COMPILATION OF STATE INFORMATION ON SUBCHAPTER S BANKS (2014)

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1 COMPILATION OF STATE INFORMATION ON SUBCHAPTER S BANKS (2014) 1

2 TABLE OF CONTENTS Page Background 3 CUNA Statement 3 CUNA Testimony Related to Subchapter S Banks 4 State Comparison of Subchapter S Banks and Credit Unions 5 Trends 6 Talking Points 7 State Taxation of State Chartered Credit Unions 8 24 State Taxation of Subchapter S Banks

3 Background Banks organized as C corporations (the traditional form) pay corporate taxes on their taxable income and owners of those banks also pay taxes on any dividends they receive from the bank. C corporation bank profits are therefore subject to double taxation. In contrast, S corporation banks do not pay federal income taxes at the corporate level. Instead, each of the corporation s owners pays taxes on his or her share of the corporation s taxable income, regardless of whether any income is distributed as dividends. Thus the profits of S corporation banks are subject to a single level of taxation, at personal income tax rates. The earnings of an S corporation are allocated among its shareholders based upon each shareholder s pro rata ownership in the corporation. For example, if a shareholder owns 50% of an S corporation, that shareholder will be responsible for paying taxes on 50% of the corporation s earnings in any given year. Subchapter S was added to the Internal Revenue Code (Code) in 1958 to eliminate double taxation on the profits of small businesses; it also allowed businesses, primarily small ones, to have the limited liability associated with being incorporated. For many years, banks and thrifts were prohibited from electing to be taxed as S corporations. But in August 1996, the Code was amended to allow banks and thrifts to elect Subchapter S taxation as of January 1, According to Federal Deposit Insurance Corporation (FDIC) data, at mid-year 2011 there were 2,358 Subchapter S banks in the United States, nearly one third of all FDIC insured institutions. CUNA estimates that Subchapter S status has resulted in $9.1 billion in total foregone federal tax revenue since the S election was made available to the nation s banks in In addition to foregone federal income tax, S corporations account for foregone state income tax and each state may want to ascertain its lost revenue as well. CUNA Statement The banking industry s efforts to impose additional taxes on credit unions while aggressively lobbying to increase the tax advantages for Subchapter S banks is hypocritical. CUNA does not oppose the efforts of the banking industry to expand its tax benefits. However, the banking industry s stepped-up attempts to repeal the credit union federal income tax exemption, in concert with its lobbying to dramatically increase its own tax breaks, weakens its arguments against the credit union tax status. 3

4 CUNA Testimony Related to Subchapter S Banks The following is a summary of several key points made by Bill Cheney related to Subchapter S banks in his testimony before the US House of Representatives on November 16, 2011, on H.R The Communities First Act. H.R includes several provisions designed to enhance the tax status for Subchapter S banks. One provision (Section 501) would double the maximum number of shareholders permitted under Subchapter S (from 100 to 200). CUNA does not oppose this change, but notes the hypocrisy of the bank lobby. While aggressively lobbying to increase the tax advantages of Subchapter S for banks, the banking industry also continues to actively lobby to impose additional taxes on credit unions, arguing that credit unions federal income tax status provides a competitive advantage and that imposing additional taxes would level the playing field. Banks would have Congress believe that expanding the Subchapter S tax preference would reduce operating costs for these banks and make them better able to compete with credit unions. However, there does not appear to be any evidence that additional tax advantages to banks would result in lower fees, lower rates or better service for consumers. Subchapter S banks charge higher fees for consumers, have higher return on assets, and pay higher dividends to their shareholders than C corporation banks. In other words, these banks do not use their preferential tax treatment to better compete with credit unions. If the credit union tax exemption created undue competition for banks, Subchapter S banks would use their tax preference to lower rates and fees to their customers. CUNA believes any savings should be passed along to consumers. Unfortunately, past performance of Subchapter S banks and their for-profit structure suggests that the most likely beneficiaries will be the banks shareholders. 4

