Cincinnati

Effective January 1, 2014 forward, all for profit financial institutions doing business in Ohio or otherwise having nexus with Ohio under the U.S. Constitution must report and pay the Ohio Financial Institutions Tax. The Ohio FIT is a tax on the privilege of doing business, similar to the Ohio Commercial Activity Tax (CAT), but is focused directly on financial institutions. Below are the top ten things you should know when considering a potential Ohio FIT issue.

How Did the Ohio FIT Originate and Did the Ohio FIT Change Any Other Ohio Tax?

Amended Substitute House Bill 510 (the Bill) made the Ohio FIT effective January 1, 2014. Interestingly, the Bill repealed both the former Ohio Dealer in Intangibles Tax (DIT) and Corporation Franchise Tax (CFT) for tax years beginning January 1, 2014 and continuing. Now, taxpayers that qualify as dealers in intangibles (stockbrokers, mortgage lenders, securities dealers, finance and loan companies) are subject to the Ohio FIT, provided they fall under the FIT’s definition of a taxpayer. If such a taxpayer does not meet the FIT definition, that taxpayer is likely subject to the Ohio CAT.

Who is Subject to the Ohio FIT?

There are three types of taxpayers that are generally subject to the Ohio FIT:

Bank Organizations;
Holding Companies of Bank Organizations; and
Nonbank Financial Organizations.

Under the FIT, a Bank Organization includes: (i) a national bank organized and operating under the National Bank Act; (ii) a federal savings association or federal savings bank chartered under 12 U.S.C. 1464; (iii) a bank, banking association, trust company, savings and loan association, savings bank, or other banking institution organized or incorporated under the laws of the U.S., any state, or a foreign country; (iv) any corporation organized and operating under 12 U.S.C. 611 (and following provisions); (v) any agency or branch of a foreign bank, as defined in 12 U.S.C. 3101; or (vi) an entity licensed as a small business investment company under the Small Business Investment Act of 1958.

The Ohio FIT defines Nonbank Financial Organizations as persons or entities, other than bank organizations or holding companies, which are engaged in business primarily as Small Dollar Lenders. A Small Dollar Lender is a person or entity that: (i) primarily loans to individuals; (ii) loans amounts of $5,000 or less; (iii) issues loans with terms of 12 months or less; and (iv) is not a Bank Organization, credit union, or captive finance company.

Who is Not Subject to the Ohio FIT?

The following is a list of taxpayers that are generally not subject to Ohio FIT:

Insurance companies;
Captive finance companies;
Credit unions;
Institutions organized exclusively for charitable purposes;
Diversified savings and loan holding companies;
Grandfathered unitary savings and loan holding companies, any entity that was a grandfathered unitary savings and loan company on January 1, 2012, or any entity that is not a Bank Organization or owned by a Bank Organization and that is owned directly or indirectly by an entity that was a grandfathered unitary savings and loan holding company on January 1, 2012;
Institutions organized under the Federal Farm Loan Act or a successor of such an institution;
Companies chartered under the Farm Credit Act of 1933 or a successor of such a company;
Associations formed pursuant to 12 U.S.C. 2279c-1.

What is the Tax Base for the Ohio FIT?

The Ohio FIT is imposed upon a taxpayer’s Ohio Equity Capital. Ohio Equity Capital is the taxpayer’s Total Equity Capital in proportion to the taxpayer’s gross receipts sitused in Ohio. A taxpayer’s Total Equity Capital is the sum of the following items for the taxable year: (i) common stock at par value; (ii) perpetual preferred stock and related surplus; (iii) other surplus not related to perpetual preferred stock; (iv) retained earnings; (v) accumulated other comprehensive income; (vi) treasury stock; (vii) unearned employee stock ownership plan shares; (viii) other equity components.

Biz&TaxHax Tip: For Ohio FIT purposes, a taxpayer may obtain its Total Equity Capital from the FR Y-9 (a financial statement that a financial institution holding company must file with the Federal Reserve Board) or from its Call Report (a consolidated report of condition and income that a bank organization must file with its federal regulatory agency). Alternatively, if the taxpayer does not have a FR Y-9 or Call Report, it must calculate its Total Equity Capital in accordance with GAAP.

