As Introduced

127th General Assembly
Regular Session
2007-2008
H. B. No. 288


Representatives Foley, Letson 

Cosponsors: Representatives Yuko, Okey, Stewart, D., Luckie, Hagan, R., Heard, Harwood, Skindell, Brady, Mallory, Domenick, Yates, Fende, Bolon, Dyer 

A BILL
To enact sections 5733.60, 5733.61, 5733.62, 5733.63, 1
5733.64, 5733.65, 5733.66, 5733.67, and 5733.68 of 2
the Revised Code to levy an annual tax on the net 3
income of a petroleum business engaged in, or that 4
is part of a unitary business engaged in, the 5
business of petroleum refining.6


BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

       Section 1. That sections 5733.60, 5733.61, 5733.62, 5733.63, 7
5733.64, 5733.65, 5733.66, 5733.67, and 5733.68 of the Revised 8
Code be enacted to read as follows:9

       Sec. 5733.60. As used in sections 5733.60 to 5733.68 of the 10
Revised Code:11

       (A) "Taxable year" means the period prescribed by division 12
(A) of section 5733.031 of the Revised Code.13

       (B) "Tax year" means the calendar year in and for which the 14
tax imposed by section 5733.61 of the Revised Code is required to 15
be paid.16

       (C) "Taxpayer" means a corporation subject to the tax imposed 17
by section 5733.61 of the Revised Code.18

       (D) "Net income" has the same meaning as in division (I) of 19
section 5733.04 of the Revised Code, except that the adjustments 20
prescribed by divisions (I)(1), (I)(1)(a), and (I)(14) to (18) of 21
that section do not apply to the computation of net income for the 22
purpose of the tax levied under section 5733.61 of the Revised 23
Code, and the adjustment prescribed by division (I)(3) of that 24
section shall be modified by substituting "5733.61" for "5733.06" 25
wherever "5733.06" appears in that division.26

       (E) "Petroleum business" means a corporation engaged, during 27
the tax year, in the exploration, production, refining, 28
manufacturing, processing, transportation, and marketing of oil 29
and gas, or of any commodity, product, or feedstock derived from 30
oil or gas, or a corporation that is a partner in a partnership 31
engaged in those business activities.32

       (F) "Petroleum refining" means refining crude petroleum into 33
refined petroleum by fractionation, straight distillation of crude 34
oil, cracking, or similar methods.35

       (G) "Corporation" means any corporation as defined by the 36
laws of this state or organization of any kind treated as a 37
corporation for tax purposes under the laws of this state, 38
wherever located, which if it were doing business in this state 39
would be a taxpayer. The business conducted by a pass-through 40
entity that is directly or indirectly held by a corporation shall 41
be considered the business of the corporation to the extent of the 42
corporation's distributive share of the pass-through entity's 43
income.44

       (H) "Pass-through entity" has the same meaning as in division 45
(O) of section 5733.04 of the Revised Code.46

       (I) "Qualifying controlled group" has the same meaning as in 47
section 5733.04 of the Revised Code.48

       (J) "Unitary business" means a qualifying controlled group, 49
the members of which are sufficiently interdependent, integrated, 50
and interrelated through their activities so as to provide a 51
synergy and mutual benefit that produces a sharing or exchange of 52
value among them and a significant flow of value to the separate 53
parts. Any business conducted by a pass-through entity shall be 54
treated as conducted by its equity owners, whether directly held 55
or indirectly held through a series of pass-through entities, to 56
the extent of the equity owner's distributive share of the 57
pass-through entity's income, regardless of the percentage of the 58
equity owner's interest or distributive or any other share of 59
pass-through entity income. A business conducted directly or 60
indirectly by one corporation is unitary with that portion of a 61
business conducted by another corporation through its direct or 62
indirect interest in a pass-through entity if there is a synergy, 63
exchange, and flow of value between the two parts of the business 64
and the two corporations are members of the same qualifying 65
controlled group.66

       (K) "United States" means the fifty states of the United 67
States, the District of Columbia, and United States territories 68
and possessions.69

