Study: Bentley bank tax hike will cost Alabama consumers millions

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March 4, 2015

MONTGOMERY, Ala. — When Governor Bentley rolled out his $541 million tax increase proposal last week, he estimated that $1 million of that increase would come from eliminating the tax credit financial institutions receive against the Financial Institution Excise Tax (FIET). But while eliminating the FIET exemption is but a very small part of Bentley’s plan, banks around the state estimate that it will cost them — and ultimately their customers — far more than the relatively paltry sum the tax increase will bring into the General Fund.

In a newly released report by the Alabama Bankers Association, the group writes that “if the Governor’s estimate is accurate — and ABA thinks it’s too low — eliminating this exemption would actually cost banks a total of approximately $4.25 million per year.”

And the ABA’s President and CEO Scott Latham is adamant the tax increase won’t only hurt banks, consumers will feel a pinch from the hike, too.

“Increased taxes… will weaken our efforts to provide cost-effective banking services to individuals, small businesses and industries,” Latham told Yellowhammer. “Ultimately, it is the consumer who stands to lose the most.”

Alabama’s FIET law and accompanying exemption dates back to 1935, when the state government gave FIET payers a tax credit to offset any future tax increases from the state. According to the ABA’s report, banks could have been shielded from new taxes levied by the state through federal law, but they agreed to the imposition of the FIET with the condition that they would not be subject to future taxes passed by the state legislature. This agreement gave banks a FIET tax credit for any sales, use or utility taxes paid by the bank when they were later made law.

The ABA claims eliminating this exemption would not only go back on an 80-year long agreement, it would hurt local banks much more than the Governor’s price tag suggests.

The ABA also points out that if the Governor was seeking to make the tax system more fair, as he has claimed, he would actually remove a little-known burden imposed on Alabama’s banks through the Business Privilege Tax (BPT).

“Though all businesses in the state, including banks, must pay the BPT, a non-bank or non-insurance company taxpayer will never pay more than $15,000 in BPT taxes in a year,” the ABA said. “The maximum threshold for a bank, on the other hand, is $3 million. Consider this: if the same $15,000 maximum threshold applied to all BPT taxpayers, banks would collectively pay about 86 percent less in annual BPT taxes.”