PARKERSBURG and CHARLESTON, W.Va. (6/9/08)--The West Virginia Credit Union League has written a letter to city officials of Charleston, W. Va., warning that the city's intent to tax credit unions would violate both state code and the Federal Credit Union Act. The league learned through a third party that the city of Charleston intended to propose a business and occupation (B&O) tax on earnings of credit unions as part of the state's Municipal Home Rule Pilot Program. State legislation had given five cities permission as part of the project to find new ways to tax locally. Charleston is the first city to apply, Rich Schaffer, senior vice president of the league, told News Now, noting city officials "may think they may have more leeway than the law allows." The Home Rule Commission approved the city's plans, but the matter has not gone before the City Council yet. League President Kenneth R. Watts, in a letter sent May 30 to City Manager David D. Molgaard and other city officials, outlined why taxing credit unions would be a violation of the state and federal code. "As not-for-profit financial cooperatives, credit unions are exempt from taxation at both the federal level (12 USC Sec. 1768) as well as the state level (WV Code Sec 31C-2-8)," Watts wrote. "This exemption applies to any tax on capital, reserves, surpluses, income, or shares. Both citings are very specific statutory exemptions which I hope will sufficiently eliminate credit unions from any future consideration regarding sources of potential tax revenue," Watts wrote. Watts also clarified a statement in city documents about "unrestricted 'full service' credit unions." "It would seem you feel credit unions are not 'restricted' or perhaps not regulated," Watts wrote, adding that credit unions in the state are regulated by the National Credit Union Administration and the state's Division of Banking, and that credit unions must comply with all applicable consumer laws and regulations that apply to other financial institutions except the Community Reinvestment Act. "It appears that you feel credit unions should be subject to B&O taxes due to their ability to offer an array of services and to serve communities rather than a 'particular business or organization.' Watt wrote. "Since their inception in the U.S. in 1907, credit unions have always had multiple ways to serve their member/owners. While a common way was to have an occupational common bond, credit unions could also be organized to serve anyone within a specified community," Watts explained. He cited as examples: the first credit union in the U.S., which served a parish in Manchester, N.H., and the first credit unions formed ever--in Germany in the mid 1800s. "Both the U.S. Congress and the West Virginia Legislature have deemed credit unions worthy of a tax exemption due to their structure, not based upon the services they provide," he emphasized before outlining the not-for-profit financial cooperative, democratically controlled and governed by unpaid volunteers. He noted the restrictions credit unions have in ways they can raise capital. Watts offered to meet with city officials for a further discussion. The league's attorney has also contacted the city's attorney as a professional courtesy. Schaffer told News Now Friday the league had hoped to have a response by then, and added the league would monitor the situation for further action.