5733.04 Corporation franchise tax definitions.
5733.04 Corporation franchise tax definitions.
As used in this chapter:
(A) “Issued and outstanding shares of stock” applies to nonprofit corporations, as provided in section 5733.01 of the Revised Code, and includes, but is not limited to, membership certificates and other instruments evidencing ownership of an interest in such nonprofit corporations, and with respect to a financial institution that does not have capital stock, “issued and outstanding shares of stock” includes, but is not limited to, ownership interests of depositors in the capital employed in such an institution.
(B) “Taxpayer” means a corporation subject to the tax imposed by section 5733.06 of the Revised Code.
(C) “Resident” means a corporation organized under the laws of this state.
(D)”Commercial domicile” means the principal place from which the trade or business of the taxpayer is directed or managed.
(E) “Taxable year” means the period prescribed by division (A) of section 5733.031 of the Revised Code upon the net income of which the value of the taxpayer’s issued and outstanding shares of stock is determined under division (B) of section 5733.05 of the Revised Code or the period prescribed by division (A) of section 5733.031 of the Revised Code that immediately precedes the date as of which the total value of the corporation is determined under division (A) or (C) of section 5733.05 of the Revised Code.
(F) “Tax year” means the calendar year in and for which the tax imposed by section 5733.06 of the Revised Code is required to be paid.
(G) “Internal Revenue Code” means the “Internal Revenue Code of 1986,” 100 Stat. 2085, 26 U.S.C.A. 1, as amended.
(H) “Federal income tax” means the income tax imposed by the Internal Revenue Code.
(I) Except as provided in section 5733.058 of the Revised Code, “net income” means the taxpayer’s taxable income before operating loss deduction and special deductions, as required to be reported for the taxpayer’s taxable year under the Internal Revenue Code, subject to the following adjustments:
(1)(a) Deduct any net operating loss incurred in any taxable years ending in 1971 or thereafter, but exclusive of any net operating loss incurred in taxable years ending prior to January 1, 1971. This deduction shall not be allowed in any tax year commencing before December 31, 1973, but shall be carried over and allowed in tax years commencing after December 31, 1973, until fully utilized in the next succeeding taxable year or years in which the taxpayer has net income, but in no case for more than the designated carryover period as described in division (I)(1)(b) of this section. The amount of such net operating loss, as determined under the allocation and apportionment provisions of section 5733.051 and division (B) of section 5733.05 of the Revised Code for the year in which the net operating loss occurs, shall be deducted from net income, as determined under the allocation and apportionment provisions of section 5733.051 and division (B) of section 5733.05 of the Revised Code, to the extent necessary to reduce net income to zero with the remaining unused portion of the deduction, if any, carried forward to the remaining years of the designated carryover period as described in division (I)(1)(b) of this section, or until fully utilized, whichever occurs first.
(b) For losses incurred in taxable years ending on or before December 31, 1981, the designated carryover period shall be the five consecutive taxable years after the taxable year in which the net operating loss occurred. For losses incurred in taxable years ending on or after January 1, 1982, and beginning before August 6, 1997, the designated carryover period shall be the fifteen consecutive taxable years after the taxable year in which the net operating loss occurs. For losses incurred in taxable years beginning on or after August 6, 1997, the designated carryover period shall be the twenty consecutive taxable years after the taxable year in which the net operating loss occurs.
(c) The tax commissioner may require a taxpayer to furnish any information necessary to support a claim for deduction under division (I)(1)(a) of this section and no deduction shall be allowed unless the information is furnished.
(2) Deduct any amount included in net income by application of section 78 or 951 of the Internal Revenue Code, amounts received for royalties, technical or other services derived from sources outside the United States, and dividends received from a subsidiary, associate, or affiliated corporation that neither transacts any substantial portion of its business nor regularly maintains any substantial portion of its assets within the United States. For purposes of determining net foreign source income deductible under division (I)(2) of this section, the amount of gross income from all such sources other than dividend income and income derived by application of section 78 or 951 of the Internal Revenue Code shall be reduced by:
(a) The amount of any reimbursed expenses for personal services performed by employees of the taxpayer for the subsidiary, associate, or affiliated corporation;
(b) Ten per cent of the amount of royalty income and technical assistance fees;
(c) Fifteen per cent of the amount of all other income.
The amounts described in divisions (I)(2)(a) to (c) of this section are deemed to be the expenses attributable to the production of deductible foreign source income unless the taxpayer shows, by clear and convincing evidence, less actual expenses, or the tax commissioner shows, by clear and convincing evidence, more actual expenses.
