Every now and then a credit union opponent makes the claim that credit unions “don’t pay taxes.”

When you hear this, run the other way. You’re talking with someone playing fast and loose with the truth.

Because, quite simply, the statement is false.

Credit unions pay property taxes on buildings, office equipment and other physical property, the several payroll taxes, business license fees, and sales tax. The one exception to the above item is that Federal credit unions do not pay sales tax because they are instrumentalities of the Federal government, and have a 501(c)(1) tax status.[1]

The false statement could easily become true if qualified with a single word: income. “Credit unions don’t pay income taxes.” This is a true statement, and it’s certainly what the opponents mean (because they know that credit unions pay all those other taxes, and wouldn’t exaggerate to help their argument, right?). But it’s more incendiary and fun for those opponents to say that credit unions don’t pay any taxes.

Credit unions are not subject to income taxes. This has been the case since their inception. Why? Please see the related article on this topic.

Notably, credit union opponents also say silly things like, “credit unions have the same tax status as the Girl Scouts and churches.”

Again, be suspect of any person who says this. They’re saying something that sounds correct but isn’t really—because while it’s true that those organizations don’t typically pay income taxes, like credit unions, the comparison is not entirely accurate. The tax exemption is granted for different reasons. In fact, the precise tax status is different.

Section 501(c) of the IRS code lists the different categories of tax exempt organizations.[2] Charities are, as you probably know, are 501(c)(3). They have status as a 501(c)(3).

On the other hand, Federal credit unions are 501(c)(1) organizations, and state-chartered credit unions fall in the category of 501(c)(14). There are, in fact 28 different types of 501(c) categories. There are 28 different exempt statuses, and credit unions do not fall in the same category as charities.

Credit union opponents basically say that because credit unions don’t fulfill the exact same social purpose as charities, they should not be tax exempt. But the notion that tax exemption can and should only be given to organizations fulfilling a narrow, charitable social purpose would eliminate the tax exemption of many different types of organizations (including some banks). Government has determined that it’s good public policy to grant tax exemption for several reasons, not just for charity.

So, yes, credit unions and charities don’t pay income taxes—but for different reasons—both of which are equally valid in the eyes of the IRS.

And, yes, credit unions pay taxes. Just not income tax. And also, in the case of Federal credit unions, sales tax.