5 December 2013 SubS Bank Overview $ in thousands. Source: FDIC and CUNA. Estimated % of state % of state Foregone Credit Unions State # SubS Banks Total SubS Assets Total SubS Net Income Treasury Revenue Largest SubS Bank # of CUs CU Assets Largest CU AK % $482, % $3,330 $400 $482, $7,771,114 $5,412,976 AL % $7,920, % $59,189 $7,103 $1,282, $18,342,515 $3,555,397 AR % $9,520, % $129,585 $15,550 $855, $2,575,438 $957,446 AZ 2 8.3% $873, % $10,047 $1,206 $701, $13,360,736 $3,221,716 CA % $11,130, % $239,904 $28,788 $3,658, $141,535,753 $9,873,368 CO % $12,642, % $136,564 $16,388 $2,527, $17,958,587 $3,911,926 CT 1 2.2% $109, % $593 $71 $109, $9,171,174 $1,682,165 DC 0 0.0% $0 0.0% $0 $0 $0 45 $6,884,805 $3,771,021 DE 1 4.3% $274, % $5,177 $621 $274, $1,970,100 $395,155 FL % $8,139, % $58,913 $7,070 $843, $47,255,724 $5,505,435 GA % $9,974, % $88,093 $10,571 $1,018, $19,024,815 $4,499,998 GU 0 0.0% $0 0.0% $0 $0 $0 2 $411,480 $308,001 HI 0 0.0% $0 0.0% $0 $0 $0 76 $9,683,867 $1,350,267 IA % $36,006, % $463,039 $55,565 $1,334, $12,159,684 $2,433,983 ID 1 6.3% $244, % $1,704 $204 $244, $5,402,281 $1,511,535 IL % $49,541, % $517,524 $62,103 $3,368, $37,350,259 $8,151,987 IN % $5,362, % $95,869 $11,504 $1,179, $21,386,173 $2,383,230 KS % $26,652, % $286,794 $34,415 $4,364, $5,409,592 $923,559 KY % $11,705, % $136,824 $16,419 $1,140, $7,062,317 $1,119,995 LA % $13,120, % $188,380 $22,606 $865, $9,542,061 $1,153,708 MA 4 2.6% $273, % $86,773 $10,413 $96, $30,388,979 $5,253,713 MD 5 6.8% $1,446, % $32,106 $3,853 $481, $19,880,409 $2,687,168 ME 0 0.0% $0 0.0% $0 $0 $0 61 $6,142,277 $346,024 MI % $2,296, % $26,975 $3,237 $461, $46,275,065 $3,538,032 MN % $38,648, % $497,878 $59,745 $1,630, $18,622,402 $3,910,000 MO % $42,444, % $433,897 $52,068 $19,547, $11,790,407 $1,940,371 MS % $6,386, % $81,059 $9,727 $1,082, $4,673,779 $2,127,248 MT % $6,319, % $100,449 $12,054 $2,596, $4,282,082 $1,236,866 NC 1 1.3% $416, % $19,941 $2,393 $416, $39,922,336 $27,107,074 ND % $11,771, % $187,769 $22,532 $1,632, $3,121,418 $471,727 NE % $20,216, % $281,512 $33,781 $3,870, $3,746,098 $694,064 NH 0 0.0% $0 0.0% $0 $0 $0 20 $6,001,252 $2,348,031 NJ 6 5.8% $4,609, % $56,930 $6,832 $2,132, $12,465,326 $2,214,990 NM % $7,334, % $91,405 $10,969 $849, $8,459,225 $2,029,060 NV % $7,138, % $535,313 $64,238 $6,817, $3,678,783 $698,556 NY 5 2.9% $2,986, % $61,124 $7,335 $2,310, $65,313,019 $5,444,999 OH % $7,267, % $153,315 $18,398 $2,459, $24,408,722 $2,728,692 OK % $45,951, % $687,034 $82,444 $9,596, $12,128,533 $3,138,548 OR % $703, % $7,462 $895 $354, $16,195,205 $3,356,256 PA 2 1.0% $2,647, % $27,965 $3,356 $2,542, $38,270,962 $4,215,507 PR 0 0.0% $0 0.0% $0 $0 $0 12 $633,847 $274,119 RI % $204, % $1,094 $131 $204, $4,967,582 $1,556,599 SC 6 8.7% $1,462, % $16,328 $1,959 $503, $10,994,012 $1,668,587 SD % $7,008, % $99,631 $11,956 $1,375, $2,675,970 $984,590 TN % $13,545, % $178,739 $21,449 $2,256, $18,288,975 $2,841,126 TX % $80,954, % $1,225,828 $147,099 $3,884, $80,596,899 $7,679,605 UT % $1,401, % $42,895 $5,147 $459, $16,437,685 $5,877,729 VA 0 0.0% $0 0.0% $0 $0 $0 166 $99,238,764 $55,502,976 VI % $124, % $372 $45 $124,025 5 $92,760 $48,851 VT 0 0.0% $0 0.0% $0 $0 $0 24 $3,328,583 $988,686 WA % $2,122, % $17,235 $2,068 $922, $36,569,093 $11,903,521 WI % $16,646, % $210,325 $25,239 $1,006, $25,943,318 $2,308,818 WV 6 9.8% $1,062, % $8,960 $1,075 $271, $3,214,171 $390,671 WY % $4,635, % $56,277 $6,753 $654, $2,305,843 $494,109 Totals 2, % $541,726, % $7,648,120 $917,774 $94,793,210 6,680 $1,075,312,257 $230,129,781 5

6 Trends in the Number of Subchapter S Banks (Since 2002) Source: FDIC and CUNA The information below illustrates that the number of Subchapter S banks in the U. S. has increased from nearly 20% of all banks in 2002 to nearly one third of all banks in Additionally, the assets of Subchapter S banks have increased from 2.76% of all banks assets in 2002 to 3.68% in Subchapter S All Banks Year 2002Q4 Number 1,854 Assets 233,080,998 Number 9,354 Assets 8,435,858,213 %Banks 19.82% %Assets 2.76% 2003Q4 2, ,989,846 9,181 9,075,653, % 3.01% 2004Q4 2, ,379,924 8,976 10,107,378, % 3.19% 2005Q4 2, ,523,857 8,833 10,879,266, % 3.97% 2006Q4 2, ,602,685 8,680 11,861,855, % 3.49% 2007Q4 2, ,402,316 8,534 13,033,934, % 3.57% 2008Q4 2, ,451,723 8,305 13,841,148, % 3.55% 2009Q4 2, ,482,366 8,012 13,086,974, % 3.84% 2010Q4 2, ,297,915 7,658 13,319,531, % 3.77% 2011Q4 2, ,053,645 7,357 13,883,362, % 3.67% 2012Q4 2, ,498,050 7,083 14,450,733, % 3.71% 2013Q4 2, ,726,577 6,812 14,722,800, % 3.68% 6