(3) Add any loss or deduct any gain resulting from the sale, exchange, or other disposition of a capital asset, or an asset described in section 1231 of the Internal Revenue Code, to the extent that such loss or gain occurred prior to the first taxable year on which the tax provided for in section 5733.06 of the Revised Code is computed on the corporation’s net income. For purposes of division (I)(3) of this section, the amount of the prior loss or gain shall be measured by the difference between the original cost or other basis of the asset and the fair market value as of the beginning of the first taxable year on which the tax provided for in section 5733.06 of the Revised Code is computed on the corporation’s net income. At the option of the taxpayer, the amount of the prior loss or gain may be a percentage of the gain or loss, which percentage shall be determined by multiplying the gain or loss by a fraction, the numerator of which is the number of months from the acquisition of the asset to the beginning of the first taxable year on which the fee provided in section 5733.06 of the Revised Code is computed on the corporation’s net income, and the denominator of which is the number of months from the acquisition of the asset to the sale, exchange, or other disposition of the asset. The adjustments described in this division do not apply to any gain or loss where the gain or loss is recognized by a qualifying taxpayer, as defined in section 5733.0510 of the Revised Code, with respect to a qualifying taxable event, as defined in that section.
(4) Deduct the dividend received deduction provided by section 243 of the Internal Revenue Code.
(5) Deduct any interest or interest equivalent on public obligations and purchase obligations to the extent included in federal taxable income. As used in divisions (I)(5) and (6) of this section, “public obligations,” “purchase obligations,” and “interest or interest equivalent” have the same meanings as in section 5709.76 of the Revised Code.
(6) Add any loss or deduct any gain resulting from the sale, exchange, or other disposition of public obligations to the extent included in federal taxable income.
(7) To the extent not otherwise allowed, deduct any dividends or distributions received by a taxpayer from a public utility, excluding an electric company and a combined company, and, for tax years 2005 and thereafter, a telephone company, if the taxpayer owns at least eighty per cent of the issued and outstanding common stock of the public utility. As used in division (I)(7) of this section, “public utility” means a public utility as defined in Chapter 5727. of the Revised Code, whether or not the public utility is doing business in the state.
(8) To the extent not otherwise allowed, deduct any dividends received by a taxpayer from an insurance company, if the taxpayer owns at least eighty per cent of the issued and outstanding common stock of the insurance company. As used in division (I)(8) of this section, “insurance company” means an insurance company that is taxable under Chapter 5725. or 5729. of the Revised Code.
(9) Deduct expenditures for modifying existing buildings or structures to meet American national standards institute standard A-117.1-1961 (R-1971), as amended; provided, that no deduction shall be allowed to the extent that such deduction is not permitted under federal law or under rules of the tax commissioner. Those deductions as are allowed may be taken over a period of five years. The tax commissioner shall adopt rules under Chapter 119. of the Revised Code establishing reasonable limitations on the extent that expenditures for modifying existing buildings or structures are attributable to the purpose of making the buildings or structures accessible to and usable by physically handicapped persons.
(10) Deduct the amount of wages and salaries, if any, not otherwise allowable as a deduction but that would have been allowable as a deduction in computing federal taxable income before operating loss deduction and special deductions for the taxable year, had the targeted jobs credit allowed and determined under sections 38, 51, and 52 of the Internal Revenue Code not been in effect.
(11) Deduct net interest income on obligations of the United States and its territories and possessions or of any authority, commission, or instrumentality of the United States to the extent the laws of the United States prohibit inclusion of the net interest for purposes of determining the value of the taxpayer’s issued and outstanding shares of stock under division (B) of section 5733.05 of the Revised Code. As used in division (I)(11) of this section, “net interest” means interest net of any expenses taken on the federal income tax return that would not have been allowed under section 265 of the Internal Revenue Code if the interest were exempt from federal income tax.
(12)(a) Except as set forth in division (I)(12)(d) of this section, to the extent not included in computing the taxpayer’s federal taxable income before operating loss deduction and special deductions, add gains and deduct losses from direct or indirect sales, exchanges, or other dispositions, made by a related entity who is not a taxpayer, of the taxpayer’s indirect, beneficial, or constructive investment in the stock or debt of another entity, unless the gain or loss has been included in computing the federal taxable income before operating loss deduction and special deductions of another taxpayer with a more closely related investment in the stock or debt of the other entity. The amount of gain added or loss deducted shall not exceed the product obtained by multiplying such gain or loss by the taxpayer’s proportionate share, directly, indirectly, beneficially, or constructively, of the outstanding stock of the related entity immediately prior to the direct or indirect sale, exchange, or other disposition.
