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S.B. 236

             1     

CREDIT UNIONS AND CREDIT

             2     
ASSOCIATION - TAXATION

             3     
2001 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: John W. Hickman

             6      This act modifies the Financial Institutions Code and the Revenue and Taxation Code to
             7      provide for designation of certain credit unions as credit associations and to provide for
             8      taxation of certain credit unions and credit associations.
             9      This act affects sections of Utah Code Annotated 1953 as follows:
             10      AMENDS:
             11          7-9-3, as last amended by Chapter 329, Laws of Utah 1999
             12          7-9-11, as last amended by Chapter 329, Laws of Utah 1999
             13          7-9-12, as last amended by Chapter 329, Laws of Utah 1999
             14          7-9-34, as last amended by Chapter 178, Laws of Utah 1994
             15          7-9-39, as last amended by Chapter 329, Laws of Utah 1999
             16          7-9-39.5, as enacted by Chapter 329, Laws of Utah 1999
             17          7-9-51, as enacted by Chapter 329, Laws of Utah 1999
             18          7-9-52, as enacted by Chapter 329, Laws of Utah 1999
             19          7-9-53, as enacted by Chapter 329, Laws of Utah 1999
             20          7-9-54, as enacted by Chapter 329, Laws of Utah 1999
             21          59-7-102, as last amended by Chapter 331, Laws of Utah 1997
             22          59-7-104, as repealed and reenacted by Chapter 169, Laws of Utah 1993
             23          59-7-106, as last amended by Chapter 4, Laws of Utah 1996, Second Special Session
             24      ENACTS:
             25          7-9-55, Utah Code Annotated 1953
             26          7-9-56, Utah Code Annotated 1953
             27          7-9-57, Utah Code Annotated 1953


             28      Be it enacted by the Legislature of the state of Utah:
             29          Section 1. Section 7-9-3 is amended to read:
             30           7-9-3. Definitions.
             31          As used in this chapter:
             32          (1) "Association" means a group of persons that:
             33          (a) has a similar:
             34          (i) interest;
             35          (ii) profession;
             36          (iii) occupation; or
             37          (iv) formal association with an identifiable purpose; or
             38          (b) is employed by a common employer.
             39          (2) "Capital and surplus" means:
             40          (a) shares;
             41          (b) deposits;
             42          (c) reserves; and
             43          (d) undivided earnings.
             44          (3) "Corporate credit union" means any credit union organized pursuant to any state or
             45      federal act for the purpose of serving other credit unions.
             46          (4) "Credit association" means a credit union that is designated as a credit association
             47      pursuant to Section 7-9-55 .
             48          [(4)] (5) "Deposits" means that portion of the capital paid into the credit union by members
             49      on which a specified rate of interest will be paid.
             50          [(5)] (6) "Immediate family" means in relationship to a member:
             51          (a) parents[,];
             52          (b) a spouse[,];
             53          (c) surviving spouse[,];
             54          (d) children[,]; and
             55          (e) siblings [of the member].
             56          [(6)] (7) "Limited field of membership" means persons designated as eligible for credit
             57      union membership in accordance with Section 7-9-51 or 7-9-53 .
             58          [(7)] (8) (a) "Member-business loan" means any loan, line of credit, or letter of credit, the


             59      proceeds of which will be used for:
             60          (i) a commercial purpose;
             61          (ii) other business investment property or venture purpose; or
             62          (iii) an agricultural purpose.
             63          (b) "Member-business loan" does not include an extension of credit:
             64          (i) that is fully secured by a lien on a one- to four- family dwelling that is the primary
             65      residence of a member;
             66          (ii) that is fully secured by:
             67          (A) shares or deposits in the credit union making the extension of credit; or
             68          (B) deposits in other financial institutions;
             69          (iii) the repayment of which is fully insured or fully guaranteed by, or where there is an
             70      advance commitment to purchase in full by, an agency of:
             71          (A) the federal government;
             72          (B) a state; or
             73          (C) a political subdivision of a state; or
             74          (iv) that is granted by a corporate credit union to another credit union.
             75          [(8)] (9) "Service center" means a single location at which multiple credit unions can
             76      provide products or services directly to their members.
             77          [(9)] (10) "Share drafts," "deposit drafts," and "transaction accounts" mean accounts from
             78      which owners are permitted to make withdrawals by negotiable or transferable instruments or other
             79      orders for the purpose of making transfers to other persons or to the owner.
             80          [(10)] (11) "Shares" means that portion of the capital paid into the credit union by
             81      members on which dividends may be paid.
             82          Section 2. Section 7-9-11 is amended to read:
             83           7-9-11. Bylaws and amendments to be approved.
             84          (1) A credit union may not receive payments on shares, deposits, or certificates, or make
             85      any loans or other transactions, until its bylaws have been approved in writing by the
             86      commissioner.
             87          (2) An amendment to a credit union's bylaws does not become operative until the
             88      amendment to the bylaws is approved by the commissioner.
             89          (3) (a) If the amendment to the bylaws of a credit union expands the limited field of


             90      membership of a credit union as described in Subsection 7-9-52 (1), the commissioner's approval
             91      of the amendment is subject to Section 7-9-52 .
             92          (b) If the amendment to the bylaws of a credit union terminates the grandfathering of a
             93      limited field of membership under Section 7-9-54 , the commissioner's approval of the amendment
             94      is subject to Section 7-9-54 .
             95          (c) If the bylaws or an amendment to the bylaws of a credit union adds an association to
             96      the limited field of membership of the credit union including a credit union designated as a credit
             97      association, the commissioner may require that the credit union provide written confirmation from
             98      the association that the association has agreed to be served by the credit union.
             99          (d) If the amendment to the bylaws of a credit union designated as a credit association
             100      expands the limited field of membership of the credit association as provided in Section 7-9-57 ,
             101      the commissioner's approval of the amendment is subject to Section 7-9-57 .
             102          Section 3. Section 7-9-12 is amended to read:
             103           7-9-12. Contents of bylaws.
             104          The bylaws of a credit union shall specify at least the following:
             105          (1) the name of the credit union;
             106          (2) the purpose for which it was formed;
             107          (3) a limited field of membership of the credit union that:
             108          (a) complies with Section 7-9-51 or 7-9-53 ; or
             109          (b) if the credit union is designated as a credit association under Section 7-9-55 , complies
             110      with Section 7-9-57 in addition to Section 7-9-51 or 7-9-53 ;
             111          (4) the number of directors and procedures for their election;
             112          (5) the term of directors;
             113          (6) whether a credit manager, credit committee, or combination of both shall be
             114      responsible for credit functions of the credit union;
             115          (7) the duties of the officers;
             116          (8) the time of year of the annual meeting of members;
             117          (9) the manner in which members shall be notified of meetings;
             118          (10) the number of members which shall constitute a quorum at meetings;
             119          (11) the manner of amending;
             120          (12) the manner in which officers may act as surety; and


