Finally a Tax I Could Learn to Love

I know that some people are in love with the idea of putting more banks in downtown Geneva. And who can blame them? Don’t we all harbor a secret desire to be able to walk easily from bank to bank doing rate comparisons on warm summer days? On-line banking is fine for those who have no soul and cannot appreciate the charms of brick and mortar facilities where you can actually smell the money. Give me a row of banks with nary a shop or restaurant between to disturb the flow.

But not all towns are as enamored of banks. They see banks as not contributing to the overall aesthetic or to the retail tax base. Ancel-Glink, an Illinois law firm specializing in municipal law, and a publisher of a number of white papers and pamphlets for elected officials, addressed this issue in one of their monthly question and answer columns. I’m going to quote liberally from the site and hope this doesn’t violate fair use because unfortunately, there is no longer any active link to this post. Their web site is here http://ancelglink.com/ and it is an invaluable reference site for local government issues along with the Illinois Municipal League.

The question posed was, “What can a municipality do about the proliferation of non-tax generating banks in prime retail areas?”

The answer given by Ancel-Glink professionals included the following:

For economic reasons, banks like to establish branches in prime commercial areas of municipalities. Of course, banks do not generate sales tax, so a large number of branch banks in prime retail areas are not always a benefit to the community. Some municipalities have used zoning laws to impose a moratorium on establishment of new banks in certain areas. But this is only a temporary solution. The real answer is to find a way to make banks generate revenue forthe municipality.

The Illinois Municipal Code, 65 ILCS 5/11-42-1, authorizes all municipalities to license, tax and regulate bankers-not banks, but bankers. Regulation of banks is a matter of state or federal law, and municipalities cannot get involved in that area. There are undoubtedly limits on how far a municipality could go in regulating bankers, as well. But a tax does not necessarily have to involve regulation. So a municipal tax on bankers, without licensing or other regulations, and not unreasonable in amount, would seem to be within the scope of the Municipal Code...

...the Illinois Constitution, Article 7, Section 6(e)(2), provides that a home rule unit (and therefore, a non-home rule unit as well) does not have the authority to imposes taxes upon or measured by income or earnings. (The Constitution also prohibits municipal taxes upon occupations unless expressly authorized by State law. Section 11-42-1 is express authority for a tax on bankers.) So a municipal tax on bankers could not be based on the income or earnings of the banker. There are, however, other factors on which a banker tax could be based. For example, a banker tax might be based on the square footage of all the bank's branches in the community, or the number of employees of that bank working in the community. Or the tax could be a flat dollar amount.

The question of who is a "banker," subject to a municipal banker tax, will have to be answered clearly. Officers and directors of banks and local branch managers are certainly bankers. Tellers and clerks may not be. While a municipality has no power to tax outside its boundaries, officers and directors of a bank doing business in the municipality might be subject to the tax, even if they themselves do not reside or have their primary office within the community...

At the time the above opinion was rendered, no Illinois community had as yet implemented a banker tax, although some other municipalities had imposed a similar tax on real estate brokers. Lest we think that such a tax might be too harsh, note that unlike much of the rest of the economy, banks seem to be doing very well according to an article in Forbes Magazine that appeared last summer http://www.forbes.com/sites/halahtouryalai/2012/08/28/what-downturn-bank-profits-hit-34-5-billion/. The proliferation of banking facilities is another indicator of just how well banks have rebounded.

With about 80 percent of our revenues coming from sales tax, property taxes, and charges for services, we need to start looking at other possible revenue sources, especially if the economy continues to remain flat. The last time I counted we had a couple of dozen banking and lending institutions in the city. I don’t know if a banker tax would be applicable to all of them, but we ought to do an inventory and determine whether it makes sense to impose a banker tax.

I realize that a number of banks contribute to local charities and sponsor local events. That’s all fine and well. The banks get good PR while helping out worthwhile causes. But all of those contributions do nothing to help ease the tax burden in communities where banks consume prime retail space. The banker tax might not replace the sales tax revenue that a thriving business might contribute, but it would go a long way toward deflating the argument that banks add nothing to the tax base. And it would eliminate one of the down sides of permitting banks in retail districts.