Once a taxpayer has identified or calculated its Total Equity Capital for the taxable year, it multiplies that amount by its Ohio FIT Apportionment Factor for the taxable year to calculate Ohio Equity Capital. The Apportionment Factor for Ohio FIT is equal to the ratio of Ohio Gross Receipts for the tax year to Gross Receipts Everywhere for the tax year.

How Does the Ohio FIT Situs/Source Gross Receipts?

The Ohio FIT situses/sources Gross Receipts based on the:

Location of benefit to the customer; or
Location of the taxpayer’s regular place of business.

So, Gross Receipts become Ohio Gross Receipts for purposes of Ohio FIT if either: (i) the taxpayer’s customer receives the benefit of the taxpayer’s services or funds provided in Ohio; or (ii) the taxpayer’s regular place of business is located in Ohio. The taxpayer’s Ohio Gross Receipts identified under this situsing/sourcing method are used as the numerator for the Apportionment Factor.

What is the Tax Rate for the Ohio FIT?

Ohio FIT is imposed at the following rates, by Ohio Equity Capital:

First $200 million of Ohio Equity Capital: 0.008 (0.8%);
Ohio Equity Capital > $200 million, but < $1.3 billion: 0.004 (0.4%);
Ohio Equity Capital > $1.3 billion: 0.0025 (0.25%).

Is there a Minimum Tax Amount for Ohio FIT?

Yes. Ohio FIT taxpayers must pay a minimum tax of $1,000.

How Does an Ohio FIT Taxpayer File a Return and Pay the Tax?

Before filing any Annual Report or Estimated FIT Report, a taxpayer must register as a FIT taxpayer by:

Registering under the reporting person/entity and listing all of the consolidated members; and
If two or more entities are consolidated for purposes of filing a FR Y-9 or Call Report, the financial institution for FIT consists of all entities included in the FRY-9 or Call Report.

Taxpayers are required to file any Ohio FIT Annual Report or Estimated FIT Report and make any payment electronically through the Ohio Business Gateway (OBG).

When are Ohio FIT Returns and Payments Due?

The Ohio FIT Annual Report is due October 15^th of the tax year, with no available extension. The Tax Year is the Annual Report year in and for which the tax is paid. The Taxable Year is the calendar year preceding the year in which the Annual Report is filed and the tax paid. The taxpayer’s tax base (Total Equity Capital, Ohio Equity Capital, Apportionment Factor) is calculated from the activity/capital existing during the Taxable Year.

An Ohio FIT taxpayer must make estimated quarterly payments on the dates listed below, and as follows:

January 31^st – 1/3 of the tax or minimum tax of $1,000, whichever is greater;
March 31^st – 1/2 of the remaining balance of tax due;
May 31^st – second 1/2 of the remaining balance of tax due.

How Can a Taxpayer Obtain a Refund for Overpayment of Ohio FIT?

To claim a refund for Ohio FIT, file Form FIT REF Application for Financial Institutions Tax Refund.

Biz&TaxHax Tip: A taxpayer does not need to file Form FIT REF if the original Annual Report reflects the overpayment of tax. But, if a taxpayer must file an Amended Annual Report and it shows a refund due, the taxpayer must file Form FIT REF also to claim the refund.

Based on the above, there are a couple other important considerations relating to Ohio FIT: (1) Ohio FIT has a broader nexus standard (it looks a lot like economic nexus) than the predecessor Corporation Franchise Tax, meaning it will likely apply to more taxpayers; and (2) some entities (such as small dollar lenders or community banks) may be mistakenly paying Ohio CAT instead of Ohio FIT.

As always, in considering your potential Ohio FIT reporting and payment obligations, as well as any planning, it is best to consult an experienced Ohio tax attorney or Ohio tax consultant. An Ohio tax lawyer or Ohio tax consultant can fully evaluate your facts and circumstances along with applicable law and guidance to develop the most effective, efficient, and proper solution to your Ohio FIT compliance and planning needs.

