As Introduced

127th General Assembly Regular Session 2007-2008

H. B. No. 516

Representative Reinhard 

Cosponsors: Representatives Collier, Combs, Hughes, McGregor, J., Otterman, J., Webster 

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A BILL

To amend section 5747.01 of the Revised Code to

1

authorize an income tax deduction for interest

2

from deposits in certain bank accounts.

3

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

Section 1. That section 5747.01 of the Revised Code be	4
amended to read as follows:	5

Sec. 5747.01.  Except as otherwise expressly provided or	6
clearly appearing from the context, any term used in this chapter	7
that is not otherwise defined in this section has the same meaning	8
as when used in a comparable context in the laws of the United	9
States relating to federal income taxes or if not used in a	10
comparable context in those laws, has the same meaning as in	11
section 5733.40 of the Revised Code. Any reference in this chapter	12
to the Internal Revenue Code includes other laws of the United	13
States relating to federal income taxes.	14

As used in this chapter:

15

(A) "Adjusted gross income" or "Ohio adjusted gross income"	16
means federal adjusted gross income, as defined and used in the	17
Internal Revenue Code, adjusted as provided in this section:	18

(1) Add interest or dividends on obligations or securities of	19
any state or of any political subdivision or authority of any	20
state, other than this state and its subdivisions and authorities.	21

(2) Add interest or dividends on obligations of any	22
authority, commission, instrumentality, territory, or possession	23
of the United States to the extent that the interest or dividends	24
are exempt from federal income taxes but not from state income	25
taxes.	26

(3) Deduct interest or dividends on obligations of the United	27
States and its territories and possessions or of any authority,	28
commission, or instrumentality of the United States to the extent	29
that the interest or dividends are included in federal adjusted	30
gross income but exempt from state income taxes under the laws of	31
the United States.	32

(4) Deduct disability and survivor's benefits to the extent	33
included in federal adjusted gross income.	34

(5) Deduct benefits under Title II of the Social Security Act	35
and tier 1 railroad retirement benefits to the extent included in	36
federal adjusted gross income under section 86 of the Internal	37
Revenue Code.	38

(6) In the case of a taxpayer who is a beneficiary of a trust	39
that makes an accumulation distribution as defined in section 665	40
of the Internal Revenue Code, add, for the beneficiary's taxable	41
years beginning before 2002, the portion, if any, of such	42
distribution that does not exceed the undistributed net income of	43
the trust for the three taxable years preceding the taxable year	44
in which the distribution is made to the extent that the portion	45
was not included in the trust's taxable income for any of the	46
trust's taxable years beginning in 2002 or thereafter.	47
"Undistributed net income of a trust" means the taxable income of	48
the trust increased by (a)(i) the additions to adjusted gross	49
income required under division (A) of this section and (ii) the	50
personal exemptions allowed to the trust pursuant to section	51
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	52
deductions to adjusted gross income required under division (A) of	53
this section, (ii) the amount of federal income taxes attributable	54
to such income, and (iii) the amount of taxable income that has	55
been included in the adjusted gross income of a beneficiary by	56
reason of a prior accumulation distribution. Any undistributed net	57
income included in the adjusted gross income of a beneficiary	58
shall reduce the undistributed net income of the trust commencing	59
with the earliest years of the accumulation period.	60

(7) Deduct the amount of wages and salaries, if any, not	61
otherwise allowable as a deduction but that would have been	62
allowable as a deduction in computing federal adjusted gross	63
income for the taxable year, had the targeted jobs credit allowed	64
and determined under sections 38, 51, and 52 of the Internal	65
Revenue Code not been in effect.	66

(8) Deduct any interest or interest equivalent on public	67
obligations and purchase obligations to the extent that the	68
interest or interest equivalent is included in federal adjusted	69
gross income.	70

(9) Add any loss or deduct any gain resulting from the sale,	71
exchange, or other disposition of public obligations to the extent	72
that the loss has been deducted or the gain has been included in	73
computing federal adjusted gross income.	74

