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H.J.R. 1

             1     

JOINT RESOLUTION RELATED TO

             2     
FINANCIAL INSTITUTIONS

             3     
2005 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Jeff Alexander

             6     
             7      LONG TITLE
             8      General Description:
             9          This resolution affirms certain actions taken by the Legislature and urges congressional
             10      action regarding financial institutions.
             11      Highlighted Provisions:
             12          This resolution:
             13          .    affirms the Legislature's decision to establish a classification of "nonexempt credit
             14      unions" and encourages Congress to adopt a similar approach;
             15          .    urges Congress to examine the rulings of the National Credit Union Administration
             16      and take appropriate action;
             17          .    urges Congress to recognize and affirm the authority of states and local
             18      governments to determine whether federally chartered credit unions may be taxed
             19      the same as state chartered credit unions;
             20          .    urges Congress to provide a principled, fair, and equitable tax structure for financial
             21      institutions that allows the state to determine what state and local taxes shall apply
             22      to financial institutions;
             23          .    requests that if Congress elects to retain the current tax structure for financial
             24      institutions unchanged, it provide Utah and other states with a thorough, detailed,
             25      and reasoned explanation;
             26          .    requests that Congress in determining monies provided to the state by the federal
             27      government take into account revenues that may be lost to the state as a result of


             28      federal tax policy and regulations related to financial institutions;
             29          .    urges Congress to fully and carefully consider the principles, policies,
             30      circumstances, and conditions identified and referenced in this resolution and
             31      promptly act; and
             32          .    provides for the distribution of the resolution.
             33      Special Clauses:
             34          None
             35     
             36      Be it resolved by the Legislature of the state of Utah:
             37          WHEREAS, the financial institution industry is a critical part of Utah's economy;
             38          WHEREAS, the state is benefitted by and relies upon a diversity of financial
             39      institutions within the state including the existence of a strong credit union industry and a
             40      healthy commercial bank industry;
             41          WHEREAS, nationally, the competitive environment for banks and credit unions has
             42      changed significantly since the first credit unions were formed in the early 1900's;
             43          WHEREAS, the rise and scope of federal credit unions is rooted in the Federal Credit
             44      Union Act of 1934, as amended over the years;
             45          WHEREAS, the early credit unions started as small groups of people who shared a
             46      close and meaningful "common bond" such as occupations, the neighborhood where they lived,
             47      or a church they attended;
             48          WHEREAS, such persons were less able to obtain loans from other financial
             49      institutions because of low income and the perceived high risk of default and were, therefore,
             50      especially vulnerable to usury lending practices by those that might unfairly take advantage of
             51      such conditions;
             52          WHEREAS, a credit union chartered in this state is required to be a cooperative,
             53      nonprofit association, incorporated to:
             54          (1) encourage thrift among its members;
             55          (2) create sources of credit at fair and reasonable rates of interest; and
             56          (3) provide an opportunity for its members to use and control their resources on a
             57      democratic basis in order to improve their economic and social condition;
             58          WHEREAS, Congress has previously found that:


             59          (1) the credit union movement in America began as a cooperative effort to serve the
             60      productive and provident credit needs of individuals of modest means;
             61          (2) maintaining a meaningful affinity or common bond between members is critical to
             62      the fulfillment of the public mission of credit unions including promoting thrift and credit
             63      extension; and
             64          (3) credit unions are exempt from federal and most state taxes because they are
             65      member-owned, democratically operated, not-for-profit cooperative organizations generally
             66      managed by volunteer boards and because they have historically had the specified mission of
             67      meeting the credit and savings needs of their members, especially persons of modest means;
             68          WHEREAS, financial institutions are subject to regulation by different federal
             69      governmental entities depending on their structure, charter, and identity as a financial
             70      institution;
             71          WHEREAS, the National Credit Union Administration charters and regulates federally
             72      chartered credit unions and as insurer oversees state chartered credit unions;
             73          WHEREAS, commercial banks are subject to a variety of federal regulators depending
             74      on their charter including the Office of the Comptroller of the Currency, the Federal Reserve
             75      Board, or the Federal Deposit Insurance Corporation;
             76          WHEREAS, the National Credit Union Administration has expanded its determination
             77      of what has historically constituted a well-defined local community for purposes of defining a
             78      field of membership to include large geographic areas;
             79          WHEREAS, the broad field of membership established by the National Credit Union
             80      Administration allows state chartered credit unions to easily convert to a federal charter,
             81      putting state chartered credit unions at a disadvantage because of factors such as:
             82          (1) differences in tax treatment of federally chartered credit unions; and
             83          (2) differences in the regulations of member business lending;
             84          WHEREAS, the U.S. Supreme Court held in 1998 that the original intent of the Federal
             85      Credit Union Act was to require a more narrow interpretation of credit unions' common bond
             86      and field of membership than what now exists under legislation adopted by Congress;
             87          WHEREAS, commercial banks are subject to taxes on the federal, state, and local level;
             88          WHEREAS, under the Internal Revenue Code, federal or state chartered credit unions
             89      are exempt from paying federal income taxes;


