Thank you, banking advocates!
By Rose Oswald Poels
Bankers have been advocating for tax parity for decades with state and federal elected officials due to the unfair tax advantage that two of the industry’s primary competitors — credit unions and the Farm Credit System — receive from policymakers. During that same time, the Wisconsin Bankers Association (WBA) has been actively engaged in that fight alongside the industry, including lobbying for a tax break for banks at both the state and federal level as an option in addition to the option of taxing larger credit unions and Farm Credit. Our collective perseverance paid off this year at the state level in Wisconsin, so every banker that ever attended a Capitol Day in Madison or a Washington D.C. trip or made a call to a legislator on this subject should give themselves and the industry a loud round of applause.
The historic tax law change included in the budget bill this session by the legislature and signed by Governor Tony Evers on July 5, 2023 gives C- and S-Corp banks a tax exemption on the interest, penalty, and fee income earned on commercial and ag purpose loans of $5 million or less where the loan is made to a Wisconsin resident, or a business located in Wisconsin. The change is effective for tax years after December 31, 2022.
This meaningful tax exemption further enhances the positive economic climate in Wisconsin and is another reason why Wisconsin is a good place to do business for banks. This change is estimated to save the industry at least $30 million in Wisconsin income taxes annually. Wisconsin is the first state in the country to have a tax exemption like this for the banking industry.
When WBA and its Board of Directors looked at the data about 18 months ago, we realized that the arguments we’ve been raising for decades about the credit union industry were coming to fruition. As a result of their tax advantage, state-chartered credit unions have grown in total assets three times faster than state-chartered banks in the last ten years. Indeed, total assets of state-chartered credit unions are now almost as large as the total assets of state-chartered banks.
Furthermore, the average size of state-chartered credit unions exceeds that of state-chartered banks. As of the first quarter of 2023, the average asset size of state-chartered credit unions is $568 million compared to $529 million for state-chartered banks. This disparity continues to grow each quarter that WBA has been measuring since last year.
Given the current environment, the WBA Board decided that now was the time for some type of tax parity to happen in order to preserve the breadth of financial institutions in Wisconsin. If we continued to do nothing, credit unions in Wisconsin will only grow larger at the expense of the banking industry. As of the first quarter of 2023, six of the top 10 headquartered financial institutions in Wisconsin are credit unions.
The WBA Board put substantial resources behind Government Relations team, working alongside our contract lobbying firm of Schreiber GR, spent countless hours talking with many key elected officials to ensure passage of the ultimately agreed upon language in the budget bill. Many bankers were also involved in conversations with key elected officials at various times throughout the last 18 months to provide a constituent voice on behalf of the industry. This multi-faceted, coordinated effort was necessary to achieve this milestone; however, it also would not have happened their constituents and WBA about this unfair tax advantage and the impact it has and is having on the banking industry, we would not have achieved this result. If the industry is silent and not represented, the industry will be on the menu for dinner.
Despite this historic achievement, WBA’s advocacy on this new tax law is not done! WBA staff is shifting focus to the Department of Revenue as we look for guidance and rules to interpret copy from our Legal team at firstname.lastname@example.org.
Thank you to the banking advocates who continue to stand alongside the Association to promote a heathy environment for banks in Wisconsin — your voice makes a difference! WBA staff look forward to seeing you at one of our upcoming events and celebrating this historic victory with you.