7 Talking Points* The [enter the name of your state] bankers criticism of the credit union tax exemption is highly hypocritical in light of the substantial tax reductions they receive as a result of Subchapter S status. The 2,311 banks that chose Subchapter S status in 2011 reduced US Treasury tax by $700 million by doing so. The number of Subchapter S banks in the US increased from 19% in 2002, to 31% in As member-owned, not-for-profit cooperatives, credit unions maximize service to their members not profits for their shareholders. Credit unions of all sizes are still member-owned, not-for-profit cooperatives. A tax on [enter the name of your state] credit unions is a tax on the state's [enter number] credit union members. Credit unions earn their tax exemption each day by returning value and service to their members in the form of higher interest rates on deposits and lower interest rates on loans. The same cannot be said of Subchapter S banks. Past performance of Subchapter S banks and their for-profit structure suggests that the most likely beneficiaries of their favorable tax treatment are the banks shareholders. [Add state specific Subchapter S statistics that place credit unions in your state in a good light compared to Subchapter S banks. This will vary from state to state.] If the credit union tax exemption created undue competition for banks, [enter name of state and number of Subchapter S banks in the state, e.g., Iowa s 203 ] Subchapter S banks would use their favorable tax treatment to lower rates and fees to their customers. * The bullets related to Subchapter S banks cannot be used in D.C., Hawaii, Maine, New Hampshire, Vermont or Virginia. They do not have Subchapter S banks (as of May 7, 2012). 7

8 State Taxation of State Chartered Credit Unions Contrary to the bankers arguments, credit unions do pay taxes, e.g., payroll taxes, real estate taxes, and certain other taxes depending on the state. In addition, dividends paid to credit union members are taxed as ordinary income. The following is a summary of state taxation of state chartered credit unions. Alabama Taxation. A credit union shall be deemed an institution for savings and, together with all the accumulations therein, shall not be subject to taxation except as to real estate owned, as to the franchise tax required of other corporations and as to the excise tax required of financial institutions. The shares of a credit union shall not be subject to taxation or to a stock transfer tax when issued by the corporations or when transferred from one member to another. Alaska Sec Exemption from taxation. A credit union organized under this chapter, its property, franchises, capital, reserves, surpluses, and other funds, and its income are exempt from taxation by the state or a political subdivision of the state, except that real property and tangible personal property owned by a credit union is subject to taxation to the same extent that similar property is taxed. This section does not prevent holdings in a credit union organized under this chapter from being included in the valuation of the personal property of the owners or holders under taxes imposed by the state or a political subdivision of the state. Arizona Federal parity. In addition to all other rights, powers and privileges, a credit union organized under the laws of this state whose accounts are insured by an insuring organization has all of the rights, powers and privileges and is entitled to the same exemptions and immunities as any credit union chartered under the laws of the United States. 8

9 Arkansas Taxation A credit union shall be deemed an institution for savings and, together with all accumulations therein, shall not be subject to taxation except to real estate owned. The shares of a credit union shall not be subject to a stock transfer tax when issued by the corporation or when transferred from one (1) member to another. California Revenue and Taxation Code Section 23701y. A credit union as defined in Section of the Financial Code. In addition, those credit unions are exempt from all other taxes and licenses, state, county, and municipal, imposed upon those credit unions, except taxes upon their real property, local utility user taxes, sales and use taxes, state energy resources surcharges, state emergency telephone users surcharges, unrelated business income taxes pursuant to Section 23731, motor vehicle and other vehicle registration license fees, and any other tax or license fee imposed by the state upon vehicles, motor vehicles, or the operation thereof. Colorado Taxation. A credit union shall be deemed an institution for savings and, together with all accumulations therein, shall not be subject to taxation except as to real estate owned. The shares of a credit union shall not be subject to a stock transfer tax when issued by the corporation or when transferred from one member to another. Connecticut TBD Delaware No State Act 9

10 Florida Fla. Stat (2012). Certain state-chartered financial institutions; immunity from certain state and local taxes. (2) All credit unions now or hereafter chartered under the laws of the state shall have the same immunity from state and local taxation that federally chartered credit unions have from time to time under the statutes of the United States. Georgia Taxes to which subject. Credit unions shall not be subject to any tax except the ad valorem tax upon property imposed by the Constitution of this state unless made subject thereto by express provision of the law specifically naming credit unions and making them subject thereto. All ad valorem taxes against credit unions shall be assessed upon the value of their shares, including surplus and undivided profits, and not upon their assets, other than real estate; and the rate of taxation shall not exceed the rate of taxation imposed on banking corporations, provided that, so long as federal credit unions are exempt from the payment of the tax imposed under this Code section, state credit unions shall likewise be exempt. Hawaii 412: Taxation. (a) All credit unions, now or hereafter chartered under this chapter shall have the same immunity from state and local taxation that federally chartered credit unions have from time to time under the laws of the United States government. Any credit union organized under this chapter shall be exempt from all taxation now or hereafter imposed by this State or any taxing authority within this State. No law which taxes corporations in any form shall apply to such credit union, except that any real property and personal services provided to the credit union shall be subject to taxation to the same extent as other similar property is taxed. (b) The participation by a credit union in any government program providing unemployment, social security, old age pension or other benefits shall not be deemed a waiver of the taxation exemption hereby granted. 10

