Ohio's Financial Institutions Tax will keep flowing into state coffers exactly as designed after the state Supreme Court unanimously rejected a Pittsburgh-based lender's bid for a $2.7 million refund. Dollar Bank had argued for years that Ohio's tax structure unfairly punishes banks with smaller footprints in the state, but all seven justices disagreed, upholding a tax system that has generated more than $228 million for Ohio in 2025 alone.
The ruling, issued Thursday, came in a case that traces back to Dollar Bank's demand for refunds covering tax years 2016 through 2020. According to cleveland.com, the bank argued it paid more in taxes than similarly sized banks that operate exclusively in Ohio, and claimed the tax structure violates the U.S. Constitution's Commerce Clause by discriminating against out-of-state institutions. Justice Pat DeWine, an Ohio Supreme Court justice, authored the opinion, which was joined by Chief Justice Sharon L. Kennedy and Justices Patrick F. Fischer, Jennifer Brunner, Joe Deters, Daniel R. Hawkins, and Megan E. Shanahan, according to the Supreme Court of Ohio.
How the Tax Tiers Work
Under Ohio Revised Code Section 5726.04, the Financial Institutions Tax levies an 8-mill rate, or 0.8%, on a bank's first $200 million of apportioned Ohio equity capital. That rate drops to 4 mills between $200 million and $1.3 billion, and to 2.5 mills on capital exceeding $1.3 billion, with a minimum tax of $1,000, per the same court document. The tiered structure means banks holding larger capital balances in Ohio pay lower effective rates, a design the state's high court has now upheld as constitutional.
Dollar Bank, which operates 30 of its 70 total retail branches in Ohio and conducts roughly 20% of its overall business in the state while headquartered in Pittsburgh, never cleared that first $200 million threshold, court records reviewed by Court News Ohio show. In 2017, the bank reported $853 million in total equity, with about 20%, or $166 million, apportioned to Ohio, meaning all of its in-state capital fell within the highest 0.8% bracket. That left the bank seeking refunds ranging from $461,000 to $640,000 for each tax year between 2016 and 2020.
The Constitutional Test That Settled It
To evaluate Dollar Bank's Commerce Clause claim, the court applied the U.S. Supreme Court's internal consistency test from Maryland v. Wynne, concluding that if every state adopted Ohio's tax structure, an in-state bank and an out-of-state bank with identical Ohio equity capital would pay the exact same rate in Ohio. That reasoning underpins the tax system's constitutionality, as it only taxes a bank's business conducted within Ohio.
DeWine also rejected what the opinion described as an aggregation approach, dismissing Dollar Bank's claim that a tax becomes unconstitutional simply because a multi-state business ends up paying higher combined taxes across all the states where it operates than a single-state entity would. The bank had calculated that if every state used Ohio's system, its multi-state tax bill would total $5.9 million, compared with $4.2 million if it operated solely in Ohio. The court found that comparison legally irrelevant, noting the U.S. Supreme Court has never accepted that kind of aggregation argument as a basis for finding a state tax discriminatory.
DeWine wrote that Ohio is free to pursue a policy encouraging in-state business because the Commerce Clause does not erect a per se barrier against it. The tax's design, according to the court, is meant to encourage banks to expand their activity within Ohio, not to penalize lenders based on where they are headquartered.
A Fight That Started Long Before the High Court
Dollar Bank's challenge didn't start at the Ohio Supreme Court. Both the Ohio Tax Commissioner and the Ohio Board of Tax Appeals had already denied the bank's refund claims, finding that executive and administrative bodies lack the statutory authority to declare state laws unconstitutional or rewrite tax rate tiers through alternative apportionment, according to KPMG International. The Board of Tax Appeals specifically noted that granting Dollar Bank's requested remedy would have improperly rewritten the state's statutory tax rates, pushing the matter to the state's highest court for a final answer.
Thirteen Years of Ohio's Bank Tax
The Financial Institutions Tax itself is not new. Ohio established it through House Bill 510 in December 2012, with the tax taking effect in tax year 2014 to replace the state's former corporate franchise tax, which had taxed bank net worth at 13 mills, along with the state's dealer in intangibles tax, according to Bricker Graydon. The overhaul generally lowered tax rates compared with the old franchise tax while modernizing how the state taxes banking activity.
Lawmakers revisited the tax again in 2019, when the Ohio General Assembly enacted Am. H.B. 166, capping a bank's apportionable total equity capital at 14% of its total consolidated assets beginning in tax year 2020, per Vorys. That cap was designed to keep capital-heavy institutions from being over-assessed under the tiered rate structure now at the center of Dollar Bank's failed challenge.
Ohio's approach to taxing banks stands apart from how it treats most other businesses. The state does not levy a traditional corporate income tax, relying instead on the Commercial Activity Tax for general business gross receipts and the Financial Institutions Tax specifically for banking entities, as the tax advisory firm Discern has noted. With the state Supreme Court's unanimous ruling now on the books, that dual system, and the incentive structure baked into the bank tax, remains intact for the foreseeable future.
