Effective January 1, 2010, Ohio taxes on corporate franchises and dealers in intangibles applied only to financial institutions and a few select taxpayers. However, as part of the newly enacted Ohio H.B. 510, both of these taxes will be repealed at the end of 2013, giving way to the new Financial Institutions Tax (FIT) on January 1, 2014. Taxpayers subject to the FIT will include financial institutions organized for profit and doing business, or having nexus, in Ohio; holding companies of financial institutions; and “small-dollar lenders,” defined as non-financial institutions with a primary business of lending money to individuals in loans smaller than $5,000 and a term not greater than one year. As part of H.B. 510, all other dealers in intangibles not subject to the new FIT will be subject to the Commercial Activity Tax.
The FIT is a scaled tax applied to a taxpayer’s “apportioned total equity capital” with a minimum tax payment due of $1,000. To calculate apportioned total equity capital, each taxpayer’s gross receipts will be subject to an apportionment factor of “gross receipts in Ohio over gross receipts everywhere.” The tax base will be subject to the following rates:
For the first $200 million of apportioned total equity capital: 0.8 percent
For each dollar in excess of $200 million but less than $1.3 billion: 0.4 percent
For each dollar in excess of $1.3 billion: 0.25 percent
This scaled tax based on gross receipts is a significant change for financial institutions, as historically the corporate franchise tax has been based on Ohio net income. Certain financial institutions, specifically those invested in publicly traded real estate investment trusts, may deduct portions of their investment against their apportioned total equity capital. Taxpayers should actively plan to accommodate this new legislation and its reporting requirements with the help of a tax advisor.
If you have any questions regarding this recently enacted bill or any other issues, please contact Phil Gaeta at pgaeta@brg-expert or 202.480.2764.
The views expressed in this article are those of the authors and do not necessarily reflect the position or policy of Berkeley Research Group, LLC.
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