             90          WHEREAS, under the Federal Credit Union Act, as amended in 1937, states are
             91      prohibited from imposing certain taxes on federal credit unions;
             92          WHEREAS, in Utah, federally chartered and state chartered credit unions do not pay
             93      state income taxes;
             94          WHEREAS, credit unions pay property taxes;
             95          WHEREAS, federally chartered credit unions do not pay sales and use taxes;
             96          WHEREAS, if a state or Congress were to find that taxation of some credit unions is
             97      justified, the General Accounting Office has reported that as a cooperative, credit unions can
             98      avoid all such taxation by returning excess funds to its members either directly or indirectly by
             99      reducing loan rates, increasing deposit rates, or both;
             100          WHEREAS, the state and not the federal government should control and determine
             101      public policy affecting the imposition of state taxes;
             102          WHEREAS, all taxes on financial institutions, including both credit unions and
             103      commercial banks, should be examined to determine whether a different and more principled
             104      approach to taxing could lessen the tax burden wherever possible;
             105          WHEREAS, federal tax policies and regulations related to financial institutions can
             106      result in the erosion of state and local tax bases;
             107          WHEREAS, the possible erosion of the state tax base because of federal tax policy and
             108      regulations related to financial institutions can result in lost revenues to the state;
             109          WHEREAS, the loss of revenues to the state impacts the state's ability to meet the
             110      essential needs of its citizens including the funding of education;
             111          WHEREAS, all income tax revenues collected by the state are constitutionally
             112      dedicated in Utah to funding education;
             113          WHEREAS, the funding of education is a top priority of the Legislature and, therefore,
             114      all exemptions from paying income tax are carefully scrutinized by the Legislature;
             115          WHEREAS, the federal encroachment into state policy areas regarding financial
             116      institutions is not limited to taxation but also includes preemption of state regulation of the
             117      business activities of financial institutions within the state;
             118          WHEREAS, this federal encroachment raises constitutional issues under the 10th
             119      Amendment and the Supremacy Clause;
             120          WHEREAS, by creating the classification of "nonexempt" credit unions in H.B. 162,


             121      Financial Institutions Amendments (2003 Gen. Sess.), the Utah Legislature has recognized that
             122      some credit unions have grown so large that there may no longer be a meaningful affinity or
             123      common bond;
             124          WHEREAS, any credit union in the state that would have been a "nonexempt" credit
             125      union as of May 2003, has since converted to a federal charter; and
             126          WHEREAS, the Financial Institutions Task Force has found that because of the
             127      conversion of many state chartered credit unions to federal chartered credit unions, significant
             128      issues of tax policy and competitive fairness among financial institutions now need to be
             129      addressed at the federal level:
             130          NOW, THEREFORE, BE IT RESOLVED that the Legislature of the state of Utah
             131      affirms its decision to establish a classification of "nonexempt credit unions" because of the
             132      foreseeable need to potentially differentiate between small credit unions and those that may
             133      grow so large as to have lost a meaningful affinity or bond and encourages Congress to adopt a
             134      similar approach.
             135          BE IT FURTHER RESOLVED that the Legislature urges Congress to examine the
             136      rulings of the National Credit Union Administration regarding "common bond" and field of
             137      membership to determine whether those rulings are overbroad and inconsistent with the
             138      original intent of the Federal Credit Union Act and take appropriate action, including
             139      examining whether there should be a restructuring of the National Credit Union
             140      Administration.
             141          BE IT FURTHER RESOLVED that the Legislature urges Congress to recognize and
             142      affirm the authority of states and local governments to determine whether federally chartered
             143      credit unions may be taxed the same as state chartered credit unions according to state law and
             144      related policy considerations.
             145          BE IT FURTHER RESOLVED that the Legislature urges Congress to provide a
             146      principled, fair, and equitable tax structure for financial institutions, including credit unions
             147      and commercial banks alike, that allows the states to determine what state and local taxes shall
             148      apply to financial institutions whether state or federally chartered.
             149          BE IT FURTHER RESOLVED that the Legislature requests that if Congress elects to
             150      retain the current tax structure for financial institutions unchanged, it provide Utah and other
             151      states with a thorough, detailed, and reasoned explanation for maintaining that tax structure


             152      without alteration.
             153          BE IT FURTHER RESOLVED that the Legislature requests that Congress in
             154      determining monies provided to the state by the federal government for programs, including
             155      education programs, take into account revenues that may be lost to the state as a result of
             156      federal tax policy and regulations related to financial institutions.
             157          BE IT FURTHER RESOLVED that the Legislature urges Congress to fully and
             158      carefully consider the principles, policies, circumstances, and conditions identified and
             159      referenced in this resolution and promptly act as needed in order to remedy the same.
             160          BE IT FURTHER RESOLVED that a copy of this resolution be sent to the Majority
             161      Leader of the United States Senate, the Speaker of the United States House of Representatives,
             162      and the members of Utah's congressional delegation.




Legislative Review Note
    as of 12-7-04 8:44 AM


Based on a limited legal review, this legislation has not been determined to have a high
probability of being held unconstitutional.

Office of Legislative Research and General Counsel


Legislative Committee Note
    as of 12-08-04 3:14 PM


The Financial Institutions Task Force recommended this bill.


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