(b) Except as set forth in division (I)(12)(e) of this section, to the extent not included in computing the taxpayer’s federal taxable income before operating loss deduction and special deductions, add gains and deduct losses from direct or indirect sales, exchanges, or other dispositions made by a related entity who is not a taxpayer, of intangible property other than stock, securities, and debt, if such property was owned, or used in whole or in part, at any time prior to or at the time of the sale, exchange, or disposition by either the taxpayer or by a related entity that was a taxpayer at any time during the related entity’s ownership or use of such property, unless the gain or loss has been included in computing the federal taxable income before operating loss deduction and special deductions of another taxpayer with a more closely related ownership or use of such intangible property. The amount of gain added or loss deducted shall not exceed the product obtained by multiplying such gain or loss by the taxpayer’s proportionate share, directly, indirectly, beneficially, or constructively, of the outstanding stock of the related entity immediately prior to the direct or indirect sale, exchange, or other disposition.
(c) As used in division (I)(12) of this section, “related entity” means those entities described in divisions (I)(12)(c)(i) to (iii) of this section:
(i) An individual stockholder, or a member of the stockholder’s family enumerated in section 318 of the Internal Revenue Code, if the stockholder and the members of the stockholder’s family own, directly, indirectly, beneficially, or constructively, in the aggregate, at least fifty per cent of the value of the taxpayer’s outstanding stock;
(ii) A stockholder, or a stockholder’s partnership, estate, trust, or corporation, if the stockholder and the stockholder’s partnerships, estates, trusts, and corporations own directly, indirectly, beneficially, or constructively, in the aggregate, at least fifty per cent of the value of the taxpayer’s outstanding stock;
(iii) A corporation, or a party related to the corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under division (I)(12)(c)(iv) of this section, if the taxpayer owns, directly, indirectly, beneficially, or constructively, at least fifty per cent of the value of the corporation’s outstanding stock.
(iv) The attribution rules of section 318 of the Internal Revenue Code apply for purposes of determining whether the ownership requirements in divisions (I)(12)(c)(i) to (iii) of this section have been met.
(d) For purposes of the adjustments required by division (I)(12)(a) of this section, the term “investment in the stock or debt of another entity” means only those investments where the taxpayer and the taxpayer’s related entities directly, indirectly, beneficially, or constructively own, in the aggregate, at any time during the twenty-four month period commencing one year prior to the direct or indirect sale, exchange, or other disposition of such investment at least fifty per cent or more of the value of either the outstanding stock or such debt of such other entity.
(e) For purposes of the adjustments required by division (I)(12)(b) of this section, the term “related entity” excludes all of the following:
(i) Foreign corporations as defined in section 7701 of the Internal Revenue Code;
(ii) Foreign partnerships as defined in section 7701 of the Internal Revenue Code;
(iii) Corporations, partnerships, estates, and trusts created or organized in or under the laws of the Commonwealth of Puerto Rico or any possession of the United States;
(iv) Foreign estates and foreign trusts as defined in section 7701 of the Internal Revenue Code.
The exclusions described in divisions (I)(12)(e)(i) to (iv) of this section do not apply if the corporation, partnership, estate, or trust is described in any one of divisions (C)(1) to (5) of section 5733.042 of the Revised Code.
(f) Nothing in division (I)(12) of this section shall require or permit a taxpayer to add any gains or deduct any losses described in divisions (I)(12)(f)(i) and (ii) of this section:
(i) Gains or losses recognized for federal income tax purposes by an individual, estate, or trust without regard to the attribution rules described in division (I)(12)(c) of this section;
(ii) A related entity’s gains or losses described in division (I)(12)(b) of this section if the taxpayer’s ownership of or use of such intangible property was limited to a period not exceeding nine months and was attributable to a transaction or a series of transactions executed in accordance with the election or elections made by the taxpayer or a related entity pursuant to section 338 of the Internal Revenue Code.
(13) Any adjustment required by section 5733.042 of the Revised Code.
(14) Add any amount claimed as a credit under section 5733.0611 of the Revised Code to the extent that such amount satisfies either of the following:
(a) It was deducted or excluded from the computation of the corporation’s taxable income before operating loss deduction and special deductions as required to be reported for the corporation’s taxable year under the Internal Revenue Code;
(b) It resulted in a reduction of the corporation’s taxable income before operating loss deduction and special deductions as required to be reported for any of the corporation’s taxable years under the Internal Revenue Code.
