Banking and Finance Law Report

On December 11, 2012, the Ohio General Assembly approved a measure (H.B. 510) that will reform how banks and other financial institutions are taxed by the State of Ohio. Governor John Kasich is expected to sign the bill into law today. If enacted, the changes will take effect for tax years starting in 2014.

This bill expands reforms instituted in 2005 when the State of Ohio overhauled its business tax regime by phasing out the corporation franchise tax and the personal property tax for most corporations and implemented the commercial activity tax in their place. Financial institutional taxation did not substantially change at that time. Until now, financial institutions were subject to one of two alternative taxes, the corporation franchise tax and the intangibles tax. The new law will replace these two taxes with a single financial institutions tax. 

The new tax would broaden the tax base by reducing deductions and exemptions, but generally apply lower tax rates. The tax base would be closely tied to equity capital reported for financial regulatory purposes and allocated to Ohio using a single factor based on Ohio gross receipts.

Different tax rates would apply to different tiers of capital.  The bill would cause the first $200 million of Ohio capital to be taxed at 0.8%, capital between $200 million and $1.3 billion would be taxed at 0.4%, and capital above $1.3 billion would be taxed at 0.25%. An annual minimum tax of $1,000 would apply.

Dealers in intangibles not subject to the new financial institutions tax would no longer pay the intangibles tax but instead be subject to the commercial activities tax.