11 Idaho Taxation. A credit union shall be deemed an institution for savings and, together with all the accumulations therein, shall not be subject to taxation except as to real estate owned. The shares of a credit union shall not be subject to a stock transfer tax when issued by the corporation or when transferred from one (1) member to another. Illinois TBD Indiana TBD Iowa Taxation. 1. A state credit union shall be deemed an institution for savings and is subject to taxation only as to its real estate and moneys and credits. The shares shall not be taxed. 2. a. The moneys and credits tax on state credit unions is imposed at a rate of one-half cent on each dollar of the legal and special reserves that are required to be maintained by the state credit union under section , and shall be levied by the board of supervisors and placed upon the tax list and collected by the county treasurer. However, an exemption shall be given to each state credit union in the amount of forty thousand dollars. b. The amount collected in each taxing district within a city shall be apportioned twenty percent to the county, thirty percent to the city general fund, and fifty percent to the general fund of the state, and the amount collected in each taxing district outside of cities shall be apportioned fifty percent to the county and fifty percent to the general fund of the state. c. The moneys and credits tax shall be collected at the location of the state credit union as shown in its articles of incorporation. d. The moneys and credits tax imposed under this section shall be reduced by a tax credit authorized pursuant to section C for certain sales taxes paid by a third-party developer. e. The moneys and credits tax imposed under this section shall be reduced by an investment tax credit authorized pursuant to section

12 f. The moneys and credits tax imposed under this section shall be reduced by a qualified expenditure tax credit authorized pursuant to section , subsection 2, paragraph "a". g. The moneys and credits tax imposed under this section shall be reduced by an investment tax credit authorized pursuant to section , subsection 2, paragraph "b". h. The moneys and credits tax imposed under this section shall be reduced by an investment tax credit authorized pursuant to section 15E.43. i. The moneys and credits tax imposed under this section shall be reduced by an Iowa fund of funds tax credit authorized pursuant to section 15E.66. j. The moneys and credits tax imposed under this section shall be reduced by an endow Iowa tax credit authorized pursuant to section 15E.305. k. The moneys and credits tax imposed under this section shall be reduced by a redevelopment tax credit allowed under chapter 15, subchapter II, part 9. l. The moneys and credits tax imposed under this section shall be reduced by an innovation fund investment tax credit allowed under section 15E.52. Kansas - TBD Kentucky Tax exemption. (1) The participation by a credit union in any government program providing unemployment social security, old age pension or other benefits shall not be deemed a waiver of the taxation exemption hereby granted. (2) A credit union shall be deemed an institution for savings, and shall not be subject to taxation except as to real estate owned. The shares of credit unions shall not be subject to any stock transfer tax, either when issued or when transferred from one (1) member to another. 12

13 Louisiana 662. Taxation A credit union is an institution for savings. It, together with all accumulations therein, is not subject to taxation except as to immovable property owned. The shares of a credit union are not subject to a stock transfer tax when issued by the corporation or when transferred from one member to another. No fees or taxes nor any of the stipulations as to capital stock set forth in general statutes for corporations apply to credit unions. Maine TBD Maryland Exemption from taxation A credit union incorporated under the laws of this State, including its income, net worth, and other funds are exempt from all taxes imposed by this State or by any of its political subdivisions to the same extent as federal credit unions are exempt. Massachusetts G.L. c. 59, 5, cl. 15 Section 5. The following property shall be exempt from taxation and the date of determination as to age, ownership or other qualifying factors required by any clause shall be July first of each year unless another meaning is clearly apparent from the context; provided, however, that any person who receives an exemption under the provisions of clause Seventeenth, Seventeenth C, Seventeenth D, Twenty-second, Twenty-second A, Twenty-second B, Twenty-second C, Twenty-second D, Twenty-second E, Thirty-seventh, Thirty-seventh A, Forty-first, Forty-first B, Forty-first C, Forty-second or Forty-third shall not receive an exemption on the same property under any other provision of this section, except clause Eighteenth or Forty-fifth. Fifteenth, Property other than real estate owned by a credit union incorporated under chapter one hundred and seventy-one; also the capital stock thereof. [Credit Unions are not subject to the Massachusetts financial institution excise tax.] 13

