In March, as part of his mid-biennium review, John Kasich proposed altering the way the state taxes financial institutions. His plan builds on changes enacted in 2005, the legislature then going to a commercial activities tax for businesses. Lawmakers abandoned the exemption-ridden corporate franchise tax on profits for a levy on gross receipts, or sales, achieving the positive development of a broader base and a lower rate.
The new structure did not extend to financial institutions. Now the governor wants to repeal the corporate franchise tax for banks and related operations. He also has called for ending the dealers in intangibles tax. In exchange, he would apply a financial institutions tax on the total capital equity of a bank. In many ways, the proposal makes sense. It would streamline the tax system. It also would discourage financial institutions from maneuvering to reduce their tax liability, a practice of large, multistate operations, especially.
A week ago, the Ohio House approved its version of the changes. The governor’s office has been pressing hard for the Senate to proceed quickly, The governor’s spokesman shared with the Columbus Dispatch this week: “Why would you ever put off doing the right thing when we have the opportunity to do it right here and now?”
Remember, the governor delivered an avalanche of proposals in his mid-biennium review. The state Senate just received the House version of changes on taxing financial institutions. Ram the measure through in a matter of days, merely to meet an arbitrary deadline of the end of this week?
If the bill lacked complications? Perhaps. As it is, the House added a package of amendments, including a new tier of taxation. Most troubling, it abandoned the concept of revenue neutrality in the governor’s plan.
The governor argued for the new financial institutions tax to raise the same amount of money as the levies that would be eliminated — roughly $225 million a year. An analysis by the state Department of Taxation concluded the House bill would raise $23 million to $27 million less. The Legislative Services Commission estimated the shortfall could total as much as $30 million.
Put aside that the governor’s estimate appears low, the collections of the corporate franchise tax failing to keep pace with the growth of financial institutions the past two decades. This isn’t the time for orchestrating yet another tax cut, not with school districts slashing teaching positions and programs, plus cities and counties straining to provide adequate services.
Tom Niehaus, the Senate president, rightly told the Dispatch that he would “like to stay as close to revenue neutral as possible.” As designed, the tax changes would not take effect until 2014. What is the rush? Niehaus and his colleagues have good reason to take their time and get it right.