My corporate income tax proposal isn’t not even a full day old, and already, the South Dakota Legislature has before it a bill moving in my direction on the state’s income tax on banks. Request by the Department of Revenue, Senate Bill 53 changes a number of provisions of the state bank franchise tax, the tax we impose on the income of banks and financial institutions.
The change I like comes in Section 4, in which SB 53 eliminates the crazy regressive tax rates the bank franchise tax currently imposes, from 6% on the first $400 million in net income to a measly 0.25% on income over $1.2 billion. I proposed a progressive scheme from 2% to 8%; the Department of Revenue prefers a flat rate of 6% on all net bank income. A flat rate is still regressive, but it’s better than the current declining rates for the richer banks.
Of course, there may not be many richer banks for us to soak with this new, higher flat rate for all bank income above $400 million. Our Revenuers floated this flat rate once before, in 2013 (HB 1045); that bill got hoghoused into something else, leaving the regressive rates in place. At that time, state officials said no banks had netted more that $400 million for several years. David Montgomery reported that Citibank was the only bank that ever posted more net income than that… and the state has already shown that it doesn’t mind soaking Citibank for more taxes than it expected to pay.
Whoever pays the bank franchise tax and however much they pay, they’d better be ready to do it online. Section 10 of SB 53 requires electronic submission of all returns and payments for bank franchise tax, and Section 12 gets rid of the requirement of the Secretary of Revenue to prepare and distribute forms.
SB 53 is a small step toward a more progressive tax system for the one industry sector South Dakota currently feels can bear an income tax. Now let’s see if we can get legislators to apply that logic here and in other areas of the tax system.
Good bill. 6%.
Where do those trillions sit gathering dust? Are those not banks?
Why don’t credit unions pay the tax? Instead they are allowed to operate as tax free banks.
I’m afraid I can’t answer that—anyone know?