Letter from Phil Kirk

Banks Do Pay Taxes

Anti-business critics in the legislature would lead you to believe that banks pay little or no taxes. But according to a study done by Dixon Odom PLLC for the North Carolina Bankers Association, North Carolina banks paid more than $275 million in taxes to North Carolina state and local governments in 2001.

The banking industry is subject to an intricate structure of federal, state and local taxes. The study found that North Carolina’s bank taxes are among the most complex. That is perhaps why critics of banks are able to use rhetoric and misleading information to cast the banks in a bad light.

The Dixon Odom study compared the tax structure that banks are subject to in our state with Delaware, Florida, Georgia, Maryland, South Carolina and Virginia.

The tax burden North Carolina places on a model bank and its bank holding company is the second highest of the seven states studied. Florida’s banks have the highest tax burden and Delaware has the lowest.

The model used in this study was based on the average-sized bank in North Carolina after excluding the state’s two largest multi-state institutions, Bank of America and Wachovia.

North Carolina imposes more different types of taxes on banks than any other state included in this study. Banks in North Carolina are subject to the following taxes: corporate income tax (we have the highest in the Southeast!), franchise tax on net worth, privilege taxes, real and personal property taxes, sales and use taxes and unemployment compensation taxes.

So much for our being a business-friendly state, at least when it comes to tax burden. When one adds the factor of our extremely high marginal rate on personal income taxes for individuals, it is amazing that we are able to attract and retain highly compensated executives!

Dixon Odom was also charged with studying the economic input the banking industry has had on North Carolina. In 1995, we had 122 commercial banks and savings institutions that were insured by the Federal Deposit Insurance Corporation. During the next six years, the number of insured banks in N.C. declined 8.7 percent while the average for the other states in the study declined 17.7 percent.

North Carolina — and Charlotte, in particular — is the second leading financial services center in the nation. We are home to two financial institutions — Wachovia and Bank of America — that have assets of more than $300 billion each.

Pro-business legislation passed by the North Carolina General Assembly, except in the area of taxation, has helped us attain that ranking. However, NCCBI, the North Carolina Bankers Association and others have to fight the anti-business attitude of some in the legislature who wants banks to pay more and more in taxes. If this attitude ever is embraced by a majority in the legislature, we can kiss our No. 2 ranking goodbye. It is too easy to move corporate headquarters these days to friendlier states. We lost the credit card industry to other states due to legislative inaction to save it.

North Carolina’s banks — large and small — are significant positive forces in the community and state both in financial donations and in volunteer time, especially in the field of education. In 2001, it is conservatively estimated that North Carolina banks made contributions to North Carolina charitable organizations in excess of $32 million.

In terms of producing jobs, the number of banking employees has grown from 31,000 in 1985 to 85,000 in 2001 — a spectacular growth rate of 175 percent compared to the overall state employment growth rate of 47 percent. The average salary was $54,000 in 2001.

Banks headquartered in North Carolina provide for the availability of funds to finance construction, the purchase of homes and personal property, and for the working capital need of the state’s citizenry. Banks have also been a significant purchaser for state and local government agencies.

North Carolina is truly blessed to have a civic-minded and efficient system of banks. We should not take them for granted, and we should realize the high tax burden they do pay in our state.

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