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%.