       (L) "Tax haven" means a jurisdiction for which either of the 70
following is true during the tax year in question:71

       (1) The jurisdiction is identified by the organization for 72
economic co-operation and development (OECD) as a tax haven or as 73
having a harmful preferential tax regime;74

       (2) The jurisdiction exhibits both of the following 75
characteristics regardless of whether it is listed by the OECD as 76
an uncooperative tax haven:77

       (a) The jurisdiction has no or nominal effective tax on the 78
relevant income; and79

       (b) Any one of the following is true:80

       (i) The jurisdiction has laws or practices that prevent 81
effective exchange of information for tax purposes with other 82
governments on taxpayers benefiting from the tax regime;83

       (ii) The jurisdiction has a tax regime that lacks 84
transparency. For this purpose, a tax regime lacks transparency if 85
the details of legislative, legal, or administrative provisions 86
are not open and apparent or are not consistently applied among 87
similarly situated taxpayers, or if the information needed by tax 88
authorities to determine a taxpayer's correct tax liability, such 89
as accounting records and underlying documentation, is not 90
adequately available;91

       (iii) The jurisdiction facilitates the establishment of 92
foreign-owned entities without the need for a local substantive 93
presence or prohibits foreign-owned entities from having any 94
commercial impact on the local economy;95

       (iv) The jurisdiction explicitly or implicitly excludes the 96
jurisdiction's resident taxpayers from taking advantage of the tax 97
regime's benefits or prohibits enterprises that benefit from the 98
regime from operating in the jurisdiction's domestic market;99

       (v) The jurisdiction has created a tax regime that is 100
favorable for tax avoidance based upon an overall assessment of 101
relevant factors, including whether the jurisdiction has a 102
significant untaxed offshore financial or other services sector 103
relative to its overall economy.104

       Sec. 5733.61. For the purpose of promoting energy-efficient 105
modes of transportation and advanced energy production technology, 106
a tax is levied annually, measured by the net income of each 107
petroleum business doing business in this state, owning or using 108
its capital or property in this state, holding a certificate of 109
compliance with the laws of this state authorizing it to do 110
business in this state, or otherwise having nexus in or with this 111
state under the Constitution of the United States during the 112
calendar year during which the tax is payable. The tax equals 113
eight and one-half per cent multiplied by the amount by which the 114
petroleum business's net income for the petroleum business's 115
taxable year exceeds one million dollars. A petroleum business is 116
not subject to the tax levied by this section if its only business 117
is the ownership or operation of a facility in this state to 118
dispense motor fuel for retail sale, or if neither the petroleum 119
business nor any of the members of its unitary business is engaged 120
in the business of petroleum refining during the five most 121
recently concluded tax years. The tax levied under this section is 122
in addition to any other tax, including the tax levied under 123
Chapter 5751. of the Revised Code.124

       Sec. 5733.62. No taxpayer may increase the price of its 125
petroleum products to recapture from the customer the amount of 126
tax due under section 5733.61 of the Revised Code. The tax 127
commissioner may audit the books and records of the taxpayer and 128
the members of the taxpayer's unitary business to ensure 129
compliance with this section. Whoever violates this section shall 130
be subject to a civil penalty equal to twice the sum of the 131
penalties that may be charged under section 5733.28 of the Revised 132
Code plus interest at the rate per annum prescribed by section 133
5703.47 of the Revised Code from the date of the violation until 134
the penalty is paid in full.135

       Sec. 5733.63. A taxpayer's net income subject to the tax 136
levied by section 5733.61 of the Revised Code equals the sum of 137
the taxpayer's net nonbusiness income allocated and apportioned to 138
this state plus the taxpayer's net business income apportioned to 139
this state, and shall be computed as follows:140

       (A)(1) The net business income of a taxpayer engaged in a 141
unitary business with one or more other corporations shall be 142
combined with that of all members of its unitary business. Each 143
member's net income shall be determined in the same manner as if 144
the member were a taxpayer. Intercorporate transactions, including 145
dividends or distributions, between members of the unitary 146
business shall be eliminated.147

