United States: Ohio Enacts Legislation Overhauling Taxation Of Financial Institutions

On December 20, 2012, Ohio Governor John Kasich signed legislation that significantly modifies the taxation of financial entities in Ohio.1 The law provides for a new financial institutions tax (FIT) which replaces the Ohio corporation franchise tax currently applicable to financial institutions. In addition, the dealers in intangibles tax (DIT) is repealed, with entities currently subject to the DIT becoming subject to the state's commercial activity tax (CAT). The changes are applicable beginning January 1, 2014.

Financial Institutions Tax

The legislation imposes the new FIT beginning January 1, 2014 with the first return due October 15, 2014.2 Accordingly, the legislation eliminates the requirement for financial institutions to file the corporation franchise tax for years subsequent to 2013.3 The legislation imposes a three-bracket tax rate on the Ohio apportioned "equity capital" of financial institutions.4 The FIT apportionment is based on a single gross receipts factor.5

Entities Subject to Tax

The FIT is imposed upon financial institutions organized for profit and doing business in Ohio or that otherwise have nexus in Ohio.6 A "financial institution" is defined as a bank organization, a holding company of a bank organization or a nonbank financial organization.7 Additionally, in the circumstance when two or more of the three aforementioned entities defined as a financial institution are consolidated for the purposes of filing an FR Y-9,8 a financial institution includes all entities in the FR Y-9 filing. Moreover, the same applies when filing a call report.9 A bank organization is defined as any of the following:

  • National bank organized and operating as a national bank association under federal law;10
  • Federal savings association or federal savings bank chartered under federal law;11
  • Bank, banking association, trust company, savings and loan association, savings bank or other banking institution that is organized under the laws of the United States, any state or a foreign country;
  • Corporation organized and operating under federal law to do foreign banking;12
  • Agency or branch of a foreign bank, as defined by federal law;13
  • Entity licensed as a small business investment company under federal law;14 and
  • Company chartered under the Farm Credit Act of 1933 or a successor of such company.15

A bank organization does not include an institution organized under the Federal Farm Loan Act, or a successor of such an institution, an insurance company or a credit union.16 In addition to the entities listed above, "small dollar lenders" are also subject to the new FIT.17 Small dollar lenders are defined as persons that engage primarily in the business of loaning money to individuals provided that the loan amounts do not exceed $5,000 and the duration of the loan does not exceed 12 months.18

Equity Capital Defined

A financial institution's total equity capital includes all of its equity components such as common stock, perpetual preferred stock, surplus, retained earnings, treasury stock, unearned employee stock ownership plan shares, accumulated other comprehensive income and other equity components of a financial institution.19 The new FIT does not include the equity of any non-controlling (minority) interest so long as such interest does not meet the definition of a financial institution.20

A substantial temporary reduction from a financial institution's "equity capital" is provided for a financial institution's investment in an Ohio-qualified real estate investment trust (REIT).21 The investment is considered "Ohio-qualified" if currently, and as of January 1, 2012, the REIT is traded on a public stock exchange.22 In 2014, the reduction of equity capital from an investment in an Ohio-qualified REIT is equal to 80 percent of the investment in the REIT on January 1, 2012.23 For years 2015, 2016 and 2017, the deduction is 60 percent, 40 percent and 20 percent respectively. After 2017, no deduction is allowed. It should be noted during this phase-out of the temporary deduction related to an Ohio-qualified REIT, there is a gross receipts phase-in related to the gross receipts from such REITs.24 For example, in 2014 the temporary deduction is 80 percent of the investment in the Ohio-qualified REIT, and similarly in 2014 there would be a 20 percent phase-in of the gross receipts from such a REIT.

Calculation of Tax and Tax Brackets

Under the new FIT, financial institutions will be subject to the greater of an annual $1,000 minimum or the financial institution's apportioned Ohio equity capital multiplied by the following rate schedule:

  • 0.8 percent on the first $200 million;
  • 0.4 percent between $200 million and $1.3 billion; and
  • 0.25 percent in excess of $1.3 billion.25

Due Dates for Estimated Payments and FIT Return

Taxpayers subject to the new FIT must make estimated payments as follows:

  • January 31st - payment must be equal to the $1,000 minimum or one-third of the estimated annual tax due;
  • March 31st - payment must equal half of the remaining balance due; and
  • May 31st - the remaining balance of the estimated annual tax is due.26

The FIT annual return is due October 15th, and any final tax payment is due with this filing.27

For purposes of calculating the estimated tax, if the taxpayer was not subject to the FIT in the prior year, then the estimated tax is equal to 90 percent of the current year annual tax due.28 If the taxpayer was subject to the FIT in the preceding tax year, then the estimated tax due is the lesser of 100 percent of the tax due in the prior period or 90 percent of the tax due in the current period.29

Authorized Tax Credits

The legislation authorizing the new FIT also allows for various credits30 to be claimed by taxpayers subject to the new tax so long as the taxpayer would otherwise qualify for the credit as outlined in the Ohio Revised Code. The credits include:

  • Job creation credit;31
  • Job retention credit;32
  • Research and development credit;33
  • Venture capital loan loss credit;34
  • Historic building rehabilitation credit;35
  • New markets credit;36
  • Motion picture production credit;37 and
  • Credit for regulatory assessments.38

In addition, the legislation allows for the use of the unused portion of certain nonrefundable credits that could have been claimed against the corporation franchise tax and the DIT.39

Repeal of Dealers in Intangibles Tax

The DIT is a current Ohio tax applicable to certain financial services organizations including entities such as mortgage brokers and loan companies.40 Under this legislation, taxpayers currently subject to the DIT, and who do not qualify as a financial institution or a small dollar lender that would be subject to the FIT, will become subject to the Ohio CAT beginning in 2014.41


As explained by the Ohio Legislative Service Commission, beginning in 2014, the FIT effectively replaces the corporation franchise tax and the DIT.42 Also, as discussed above, many taxpayers that currently are subject to the DIT will become subject to the CAT. Prior to 2014, the corporation franchise tax will continue to be imposed on financial institutions and similar entities at a rate of 1.3 percent of net worth. Similarly, the DIT will continue to be levied until 2014 at a rate of 0.8 percent of the dealer's shares and capital. Imposition of the new FIT beginning in 2014 represents a major change in the taxation of financial institutions in Ohio. Because the new FIT does not begin until 2014, taxpayers will have the opportunity to plan for the new tax. Undoubtedly, the Ohio Department of Taxation will issue administrative guidance and regulations to further clarify the new FIT.


1 Am. Sub. H.B. 510, Laws 2012, effective March 27, 2013; Final Analysis of Am. Sub. H.B. 510, Ohio Legislative Service Commission, Jan. 2013.

2 OHIO REV. CODE ANN. §§ 5726.02; 5762.03. The new FIT is codified at OHIO REV. CODE ANN. §§ 5726.01-5726.99.

3 OHIO REV. CODE ANN. §§ 5733.01; 5733.02; 5733.021; 5733.06.

4 OHIO REV. CODE ANN. § 5726.04(A).

5 OHIO REV. CODE ANN. § 5726.05.

6 OHIO REV. CODE ANN. § 5726.02.

7 OHIO REV. CODE ANN. § 5726.01(H).

8 "FR Y-9" means the consolidated or parent-only financial statements that a holding company is required to file with the Federal Reserve Board pursuant to 12 U.S.C. § 1844. In the case of a holding company required to file both a consolidated and parent-only financial statement, "FR Y-9" means the consolidated financial statements that the holding company is required to file. OHIO REV. CODE ANN. § 5726.01(I).

9 OHIO REV. CODE ANN. § 5726.01(H). "Call report" means the consolidated reports of condition and income prescribed by the Federal Financial Institutions Examination Council that a person is required to file with a federal regulatory agency pursuant to 12 U.S.C. § 161, 12 U.S.C. § 324 or 12 U.S.C. § 1817. OHIO REV. CODE ANN. § 5726.01(C).

10 12 U.S.C. §§ 21 et. seq.

11 12 U.S.C. § 1464.

12 12 U.S.C. §§ 611 et. seq.

13 12 U.S.C. § 3101.

14 12 U.S.C. §§ 661 et. seq.

15 OHIO REV. CODE ANN. § 5726.01(B)(1)-(B)(7).

16 OHIO REV. CODE ANN. § 5726.01(B).

17 OHIO REV. CODE ANN. § 5726.01(O).

18 Id.

19 OHIO REV. CODE ANN. § 5726.01(S).

20 Id.

21 OHIO REV. CODE ANN. § 5726.041(B).

22 OHIO REV. CODE ANN. § 5726.041(A).

23 OHIO REV. CODE ANN. § 5726.041(B).

24 OHIO REV. CODE ANN. § 5726.041(C).

25 OHIO REV. CODE ANN. § 5726.04(A).

26 OHIO REV. CODE ANN. § 5726.06(A).

27 OHIO REV. CODE ANN. § 5726.03.

28 OHIO REV. CODE ANN. § 5726.06(C).

29 Id.

30 Information on the various credits is contained in OHIO REV. CODE ANN. §§ 5726.50-5726.58.

31 OHIO REV. CODE ANN. §§ 122.17; 5726.50.

32 OHIO REV. CODE ANN. §§ 122.171; 5726.50.

33 OHIO REV. CODE ANN. § 5726.56.

34 OHIO REV. CODE ANN. §§ 150.01-150.10; 5726.53.

35 OHIO REV. CODE ANN. §§ 149.311; 5726.52.

36 OHIO REV. CODE ANN. §§ 5725.33; 5726.54.

37 OHIO REV. CODE ANN. §§ 122.85; 5726.55.

38 OHIO REV. CODE ANN. § 5726.51.

39 OHIO REV. CODE ANN. §§ 5726.50-5726.52; 5726.54; 5726.56.

40 OHIO REV. CODE ANN. §§ 5725.01-5725.26.

41 OHIO REV. CODE ANN. §§ 5725.02; 5725.14; 5725.16; 5725.26; 5751.01(E).

42 Final Analysis of Am. Sub. H.B. 510, Ohio Legislative Service Commission, Jan. 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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