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    High tariffs, immigration crackdown, funding cuts: BU professor warns of ‘Trump Trifecta’ 

    Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 

    Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

    What Is ‘Big Law?’ 

    Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

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    Boston dockworkers among thousands on strike nationwide 

    High tariffs, immigration crackdown, funding cuts: BU professor warns of ‘Trump Trifecta’ 

    Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 

    Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

    What Is ‘Big Law?’ 

    Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    The Right Amount of Cards, Cash and ID to Carry in Your Wallet

    The ‘Best and Final’ Job Offer Usually Isn’t Final. How You Can Negotiate 

    From Hollywood to the Hardware Store: The Real-World Impact of a 100% Tariff 

    From Hollywood to the Hardware Store: The Real-World Impact of a 100% Tariff 

    Bank Failures Show Us What Not to Do with Our Own Finances

    Bank Failures Show Us What Not to Do with Our Own Finances

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    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Tariffs and Their Economic Impact

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Navigating Internet Privacy: Unpacking Cookies, Dark Patterns, and Future Data Protection Challenges (2)

    Beyond Prototypes: Rethinking Innovation in Complex Ecosystems with Prof. Douglas Hannah

    Beyond Prototypes: Rethinking Innovation in Complex Ecosystems with Prof. Douglas Hannah

    Is Business Broken? Season 2 out now! 

    Is Business Broken? Season 2 out now! 

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

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    Life After Cookies: Who Uses Google’s Privacy Sandbox? – Garrett Johnson

    Life After Cookies: Who Uses Google’s Privacy Sandbox? – Garrett Johnson

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Real Estate Ripples from a Landmark Settlement

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    The Hidden Wisdom of Cultural Pushback

    S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

    Fusion Strategy: Navigating the Industrial Evolution

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    Sen. Elizabeth Warren and Rep. Madeleine Dean demand food and beverage CEOs put a stop to ‘shrinkflation’ 

    Mass. leaders worried for seniors and kids as Trump agenda bill clears House 

    What Is ‘Big Law?’ 

    Stop Making Cents: US Mint Moves Forward With Plans to Kill the Penny 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How to Attract (and Keep!) the Best Gen Z Employees 

    How Retailers Can Capitalize on the “Refund Effect”

    Could the GPT Store Turn ChatGPT into a Platform Powerhouse? 

    The Right Amount of Cards, Cash and ID to Carry in Your Wallet

    The ‘Best and Final’ Job Offer Usually Isn’t Final. How You Can Negotiate 

    Bank Failures Show Us What Not to Do with Our Own Finances

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    In a ‘work-from-anywhere’ world, where are people working?

    79,000 lost jobs. $13 billion in GDP gone. Study tallies potential hit to Mass. from Trump’s ‘economic attack.’

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    Trump Administration Cancels Scores of Grants to Study Online Misinformation 

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    Leading Global Teams Effectively 

    How Retailers Can Capitalize on the “Refund Effect”

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Home Our Insights Business Functions Finance & Accounting

Your Bank’s Tax Structure May Be Costing You Money

Adriane AylingbyAdriane Ayling
May 13, 2019
in Finance & Accounting
17
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Your Bank’s Tax Structure May Be Costing You Money
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You probably don’t know if your bank files its taxes as an S corporation or a C corporation, but your wallet might. As local competition heats up, banks are strategically converting to organizational structures that lower their overall tax burdens — and benefit their customers.

New research by Questrom’s Petro Lisowsky, the University of Illinois – Urbana-Champaign’s Michael Donohoe, and University of Florida’s Michael Mayberry suggests that banks moving from the double-layered taxation of C-corporations to the single-layer of S corporation taxes pour those savings into marketing budgets and customer benefits. “When you’re doing your personal banking at a C-corporation bank, you’re [likely] paying higher interest rates on your mortgage and receiving lower interest rates on your deposits,” says Lisowsky. “Banks are passing those costs on to you.”

While all banks were required to file as C-corporations for decades, relaxed regulations starting in 1996 allowed banks to move to the tax-advantaged S-corporation form. To learn how different tax structures affected competition, the trio analyzed 14 years of data from more than 4,400 private commercial banks across the United States.

While there are a variety of different advantages to C-corporations linked to ownership and opportunities to raise capital, the group’s research suggested that lower tax burdens were a significant draw for banks. They found that as S-corporation banks got more competitive in any given metropolitan area, rival C-corporation banks were increasingly likely to convert to S-corporation status.

For banks that made the switch, the aggregate savings from the first year of these tax reductions was more than $372 million. In the years that followed, those banks bumped up deposit interest rates by an average of 1.2 percent for core deposits and 1.4 percent for large deposits. Banks also increased the amount they spent on advertising and marketing by about 11 percent.

For Lisowsky, the larger lesson isn’t just about bank tax structures, but about the complexity of the country’s tax system itself. “Companies will always find ways to take advantage of tax structures, assembling and reassembling themselves like crossword puzzles,” he says. “It’s time to pare down all of these complex business structures. It’s time to simplify all the forms that businesses take so we can level the playing field.”

Read the entire paper on SSRN.

Tags: Pete Lisowsky
Adriane Ayling

Adriane Ayling

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