       (2) The net business income of the unitary business shall be 148
apportioned to this state pursuant to division (B)(2) of section 149
5733.05 of the Revised Code. Unless otherwise required by the tax 150
commissioner under division (B) of section 5733.64 of the Revised 151
Code, the factors used in the formulas in division (B)(2) of 152
section 5733.05 of the Revised Code shall be the combined totals 153
of the factors for each member of the unitary business after the 154
elimination of any intercorporate transactions. Permitted 155
exemptions and deductions, if any, shall be taken in the same 156
manner as if each member of the unitary business filed a separate 157
report.158

       (3) The net business income of the unitary business 159
apportioned to this state shall be prorated to the taxpayer on the 160
basis of the taxpayer's proportionate share of the factors used to 161
apportion the net business income of the unitary business, unless 162
otherwise required by the tax commissioner.163

       (B) The taxpayer's net nonbusiness income shall be allocated 164
to this state pursuant to section 5733.051 of the Revised Code. 165
Intercorporate transactions shall be eliminated.166

       Sec. 5733.64.  (A) A taxpayer engaged in a unitary business 167
with one or more other corporations shall file a report that 168
combines the net incomes of all members of the unitary business, 169
includes the apportionment factors of each member, and discloses 170
such other information as may be required by the tax commissioner. 171
If the commissioner determines that the reported income or loss of 172
a taxpayer engaged in a unitary business with any person not 173
included pursuant to this division represents an avoidance or 174
evasion of tax by such taxpayer, the commissioner may require all 175
or any part of the income and associated apportionment factors of 176
such person to be included in the taxpayer's report.177

       (B) The tax commissioner may require the report to include 178
the net income and associated apportionment factors of any person 179
that is not included pursuant to division (A) of this section, but 180
that is a member of a unitary business, in order to reflect proper 181
apportionment of income of entire unitary businesses. The 182
commissioner may require combination of persons that are not, or 183
would not be if doing business in this state, subject to the tax 184
imposed by section 5733.61 of the Revised Code. The commissioner 185
also may require the exclusion or inclusion of any one or more of 186
the apportionment factors or may employ any other method of 187
apportionment to effectuate a proper reflection of the total 188
amount of net income subject to apportionment and an equitable 189
allocation and apportionment of the taxpayer's net income.190

       Sec. 5733.65. (A) Taxpayer members of a unitary business that 191
meet the requirements of division (B) of this section may elect to 192
combine the income and apportionment factors of only the following 193
members of the unitary business:194

       (1) A member incorporated in the United States or formed 195
under the laws of any state, the District of Columbia, or any 196
territory or possession of the United States;197

       (2) A member, regardless of the place incorporated or formed, 198
if the average of its property, payroll, and sales factors within 199
the United States is twenty per cent or more;200

       (3) A member that is a domestic international sales 201
corporation as described in sections 991 to 994 of the Internal 202
Revenue Code; a foreign sales corporation as described in sections 203
921 to 927 of the Internal Revenue Code; or a member that is an 204
export trade corporation as described in sections 970 to 971 of 205
the Internal Revenue Code;206

       (4) A member not described in divisions (A)(1) to (3) of this 207
section to the extent its income is derived from or attributable 208
to sources within the United States, as determined under the 209
Internal Revenue Code without regard to federal treaties, and the 210
related apportionment factors;211

       (5) A member that is a "controlled foreign corporation," as 212
defined in section 957 of the Internal Revenue Code, to the extent 213
the member's income that is defined in section 952 of Subpart F of 214
the Internal Revenue Code ("Subpart F income") including 215
lower-tier subsidiaries' distributions of such income that were 216
previously taxed, determined without regard to federal treaties, 217
and the related apportionment factors; any item of income received 218
by a controlled foreign corporation shall be excluded if such 219
income was subject to an effective rate of income tax imposed by a 220
foreign country greater than ninety per cent of the maximum rate 221
of tax specified in section 11 of the Internal Revenue Code;222

       (6) A member to the extent it receives more than twenty per 223
cent of its income, directly or indirectly, from intangible 224
property or service-related activities that are deductible against 225
the business income of other members of the combined group, and 226
the related apportionment factors;227

