State of Washington enacts tax on bank-acquiring credit unions

The state of Washington recently enacted a 1.2 percent tax on state-based credit unions that acquire a bank. A local banking attorney said the legislation could be mirrored in other states. .The law, the first of its kind in the country, was issued Jan. 28 and effective at the start of this year. It covers Washington state-based credit unions that buy a bank and subjects them to the state’s business and occupation tax. Exempt are CUs that applied for regulatory approval before Jan. 1; CUs organized under the laws of another state; and federally-chartered CUs. The Community Bankers of Washington supported the law, citing the estimated $130 million the exemption cost the state annually. Of the record 22 CU-bank buys in 2024, a half-dozen were in the Evergreen State. Tennessee and Mississippi already ban credit unions from acquiring state-chartered banks, while in 2022 a state judge in Nebraska blocked a credit union from buying a state-chartered bank. In 2023, a Minnesota court upheld a decision not allowing a credit union from acquiring a state-chartered bank.The legislation could spark similar laws in Midwest states, said Karen Grandstrand, chair of the bank and finance group at Minneapolis-based law firm Fredrikson. She said state governments and the federal government should consider implementing similar tax structures to avoid the loss of tax revenue from banks being absorbed by tax-exempt CUs. “This is historic,” she added.