14 Michigan Domestic credit union; exemption from tax; exception; stock transfer tax. Sec A domestic credit union is exempt from taxation by this state or a political subdivision of this state except property taxes on real property. The shares of a domestic credit union are not subject to a stock transfer tax when issued by the credit union or when transferred from 1 member to another. Minnesota The state does not impose state income tax on credit unions, partly because credit unions are nonprofit entities that in effect distribute what would otherwise be profits to their members in the form of higher interest rates on deposit accounts, lower interest rates on loans, or other benefits or services. State tax laws do impose on state credit unions real estate taxes on their property and sales taxes on their purchases. The state does impose the mortgage registry tax on state credit union mortgages, but this has been made irrelevant by a recent change in state law that now imposes that tax on the borrower, rather than on the lender, resulting in uniform treatment of mortgage loans made by either type of credit union. Minnesota House of Representatives, House Research Mississippi SEC Taxation. The credit unions organized hereunder, their property, their franchises, capital, reserves, surpluses, and other funds, and their income shall be exempt from all taxation now or hereafter imposed; except that any real property and any tangible personal property of such credit unions shall be subject to federal, state, county, municipal or other local taxation to the same extent as other similar property is taxed. Nothing herein contained shall prevent holdings in any credit union organized hereunder from being included in the valuation of the personal property of the owners or holders thereof in assessing taxes imposed by authority of the state or political subdivision thereof in which the credit union is located; but the duty or burden of collecting or enforcing the payment of such a tax shall not be imposed upon any such credit union and the tax shall not exceed the rate of taxes imposed upon holdings in federal credit unions. 14

15 Missouri Definitions For the purposes of sections to , providing for the taxation of credit unions and savings and loan associations, the following terms mean: (8) "Taxpayer", any credit union or savings and loan association subject to any tax imposed by sections to Annual tax on net income, rate--credits allowed, exceptions Every taxpayer shall be subject to an annual tax for the privilege of exercising its corporate franchises within the state according to and measured by its net income for the preceding year. 2. The rate of tax for each taxable year shall be seven percent of such net income. 3. The tax imposed on the net income by this law shall be exclusive and in lieu of all other state and local taxes against and upon credit unions and associations, their capital, or income, except taxes on all property, contributions paid pursuant to the unemployment compensation law of Missouri, Social Security taxes, sales and use taxes. 4. Each taxpayer shall be entitled to credits against the tax imposed by this law for all taxes paid to the state of Missouri or any political subdivision thereof during the relevant income period, except taxes on real estate and tangible personal property owned by the taxpayer and held for lease or rental to others, contributions paid pursuant to the unemployment compensation law of Missouri, Social Security taxes, sales and use taxes, and taxes imposed by this law. Montana Taxation. All credit unions organized under this or any other credit union law shall have the same immunity from state and local taxation that federal credit unions have from time to time under the laws of the United States Stock transfer taxes. The shares of any credit union shall not be subject to stock transfer taxes, either when issued or when transferred from one member to another Effect of participation in government programs. 15

16 The participation by a credit union in any government program providing unemployment, social security, old-age pension, or other benefits shall not be deemed a waiver of the taxation exemption hereby granted. Nebraska 21-17,113. Property taxation and collection. The property of a credit union shall be subject to taxation in the same manner as provided by law in the case of corporations or individuals. Nothing in this section shall prevent holdings in any credit union organized under the Credit Union Act from being included in the valuation of the personal property of the owners or holders of such holdings in assessing taxes imposed by the authority of the state or any political subdivision thereof in which the credit union is located. The duty of collecting or enforcing the payment of such tax shall not be imposed upon any credit union Franchise tax imposed. (1) There is hereby imposed for each taxable year for the privilege of doing business in this state a franchise tax on all financial institutions with business locations in this state. Such franchise tax shall be based on the average deposits of the financial institution. (2) The amount of the tax imposed by this section shall be the number of cents, as determined by section , multiplied by the amount of average deposits of the financial institution in thousands of dollars. (3) The franchise tax imposed by this section shall not exceed the limitation amount prescribed in section (4) Each financial institution shall file a separate franchise tax return. Nevada NRS Real and personal property subject to taxation. The real property and any tangible personal property owned by a credit union organized pursuant to this chapter or any other provision of law is subject to taxation to the same extent as other similar property is taxed. 16

17 New Hampshire 394-B:52-a Advantageous Federal Powers. To the extent permitted by rules which may be adopted by the commissioner in accordance with RSA 394-A:7, any credit union shall have and may exercise any power, right, benefit or privilege, now or hereafter authorized for federal credit unions by federal legislation, regulation or ruling. New Jersey 3: Credit union parity with Federally-chartered credit unions (a) In addition to other authority granted by law and unless contrary to State law, a credit union may exercise any power, right, benefit or privilege that is now or hereafter authorized for Federal credit unions to the same extent as Federal credit unions pursuant to Federal law or rules and regulations of the National Credit Union Administration. A credit union in exercising those powers, rights, benefits or privileges shall do so in accordance with the terms, conditions and requirements established for Federal credit unions. Such powers, rights, benefits or privileges shall be automatically exercisable upon the expiration of 30 days from the date of adoption of the enabling regulation by the Federal regulatory agency, except if the Commissioner of Banking and Insurance within that time provides notice that the power, right, benefit or privilege shall not be granted to New Jersey credit unions. Such notice shall be posted on the Department's website at The pertinent information included in such a notice shall also be provided to each credit union, and to the New Jersey Credit Union League. The Commissioner of Banking and Insurance may permit credit unions to begin the exercise of a power, right, benefit or privilege prior to the expiration of the 30-day period by providing notice of permission through posting the notice on the Department's website at The pertinent information included in such a notice shall also be provided to each credit union, and the New Jersey Credit Union League. New Mexico Taxation. A. A credit union organized under or subject to the Credit Union Act [ NMSA 1978] is exempt from taxation to the extent that a credit union chartered under federal law is exempt. B. The shares of a credit union shall not be subject to stock transfer taxes, either when issued or when transferred from one member to another. 17