             121          (13) such other matters, rules, and regulations as the board of directors consider necessary.
             122          Section 4. Section 7-9-34 is amended to read:
             123           7-9-34. Tax exemption of credit unions.
             124          (1) Except as otherwise provided in this section, a credit [unions] union organized under
             125      this chapter or prior law [are] is exempt from taxation.
             126          (2) Any real property or any tangible personal property owned by [the] a credit union [shall
             127      be] is subject to taxation to the same extent as other similar property is taxed.
             128          (3) For purposes of [the] state corporate franchise and income tax, Section 59-7-102
             129      governs the taxation of:
             130          (a) a credit [unions shall be governed by Section 59-7-102 .] union; or
             131          (b) credit union designated as credit association.
             132          (4) This section does not exempt a credit [unions] union from:
             133          (a) sales or use taxes[,]; or
             134          (b) fees owed to the department in accordance with this title and rules of the department.
             135          Section 5. Section 7-9-39 is amended to read:
             136           7-9-39. Voluntary merger.
             137          (1) Any credit union may merge with another credit union under the existing charter of the
             138      other credit union when all of the following have occurred:
             139          (a) the majority of the directors of each merging credit union votes in favor of the merger
             140      plan;
             141          (b) the commissioner approves the merger plan;
             142          (c) the majority of the members of each merging credit union present at a meeting called
             143      for the purpose of considering the merger plan votes to approve the merger plan, but a vote of the
             144      membership of the surviving credit union is not required if its board of directors determines that
             145      the merger will not have any significant effect on the organization, membership, or financial
             146      condition of the credit union; and
             147          (d) (i) the National Credit Union Administration or its successor federal deposit insurance
             148      agency approves the merger plan and commits to insure deposits of the surviving credit union; or
             149          (ii) the commissioner approves the surviving credit union to operate without federal
             150      deposit insurance in accordance with Section 7-9-45 .
             151          (2) Upon merger, the chair of the board and secretary of each credit union shall execute,


             152      and file with the department, a certificate of merger setting forth:
             153          (a) the time and place of the meeting of the board of directors at which the plan was
             154      approved;
             155          (b) the vote by which the directors approved the plan;
             156          (c) a copy of the resolution or other action by which the plan was approved;
             157          (d) the time and place of the meeting of the members at which the plan was approved;
             158          (e) the vote by which the members approved the plan; and
             159          (f) the effective date of the merger, which shall be:
             160          (i) the date on which the last approval or vote required under Subsection (1) was obtained;
             161      or
             162          (ii) a later date specified in the merger plan.
             163          (3) On the effective date of any merger:
             164          (a) all property, property rights, and interests of the merged credit union shall vest in the
             165      surviving credit union without deed, endorsement, or other instrument of transfer; and
             166          (b) all debts, obligations, and liabilities of the merged credit union are considered to have
             167      been assumed by the surviving credit union.
             168          (4) Except as provided in Subsection (5)[(b)], if the surviving credit union is chartered
             169      under this chapter, the residents of a county in the limited field of membership of the merging
             170      credit union may not be added to the limited field of membership of the surviving credit union,
             171      except that the surviving credit union:
             172          (a) may admit as a member any member of the merging credit union that is not in the
             173      limited field of membership of the surviving credit union if the member of the merging credit
             174      union was a member of that credit union at the time of merger; and
             175          (b) may service any member-business loan of the merging credit union until the
             176      member-business loan is paid in full.
             177          (5) (a) This section shall be interpreted, whenever possible, to permit a credit union
             178      chartered under this chapter to merge with a credit union chartered under any other law if the
             179      preservation of membership interest is concerned.
             180          (b) If the surviving credit union is designated as a credit association in accordance with
             181      Section 7-9-55 before the merger, the surviving credit association may not serve a limited field of
             182      membership that is larger than the limited field of membership that the surviving credit association


             183      could serve through expansion of its limited field of membership under Section 7-9-57 if the
             184      merger is considered as a request under Section 7-9-57 to expand the surviving credit association's
             185      limited field of membership filed on the date the merger becomes effective.
             186          [(b) The] (c) (i) If the commissioner makes the finding described in Subsection (5)(c)(ii),
             187      the commissioner may under Subsection (1)(b) approve a merger plan that:
             188          (A) includes the addition of the residents of a county in the limited field of membership
             189      of the merging credit union to the limited field of membership of the surviving credit union; or
             190          (B) if the surviving credit union is designated as a credit association in accordance with
             191      Section 7-9-55 before the merger, includes a limited field of membership of the surviving credit
             192      association that is larger than is permitted under Subsection (5)(b).
             193          (ii) The commissioner may take an action described in Subsection (5)(c)(i), if the
             194      commissioner finds that:
             195          [(i)] (A) the expansion of the limited field of membership of the surviving credit union is
             196      necessary for that credit union's safety and soundness; and
             197          [(ii)] (B) the expanded limited field of membership of the surviving credit union meets the
             198      criteria stated in Subsection 7-9-52 (3)(c).
             199          (6) [If] (a) This Subsection (6) applies to the surviving credit union if:
             200          (i) the commissioner approves a merger plan under Subsection (5)[(b)](c)(i)(A) under
             201      which the surviving credit union's limited field of membership after the merger will include
             202      residents of more than one county[, Subsections (6)(a) through (e) apply to the surviving credit
             203      union.]; and
             204          (ii) the surviving credit union is not designated as a credit association in accordance with
             205      Section 7-9-55 .
             206          [(a)] (b) The domicile-county of the surviving credit union is:
             207          (i) if the credit union does not have a limited field of membership under Subsection
             208      7-9-53 (2)(c) or (2)(d), the county in which the credit union has located the greatest number of
             209      branches as of the date the merger is effective; or
             210          (ii) if the credit union has a limited field of membership under Subsection 7-9-53 (2)(c) or
             211      (2)(d), the county that is the domicile-county of the surviving credit union under Section 7-9-53 [;].
             212          [(b)] (c) Within the surviving credit union's domicile-county, the surviving credit union
             213      may establish, relocate, or otherwise change the physical location of the credit union's:


