Ohio General Assembly Approves Bank Tax Reform Legislation

Posted on December 18, 2012 by Mark Snider

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.

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Financial Institutions Tax Reform Stalled in Ohio Senate

Posted on July 24, 2012 by Mark Snider

Legislation to significantly change the way Ohio taxes financial institutions is tied up in the Ohio legislature – for the time being, anyway. Although the Ohio House of Representatives passed H.B. 510 to overhaul Ohio taxation of financial institutions in the spring, the Ohio Senate stalled work on the legislation before its summer recess. 

Stated reasons for the delay are that the Senate has more pressing legislation to deal with (the financial institutions reform bill would not take effect until 2014) and because of some concern that the estimates of the amount of revenue that would be raised from the new tax structure are too optimistic. However, Senate leadership has expressed commitment to passing the legislation later in the year. 

The governor and others are touting the bill as shifting the relative tax burden from smaller banks to larger banks while lowering rates overall. 

The bill is designed to do four things:  (1) close “loopholes” that some think are being used by larger, multi-state institutions, (2) replace two alternative taxes (the corporate franchise tax and the intangibles tax) with a single tax, (3) reduce tax rates, and (4) change the “apportionment” formulas that financial institutions use to apportion what is taxable capital inside Ohio versus their entire capital.

The new law would tax all of a bank’s Ohio-sourced capital without deductions, although different tax rates would apply to different tiers of capital.   As passed by the Ohio House, the bill could 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%. 

We will provide additional updates as they become available.

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Ohio Financial Institutions Tax Reform

Posted on May 18, 2012 by Mark Snider

The Ohio House of Representatives has passed H.B. 510 which overhauls the taxation of financial institutions by the State of Ohio. The legislation is expected to move through the Ohio Senate committee process immediately. The governor and others are touting the bill as shifting the relative tax burden from smaller banks to larger banks while lowering rates overall.

The bill is designed to do four things:  (1) close “loopholes” that some think are being used by larger, multi-state institutions (for example, shifting funds among affiliates and exempting goodwill), (2) replace two alternative taxes (the corporate franchise tax and the intangibles tax) with a single tax, (3) reduce tax rates, and (4) change the “apportionment” formulas that financial institutions use to apportion what is taxable capital inside Ohio versus their entire capital.

The new law would tax all of a bank’s Ohio-sourced capital without deductions, although different tax rates would apply to different tiers of capital. As amended and passed by the Ohio House, the bill could 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%. There have been efforts by Democrats to increase these rates through amendments to the bill, although those efforts failed in the Ohio House.

Under the current law, the corporate franchise tax rate is 1.3% and the intangibles tax rate is 0.8%. All financial institutions would benefit from the lower overall rates although the elimination of deductions and exemptions broadens the overall tax base.

Under current law, appointment is based on a three-factor formula that includes property, payroll, and sales within Ohio.  The new tax would use a single formula based on how much of the bank’s gross receipts are in Ohio. The change in the apportionment formula probably doesn’t affect smaller banks that operate solely or primarily in Ohio very much – under both the current apportionment formula and the new one, most of their capital would likely be apportioned to Ohio. The apportionment change would likely affect larger financial institutions more.

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