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Tax Policy Fundamentals

• Credit Union and Farm Credit System Tax Exemptions date back 80 and 100 years

• Tax Code should not create winners and losers – like businesses should be treated the same

• South Dakota Bank Franchise Tax

Federal Law Protects Some Providers

Credit Unions Pay No Tax • Federal Income Tax• South Dakota Bank Franchise Tax• State or Local Sales Tax

Farm Credit Services – pays only a nominal amount

Banks pay Federal Income, SD Bank Franchise and Sales Tax

Why should Congress Repeal the Exemptions?

• Credit Unions – $1 trillion tax exempt industry• Net Income of $9 billion in 2012• Evolution of Credit Unions to a “Community Charter” - growth focus – with limited interest in

people of modest means

• Farm Credit – $250 billion arm of Federal Government• Net Income of $4.3 billion in 2012• Return on Assets of 1.74%• Limited interest in serving young, small, beginning producers

• New Revenue Would Help Reduced Federal Deficit• Credit Union Exemption = $2 billion• Farm Credit System Exemption = $1.3 billion

Banks Serve More People of Modest Means

Series1

40% 41%

31%

49%

Credit Unions

BanksBanks Credit Unions

Percentage of Customers with Low-to-Moderate Income

Percentage of Customers with Upper Incomes

Farm Credit – Mission Challenged!

• 80 to 90 % of loans are to older, well-established larger farmers

• 1,714 South Dakota Farm Service Guaranteed loans - 99% were underwritten by Banks (as of 7/31/13)

• FCS – financed luxurious vacation home for Hollywood

producer in Black Hills

FARM CREDIT: Mission Challenged.

Why is this important to you?

• National Stakeholder• You pay income taxes, Credit Unions don’t – Farm Credit

Pays a minimal amount

• Local Stakeholder• South Dakota’s Bank Franchise Tax benefits important

programs - state and local

SD Bank Franchise Tax

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 $-

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

LocalState

8 year avg. - $485,800

8 year avg. - $203,300

8 year avg. - $64,400

8 year avg. - $59,500

Cost of Protecting Status Quo - South Dakota

Annual Cost of Tax Exemptions for South Dakota

• Credit Unions $1 Million• Farm Credit $4 Million

• TOTAL $5 million*• Local Government Share = $3.7 million(*Doesn’t include lost sales and use tax revenue on products and services purchased by federal credit unions)

Tax Reform

• Bipartisan Congressional Focus on writing a simpler, more efficient, fairer tax code.

• “Blank Slate Approach” – replace current policies that benefit special interest groups

• Eliminate exemptions & increase taxable income

• Lower rates across the board

It’s time to take action

• Sign petition of support

• Contact Senator Thune, Johnson and Representative Noem

• Support tax reform, including repeal of tax exemptions for Farm Credit & Credit Unions.

• Contact our your local Legislators• Support 2014 SD Legislature Resolution of support

THE TIME TO ACT IS NOW

South Dakota’s Credit Unions

• 44 South Dakota Credit Unions• Assets = $2.6 billion Income = $21 million (2012)

• Black Hills Federal Credit Union nearing $1 billion• SD’s Community Chartered Credit Unions

• 28 Charters (63%) and $2.4 billion assets (93%)

• SD’s Multiple Bond Credit Unions• 12 Charters (28%) and $118 million assets (5%)

• SD’s Original Single Bond CU’s • 4 Charters (9%) and $55 million assets (2%)