Repeal of two Ohio taxes on financial entities and replacement with a new tax was approved today by the Ohio House of Representatives. In announcing action by the House, State Representative Ron Amstutz (R-Wooster) described House Bill 510 as a continuation of state tax reforms begun in 2005.
According to House Bill 510, beginning on January 1, 2014, the total equity capital of a financial institution or financial institution holding company will be taxed. The rate of the tax will be eight mills on the first $200 million of equity capital, four mills on equity capital between $200 million and $1.3 billion, and 2.5 mills on equity over $1.3 billion.
“The new financial institutions tax, which is built on the basic taxation principle of a broad base and low rate, modernizes and streamlines how the financial industry in Ohio is taxed by replacing the corporate franchise and dealers in tangibles taxes, both of which are more than 80 years old,” he continued. “House Bill 510 will improve our tax code by bringing it into the 21st century while promoting growth in Ohio.”
The other impact of these tax changes will be to make it more difficult for owners of large, multistate financial institutions to avoid paying a fair share of Ohio’s taxes. It is often too easy to manipulate the net worth taxation approach in the corporate franchise tax. The new tax is based on the total base of equity capital that relates to activity in Ohio.
Currently, Ohio’s financial institutions are paying the corporate franchise tax, which is levied at 13 mills on the institution’s total net worth. The new financial institutions tax will lower tax liability for many Ohio-based financial institutions. It has a target that makes it revenue neutral to current Ohio taxes, and two automatic triggers raise or lower the tax if it gets too far from that target.
Under changes made by the House, a range of financing entities that are not owned, operated or engaged in general services banking will be taxed under Ohio’s commercial activity tax, as are most businesses operating in Ohio’s markets.
House Bill 510 will now be sent to the Ohio Senate for further consideration and debate.