Establishing Domicile Outside Ohio: Affidavit and Statutory Presumption Pre-March 23, 2015

When former Ohio residents decide to move outside Ohio, they often seek to maintain some contact with Ohio, yet establish tax domicile in their new state of residence. There are a few common (often interrelated) reasons that Ohioans decide to leave the state, such as:

1. Retirement (often to Florida, to avoid cold, snowy Ohio winters);

2. Work (as part of a transfer, or perhaps an executive who performs most of his/her duties outside Ohio); and

3. Obtaining a lower (or zero) state income tax rate (often high or fixed income individuals, such as executives or retirees).

Until recently, a retiree or executive moving his or her primary residence from Ohio to another state could more easily maintain some contact with Ohio, while also establishing tax domicile outside Ohio. This way, the taxpayer could obtain an income tax benefit (or at least avoid having tax reporting and payment obligations in both the new state and Ohio), and keep some ties with his/her former home state.

To ensure tax domicile outside Ohio and obtain the above-noted benefits, the taxpayer could file an Affidavit of Non-Ohio Domicile with the Ohio Department of Taxation, attesting that during the tax year he/she was not domiciled in Ohio because he/she had:

1. Fewer than 213 (effective 3/20/2015; previously, fewer than 183) Ohio contact periods; and

2. An abode in a state outside Ohio.

Under Ohio law, as long as the taxpayer’s Affidavit did not contain a false statement, this filing created an irrebuttable presumption that the taxpayer was not domiciled in Ohio during the tax year. See R.C. 5747.24(B)(1).

March 23, 2015 Forward: Ohio Supreme Court Decision Invalidates Affidavit Presumption of Non-Ohio Domicile

The recent Ohio Supreme Court decision in Cunningham v. Testa, Slip Opinion No. 2015-Ohio-2744, basically rendered this statutory presumption of non-Ohio domicile (where a taxpayer files the Affidavit of Non-Ohio Domicile) ineffective. In Cunningham, the Court reasoned that the Affidavit must still be supported by facts and circumstances that would withstand the common law test of domicile. So, it is no longer enough to simply file the Affidavit attesting that the taxpayer has fewer than 183 Ohio contact periods for the year and is not domiciled in Ohio. One needs to actually review the taxpayer’s relevant facts and circumstances related to determining domicile under the common law rule.

Under common law, domicile is a question of intent–whether the taxpayer intends to remain in a jurisdiction permanently, or at least indefinitely–based on all relevant facts and circumstances. A non-exhaustive list of facts and circumstances relevant to determining domicile include:

1. Filing federal income tax returns (address listed on federal returns);

2. Voter registration;

3. Automobile registration;

4. Driver’s license;

5. Location of spouse and children;

6. Mailing address/address where mail is received;

7. Various exemption/credit/etc. application filings (in Cunningham, the taxpayer’s had claimed a homestead exemption application for their Cincinnati home prior to later filing the Affidavit of Non-Ohio Domicile, which was inconsistent);

8. Courts will also look to the place where an individual was: born, raised, educated, married, resided for significant time, etc.

Effectively, following the Cunningham decision it appears that a taxpayer can still use the Affidavit, but it is important to do a self-review of factors to ensure that the total facts and circumstances support the taxpayer’s Affidavit claiming non-Ohio domicile. In other words, it seems that a taxpayer can’t simply rest on the fact that he has less than 183 contact periods in Ohio and has another residence outside Ohio during the tax year to claim no Ohio domicile (as many previously believed would suffice) – the weight of all relevant facts and circumstances must support the position as well.

Summary & Biz&TaxHax Tip

In summary, the Cunningham decision seems to provide the Ohio Department of Taxation significant authority and leverage to require taxpayers filing the Affidavit to further support domicile outside Ohio by the weight of common law factors. So, unless and until the Ohio Legislature addresses this Ohio tax domicile issue, Cunningham appears to be the controlling rule. Accordingly, it is important for former Ohioans (or those considering a move outside Ohio) to consult an experienced Ohio tax attorney or consultant to ensure proper tax domicile review and planning based on their specific facts and circumstances. An Ohio tax lawyer or Ohio tax consultant can assist you in evaluating your specific facts and circumstances to support non-Ohio domicile under common law, and filing the Affidavit to obtain the appropriate tax results.