             214          (i) main office; or
             215          (ii) branch.
             216          [(c)] (d) Within a county other than the domicile-county that is in the limited field of
             217      membership of the surviving credit union after the merger, the surviving credit union may not:
             218          (i) establish a main office or branch if the main office or branch was not located in the
             219      county as of the date that the merger is effective;
             220          (ii) participate in a service center in which it does not participate as of the date that the
             221      merger is effective; or
             222          (iii) relocate the surviving credit union's main office or a branch located in the county as
             223      of the date that the merger is effective unless the commissioner finds that the main office or branch
             224      is being relocated within a three-mile radius of the original location of the main office or branch.
             225          [(d)] (e) After the merger, the surviving credit union may admit as a member:
             226          (i) a person in the surviving credit union's limited field of membership after the date that
             227      the merger is effective; or
             228          (ii) a person belonging to an association that:
             229          (A) is added to the limited field of membership of the credit union; and
             230          (B) resides in the domicile-county of the surviving credit union, as defined in Section
             231      7-9-53 .
             232          [(e)] (f) In addition to any requirement under this Subsection (6), a surviving credit union
             233      shall comply with any requirement under this title for the establishment, relocation, or change in
             234      the physical location of a main office or branch of a credit union.
             235          (7) (a) This Subsection (7) applies to the surviving credit association if the commissioner
             236      approves a merger plan under Subsection (5)(c)(i)(B).
             237          (b) (i) Within a county other than a county described in Subsection (7)(b)(ii), the surviving
             238      credit association may not:
             239          (A) establish a main office or branch if the main office or branch was not located in the
             240      county as of the date the merger is effective;
             241          (B) participate in a service center in which the surviving credit association did not
             242      participate as of the date the merger is effective; or
             243          (C) relocate a main office or branch of the surviving credit association that was located
             244      in a county within the limited field of membership of the surviving credit association as of the date


             245      the merger is effective unless the commissioner finds that the main office or branch is being
             246      relocated within a three-mile radius of the original location of the main office or branch.
             247          (ii) Subsection (7)(b)(i) does not apply to:
             248          (A) the credit association's domicile-county, if the credit association has a grandfathered
             249      limited field of membership;
             250          (B) a county whose residents are added to the limited field of membership of the credit
             251      association pursuant to Section 7-9-57 ; or
             252          (C) a county from which the restrictions on branching under Section 7-9-53 on the county
             253      have been removed under Section 7-9-57 .
             254          (c) After the merger, the surviving credit association may admit as a member a person in
             255      the surviving credit association's limited field of membership after the date the merger is effective.
             256          (d) In addition to any requirement under this Subsection (7), a surviving credit association
             257      shall comply with any requirement under this title for the establishment, relocation, or change in
             258      the physical location of a main office or branch of a credit union.
             259          Section 6. Section 7-9-39.5 is amended to read:
             260           7-9-39.5. Supervisory merger.
             261          If a credit union is merged with another credit union as a result of a supervisory action
             262      under Chapter 2 or 19, the commissioner may permit the surviving credit union to have a limited
             263      field of membership that is larger than a limited field of membership permitted under:
             264          (1) Section 7-9-51 [.]; or
             265          (2) with respect to a credit union designated as a credit association in accordance with
             266      Section 7-9-51 , 7-9-55 , or 7-9-57 .
             267          Section 7. Section 7-9-51 is amended to read:
             268           7-9-51. Limited field of membership.
             269          (1) Except as provided in Subsection (3), the limited field of membership of a credit union
             270      may include only the following:
             271          (a) the immediate family of a member of the credit union;
             272          (b) the employees of the credit union;
             273          (c) residents of a single county; and
             274          (d) one or more associations.
             275          (2) A credit union may have a limited field of membership that is more restrictive than the


             276      limited field of membership described in Subsection (1).
             277          (3) A credit union may have a limited field of membership that is less restrictive than the
             278      limited field of membership described in Subsection (1) if the limited field of membership of the
             279      credit union:
             280          (a) is determined under Subsection 7-9-53 (2)(c) or (2)(d);
             281          (b) is approved by the commissioner after a merger under [Subsection] Section
             282      7-9-39 [(5)]; [or]
             283          (c) is permitted by the commissioner after a merger in accordance with Section 7-9-39.5 [.];
             284      or
             285          (d) is expanded under Section 7-9-57 for a credit union that is designated as a credit
             286      association.
             287          (4) If a credit union includes the residents of one county in its limited field of membership,
             288      the credit union may not change its limited field of membership to include a different county than
             289      the county that is first included in the limited field of membership of the credit union.
             290          Section 8. Section 7-9-52 is amended to read:
             291           7-9-52. Expansion of a limited field of membership.
             292          (1) [The] Except as otherwise permitted in Section 7-9-57 with respect to a credit union
             293      designated as a credit association, the commissioner shall comply with Subsection (2) if the
             294      commissioner receives a request to approve an amendment to the bylaws of a credit union that
             295      expands the credit union's limited field of membership to include:
             296          (a) residents of one county; or
             297          (b) an association consisting of 50 or more persons.
             298          (2) If the conditions of Subsection (1) are met, the commissioner shall:
             299          (a) give notice of the request in the manner and to the extent the commissioner considers
             300      appropriate to institutions subject to the jurisdiction of the department that:
             301          (i) are located in the county, if the limited field of membership is being expanded to
             302      include residents of a county; or
             303          (ii) serve or may serve the association described in Subsection (1)(b), if that association
             304      is being added to the limited field of membership; and
             305          (b) cause a supervisor to examine and submit written findings and recommendations to
             306      the commissioner as to:


             307          (i) whether the credit union is adequately capitalized;
             308          (ii) whether the credit union has the financial capacity to serve the financial needs of the
             309      expanded limited field of membership in a safe and sound manner;
             310          (iii) whether the credit union has the managerial expertise to serve the financial needs of
             311      the expanded limited field of membership in a safe and sound manner;
             312          (iv) any potential harm the expansion of the limited field of membership may have on the
             313      institutions described in Subsection (2)(a); and
             314          (v) the probable beneficial effect of the expansion.
             315          (3) The commissioner may approve the amendment to the bylaws described in Subsection
             316      (1) if the commissioner:
             317          (a) has given the notice required under Subsection (2)(a);
             318          (b) received the written findings and recommendations of the supervisor under Subsection
             319      (2)(b); and
             320          (c) finds that:
             321          (i) the credit union is adequately capitalized;
             322          (ii) the credit union has the financial capacity to serve the financial needs of the expanded
             323      limited field of membership in a safe and sound manner;
             324          (iii) the credit union has the managerial expertise to serve the financial needs of the
             325      expanded limited field of membership in a safe and sound manner; and
             326          (iv) any potential harm the expansion of the limited field of membership may have on
             327      other institutions subject to the jurisdiction of the department does not clearly outweigh the
             328      probable beneficial effect of the expansion.
             329          (4) In accordance with Section 7-1-309 , the commissioner may hold a hearing on the
             330      expansion of a credit union's limited field of membership.
             331          (5) [This] (a) Except as provided in Subsection (5)(b), this section may not be interpreted
             332      to permit a credit union to:
             333          [(a)] (i) expand its limited field of membership to include residents of more than one
             334      county; or
             335          [(b)] (ii) change the county included in the limited field of membership of a credit union,
             336      if any.
             337          (b) This section does not limit the right of a credit union to:


             338          (i) elect to be designated as a credit association in accordance with Section 7-9-55 ; or
             339          (ii) after a credit union is designated as a credit association, to expand its limited field of
             340      membership in accordance with Section 7-9-57 .
             341          Section 9. Section 7-9-53 is amended to read:
             342           7-9-53. Grandfathering.
             343          (1) As used in this [section and Section 7-9-54 ] chapter:
             344          (a) "Association that resides in a domicile-county" means an association that:
             345          (i) operates a place of business or other physical location in the domicile-county; or
             346          (ii) has at least 100 members that are residents of the domicile-county.
             347          (b) "Domicile-county" means the county:
             348          (i) in the limited field of membership of the credit union as of January 1, 1999; and
             349          (ii) in which the credit union has located the greatest number of branches as of January 1,
             350      1999.
             351          (c) "Grandfathered limited field of membership" means the limited field of membership
             352      as of May 3, 1999, of a credit union described in Subsection (2)(d).
             353          (d) "Restrictions on branching" mean a restriction under this section on:
             354          (i) establishing, relocating, or changing the physical location of a main office or branch
             355      of a credit union; or
             356          (ii) participating in a service center.
             357          (2) For each credit union formed before January 1, 1999, its limited field of membership
             358      as of May 3, 1999, is determined as follows:
             359          (a) if the limited field of membership stated in the bylaws of the credit union as of January
             360      1, 1999, complies with Section 7-9-51 , the credit union's limited field of membership is the limited
             361      field of membership indicated in its bylaws;
             362          (b) (i) the limited field of membership of a credit union as of May 3, 1999, is as provided
             363      in Subsection (2)(b)(ii) if:
             364          (A) the limited field of membership stated in the bylaws of the credit union as of January
             365      1, 1999, includes the residents of more than one county; and
             366          (B) as of January 1, 1999, the credit union's main office and any of its branches are located
             367      in only one county in its limited field of membership;
             368          (ii) as of May 3, 1999, the limited field of membership of a credit union described in


             369      Subsection (2)(b)(i) is:
             370          (A) the immediate family of a member of the credit union;
             371          (B) the employees of the credit union;
             372          (C) residents of the one county in which the credit union has its main office or branches
             373      as of January 1, 1999, and
             374          (D) any association that as of January 1, 1999, is in the limited field of membership of the
             375      credit union;
             376          (c) (i) the limited field of membership of a credit union as of May 3, 1999, is as provided
             377      in Subsection (2)(c)(ii) if:
             378          (A) the limited field of membership of a credit union stated in the bylaws of the credit
             379      union as of January 1, 1999, includes residents of more than one county;
             380          (B) as of January 1, 1999, the credit union has a main office or branch in more than one
             381      county; and
             382          (C) as a result of a merger pursuant to a supervisory action under Chapter 2 or 19 that is
             383      effective on or after January 1, 1983, but before January 1, 1994, the credit union acquired a branch
             384      in a county in the limited field of membership of the credit union and the credit union did not have
             385      a branch in the county before the merger;
             386          (ii) as of May 3, 1999, the limited field of membership of a credit union described in
             387      Subsection (2)(c)(i) is the same limited field of membership that the credit union would have had
             388      under Subsection (2)(d) except that the credit union:
             389          (A) is not subject to Subsection (3); and
             390          (B) is subject to Subsection (4)(b); and
             391          (d) (i) the limited field of membership of a credit union as of May 3, 1999, is as provided
             392      in Subsection (2)(d)(ii) if:
             393          (A) the limited field of membership stated in the bylaws of the credit union as of January
             394      1, 1999, includes the residents of more than one county; and
             395          (B) as of January 1, 1999, the credit union has a main office or branch in more than one
             396      county;
             397          (ii) as of May 3, 1999, the limited field of membership of a credit union described in
             398      Subsection (2)(d)(i) is:
             399          (A) the immediate family of a member of the credit union;


             400          (B) the employees of the credit union;
             401          (C) residents of the credit union's domicile-county;
             402          (D) the residents of any county other than the domicile-county:
             403          (I) if, as of January 1, 1999, the county is in the limited field of membership of the credit
             404      union; and
             405          (II) in which, as of January 1, 1994, the credit union had located its main office or a
             406      branch; and
             407          (E) any association that as of January 1, 1999, is in the limited field of membership of the
             408      credit union.
             409          (3) If a credit union's limited field of membership is as described in Subsection (2)(d),
             410      beginning May 3, 1999, the credit union:
             411          (a) within the credit union's domicile-county, may establish, relocate, or otherwise change
             412      the physical location of the credit union's:
             413          (i) main office; or
             414          (ii) branch;
             415          (b) within a county other than a domicile-county that is in the credit union's grandfathered
             416      limited field of membership, may not:
             417          (i) establish a main office or branch that:
             418          (A) was not located in the county as of January 1, 1999; or
             419          (B) for which the credit union has not received by January 1, 1999, approval or conditional
             420      approval of a site plan for the main office or branch from the planning commission of the
             421      municipality where the main office or branch will be located;
             422          (ii) participate in a service center in which it does not participate as of January 1, 1999;
             423      or
             424          (iii) relocate the credit union's main office or a branch located in the county as of January
             425      1, 1999, unless the commissioner finds that the main office or branch is relocated within a
             426      three-mile radius of where it was originally located; and
             427          (c) may only admit as a member:
             428          (i) a person in the credit union's grandfathered limited field of membership; or
             429          (ii) a person belonging to an association that:
             430          (A) is added to the limited field of membership of the credit union; and


