Financial Institution Tax – A Potential Opportunity for Nationally Chartered Banks in Ohio

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The constitutionality of the Ohio Financial Institutions Tax (FIT), which was enacted in 2012 and is applicable for tax years beginning January 1, 2014, was recently brought into question. There may now be a refund opportunity for national banks that maintained their principal office in Ohio for the 2014 and 2015 report years.

Federal law requires that states have the authority to tax national banks only with the express authorization of Congress. Under 12 U.S. Code Section 548, a national bank is intended to be treated the same for tax purposes as a state-chartered bank within the state where the principal office is located. During 2014 and 2015, state-chartered banks were eligible for a credit against the FIT for assessments paid to the Ohio Division of Financial Institutions—this wasn’t afforded to nationally chartered banks.

Due to the inequities in the credit available, the Office of the Comptroller of the Currency concluded in September 2015 that the FIT violated federal law, as it allowed a tax credit to Ohio-chartered banks but not to nationally chartered banks. Shortly thereafter, Ohio repealed the credit provision, effective December 22, 2015.

As such, national banks with their principal office in Ohio that paid the FIT during the 2014 and 2015 report years may be due a refund. The opportunity would only apply to C corporations, as the FIT paid by S corporation banks is refunded back to shareholders in the form of a credit on their personal income tax returns, yielding no benefit.

The 2014 and 2015 report year returns—based on calendar years 2013 and 2014—were due on or before October 15, 2014, and October 15, 2015, respectively. Ohio statutes provide for a four-year statute of limitations period. Therefore, the statute for the 2014 report year will close on October 15, 2018. A refund claim should be filed prior to that date to secure your right to a refund, should this case be settled in favor of the taxpayers. However, Ohio has no official authority to allow for a protective refund claim, so the department of taxation could simply deny any refund claims and force taxpayers to protest or file a court case.

Contact your BKD trusted advisor if you have questions about filing protective claims for the Ohio FIT.

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