       (7) A member that is doing business in a tax haven, where 228
"doing business in a tax haven" is defined as being engaged in 229
activity sufficient for that tax haven jurisdiction to impose a 230
tax under United States constitutional standards. If the member's 231
business activity within a tax haven is entirely outside the scope 232
of the laws, provisions, and practices that cause the jurisdiction 233
to meet the criteria established in division (L) of section 234
5733.60 of the Revised Code, the activity of the member shall be 235
treated as not having been conducted in a tax haven.236

       (B)(1) An election made under division (A) of this section is 237
effective only if made on a timely filed, original return for a 238
tax year by every member of the unitary business having nexus in 239
or with this state under the Constitution of the United States at 240
any time during the member's taxable year. The tax commissioner 241
shall adopt rules governing the effect, if any, on the scope or 242
application of an election made under division (A) of this 243
section, including termination or deemed election, resulting from 244
a change in the composition of the unitary group, the combined 245
group, the taxpayer members, or any other similar change.246

       (2) The election constitutes consent to the reasonable 247
production of documents and taking of depositions.248

       (3) In the discretion of the tax commissioner, an election 249
may be disregarded in part or in whole, and the income and 250
apportionment factors of any member of the taxpayer's unitary 251
business may be included in the combined report without regard to 252
the provisions of this section, if any member of the unitary 253
business fails to comply with any provision of sections 5733.60 to 254
5733.68 of the Revised Code or any other applicable provision of 255
this chapter.256

       (4) An election made under division (A) of this section is 257
binding for and applicable to the tax year for which it is made 258
and all tax years thereafter for a period of ten years. The 259
election may be withdrawn or reinstituted after withdrawal before 260
expiration of the ten-year period only upon written request, for 261
reasonable cause based on extraordinary hardship due to unforeseen 262
changes in state tax law or policy, and only with the written 263
permission of the tax commissioner. If the tax commissioner grants 264
a withdrawal of election, the commissioner shall impose reasonable 265
conditions as necessary to prevent the evasion of tax or to 266
clearly reflect income for the election period before or after the 267
withdrawal. Upon the expiration of the ten-year period, a taxpayer 268
may withdraw from the election. The withdrawal must be made in 269
writing within one year of the expiration of the election, and is 270
binding for a period of ten years, subject to the same conditions 271
as applied to the original election. If a withdrawal is not 272
properly made, the election shall be in effect for an additional 273
ten-year period, subject to the same conditions as applied to the 274
original election.275

       Sec. 5733.66. Money collected from the tax imposed by section 276
5733.61 of the Revised Code, shall be credited to the advanced 277
energy fund created in section 4928.61 of the Revised Code and 278
used for the purposes prescribed for money in that fund. The 279
general assembly may appropriate money collected from the tax to 280
the Ohio rail development commission.281

       Sec. 5733.67. The tax imposed by section 5733.61 of the 282
Revised Code shall be payable and shall be administered and 283
enforced according to the provisions of this chapter.284

       Sec. 5733.68. References to "this chapter" or "Chapter 5733." 285
in the following sections exclude sections 5733.60 to 5733.68 of 286
the Revised Code: sections 122.152, 145.114, 145.116, 718.01, 287
742.114, 742.116, 3307.152, 3307.154, 3309.157, 3309.159, 3770.10, 288
5505.068, 5505.0610, 5725.26, 5733.01, 5733.06, 5733.0610, 289
5733.0611, 5733.31, 5733.311, 5733.35, 5733.47, and 5747.13 and 290
division (D) of section 5733.11 of the Revised Code.291

       Section 2.  The enactment by this act of sections 5733.60, 292
5733.61, 5733.62, 5733.63, 5733.64, 5733.65, 5733.66, 5733.67, and 293
5733.68 of the Revised Code applies to taxable years ending in 294
2008.295

       Section 3. This act provides for a tax levy within the 296
meaning of Ohio Constitution, Article II, Section 1d, and 297
therefore, pursuant to that section, this act is not subject to 298
the referendum and goes into immediate effect when this act 299
becomes law.300