             431          (B) resides in the domicile-county of the credit union.
             432          (4) (a) If a credit union's limited field of membership is as described in Subsection (2)(b),
             433      as of May 3, 1999, the credit union may operate as a credit union having a limited field of
             434      membership under Section 7-9-51 .
             435          (b) If a credit union's limited field of membership is as described in Subsection (2)(c), as
             436      of May 3, 1999, the credit union:
             437          (i) within the credit union's domicile-county, may establish, relocate, or otherwise change
             438      the physical location of the credit union's:
             439          (A) main office; or
             440          (B) branch;
             441          (ii) within a county other than its domicile-county that is in the credit union's limited field
             442      of membership under Subsection (2)(c), may not:
             443          (A) establish a main office or branch that was not located in the county as of January 1,
             444      1999;
             445          (B) participate in a service center in which it does not participate as of January 1, 1999;
             446      or
             447          (C) relocate the credit union's main office or a branch located in the county as of January
             448      1, 1999, unless the commissioner finds that the main office or branch is relocated within a
             449      three-mile radius of where it was originally located; and
             450          (iii) may only admit as a member:
             451          (A) a person in the credit union's limited field of membership under Subsection (2)(c); or
             452          (B) a person belonging to an association that is added to the limited field of membership
             453      of the credit union, regardless of whether the association resides in the domicile-county of the
             454      credit union.
             455          (5) (a) Notwithstanding Subsections (1) through (4), after May 3, 1999, a credit union
             456      described in Subsection (2)(c) or (2)(d) may:
             457          (i) operate an office or branch that is operated by the credit union on May 3, 1999, but that
             458      is not located in a county that is in the credit union's limited field of membership as of May 3,
             459      1999; and
             460          (ii) serve a member who is not in a credit union's limited field of membership as of May
             461      3, 1999, if the member is a member of the credit union as of March 15, 1999.


             462          (b) Subsection (5)(a) does not authorize a credit union to:
             463          (i) establish a branch in a county that is not in the credit union's limited field of
             464      membership as of May 3, 1999, unless the branch meets the requirements under this title for
             465      establishing a branch; or
             466          (ii) for a credit union described in Subsection (2)(d), include in its limited field of
             467      membership an association that:
             468          (A) as of January 1, 1999, is not included in the credit union's limited field of membership;
             469      and
             470          (B) does not reside within the credit union's domicile-county.
             471          (6) A credit union shall amend its bylaws in accordance with Section 7-9-11 by no later
             472      than August 3, 1999, to comply with this section.
             473          (7) In addition to any requirement under this section, a credit union shall comply with any
             474      requirement under this title for the establishment, relocation, or change in the physical location of
             475      a main office or branch of a credit union.
             476          (8) This section does not limit the right of a credit union to:
             477          (a) elect to be designated as a credit association in accordance with Section 7-9-55 ; or
             478          (b) after the credit union is designated as a credit association, to:
             479          (i) expand its limited field of membership in accordance with Section 7-9-57 ; or
             480          (ii) remove restrictions on branching in accordance with Section 7-9-57 .
             481          Section 10. Section 7-9-54 is amended to read:
             482           7-9-54. Electing to terminate grandfathering.
             483          (1) (a) In accordance with this section, a credit union that has a grandfathered limited field
             484      of membership under Section 7-9-53 may terminate the grandfathering of the credit union's
             485      grandfathered limited field of membership if, by no later than August 3, [1999] 2001, the credit
             486      union has received approval from the commissioner in accordance with Section 7-9-11 of an
             487      amendment to the bylaws of the credit union that establishes a limited field of membership in
             488      compliance with Section 7-9-51 .
             489          (b) Notwithstanding Subsection (1)(a), a credit union seeking to terminate its
             490      grandfathered limited field of membership may not amend its bylaws to include in the limited field
             491      of membership of the credit union after termination of the grandfathering a county other than the
             492      domicile-county of the credit union.


             493          (2) On receipt of a request under Subsection (1) to approve an amendment to the bylaws
             494      of a credit union, the commissioner shall give notice of the request in the manner and to the extent
             495      the commissioner considers appropriate to institutions subject to the jurisdiction of the department
             496      that:
             497          (a) are located in a county within the credit union's grandfathered limited field of
             498      membership; or
             499          (b) may be affected by the termination of the grandfathering.
             500          (3) The commissioner may approve the amendment to the bylaws described in Subsection
             501      (1) if the commissioner:
             502          (a) has given the notice required by Subsection (2); and
             503          (b) finds that any harm the termination of the grandfathering may have on other institutions
             504      subject to the jurisdiction of the commissioner does not clearly outweigh the probable beneficial
             505      effect of the termination.
             506          (4) In accordance with Section 7-1-309 , the commissioner may hold a hearing on the
             507      termination of the grandfathering of a credit union.
             508          (5) Beginning on the date the commissioner approves the amendments to the bylaws of
             509      a credit union under Subsection (3), the credit union:
             510          (a) may not admit as a member a resident of a county for which grandfathering is
             511      terminated;
             512          (b) may admit as a member a person belonging to an association regardless of whether the
             513      association resides in the domicile-county within the limited field of membership of the credit
             514      union;
             515          (c) may serve a member of the credit union who is not in the credit union's grandfathered
             516      limited field of membership, if the member is a member of the credit union on the day that the
             517      grandfathering terminates;
             518          (d) may operate a main office or branch that is located outside the limited field of
             519      membership of a credit union after grandfathering terminates but is operated by the credit union
             520      on the day that the grandfathering terminates; and
             521          (e) may establish, relocate, or otherwise change the physical facilities of the credit union's
             522      main office or of a branch in the domicile-county of the credit union if that county is included in
             523      the limited field of membership of the credit union after termination of the grandfathering.


