SESSION OF 2020
SUPPLEMENTAL NOTE ON SUBSTITUTE FOR SENATE
BILL NO. 238
As Recommended by Senate Committee on
Financial Institutions and Insurance

Brief*
Sub. for SB 238 would amend field of membership
requirements placed on state-chartered credit unions to
increase the permissible geographic area for a credit union’s
field of membership. In addition, the bill would permit national
banking associations, state banks, trust companies, and
savings and loan associations, for all taxable years
commencing after December 31, 2019, to deduct from net
income the net interest income received from business loans
attributed to Kansas and the net interest income received
from single family residence loans to the extent such interest
is included in the Kansas taxable income of a corporation.

Field of Membership—Credit Unions
The bill would amend one of three criteria (occupation,
association, and geographic) associated with defining field of
membership for state-chartered credit unions in the State
Credit Union Code (Code). Continuing law requires credit
union members to be linked under by one of three fields of
membership.
Under current law, a geographic area is permitted to
include a single political jurisdiction or multiple contiguous
political jurisdictions, until the aggregate total of the
population of the geographic area reaches 500,000. The law
further provides, however, if the headquarters of the credit
____________________
*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.kslegislature.org
union is located within a metropolitan statistical area (MSA) of
more than one county, a different maximum population limit
would apply. That limit is determined by a formula:
Multiply the population of the most populous
MSA within Kansas (i.e., the population of the
Kansas City MSA counties within Kansas) by
the fraction having 1.0 million as the numerator
and 750,000 as the denominator. [Note:
Current population numbers are those of the
adjusted federal census information presented
to the Legislature by the Secretary of State.]
The bill would modify the above criteria to:
● Permit a single political jurisdiction (continuing
law);
● Increase the permitted maximum for multiple
contiguous political jurisdictions for an aggregate of
the total population from 500,000 to 2.5 million, as
determined by official state population figures, or
any portion thereof, which are identical to the
decennial census data from the enumeration
conducted by the U.S. Census Bureau (language
attributable to the Census data is located in the
definition of “population data” in the current field of
membership requirements); and
● Remove language that separately applied to credit
unions with headquarters located within an MSA of
more than one county (allowed for a different
maximum population limit).
The bill would also modify a requirement that provides,
from and after July 1, 2008, no geographic area shall consist
of any congressional district or the entire state of Kansas to
instead state no geographic area shall consist of the entire
state of Kansas.

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 The bill would remove definitions within the Code for
“MSA,” “population data,” and “overt act.” Some of the
requirements within the definitions had been specific to
operations of credit unions, including branch locations,
construction of new buildings, and membership of occupation
or association groups on or before either February 1, 2008, or
June 30, 2008.

Kansas Financial Institutions Privilege Tax—Definitions
The bill would permit a deduction from net income for
financial institutions subject to the Kansas Financial
Institutions Privilege Tax (privilege tax). It would create
definitions for the terms “business,” “interest,” and “single
family residence” and would also create a calculation
methodology for “net interest income from business loans”
and for “net interest from single family residence loans” as
follows:
● “Business” would mean any entity operated
primarily for commercial or agricultural purposes
and not an individual obtaining a loan primarily for
personal, family, or household purposes;
● “Interest” would mean interest on indebtedness
attributed to Kansas and incurred in the ordinary
course of the active conduct of any business and
interest on indebtedness incurred that is secured
by a single family residence;
● “Net interest income received from business loans”
would mean the product of the ratio of the interest
income earned on business loans over total
interest earned, in relation to the net income of the
national banking association, state bank, trust
company, or savings and loan association without
regard to this deduction;


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 ● “Net interest received from single family residence
loans” would mean the product of the ratio of the
interest income earned on single family residence
loans over total interest income earned, in relation
to the net income of the national banking
association, state bank, trust company, or savings
and loan association without regard to this
deduction; and
● “Single family residence” would mean a residence
that is:
○ The principal residence of its occupant;
○ Located in Kansas, in a rural area as defined
by the U.S. Department of Agriculture that is
not within a MSA and has a population of
2,500 or less as determined by the most
recent census for which data is available; and
○ Purchased or improved with the proceeds of
the loan.