18 C. The participation by a credit union in any government program providing unemployment, social security, old age pension or other benefits shall not be deemed a waiver of the tax exemptions granted by this section. New York 479. Credit union not liable for taxation. Any credit union subject to the provisions of this article shall be deemed an institution for savings within the meaning of the law which exempts such institutions from taxation. No law which taxes corporations in any form, or the shares thereof or the accumulations therein, shall apply to corporations doing business in accordance with the provisions of this article, unless such corporations are specifically named in said law. North Carolina Restriction of taxation. The corporation shall be deemed an institution for savings, and together with all accumulations therein shall not be taxable under any law which shall exempt building and loan associations or institutions for savings from taxation; nor shall any law passed taxing corporations in any form, or the shares thereof, or the accumulations therein, be deemed to include corporations doing business in pursuance of the provisions of this Article, unless they are specifically named in such law. The shares of credit unions, being hereby regarded as a system for saving, shall not be subject to any stock-transfer tax either when issued by the corporation or transferred from one member to another. North Dakota Taxation of credit unions. Any credit union organized under this chapter or under the Federal Credit Union Act is exempt from all taxation now or hereafter imposed by the state or any municipality within the state or any local taxing authority and no law which taxes corporations in any form, or the shares thereof, or the accumulations thereon, shall apply to any such credit union, except that any real property and any tangible personal property owned by any credit union organized under this chapter or under the Federal Credit Union Act is subject to taxation to the same extent as other similar property is taxed and purchases by credit unions are subject to sales or use tax. The shares of credit unions are not subject to any stock transfer tax, either when issued or when transferred 18

19 from one member to another. The participation by the credit union in any unemployment insurance funds, or social security fund, or old-age fund may not be deemed a waiver of the tax immunities hereby granted. Ohio Exemption from franchise tax and report. A credit union shall not be required to pay the annual tax imposed on domestic corporations for the privilege of exercising the corporate franchise, or to file the annual report on which such tax is computed Powers of federal credit unions granted to state chartered credit unions. (A) Notwithstanding any provision in Chapter of the Revised Code, if a credit union operating in this state that is organized or chartered under this chapter or the laws of the United States possesses any right, power, privilege, or benefit by virtue of a statute, rule, policy, regulation, interpretation, or judicial decision, the superintendent of credit unions shall adopt a rule under section of the Revised Code granting any credit union doing business under authority granted by the superintendent authority to exercise the respective right, power, privilege, or benefit. (B) The rule adopted by the superintendent pursuant to the authority of this section becomes effective on the later of the following dates: (1) The date the superintendent issues the rule; (2) The date the statute, rule, policy, regulation, interpretation, or judicial decision on which the superintendent s rule is based becomes effective. (C) If the rule adopted by the superintendent pursuant to this section is not enacted into law or adopted in accordance with Chapter 119. of the Revised Code within thirty months from its effective date, the rule shall thereupon no longer be of any force or effect; however, the superintendent may adopt the rule under section of the Revised Code pursuant to this section for an additional thirty-month period. (D) The superintendent, upon thirty days written notice to state-chartered credit unions, may revoke any rule issued by virtue of the authority of this section. Oklahoma TBD 19

20 Oregon Application of tax statutes to credit unions. Any credit union subject to this chapter shall be deemed an institution for savings within the meaning of the law that exempts such institutions from taxation. No law, except as stated in this section, that taxes corporations in any form, or the shares thereof or the accumulations therein, shall apply to credit unions doing business in accordance with this chapter unless the credit unions are specifically named in the law Stock transfer taxes. The shares of any credit union shall not be subject to stock transfer taxes, either when issued or when transferred from one member to another Participation in government programs. The participation by a credit union in any government program providing unemployment, Social Security, old age pension or other benefits shall not be deemed a waiver of the taxation exemption hereby granted. Pennsylvania 517. Taxation. A credit union incorporated under or subject to this title shall be deemed an institution for savings, and its assets, together with all the accumulation therein, shall not be subject to taxation except as to real estate owned by it. The shares of a credit union shall not be subject to a capital stock bonus tax or a stock transfer tax when issued by the corporation. Rhode Island Tax on deposits. The capital stock, corporate franchises, and personal property, but not the real estate, of credit unions shall be exempt from taxation; provided, however, that every credit union shall annually pay to the general treasurer forty cents (40 ) on each one hundred dollars ($100) deposited with the credit union in the same manner as in financial institutions, the sums to be ascertained from a report to be made by the credit union to the director or the director's designee, on or before the fifteenth day in July of each year, of the total amount of the deposits in the credit union on the last business day in June in that year, and to be paid on or before the first Monday in August. 20

21 South Carolina TBD South Dakota No State Act Tennessee State and federal credit unions to be equally subject to taxation. Except for taxes on property and the credit union fees provided by law, no tax levied by this state, whether privilege, excise, franchise, sales or otherwise, shall be levied upon or be applicable to any credit union chartered under the laws of this state unless and until the same tax may be legally levied upon and be applicable to federally chartered credit unions in this state, in which case the tax shall be levied upon and be applicable to the state and federally chartered credit unions. Texas Sec EXEMPTION FROM CERTAIN TAXES. (a) Except as provided by Subsection (b), a credit union is exempt from a franchise or other license tax. (b) A credit union is not exempt from the franchise tax imposed by Chapter 171, Tax Code, unless the credit union is exempted by that chapter. (c) The intangible property of a credit union organized under this chapter is not taxable. [It does not appear that there are any other statutory provisions that exempt Texas state chartered credit unions from responsibility for specific taxes other than franchise, license, and intangible property taxes.] Utah Tax exemption of credit unions. (1) Except as otherwise provided in this section, credit unions organized under this chapter or prior law are exempt from taxation. 21