             524          (6) In addition to any requirement under this section, a credit union shall comply with any
             525      requirement under this title for the establishment, relocation, or change in the physical location of
             526      a main office or branch of a credit union.
             527          Section 11. Section 7-9-55 is enacted to read:
             528          7-9-55. Designation as a credit association.
             529          (1) In accordance with this section, a credit union may elect to be designated as a credit
             530      association:
             531          (a) through an affirmative vote of its members; and
             532          (b) subject to approval from the commissioner.
             533          (2) (a) If the board of directors seeks to have a credit union be designated as a credit
             534      association, the board of directors shall initiate a proposition by a written resolution of the board
             535      of directors.
             536          (b) If one or more members of a credit union seek to have a credit union be designated as
             537      a credit association, the one or more members of the credit union shall initiate a proposition by
             538      submitting to the board of directors a petition signed by at least the lesser of:
             539          (i) 50 members of the credit union; or
             540          (ii) 5% of the credit union membership.
             541          (3) Subject to Subsection (4), the proposition initiated under Subsection (2) shall:
             542          (a) be subject to the vote of the full membership of the credit union; and
             543          (b) submitted to the credit union membership pursuant to:
             544          (i) this chapter;
             545          (ii) the procedures of the credit union for membership votes; and
             546          (iii) the rules made by the commissioner for membership votes of a credit union.
             547          (4) (a) A credit union shall notify its members of the vote on the proposition initiated
             548      under Subsection (2).
             549          (b) The notice required under this Subsection (4) shall:
             550          (i) be in a form approved by the commissioner; and
             551          (ii) shall include:
             552          (A) the proposition that the credit union be designated as a credit association; and
             553          (B) an explanation that after designation as a credit association, the credit association is
             554      subject to taxation under Title 59, Chapter 7, Corporate Franchise and Income Taxes.


             555          (5) (a) If the proposition is approved by a vote of the credit union membership, the credit
             556      union shall submit an application to be designated as a credit association to the commissioner in
             557      a form prescribed by the commissioner.
             558          (b) The application shall include the following:
             559          (i) evidence that the credit union is adequately capitalized;
             560          (ii) evidence that the credit union has the financial capacity to serve the financial needs of
             561      the limited field of membership in a safe and sound manner;
             562          (iii) evidence that the credit union has the managerial expertise to serve the financial needs
             563      of the expanded limited field of membership in a safe and sound manner; and
             564          (iv) any other information the commissioner considers material to determining whether
             565      to approve the application.
             566          (c) The commissioner shall approve the application:
             567          (i) after accepting it as complete; and
             568          (ii) finding that the credit union:
             569          (A) is adequately capitalized;
             570          (B) has the financial capacity to serve the financial needs of the limited field of
             571      membership in a safe and sound manner; and
             572          (C) has the managerial expertise to serve the financial needs of the expanded limited field
             573      of membership in a safe and sound manner.
             574          (d) To protect the safety and soundness of the application, the commissioner may:
             575          (i) approve an application subject to the terms and conditions the commissioner considers
             576      necessary; or
             577          (ii) disapprove an application.
             578          Section 12. Section 7-9-56 is enacted to read:
             579          7-9-56. Operations of credit associations.
             580          (1) A credit union designated as a credit association shall:
             581          (a) comply with this chapter as a credit union, except where the chapter expressly provides
             582      for a credit association; and
             583          (b) is a credit union under this chapter that may obtain and maintain insurance on its shares
             584      and deposits from the National Credit Union Association.
             585          (2) If under Section 7-9-55 the credit union is designated as a credit association, within 90


             586      days of the day the credit union is designated as a credit association:
             587          (a) the name of the credit association shall be changed to replace the words "credit union"
             588      with "credit association";
             589          (b) an amendment to the credit union's articles of incorporation indicating the name change
             590      shall be filed with the Division of Corporations and Commercial Code; and
             591          (c) the credit association is prohibited from using the words "credit union" in its:
             592          (i) advertisement;
             593          (ii) signage;
             594          (iii) solicitation for members; or
             595          (iv) in any other correspondence and communication intended for members of the public.
             596          Section 13. Section 7-9-57 is enacted to read:
             597          7-9-57. Expansion of credit association.
             598          (1) The commissioner shall comply with this section if the commissioner receives a
             599      request to approve an amendment to the bylaws of a credit union designated as a credit association
             600      that:
             601          (a) expands the credit association's limited field of membership; or
             602          (b) removes restrictions on branching if the credit association has a grandfathered limited
             603      field of membership.
             604          (2) (a) If the credit association requests to add residents within a county of the fourth, fifth,
             605      or sixth class as classified in Section 17-50-501 , the commissioner:
             606          (i) may approve the addition of the residents within the county of the fourth, fifth, or sixth
             607      class at any time;
             608          (ii) may approve the addition of residents within more than one county of the fourth, fifth,
             609      or sixth class in any one calendar year; and
             610          (iii) shall comply with Subsection (4).
             611          (b) If the credit association has a grandfathered limited field of membership and requests
             612      the removal on the restrictions on branching under Section 7-9-53 on a county of the fourth, fifth,
             613      or sixth class, the commissioner:
             614          (i) may approve the removal of the restriction on branching within a county of the fourth,
             615      fifth, or sixth class at any time;
             616          (ii) may approve the removal of the restrictions on branching within more than one county


             617      of the fourth, fifth, or sixth class in any one calendar year;
             618          (iii) may approve the removal of the restrictions on branching regardless of whether the
             619      commissioner has approved the addition of residents of a county of the fourth, fifth, or sixth class
             620      to the limited field of membership of the credit association; and
             621          (iv) shall comply with the requirements under this title for the establishment, relocation,
             622      or change in the physical location of a main office or branch of a credit union to determine whether
             623      to approve the removal of the restrictions on branching.
             624          (3) (a) If the credit association requests to add residents within a county of the first,
             625      second, or third class as classified in Section 17-50-501 , the commissioner:
             626          (i) in any one calendar year may:
             627          (A) for a credit association that does not have a grandfathered limited field of membership,
             628      approve the addition of residents within only one county of the first, second, or third class; or
             629          (B) if the credit association is a credit association with a grandfathered limited field of
             630      membership:
             631          (I) approve the addition of residents within only one county of the first, second, or third
             632      class; or
             633          (II) remove the restrictions on branching in only one county of the first, second, or third
             634      class as provided in Subsection (3)(b); and
             635          (ii) shall comply with Subsection (4).
             636          (b) If the credit association has a grandfathered limited field of membership and requests
             637      the removal on the restrictions on branching under Section 7-9-53 on a county of the first, second,
             638      or third class, the commissioner:
             639          (i) may approve the removal of the restrictions on only one county of the first, second, or
             640      third class in any one calendar year;
             641          (ii) may not approve the addition of residents within a county of the first, second, or third
             642      class to the limited field of membership of the credit association in the same calendar year the
             643      commissioner removes the restrictions on branching in the county of the first, second, or third
             644      class; and
             645          (iii) shall comply with the requirements under this title for the establishment, relocation,
             646      or change in the physical location of a main office or branch of a credit union to determine whether
             647      to approve the removal of the restrictions on branching.


