Bill Would Lower Tax Burden for New Community Banks in Ohio

by Todd DeFeo

 

The state House has approved legislation proponents say is needed to help community banks open in the state, though the move could reduce the state’s coffers by millions of dollars.

House Bill 150, known as the Community Bank Tax Relief Act, provides a targeted 50 percent tax break for community banks. The state House passed the measure by a 93-3 vote; it now heads to the state Senate for consideration.

Proponents cite Ohio’s loss of more than 75 banks over the past decade due to closures or mergers as proof such a measure is needed. During that same timeframe, only one new bank started.

“Banks, especially small community banks, provide market competition, increased consumer choice, and provide a capital [lifeline] to many Ohio small businesses,” Rep. Derek Merrin, R-Monclova, said in a news release.

“These banks are critical in rural communities, where banking options are less robust,” Merrin added. “Banks pay a lot in taxes, [employ] thousands of people, and play a critical role financing Ohio commerce – we should welcome them. [Ohio residents] need more banking options, not less.”

Under the proposal, new banks are exempt from the Financial Institutions Tax (FIT) for up to $1 million per year for the first three years. This exemption is likely to save banks $100,000 to $400,000 per year in taxes and $8 million per year total, according to Merrin.

“With this bill, we can say Ohio is one of the best states to start a new bank,” Merrin said. “And, we are open for business.”

The bill also allows mortgage lenders to exclude the principal balance of mortgage loans from their commercial activity tax (CAT) gross receipts. The change alters a previous tax change that Merrin said increased mortgage lenders’ state tax burden increase by an estimated 200 percent.

In testifying in favor of the legislation before the House Financial Institutions Committee, Jay Pascoe, executive director for the Ohio Mortgage Bankers Association, noted that under current law, mortgage companies are treated differently than banks, credit unions and mortgage brokers.

“To be clear, it is not our intention for mortgage bankers to avoid taxes,” Pascoe said in prepared testimony.

“Our intention is to make sure that mortgage bankers pay a fair tax,” Pascoe added. “Therefore, keeping mortgage bankers subject to the Commercial Activity Tax, but exempting the loan amount from the gross receipts, would level the playing field and insure that mortgage bankers pay a fair tax, truly based on their gross taxable revenue.”

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Todd DeFeo is a regular contributor to The Center Square.

 

 

 

 

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