks rising high above our rural communities. However, we have a varied and robust cooperative movement in our state that engages in generation and distribution of electricity; communication services; food production, processing, distribution and retailing; financial services; petroleum distribution and retailing; co-op housing for middle-income senior citizens; and more. Credit unions are a strong component of Iowa’s cooperative system.

Iowa banks are pushing for legislation to increase taxes on our state’s largest credit unions. Cooperatives, including credit unions, were organized to serve members and fill an unmet need. They don’t attempt to maximize earnings. They focus on serving their members in a variety of ways. As all businesses evolve, credit unions have grown and changed to meet their members’ diversified needs, but their core purpose has never changed — to provide the most affordable financial services to their member-owners.

Taxation is a very complicated subject, as we all know. Iowa cooperatives come in all shapes and sizes and provide a variety of products and services. But it’s not size or products that make cooperatives different from other types of company ownership. Cooperative businesses are set up for a different purpose and the benefits of the business are passed on to different people — the members. Credit unions pass benefits on to their members in many ways — sometimes it’s a direct member dividend and, on a daily basis, it’s in the form of better rates and fewer fees. This is why tax policy has always been different for cooperatives.

The financial strength needed for cooperatives to grow and be a sound business has to come from their members. They can’t sell stock to the non-member public like banks and other corporations can. They also have other limitations that non-cooperatives don’t. Cooperatives function within the democratic ideal of one member, one vote, which reinforces the fundamental principle that everyone’s vote matters, not just a few investor owners.

Iowa’s tax policy already treats credit unions more like banks than its fellow cooperatives. Iowa is one of the highest taxing states for credit unions in America. Credit unions pay a tax on reserves, called a “moneys and credits” tax, and these reserves are generated entirely from doing business with members.

The largest banks are overwhelmingly larger than the biggest credit unions. In fact, Wells Fargo, by itself, is larger than all 5,800 credit unions in the country, combined. Banks also have the lion’s share of Iowa’s financial services market — they control nearly 90 percent of the deposits and more than 95 percent of the business loans in the state. Surely banks have nothing to fear in a little competition from credit unions. And yet Iowa banks want to tax credit unions as if they were just like them. Ever wonder why?

• David Holm is executive director of the Iowa Institute for Cooperatives.


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