             648          (4) (a) If the commissioner receives a request to add the residents within a county to the
             649      limited field of membership of a credit association, the commissioner shall:
             650          (i) give notice of the request in the manner and to the extent the commissioner considers
             651      appropriate to institutions subject to the jurisdiction of the department that are located in the
             652      applicable county; and
             653          (ii) cause a supervisor to examine and submit written findings and recommendations to
             654      the commissioner as to:
             655          (A) whether the credit association is adequately capitalized;
             656          (B) whether the credit association has the financial capacity to serve the financial needs
             657      of the expanded limited field of membership in a safe and sound manner;
             658          (C) whether the credit association has the managerial expertise to serve the financial needs
             659      of the expanded limited field of membership in a safe and sound manner;
             660          (D) any potential harm the expansion of the limited field of membership may have on the
             661      institutions described in Subsection (4)(a)(i); and
             662          (E) the probable beneficial effect of the expansion.
             663          (b) The commissioner may approve the amendment to the bylaws described in Subsection
             664      (1) or (2) if the commissioner:
             665          (i) gives the notice required under this Subsection (4);
             666          (ii) receives the written findings and recommendations of the supervisor under this
             667      Subsection (4); and
             668          (iii) finds that:
             669          (A) the credit association is adequately capitalized;
             670          (B) the credit association has the financial capacity to serve the financial needs of the
             671      expanded limited field of membership in a safe and sound manner;
             672          (C) the credit association has the managerial expertise to serve the financial needs of the
             673      expanded limited field of membership in a safe and sound manner; and
             674          (D) any potential harm the expansion of the limited field of membership may have on
             675      other institutions subject to the jurisdiction of the department does not clearly outweigh the
             676      probable beneficial effect of the expansion.
             677          (5) If the credit association requests to add an association, the commissioner:
             678          (a) may approve the addition of more than one association in any calendar year; and


             679          (b) (i) if the association consists of 50 or more persons, shall comply with the procedure
             680      under Section 7-9-52 for adding an association to a credit union; or
             681          (ii) (A) if the association consists of less than 50 persons, is not subject to Section 7-9-52 ;
             682      and
             683          (B) shall approve the amendment if the commissioner finds:
             684          (I) the credit association is adequately capitalized;
             685          (II) the credit association has the financial capacity to serve the financial needs of the
             686      expanded limited field of membership in a safe and sound manner;
             687          (III) the credit association has the managerial expertise to serve the financial needs of the
             688      expanded limited field of membership in a safe and sound manner; and
             689          (IV) if the credit association is a credit association with a grandfathered limited field of
             690      membership, that the association resides in the domicile-county of the credit association.
             691          (6) In accordance with Section 7-1-309 , the commissioner may hold a hearing on the
             692      expansion of a credit association's limited field of membership.
             693          (7) This section may not be interpreted to permit a credit union that is not designated as
             694      a credit association to:
             695          (a) expand its limited field of membership to include residents of more than one county;
             696      or
             697          (b) change the county included in the limited field of membership of a credit union, if any.
             698          Section 14. Section 59-7-102 is amended to read:
             699           59-7-102. Exemptions.
             700          (1) Except as provided in Part 8, the following are exempt from this chapter:
             701          (a) [organizations] an organization exempt under Sections 501 and 521, Internal Revenue
             702      Code[, and organizations] except, for taxable years beginning on or after January 1, 2002, for:
             703          (i) a credit union:
             704          (A) organized under Title 7, Chapter 9, Utah Credit Union Act;
             705          (B) that has a grandfathered limited field of membership under Section 7-9-53 ; or
             706          (ii) a credit union designated as a credit association under Section 7-9-55 ;
             707          (b) an organization meeting the requirements of Subchapter T, Internal Revenue Code;
             708          [(b) organizations] (c) an organization exempt under Section 528, Internal Revenue Code,
             709      provided that to the extent [such] the organization's income is taxable for federal tax purposes


             710      under Section 528, [such] the organization's income is also taxable under this chapter;
             711          [(c)] (d) an insurance [companies which are] company that is otherwise taxed on [their]
             712      its premiums under Title 59, Chapter 9, Taxation of Admitted Insurers; and
             713          [(d)] (e) a building [authorities] authority as defined in Section 17A-3-902 .
             714          (2) Notwithstanding any other provision in Chapter 7 or 8, a person not otherwise subject
             715      to the tax imposed by this chapter or Chapter 8 [shall] may not become subject to the tax imposed
             716      by Sections 59-7-104 , 59-7-201 , 59-7-701 , and 59-8-104 , by reason of:
             717          (a) that person's ownership of tangible personal property located at the premises of a
             718      printer's facility in this state with which the person has contracted for printing; or
             719          (b) the activities of the person's employees or agents who are located solely at the premises
             720      of a printer's facility and who are performing services related to quality control, distribution, or
             721      printing services performed by the printer's facility in this state with which the person has
             722      contracted for printing.
             723          Section 15. Section 59-7-104 is amended to read:
             724           59-7-104. Tax -- Minimum tax.
             725          (1) Each domestic and foreign corporation, except those exempted under Section 59-7-102 ,
             726      shall pay an annual tax to the state based on its Utah taxable income for the taxable year for the
             727      privilege of exercising its corporate franchise or for the privilege of doing business in the state.
             728          (2) [The] Except as provided in Subsection (4), the tax imposed by Subsection (1) shall
             729      be 5% of a corporation's Utah taxable income.
             730          (3) The minimum tax a corporation shall pay under this chapter is $100.
             731          (4) (a) As used in this Subsection (4):
             732          (i) "state tax rate" means the rate imposed under Subsection (2); and
             733          (ii) "taxable credit union" means:
             734          (A) a credit union:
             735          (I) organized under Title 7, Chapter 9, Utah Credit Union Act; and
             736          (II) that has a grandfathered limited field of membership under Section 7-9-53 ; or
             737          (B) a credit union designated as a credit association designated under Section 7-9-55 .
             738          (b) For taxable years beginning on or after January 1, 2002, a taxable credit union shall
             739      pay an annual tax to the state equal to the product of:
             740          (i) 38%; and