Background
Privilege tax legislation introduced in 2019 (SB 238 and
SB 239) was one of several topics assigned to the interim
Special Committee on Financial Institutions and Insurance.
The Special Committee held a combined hearing on the two
bills and received testimony from the interested parties. This
committee made no recommendation on SB 238, which also
would have created a similar deduction to that in SB 259, as
introduced, and did not recommend SB 239, which would
have imposed a privilege tax on certain credit unions.
The Senate Committee on Financial Institutions and
Insurance (Senate Committee) recommended a substitute
bill, which removes the original contents of SB 238 as
introduced by the Senate Committee on Assessment and
Taxation (privilege tax) and inserts provisions of SB 259

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(financial institutions, privilege tax and field of membership),
as amended by the Senate Committee, with technical
amendments suggested by the Office of Revisor of Statutes.

SB 259 – Financial Institutions, Privilege Tax and Field of
Membership Requirements
SB 259 was introduced by the Senate Committee at the
request of the Kansas Bankers Association (KBA).
In the Senate Committee hearing on January 21-22,
2020, proponents included representatives of the KBA and
Community Bankers Association; officials from Farmers &
Drovers Bank, First Bank Kansas, Heartland Tri-State Bank,
and Kaw Valley Bank; and the owner of a ranch partnership.
Written-only proponent testimony was provided by officials
with Alden State Bank, City State Bank, Community State
Bank, Denison State Bank, Fidelity State Bank & Trust, First
National Bank & Trust, First State Bank, Stanley Bank, The
Bank, TriCentury Bank, and Vision Bank. Proponents
generally commented on the issue of fairness for banks,
especially as it applies to the current privilege tax, with the
KBA representative stating the bill would help “level the
playing field” between lenders. Several conferees indicated
the bill would help revitalize rural communities, benefit
borrowers with lower rates, and sustain local access to credit.
Opponents appearing before the Senate Committee
included representatives of the Heartland Credit Union
Association (HCUA); officials from Envista Credit Union,
Farmway Credit Union, Frontier Community Credit Union,
Mainstreet Credit Union, McPherson Co-Op Credit Union,
and Skyward Credit Union; and the Kansas Cooperative
Council. Written-only opponent testimony was provided by
officials with Azura Credit Union, Catholic Family Credit
Union, and Credit Union of America. Opponents generally
commented on the credit unions as non-profit cooperatives
with a different corporate structure, with the HCUA stating
taxation of financial institutions is determined by the corporate

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structure the financial institution chooses. Conferees also
highlighted structural rules and differences between credit
unions and other financial institutions or lenders, including a
federal cap on certain business lending, field of membership
laws, and a state prohibition on the deposit of public funds.
The Senate Committee amended the bill to limit
business and residential loans subject to the permissible
deduction from the privilege tax created by the bill to those in
Kansas and add provisions that would modify field of
membership requirements placed on credit unions.
The fiscal note prepared by the Division of the Budget
on SB 259, as introduced, states the Department of Revenue
(Department) estimates the bill would decrease state
revenues by $43.0 million in FY 2021, all from the State
General Fund. The Department further indicates the bill would
not limit the deductions to loans tied to Kansas; banks making
loans in other states or foreign counties would be able to
claim interest from those loans as a Kansas deduction. The
Department concludes the bill would likely eliminate all
Kansas privilege tax liability. [Note: The Senate Committee
amendment would add limitations on loans subject to the
deduction.] Any fiscal effect associated with enactment of the
bill is not reflected in The FY 2021 Governor’s Budget Report.
A revised fiscal note was not immediately available for
the bill, as amended by Senate Committee.


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Statutes affected:
As introduced: 79-1109
Version 2: 17-2205, 79-1109