By Ray Birch
DETROIT—As tax reform legislation markup is underway, bankers are not missing opportunities to suggest ways to tax CUs, including a proposed tax on credit union purchases of banks.
But the pioneer of CU/bank buys, Michael Bell, said he does not expect that request to be written into the tax code, as the bankers’ argument for the tax has never stood up in the past, especially when discussed in detail in front of legislators across the country.
“This is a big-picture discussion,” said Bell, a partner and chair of the Financial Institutions Practice Group at Honigman, LLP. “On the surface it’s very easy to say, oh, credit unions are buying banks, you should tax them. That sounds good, it may seem to make sense on the surface, but in the end it doesn't.
“In our country the main industries have both for-profit and not-for-profit or cooperative players— banking, healthcare, retail, energy…,” Bell noted. “Since the beginning of those industries they have done business together. For example, for-profit and nonprofit hospitals do M&A deals. For-profit and nonprofit energy companies do M&A deals, just like for-profit and nonprofit financial institutions do M&A deals. Nowhere has there been any reason, or any factual basis, to tax the cooperative or nonprofit side of those transactions because these deals are happening You don’t see for profit hospitals or energy companies demanding that the cooperatives in their industries pay tax”
Bell, who has been part of more than 75 whole-bank agreements, plus additional bank branch purchases, insisted it doesn't make sense to begin taxing CU purchases of banks.
“If you do it here, you better do it everywhere. And there's no reason to do that because, again, it's just this emotional, political argument,” he said.
Michael Bell
Peel Back Layers
Bell said that as soon as the argument’s layers are peeled back, the premises behind it are clearly false.
“We already have laws and regulations on the books that anticipate these transactions and there are pieces of our tax code, depending upon how transactions are structured, that require a tax to be paid today,” explained Bell. “So, in certain instances when a nonprofit merges in a for-profit in any industry, including ours, there's a special tax that gets paid.”
Going back over all the deals credit unions have done, the movement has paid hundreds of millions of dollars in this tax already, noted Bell.
Yet, if bankers get their way and these deals get taxed, Bell forecasts a negative effect on these transactions.
Bell addressed how some states have passed laws that limit banks’ ability to sell to a credit union.
“Because of other political and pointless laws they've passed in certain states…The value of community banks in those states has materially dropped,” said Bell. “Courtesy of the Independent Community Bankers of America, every small bank in Tennessee and Mississippi is now worth less money than it was a year ago. To what end? I guess to satisfy the banking trade group at the expense of the very banks they are supposed to advocate for.”
There are unintended consequences to these kinds of rules, said Bell.
“And it's really unfortunate. Don't forget, nowhere is there a requirement for a bank to sell to a credit union. There are no hostile takeovers,” he said. “One hundred percent of these transactions are 100% voluntary.”
Bell often speaks to regulators and state legislatures on the topic of limiting CU purchases of banks and a possible tax on the agreements.
“Recently I've been in front of seven different state legislatures. Once we discuss this in full, everybody realizes there's no substance. The emperor has no clothes,” Bell said. “They realize this is not something we should be concerned with. But once they hear a clear perspective and all of the facts, every single time the conclusion is this is not an issue, it's not a problem. It’s a free market.”