Kansas credit unions rally to fight two proposed tax bills

Kansas credit unions and banks are fighting over a pair of tax bills that were introduced in the state legislature.

Senate Bill 238 would decrease the privilege tax, which is a state income tax, banks pay. The bill would allow banks to deduct interest received on certain business loans from its net income.

Senate Bill 239 would tax credit unions with at least $100 million in assets.

The two bills were introduced earlier this year, and the State Senate formed a Special Committee on Financial Institutions & Insurance to hear arguments from both sides prior to the next legislative session starting in January.

At an Oct. 3 meeting of the interim committee, Stephanie Mullholland, the Heartland Credit Union Association’s director of Kansas legislative and political affairs, and other representatives from the trade group testified, along with 130 credit union advocates.

“These credit union advocates filled the committee room and filled the hallways,” Mullholland said. “Many of them testified in person, while others filed written statements against the bills.”

Credit union advocates argued that Kansas banks own 99.06% of the commercial market with over $29.9 billion in commercial loans, while credit unions hold less than 1% of the market. CUs have held approximately 1% of the commercial and agriculture lending market for decades.

The average commercial loan written by a Kansas credit union is $100,329, typically for 1-to-4 family residential homes that are purchased as rental properties, and the average agriculture loan originated by credit unions in 2019 is $29,377. Mullholland said this is not the loan sizes banks have shown much interest in.

“These bills are a narrow attempt at getting a foot in the door so they can come back for more later,” Mullholland said. “The banks are asking for a double standard – they want to be taxed like not-for-profits without having to operate like not-for-profits, and I think legislators saw right through that.”

The Heartland Credit Union Association argued that Kansas has lost 244 credit union charters in the past five decades, declining from 322 credit unions in 1969 to 78 credit unions today.

The interim committee will reconvene on Oct. 29. At that time, members will discuss any recommendations regarding the bills. In January, the full Financial Institutions Committee will decide whether to have another round of hearings on the bills.

The battle in Kansas is just the latest attempt by bankers to impose taxes or restrictions on credit unions. In February, the Nebraska Banking, Commerce and Insurance Committee considered a bill that would have required state regulators to notify banks whenever a CU applied to expand its field of membership.

In 2018, an effort to tax Iowa credit unions ultimately failed, but two credit unions were forced to change their names due to legislation that prohibits Iowa credit unions from using the name of state universities in their own name.