22 (2) Any real property or any tangible personal property owned by the credit union shall be subject to taxation to the same extent as other similar property is taxed. (3) For purposes of the corporate tax, credit unions shall be governed by Section (4) This section does not exempt credit unions from sales or use taxes, or fees owed to the department in accordance with this title and rules of the department. Vermont Title 8. Banking and Insurance. Chapter Taxation Any credit union organized under this or any other credit union statute and all shares and deposits therein shall be exempt from all taxation imposed by this jurisdiction before or after the enactment of this section or any taxing authority within this jurisdiction, and no law which taxes corporations in any form, or the shares or deposits thereof, or the accumulations thereon, shall apply to any credit union, except that any real property and any tangible personal property owned by any credit union shall be subject to taxation to the same extent as other similar property is taxed. However, this exception shall not permit the imposition of any sales or use taxes on the credit union. The shares of any credit union shall not be subject to transfer taxes, either when issued or when transferred from one member to another. The participation by a credit union in any government programs providing unemployment, Social Security, old age pension, or other benefits shall not be deemed a waiver Virginia Franchise tax exemption. All credit unions organized under the laws of the Commonwealth and doing business purely as credit unions shall be exempt from the payment of any franchise tax Tax exemptions. Any corporation shall be exempt from all state and local taxes except real and personal property taxes. 22

23 Washington RCW Taxation of credit unions. Neither a credit union nor its members may be taxed upon its shares and deposits as property. A credit union shall be taxable upon its real property and tangible personal property, and every credit union shall be termed a mutual institution for savings and neither it nor its property may be taxable under any law which exempts savings banks or institutions for savings from taxation. For all purposes of taxation, the assets represented by the regular reserve and other reserves, other than reserves for expenses and losses of a credit union, shall be deemed its only permanent capital, and in computing any tax, whether it be property, income, or excise, appropriate adjustment shall be made to give effect to the mutual nature of such credit union. West Virginia 31C-2-8. Tax exemption. (a) Any credit union organized under this or any other credit union act and all shares and deposits therein shall be exempt from all taxation now or hereafter imposed by this state or any taxing authority within this state. No law which taxes corporations in any form, or the shares or deposits thereof, or the accumulation thereon, shall apply to any such credit union; except that any real property and any tangible personal property owned by any such credit union shall be subject to taxation to the same extent as other similar property is taxed: Provided, That this exception shall not permit the imposition of any sales or use taxes on the credit union. (b) The shares of any such credit union shall not be subject to stock, transfer taxes, either when issued or when transferred from one member to another. (c) The participation by a credit union in any government program providing unemployment, social security, old age pension or other benefits shall not be deemed a waiver of the taxation exemption hereby granted. Wisconsin General property taxes; upon whom levied. Taxes shall be levied, under this chapter, upon all general property in this state except property that is exempt from taxation. Real estate taxes and personal property taxes are deemed to be levied when the tax roll in which they are included has been delivered to the local treasurer under s When so levied such taxes are a lien upon the property against which they are charged. 23

24 That lien is superior to all other liens, except a lien under s (8) (i) or , and is effective as of January 1 in the year when the taxes are levied. Liens of special assessments of benefits for local improvements shall be in force as provided by the charter or general laws applicable to the cities that make the special assessments. In this chapter, unless the context requires otherwise, references to "this chapter" do not include ss to Income computation (1)(1) Exempt and excludable income. There shall be exempt from taxation under this subchapter income as follows: 71.26(1)(a) (a) Certain corporations. Income of corporations organized under ch. 185, except income of a cooperative health care association organized under s , or of a service insurance corporation organized under ch. 613, that is derived from a health maintenance organization as defined in s (2) or a limited service health organization as defined in s (3), or operating under subch. I of ch. 616 which are bona fide cooperatives operated without pecuniary profit to any shareholder or member, or operated on a cooperative plan pursuant to which they determine and distribute their proceeds in substantial compliance with s , and the income, except the unrelated business taxable income as defined in section 512 of the internal revenue code and except income that is derived from a health maintenance organization as defined in s (2) or a limited service health organization as defined in s (3), of all religious, scientific, educational, benevolent or other corporations or associations of individuals not organized or conducted for pecuniary profit. This paragraph does not apply to the income of savings banks, mutual loan corporations or savings and loan associations. This paragraph does not apply to income that is realized from the sale of or purchase and subsequent sale or redemption of lottery prizes if the winning tickets were originally bought in this state. This paragraph applies to the income of credit unions except to the income of any credit union that is derived from public deposits for any taxable year in which the credit union is approved as a public depository under ch. 34 and acts as a depository of state or local funds under s (20). For purposes of this paragraph, the income of a credit union that is derived from public deposits is the product of the credit union's gross annual income for the taxable year multiplied by a fraction, the numerator of which is the average monthly balance of public deposits in the credit union during the taxable year, and the denominator of which is the average monthly balance of all deposits in the credit union during the taxable year. Wyoming No State Act 24

