Last December, Ohio Governor John Kaisch signed into law legislation that reforms and updates the manner in which Ohio taxes financial institutions. The law provides for a new Financial Institutions Tax (FIT), which will replace the longstanding corporation franchise tax (CFT) while repealing the tax on dealers in intangibles when the law takes effect on January 1, 2014. Accordingly, the law eliminates the requirement for financial institutions to file the CFT for years subsequent to 2013.

Entities Subject to FIT

The FIT is imposed on “financial institutions” which are defined generally as a:

  1. bank organization,
  2. holding company of a bank organization, or
  3. nonbank financial organization.

Under the new law, a “bank organization” includes the same types of entities that are currently subject to the CFT. Further, a “nonbank financial organization” is defined as any person that is not a bank organization (or holding company thereof) and that engages in business primarily as a small dollar lender—defined as lenders of loans less than $5,000, the duration of which is less than 12 months.

Tax Base and Tax Rate

Tax Base. The new tax base under the FIT is “total equity capital,” which is a product of a financial institution’s total equity capital at the end of the taxable year multiplied by the Ohio apportionment factor (discussed below).

A financial institution's total equity capital is calculated as the sum of all of its equity components. The new FIT does not include the equity of any noncontrolling interests, unless such interests are in a bank organization or a bank holding company.

Tax Rate. When the new law takes effect, financial institutions will be subject to the greater of:

  • A $1,000 minimum tax, or 
  • The institution’s total Ohio equity capital multiplied by:
    • 0.8% on the first $200 million of Ohio equity capital.
    • 0.4% on the excess over $200 million up to $1.3 billion.
    • 0.25% on capital in excess of $1.3 billion.

Institutions should note that these rates will likely change, as the law provides for an increase or decrease in the tax rate based on what the FIT actually brings in from a revenue perspective.

The Apportionment Methodology

The three-factor apportionment formula previously used by the CFT is replaced by a single gross receipts factor under the new FIT. “Gross receipts” means all items of income, without deduction for expenses. However, this metric includes different items depending on the classification of the financial institution.

The numerator of the apportionment factor is the financial institution’s total gross receipts in Ohio during the taxable year, and the denominator is the total gross receipts everywhere during the taxable year. In line with current tax regime trends, the FIT uses a market-based sourcing methodology, which sources gross receipts to Ohio in the proportion that that the customers’ benefit in Ohio from the services received bears to the customers’ benefit every from those same services.

The new law offers fourteen examples of receipts that need to be included in the numerator, which include: (i) receipts from the lease of tangible or real property; and, (ii) loan servicing fees (a) derived from loans secured by real property located in Ohio, or (b) from loans not secured by real property in Ohio if the borrow is located in Ohio or derived from servicing loans from other financial institutions if the borrower is located in Ohio.

Estimated Payments

The “reporting person” for a taxpayer must file estimated tax reports and make corresponding payments. Estimated payments for the first annual FIT reports—based on the taxpayer’s year ended December 31, 2013—are due no later than the last calendar days of January, March, and May 2014. Generally, the “reporting person” will be the bank organization or nonbank organization. However, special rules apply to consolidated groups and bank organizations owned directly by a “grandfathered unitary savings and loan holding companies.”

Annual Report

In addition to making estimated payments, the reporting person must file an annual report by October 15 of each tax year. The annual report, based on the taxpayer’s prior tax year as noted above, must be accompanied by any remaining tax due. Thus, the annual FIT report based on a taxpayer’s year ended on December 31, 2013 must be filed no later than October 15, 2014 (and accompanied by the balance not remitted by May 31, 2014, if any). Failure to file reports or remit payments may result in a penalty, which is in addition to other penalties authorized by the statutory scheme, including penalties established in § 5726.21.1


Each entity included in an annual report is jointly and severally liable for the FIT and any related interest and penalties. Consequently, if the reporting person fails, for any reason, to file and remit any tax, the amount due may be collected by assessment against the reporting person and against any or all other persons required to be included in the annual report.

Tax Credits

Various credits against the FIT are available to taxpayers, including certain authorized tax credits, a one-time credit for groups including as a member a dealer in intangibles, and carryovers of unused portions of nonrefundable credits that could have been claimed against the CFT or DIT. Authorized tax credits must be claimed in a specified order. The amount of any nonrefundable credit for a taxable year may not exceed the tax due after allowing for preceding credits. Some, but not all, of these credits provide for the carryover of unused portions. Additionally, the unused portion of certain credits that could have been claimed against the CFT or DIT but for their repeal may be carried forward and claimed against the FIT.

Entities Now Subject to the Commercial Activity Tax

Not all entities currently subject to the CFT or DIT will transition to the FIT in 2014. Instead, the CAT will apply to entities that do not satisfy the definition of “financial institution” for purposes of the FIT. As a result, some entities currently subject to the CFT and most entities currently subject to the DIT will become subject to Ohio’s existing CAT regime. If an entity becomes subject to the CAT in 2014, it will need to register as a CAT taxpayer and file as either a calendar year or calendar quarter taxpayer, depending on the level of annual taxable receipts.

For example, captive finance companies and securitization companies will be subject to the CAT, as will diversified savings and loan holding companies and grandfathered unitary savings and loan holding companies. Entities that are likely to transition from the DIT to the CAT include certain financial service organizations (e.g., stock brokers, mortgage brokers, and loan companies) that are not affiliates of financial institutions that are subject to the FIT. An entity, however, that is directly or indirectly owned by one or more financial institutions that paid the FIT will be exempt from the CAT.

Notably, the CAT’s comparatively broader nexus provisions mean that many out-of-state companies that were outside the grasp of the CFT or DIT could become subject to the CAT. Under the CAT, an entity will have a “substantial nexus” with Ohio if, among other alternatives, if has a “bright-line presence” in Ohio, which does not require physical presence. New CAT taxpayers must closely scrutinize revenue streams to determine, for example, which items can be properly characterized as repayments of loans, interest income, service fees, and sales of loans. Additionally, the taxpayers must navigate complex sourcing rules, including convoluted provisions surrounding intangibles-related income.


Beginning in 2014, many of the financial institutions previously subject to the CFT or DIT will now be subject to the FIT. The differences between the schemes are notable, as the FIT employs a single gross receipts factor apportionment methodology and generally uses market-based sourcing in carrying out its unique tax base and tax rate provisions. The FIT will apply to statutorily defined “financial institutions,” which will leave some categories of entities such as captive finance companies, securitization companies, and certain holding companies subject to the pre-existing CAT regime.