The Ohio House of Representatives today concurred on Senate amendments to legislation that repeals of two Ohio taxes on financial entities and replaces them with a new tax. Amended Substitute House Bill 510, which is sponsored by State Representative Ron Amstutz (R-Wooster), builds on state tax reforms begun in 2005.

According to Am. Sub. 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 legislation will also make it more difficult for owners of large, multistate financial institutions to avoid paying a fair share of Ohio’s taxes. Because 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.

“This enactment is another step in strengthening Ohio’s business environment,” Rep. Amstutz said. “It improves Ohio taxes on our financial sector by repealing two taxes and replacing them with a new tax that will help assure compliance by large, multi-state banks at the same time that smaller financial institutions get a modest improvement in their tax burden.”

“I’m pleased that the affected parties worked well through our legislative process in concert with the Kasich administration to complete this set of changes,” he added. “I see the changes made by the Senate as further refining and improving what the House was able to do, and I thank them for including us in their deliberations to avoid the need for a committee on conference.”

Ohio’s financial institutions currently pay the corporate franchise tax, which is levied at 13 mills on the institution’s total net worth, with a series of deductions allowed. The new financial institutions tax will lower tax liability for many Ohio-based financial institutions. It has a target of revenue neutrality to current Ohio taxes, with two triggers that will raise or lower the tax rate if it strays too far from that target.

Am. Sub. House Bill 510 clarifies that, generally, 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.

In addition to several technical corrections, the Senate accepted amendments to phase in the financial institutions tax for Real Estate Investment Trusts over a five-year period; clarify that small dollar lenders (i.e. payday lenders) are to be taxed under the new tax; and allow commercial real estate brokers the ability to put a lien, of up to 90 days, on a property to collect commissions.

Am. Sub. House Bill 510 passed by a vote of 76-16 and will now be sent to Governor Kasich for his signature.