25 State Income Taxation of Subchapter S Banks* State State Follows Federal Sub S Election Separate State Sub S Election State Income Tax Treatment of Sub S Alabama 1 Yes No Exempt Alaska 2 Yes No Exempt Arizona 3 Yes No Exempt (to the extent income is not subject to federal income tax) Arkansas 4 Yes Yes Exempt California 5 Yes No Taxable (at a reduced rate) Colorado 6 Yes No Exempt Connecticut 7 Yes No Exempt Delaware 8 Yes No Exempt District of Columbia 9 No (DC treats Sub S corporations the same as regular corporations) No Taxable Florida 10 Yes No Exempt (to the extent income is not subject to federal income tax) Georgia 11 Yes (if all shareholders are subject to GA tax on their portion of the corporate income and all nonresident shareholders pay GA income tax on their portion of the corporate income) No Exempt Hawaii 12 Yes No Exempt (to the extent income is not subject to federal income tax) 25

26 State State Follows Federal Sub S Election Separate State Sub S Election State Income Tax Treatment of Sub S Idaho 13 Yes No Exempt (except for tax on excess net passive income, capital gains and built-in gains) Illinois 14 Yes No Exempt Indiana 15 Yes No Exempt (except built-in gains and passive investment income subject to federal tax) Iowa 16 Yes No Exempt (except built-in gains and passive investment income subject to federal tax) Kansas 17 Yes No Exempt Kentucky 18 Yes No Exempt (to the extent income is not subject to federal income tax) Louisiana 19 No (but may be able to exclude certain income) No Taxable (but may exclude a percentage of its LA net income for the taxable year) Maine 20 Yes No Exempt (except built-in gains if the corporation has a ME shareholder or income derived from sources in ME) Maryland 21 Yes No Exempt (to the extent income is not subject to federal income tax) 26

27 State State Follows Federal Sub S Election Separate State Sub S Election State Income Tax Treatment of Sub S Massachusetts 22 Yes (with certain exclusions) No Exempt (to the extent income is not subject to federal income tax and the corporation has less than $6 million in gross receipts; corporations with $6 million or more in gross receipts are subject to corporate excise tax at a reduced rate) Michigan 23 No No Taxable (MI imposes the Single Business Tax rather than an income tax) Minnesota 24 Yes No Exempt (except for tax on certain built-in gains, capital gains, and passive investment income) Mississippi 25 Yes Yes Exempt Missouri 26 Yes No Exempt Montana 27 Yes No Exempt Nebraska 28 Yes No Exempt Nevada No corporate income tax on businesses No N/A New Hampshire 29 No (NH treats Sub S corporations the same as regular corporations) No Taxable New Jersey 30 Yes Yes Taxable (at a reduced rate) New Mexico 31 Yes No Exempt New York 32 Yes Yes Taxable North Carolina 33 Yes No Exempt 27

28 State State Follows Federal Sub S Election Separate State Sub S Election State Income Tax Treatment of Sub S North Dakota 34 Yes No Exempt (to the extent income not subject to federal income tax) Ohio 35 Yes No Exempt from OH franchise tax; Subject to OH commercial activity tax Oklahoma 36 Yes No Exempt Oregon 37 Yes No Exempt (except subject to tax on built-in gains and excess not passive income) Pennsylvania 38 Yes No Exempt (except to the extent taxed on built-in gains under federal law) Rhode Island 39 Yes No Exempt (except to the extent income is not subject to federal income tax) South Carolina 40 Yes No Exempt (to the extent income is not subject to federal income tax) South Dakota No net income tax on businesses or individuals; however, net income tax is imposed on financial institutions (even if S corporations) No Exempt except for financial institutions (which are taxable) Tennessee 41 No No Taxable Texas 42 No No Subject to franchise tax Utah 43 Yes No Exempt Vermont 44 Yes No Exempt (except to the extent income is subject to federal income tax) 28

29 State State Follows Federal Sub S Election Separate State Sub S Election State Income Tax Treatment of Sub S Virginia 45 Yes No Exempt Washington 46 WA does not impose an income tax on businesses or individuals. S corporations are subject to WA Business and Occupation Tax. No West Virginia 47 Yes No Exempt Wisconsin 48 Yes No Exempt (except to the extent taxed on net recognized built-in gains for federal tax purposes) Wyoming WY does not impose an income tax on businesses or individuals. No N/A * Sources: A State-by-State Analysis of S Corporation Tax Treatment by Renee Lewis, Esq. of Morgan Lewis; BNA s State Taxation of S Corporations (Portfolio 1510) by James Edward Maule, Esq.; and state statutes and regulations. 1. Ala. Code 14A-22(a), (a), (b). 2. Alaska Stat (a), (a), (A). 3. Ariz. Rev. Stat. Ann (A). 4. Ark. Code Ann (a), (b); Cal. Rev. & Tax. Cd , 23800, (a), 23801(a), 23802(c). 6. Colo. Rev. Stat (5.3), (10.5), , (1). 7. Conn. Gen. Stat (a)(22), (a)(2)(J), (c)(2), b(b)(6). 29