Closing a loophole that benefits a few makes sense for Ohio

Some aspects of the mid-budget re view process that the General Assembly has been working its way through have proved controversial, which is not surprising, given that changes have been pursued in Ohio’s energy, education and taxation policies and procedures.

But if any of the proposals by Gov. John Kasich should have sailed through the Legislature with relative ease, it would have been his suggested reform of taxation of financial institutions which became muddled in the wake of Ohio’s adoption of a Commercial Activity Tax in 2005. Financial institutions argued successfully against being subjected to the CAT, and were given the option of remaining under one of two existing methods of taxation, the Corporate Franchise Tax or the 1930s-era Dealers in Intangibles Tax. Kasich’s office says a few banks had identified loopholes in the CFT, which allowed them to dramatically reduce their Ohio tax bills through deductions to their capital base.

In March, Kasich proposed a new financial institutions tax under which banks, mortgage brokers, investment shops and other institutions would all be assessed an 8-mill tax on the first $500 million of Ohio equity and 2.5 mills for in-state equity beyond $500 million.

Looks like a win-win

The beauty of the plan is that it would close the loophole that is being exploited by some large banks with headquarters outside the state, while providing a tax cut for Ohio banks.

Kasich says the new tax would be “revenue neutral,” meaning it would not represent a tax increase on the banking industry, but would effectively shift about $30 million in revenue between segments of the industry. Out-of-state banks would pay about $30 million more; in-state banks would save $30 million. The industry pays about $225 million a year in taxes.

That $30 million shift would essentially provide a boost for Ohio’s community banks, keeping money in the state and giving Ohio commerce a boost.

Within weeks of Kasich’s proposal, the Columbus Dispatch reported that it was getting almost universally good reviews, from bank officials, banking lobbyists and even a liberal think tank.

But two months later, the bill is still bogged down, even as the General Assembly scrambles to get its work done and get out of Columbus by the end of this week.

Unless evidence is submitted that shows this change would do something other than what Kasich says it would do — that is even the taxation playing field for financial institutions large and small, in-state and out-of-state — there is no reason for further delay.