The Supreme Court of Ohio today denied a Pennsylvania-based bank’s tax refund claim and rejected its argument that the Ohio financial institution tax (FIT) is unconstitutional.

In a unanimous opinion, the Supreme Court affirmed the Ohio tax commissioner’s denial of tax refunds to Dollar Bank, FSB, which has 30 of its 70 branches in Ohio. Dollar Bank argued the FIT is unconstitutional because it paid a higher effective Ohio tax rate than it would have if it had conducted all of its business in Ohio.

Writing for the Court, Justice R. Patrick DeWine explained the FIT is a regressive tax that provides a lower rate as the amount of banking business in the state increases, and its structure incentivizes banks to conduct more business in Ohio. Dollar Bank maintained the tax violates the commerce clause of the U.S. Constitution by discriminating against interstate commerce.

“The FIT operates evenhandedly across its entire structure, irrespective of the taxpayer’s status as an interstate or intrastate business,” Justice DeWine wrote. “An in-state and out-of-state bank with the same amount of total Ohio equity capital pays the same Ohio tax rates.”

Bank Seeks Refund for Multiple Years
Ohio levies the FIT on banks for the privilege of doing business in the state. The state first calculates a bank’s “total equity capital” based on earnings and other factors. It then apportions a bank’s equity capital by comparing its gross receipts from Ohio activities to its total gross receipts. For example, a bank with $500 million in total equity capital that generated 10% of its gross receipts in Ohio would have $50 million in Ohio equity capital.

To attract banks to do business in the state, the FIT uses a regressive rate structure, with the rate decreasing as a bank’s Ohio equity capital increases. For the first $200 million in Ohio business, the capital is taxed at 0.8%. For capital between $200 million and $1.3 billion, the tax is lowered to 0.4%, and for equity above $1.3 billion, it drops to 0.25%.

Dollar Bank operates in four states: Pennsylvania, Ohio, Virginia, and Maryland. It does most of its business in Pennsylvania. About 20% of its activities are conducted in Ohio. Dollar Bank sought a refund for tax years 2016 through 2020 from the Ohio tax commissioner, arguing the FIT was unconstitutional. It sought refunds between $461,000 to $640,000 for each tax year.

The tax commissioner and the Ohio Board of Tax Appeals rejected the refunds, each informing the bank that they lacked authority to determine the constitutionality of the FIT. Dollar Bank appealed to the Supreme Court.

Supreme Court Analyzed Bank Tax
Justice DeWine explained that Dollar Bank claimed the FIT violates the “dormant Commerce Clause” of the U.S. Constitution. While the clause itself speaks to the power of Congress to regulate interstate commerce, the U.S. Supreme Court has held that the provision may also prohibit states from enacting regulations and taxes that unfairly discriminate against interstate commerce.

The U.S. Supreme Court has adopted an “internal consistency test” to assess whether a state tax violates the commerce clause. The test looks to the structure of the tax to see whether its identical application by every State would place interstate commerce at a disadvantage. This determines whether a tax will result in double taxation by multiple states on the same activity, or whether a state is discriminating against interstate commerce, the opinion noted.

“The FIT does not discriminate against interstate commerce, nor does it engage in double taxation,” the opinion stated.

The opinion explained the FIT taxes only the amount of capital equity from the bank’s activities in Ohio. If every state applied the FIT, each state would tax only the discrete portion of equity capital attributable to the bank’s business in that state, and no equity capital would be taxed by more than one state, the Court stated.

Dollar Bank argued the tax is unconstitutional because it rewards banks for doing all their business in Ohio rather than across multiple states. It provided the Court with tables indicating that for one of its tax years, the bank had $853 million in total equity, with 20%, or $166 million, in Ohio. The company paid $1.3 million in Ohio tax. Had the Ohio formula applied in all four states where it does business, its total tax bill would have been $5.9 million. Had Dollar Bank done business exclusively in Ohio, its total would have been $4.2 million.

Dollar Bank argued this failed the internal consistency test because a bank doing business in multiple states would pay more in the “aggregate,” or total, than a bank conducting the same business in a single state.

“The problem is the United States Supreme Court has never accepted Dollar Bank’s aggregation approach,” the opinion stated.  Rather, the disparity with the FIT exists because Ohio chooses to impose a regressive tax that encourages banks to increase their Ohio activities, not because of any discrimination against interstate commerce, the Court concluded.

2025-0412. Dollar Bank, FSB v. Harris, Slip Opinion No. 2026-Ohio-3069.

View oral argument video of this case.

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