DES MOINES, Iowa (4/17/12)--Credit unions are exempt from federal income tax because of their not-for-profit, cooperative ownership structure and volunteer, elected boards, said Patrick Jury, president of the Iowa Credit Union League, in a recent letter to the editor published in the Des Moines Register.
"Our not-for-profit structure is part of the reason credit unions provide better rates on loans, pay higher rates on savings and charge lower fees to our members," Jury wrote. "In 2011, we saved Iowans more than $68 million through better rates and lower fees."
Jury was writing in response to letters written by John Sorensen, president, Iowa Bankers Association, in the Register and The Gazette criticizing credit union tax status.
"Banker 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," Jury wrote. "Sub S status creates a significant tax break for a corporation that elects it."
Jury cited Credit Union National Association (CUNA) estimates that the 2,311 banks that chose Subchapter S status cost the U.S. Treasury about $700 million. At the end of 2011, there were 203 Subchapter S banks in Iowa and CUNA estimates that foregone federal tax revenue arising from Iowa bank Subchapter S election was $41.9 million in 2011.
"If credit unions were taxed like banks, it would alter our not-for-profit business model," Jury wrote. "Priorities would change, in that the shareholder would end up being more important than the customer."
To read Jury's letter, use the link.