(15) Deduct the amount contributed by the taxpayer to an individual development account program established by a county department of job and family services pursuant to sections 329.11 to 329.14 of the Revised Code for the purpose of matching funds deposited by program participants. On request of the tax commissioner, the taxpayer shall provide any information that, in the tax commissioner’s opinion, is necessary to establish the amount deducted under division (I)(15) of this section.
(16) Any adjustment required by section 5733.0510 or 5733.0511 of the Revised Code.
(17)(a)(i) Add five-sixths of the amount of depreciation expense allowed under subsection (k) of section 168 of the Internal Revenue Code, including a person’s proportionate or distributive share of the amount of depreciation expense allowed by that subsection to any pass-through entity in which the person has direct or indirect ownership.
(ii) Add five-sixths of the amount of qualifying section 179 depreciation expense, including a person’s proportionate or distributive share of the amount of qualifying section 179 depreciation expense allowed to any pass-through entity in which the person has a direct or indirect ownership. For the purposes of this division, “qualifying section 179 depreciation expense” means the difference between (I) the amount of depreciation expense directly or indirectly allowed to the taxpayer under section 179 of the Internal Revenue Code, and (II) the amount of depreciation expense directly or indirectly allowed to the taxpayer under section 179 of the Internal Revenue Code as that section existed on December 31, 2002.
The tax commissioner, under procedures established by the commissioner, may waive the add-backs related to a pass-through entity if the person owns, directly or indirectly, less than five per cent of the pass-through entity.
(b) Nothing in division (I)(17) of this section shall be construed to adjust or modify the adjusted basis of any asset.
(c) To the extent the add-back is attributable to property generating income or loss allocable under section 5733.051 of the Revised Code, the add-back shall be allocated to the same location as the income or loss generated by that property. Otherwise, the add-back shall be apportioned, subject to division (B)(2)(d) of section 5733.05 of the Revised Code.
(18)(a) If a person is required to make the add-back under division (I)(17)(a) of this section for a tax year, the person shall deduct one-fifth of the amount added back for each of the succeeding five tax years.
(b) If the amount deducted under division (I)(18)(a) of this section is attributable to an add-back allocated under division (I)(17)(c) of this section, the amount deducted shall be allocated to the same location. Otherwise, the amount shall be apportioned using the apportionment factors for the taxable year in which the deduction is taken, subject to division (B)(2)(d) of section 5733.05 of the Revised Code.
(J) Except as otherwise expressly provided or clearly appearing from the context, any term used in this chapter has the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes. Any reference in this chapter to the Internal Revenue Code includes other laws of the United States relating to federal income taxes.
(K) “Financial institution” has the meaning given by section 5725.01 of the Revised Code but does not include a production credit association as described in 85 Stat. 597, 12 U.S.C.A. 2091.
(L)(1) A “qualifying holding company” is any corporation satisfying all of the following requirements:
(a) Subject to divisions (L)(2) and (3) of this section, the net book value of the corporation’s intangible assets is greater than or equal to ninety per cent of the net book value of all of its assets and at least fifty per cent of the net book value of all of its assets represents direct or indirect investments in the equity of, loans and advances to, and accounts receivable due from related members;
(b) At least ninety per cent of the corporation’s gross income for the taxable year is attributable to the following:
(i) The maintenance, management, ownership, acquisition, use, and disposition of its intangible property, its aircraft the use of which is not subject to regulation under 14 C.F.R. part 121 or part 135, and any real property described in division (L)(2)(c) of this section;
(ii) The collection and distribution of income from such property.
(c) The corporation is not a financial institution on the last day of the taxable year ending prior to the first day of the tax year;
(d) The corporation’s related members make a good faith and reasonable effort to make timely and fully the adjustments required by division (D) of section 5733.05 of the Revised Code and to pay timely and fully all uncontested taxes, interest, penalties, and other fees and charges imposed under this chapter;
(e) Subject to division (L)(4) of this section, the corporation elects to be treated as a qualifying holding company for the tax year.
A corporation otherwise satisfying divisions (L)(1)(a) to (e) of this section that does not elect to be a qualifying holding company is not a qualifying holding company for the purposes of this chapter.
(2)(a)(i) For purposes of making the ninety per cent computation under division (L)(1)(a) of this section, the net book value of the corporation’s assets shall not include the net book value of aircraft or real property described in division (L)(1)(b)(i) of this section.
