Credit unions fight to keep tax-exempt status

  • By Christina Harper The Herald Business Journal
  • Friday, September 6, 2013 6:54pm
  • Business

The Credit Union National Association has launched a grassroots campaign encouraging its 96 million members throughout the U.S. to contact Congress in a bid deter the removal of credit unions’ not-for-profit tax status.

In 1934, Congress passed the Federal Credit Union Act, allowing not-for-profit credit unions a federal tax exemption status with the purpose of making credit available to “people of small means.” It gave those who needed loans an alternative to banks that would not lend to them.

But many in the commercial banking industry believe that credit unions have become not-for-profit banks that just don’t pay federal tax.

Assuming Congress takes a clean-slate approach to tax reform in coming months, it could soon withdraw credit unions’ not-for-profit category. Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Orrin Hatch, R-Utah, have asked senators to advocate for businesses whose not-for-profit status should be kept.

“They are going to have to make their case to Congress to justify to the Senate that they are deserving,” said Jim Pishue, president and CEO of the Washington Banker’s Association.

This seems like a fair approach to many in the banking industry who believe that credit unions should give up the tax exemption to level the playing field with banks.

“It’s not a bank issue anymore,” Pishue said. “It’s all about taxpayers. They absorb the tax exemption.”

Pishue argues that each time a tax exemption is granted to one group, taxes get raised elsewhere to compensate.

“This isn’t one industry complaining about another,” Pishue said. “This is much larger.”

The principle of people helping people has not changed, said Lynn Heider, vice president of public relations and communications at Northwest Credit Union Association, which represents credit unions in Washington and Oregon.

“We are not profit-driven banks,” Heider said. “Credit unions do not pay stockholders and there are no profits.”

The millions of dollars per year that credit unions pay in payroll, property and sales taxes benefits local communities. If credit unions lose their federal tax exemption status, then the cost of services for members would rise, he said.

In 2012, credit union members in Washington saved about $3 million in fees. Averaged out, that breaks down to $111 per credit union household.

“Ask consumers if they want to lose those benefits and I think I know what they will say,” Heider said.

Credit unions are cooperative organizations and, unlike banks whose profits pay shareholders, profits at credit unions are cycled back to members who each own a slice of the business.

This is done in the form of lower fees for services including free checking, lower interest rates on loans and higher dividends on savings. Credit unions can provide these services because they hold not-for-profit status.

The national debt is one thing, said Mark Duffy, president and CEO of Everett’s Mountain Pacific Bank. “I would think that the other thing is that the credit unions have changed.”

Duffy has nothing against credit unions, but when they do business in an area where his bank specializes, such as business loans, then the not-for-profit status gives credit unions an unfair competitive advantage.

“I’m competing with them with the same products and I have to pay taxes if I make a profit and they don’t,” Duffy said.

Others in the banking industry argue that credit unions are much larger than they were in 1934 because of changes to loosen membership rules. Credit union members used to have to be employed by the company or organization tied to the credit union. Only employees of the Boeing Co., for example, could open an account at Boeing Employees Credit Union. Now anyone can join BECU.

This is not the first time the tax issue has flared up. In 1951 and 1998, the status was argued but preserved.

“The taxation issue has been brought up by banks for years,” said Todd Pietzsch, manager of public relations at BECU.

Credit unions have products and services that all large banks have but members own a piece of the credit union and have a vote on how the institutions are run. In areas where credit union membership is high, all consumers benefit because they add competition to the marketplace, Pietzsch said.

“There is a ripple effect. If you are not paying $10 a month to have a checking account then that is $120 a year in your pocket you can save spend or invest,” Pietzsch said. “It all adds up.”

On the Web

The website www.DontTaxMyCreditUnion.org offers resources for credit union members to voice opinions on not-for-profit status.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.