             741          (ii) the taxable credit union's Utah taxable income.
             742          (c) Notwithstanding the other provisions of this Subsection (4), if a taxable credit union
             743      is subject to a federal income tax, the taxable credit union shall pay an annual tax to the state equal
             744      to the product of:
             745          (i) the state tax rate; and
             746          (ii) the taxable credit union's Utah taxable income.
             747          Section 16. Section 59-7-106 is amended to read:
             748           59-7-106. Subtractions from unadjusted income.
             749          In computing adjusted income the following amounts shall be subtracted from unadjusted
             750      income:
             751          (1) the foreign dividend gross-up included in gross income for federal income tax purposes
             752      under Section 78, Internal Revenue Code;
             753          (2) the net capital loss, as defined for federal purposes, if the taxpayer elects to deduct the
             754      loss on the current Utah return. The deduction shall be made by claiming the deduction on the
             755      current Utah return which shall be filed by the due date of the return, including extensions. For
             756      the purposes of this subsection all capital losses in a given year must be:
             757          (a) deducted in the year incurred; or
             758          (b) carried forward as provided in Sections 1212(a)(1)(B) and (C), Internal Revenue Code;
             759          (3) the decrease in salary expense deduction for federal income tax purposes due to
             760      claiming the federal jobs credit under Section 51, Internal Revenue Code;
             761          (4) the decrease in qualified research and basic research expense deduction for federal
             762      income tax purposes due to claiming the federal research and development credit under Section
             763      41, Internal Revenue Code;
             764          (5) the decrease in qualified clinical testing expense deduction for federal income tax
             765      purposes due to claiming the federal orphan drug credit under Section 28, Internal Revenue Code;
             766          (6) any decrease in any expense deduction for federal income tax purposes due to claiming
             767      any other federal credit;
             768          (7) the safe harbor lease adjustment required under Subsections 59-7-111 (1)(b) and (2)(b);
             769          (8) any income on the federal corporate return that has been previously taxed by Utah;
             770          (9) amounts included in federal taxable income that are due to refunds of taxes imposed
             771      for the privilege of doing business, or exercising a corporate franchise, including income,


             772      franchise, corporate stock and business and occupation taxes paid by the corporation to Utah,
             773      another state of the United States, a foreign country, a United States possession, or the
             774      Commonwealth of Puerto Rico to the extent that the taxes were added to unadjusted income under
             775      Section 59-7-105 ;
             776          (10) charitable contributions, to the extent allowed as a subtraction under Section
             777      59-7-109 ;
             778          (11) (a) 50% of the dividends [deemed] considered received or received from subsidiaries
             779      which are members of the unitary group and are organized or incorporated outside of the United
             780      States unless such subsidiaries are included in a combined report under Section 59-7-402 or
             781      59-7-403 . In arriving at the amount of the dividend exclusion, the taxpayer shall first deduct from
             782      the dividends [deemed] considered received or received, the expense directly attributable to those
             783      dividends. Interest expense attributable to excluded dividends shall be determined by multiplying
             784      interest expense by a fraction, the numerator of which is the taxpayer's average investment in such
             785      dividend paying subsidiaries, and the denominator of which is the taxpayer's average total
             786      investment in assets;
             787          (b) in determining income apportionable to this state, a portion of the factors of a foreign
             788      subsidiary whose dividends are partially excluded under Subsection (11)(a) shall be included in
             789      the combined report factors. The portion to be included shall be determined by multiplying each
             790      factor of the foreign subsidiary by a fraction, but not to exceed 100%, the numerator of which is
             791      the amount of the dividend paid by the foreign subsidiary which is included in adjusted income,
             792      and the denominator of which is the current year earnings and profits of the foreign subsidiary as
             793      determined under the Internal Revenue Code;
             794          (12) (a) 50% of the adjusted income of a foreign operating company unless the taxpayer
             795      has elected to file a worldwide combined report as provided in Section 59-7-403 . For purposes
             796      of this subsection, when calculating the adjusted income of a foreign operating company, a foreign
             797      operating company may not deduct the subtractions allowable under this subsection and
             798      Subsection (11);
             799          (b) in determining income apportionable to this state, the factors for a foreign operating
             800      company shall be included in the combined report factors in the same percentage its adjusted
             801      income is included in the combined adjusted income;
             802          (13) the amount of gain or loss which is included in unadjusted income but not recognized


             803      for federal purposes on stock sold or exchanged by a member of a selling consolidated group as
             804      defined in Section 338, Internal Revenue Code, if an election has been made pursuant to Section
             805      338(h)(10), Internal Revenue Code;
             806          (14) the amount of gain or loss which is included in unadjusted income but not recognized
             807      for federal purposes on stock sold, exchanged, or distributed by a corporation pursuant to Section
             808      336(e), Internal Revenue Code, if an election under Section 336(e), Internal Revenue Code, has
             809      been made for federal purposes;
             810          (15) (a) adjustments to gains, losses, depreciation expense, amortization expense, and
             811      similar items due to a difference between basis for federal purposes and basis as computed under
             812      Section 59-7-107 ; and
             813          (b) if there has been a reduction in federal basis for a federal tax credit where there is no
             814      corresponding Utah tax credit, the amount of the reduction in basis shall be allowed as an expense
             815      in the year of the federal credit;
             816          (16) any interest expense not deducted on the federal corporate return under Section 265(b)
             817      or 291(e), Internal Revenue Code;
             818          (17) 100% of the dividends received from subsidiaries which are insurance companies
             819      exempt from this chapter under Subsection 59-7-102 (1)[(c)](d) and are under "common
             820      ownership" as defined by Subsection 59-7-101 (7); and
             821          (18) any amount included in unadjusted income that was derived from money paid by the
             822      taxpayer to the program fund and investment income earned on those payments under Title 53B,
             823      Chapter 8a, Higher Education Savings Incentive Program.





Legislative Review Note
    as of 2-14-01 7:52 AM



This bill imposes a 38% tax on the Utah taxable income of certain types of Utah chartered credit
unions but not all Utah credit unions. Under the federal and state constitutions, there are
limitations on a legislature's ability to legislate on the basis of classifications if those classifications
are too narrow. A legislature generally may only treat similarly situated persons differently if the
legislature can establish a classification of those persons having a rational basis related to a
legitimate government purpose. Legislatures are at times given greater deference to create
classifications in the tax area. The distinction between those credit unions subject to the tax
provided for in this bill and those that are not taxed generally turns on whether the credit union has
multiple counties in its limited field of membership or the credit union has the ability to add
multiple counties to its limited field of membership. It would be for a court to decide whether the
classifications made in this bill are rationally based and therefore proper.

Office of Legislative Research and General Counsel


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