(ii) For purposes of making the fifty per cent computation under division (L)(1)(a) of this section, the net book value of assets shall include the net book value of aircraft or real property described in division (L)(1)(b)(i) of this section.
(b)(i) As used in division (L) of this section, “intangible asset” includes, but is not limited to, the corporation’s direct interest in each pass-through entity only if at all times during the corporation’s taxable year ending prior to the first day of the tax year the corporation’s and the corporation’s related members’ combined direct and indirect interests in the capital or profits of such pass-through entity do not exceed fifty per cent. If the corporation’s interest in the pass-through entity is an intangible asset for that taxable year, then the distributive share of any income from the pass-through entity shall be income from an intangible asset for that taxable year.
(ii) If a corporation’s and the corporation’s related members’ combined direct and indirect interests in the capital or profits of a pass-through entity exceed fifty per cent at any time during the corporation’s taxable year ending prior to the first day of the tax year, “intangible asset” does not include the corporation’s direct interest in the pass-through entity, and the corporation shall include in its assets its proportionate share of the assets of any such pass-through entity and shall include in its gross income its distributive share of the gross income of such pass-through entity in the same form as was earned by the pass-through entity.
(iii) A pass-through entity’s direct or indirect proportionate share of any other pass-through entity’s assets shall be included for the purpose of computing the corporation’s proportionate share of the pass-through entity’s assets under division (L)(2)(b)(ii) of this section, and such pass-through entity’s distributive share of any other pass-through entity’s gross income shall be included for purposes of computing the corporation’s distributive share of the pass-through entity’s gross income under division (L)(2)(b)(ii) of this section.
(c) For the purposes of divisions (L)(1)(b)(i), (1)(b)(ii), (2)(a)(i), and (2)(a)(ii) of this section, real property is described in division (L)(2)(c) of this section only if all of the following conditions are present at all times during the taxable year ending prior to the first day of the tax year:
(i) The real property serves as the headquarters of the corporation’s trade or business, or is the place from which the corporation’s trade or business is principally managed or directed;
(ii) Not more than ten per cent of the value of the real property and not more than ten per cent of the square footage of the building or buildings that are part of the real property is used, made available, or occupied for the purpose of providing, acquiring, transferring, selling, or disposing of tangible property or services in the normal course of business to persons other than related members, the corporation’s employees and their families, and such related members’ employees and their families.
(d) As used in division (L) of this section, “related member” has the same meaning as in division (A)(6) of section 5733.042 of the Revised Code without regard to division (B) of that section.
(3) The percentages described in division (L)(1)(a) of this section shall be equal to the quarterly average of those percentages as calculated during the corporation’s taxable year ending prior to the first day of the tax year.
(4) With respect to the election described in division (L)(1)(e) of this section:
(a) The election need not accompany a timely filed report;
(b) The election need not accompany the report; rather, the election may accompany a subsequently filed but timely application for refund and timely amended report, or a subsequently filed but timely petition for reassessment;
(c) The election is not irrevocable;
(d) The election applies only to the tax year specified by the corporation;
(e) The corporation’s related members comply with division (L)(1)(d) of this section.
Nothing in division (L)(4) of this section shall be construed to extend any statute of limitations set forth in this chapter.
(M) “Qualifying controlled group” means two or more corporations that satisfy the ownership and control requirements of division (A) of section 5733.052 of the Revised Code.
(N) “Limited liability company” means any limited liability company formed under Chapter 1705. of the Revised Code or under the laws of any other state.
(O) “Pass-through entity” means a corporation that has made an election under subchapter S of Chapter 1 of Subtitle A of the Internal Revenue Code for its taxable year under that code, or a partnership, limited liability company, or any other person, other than an individual, trust, or estate, if the partnership, limited liability company, or other person is not classified for federal income tax purposes as an association taxed as a corporation.
(P) “Electric company,” “combined company,” and “telephone company” have the same meanings as in section 5727.01 of the Revised Code.
(Q) “Business income” means income arising from transactions, activities, and sources in the regular course of a trade or business and includes income from real property, tangible personal property, and intangible personal property if the acquisition, rental, management, and disposition of the property constitute integral parts of the regular course of a trade or business operation. “Business income” includes income, including gain or loss, from a partial or complete liquidation of a business, including, but not limited to, gain or loss from the sale or other disposition of goodwill.
(R) “Nonbusiness income” means all income other than business income.
Amended by 128th General Assembly File No. 9, HB 1, § 101.01, eff. 10/16/2009.
Effective Date: 09-26-2003; 12-30-2004