(10) Deduct or add amounts, as provided under section	75
5747.70 of the Revised Code, related to contributions to variable	76
college savings program accounts made or tuition units purchased	77
pursuant to Chapter 3334. of the Revised Code.	78

(11)(a) Deduct, to the extent not otherwise allowable as a	79
deduction or exclusion in computing federal or Ohio adjusted gross	80
income for the taxable year, the amount the taxpayer paid during	81
the taxable year for medical care insurance and qualified	82
long-term care insurance for the taxpayer, the taxpayer's spouse,	83
and dependents. No deduction for medical care insurance under	84
division (A)(11) of this section shall be allowed either to any	85
taxpayer who is eligible to participate in any subsidized health	86
plan maintained by any employer of the taxpayer or of the	87
taxpayer's spouse, or to any taxpayer who is entitled to, or on	88
application would be entitled to, benefits under part A of Title	89
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	90
301, as amended. For the purposes of division (A)(11)(a) of this	91
section, "subsidized health plan" means a health plan for which	92
the employer pays any portion of the plan's cost. The deduction	93
allowed under division (A)(11)(a) of this section shall be the net	94
of any related premium refunds, related premium reimbursements, or	95
related insurance premium dividends received during the taxable	96
year.	97

(b) Deduct, to the extent not otherwise deducted or excluded	98
in computing federal or Ohio adjusted gross income during the	99
taxable year, the amount the taxpayer paid during the taxable	100
year, not compensated for by any insurance or otherwise, for	101
medical care of the taxpayer, the taxpayer's spouse, and	102
dependents, to the extent the expenses exceed seven and one-half	103
per cent of the taxpayer's federal adjusted gross income.	104

(c) For purposes of division (A)(11) of this section,	105
"medical care" has the meaning given in section 213 of the	106
Internal Revenue Code, subject to the special rules, limitations,	107
and exclusions set forth therein, and "qualified long-term care"	108
has the same meaning given in section 7702B(c) of the Internal	109
Revenue Code.	110

(12)(a) Deduct any amount included in federal adjusted gross	111
income solely because the amount represents a reimbursement or	112
refund of expenses that in any year the taxpayer had deducted as	113
an itemized deduction pursuant to section 63 of the Internal	114
Revenue Code and applicable United States department of the	115
treasury regulations. The deduction otherwise allowed under	116
division (A)(12)(a) of this section shall be reduced to the extent	117
the reimbursement is attributable to an amount the taxpayer	118
deducted under this section in any taxable year.	119

(b) Add any amount not otherwise included in Ohio adjusted	120
gross income for any taxable year to the extent that the amount is	121
attributable to the recovery during the taxable year of any amount	122
deducted or excluded in computing federal or Ohio adjusted gross	123
income in any taxable year.	124

(13) Deduct any portion of the deduction described in section	125
1341(a)(2) of the Internal Revenue Code, for repaying previously	126
reported income received under a claim of right, that meets both	127
of the following requirements:	128

(a) It is allowable for repayment of an item that was	129
included in the taxpayer's adjusted gross income for a prior	130
taxable year and did not qualify for a credit under division (A)	131
or (B) of section 5747.05 of the Revised Code for that year;	132

(b) It does not otherwise reduce the taxpayer's adjusted	133
gross income for the current or any other taxable year.	134

(14) Deduct an amount equal to the deposits made to, and net	135
investment earnings of, a medical savings account during the	136
taxable year, in accordance with section 3924.66 of the Revised	137
Code. The deduction allowed by division (A)(14) of this section	138
does not apply to medical savings account deposits and earnings	139
otherwise deducted or excluded for the current or any other	140
taxable year from the taxpayer's federal adjusted gross income.	141

(15)(a) Add an amount equal to the funds withdrawn from a	142
medical savings account during the taxable year, and the net	143
investment earnings on those funds, when the funds withdrawn were	144
used for any purpose other than to reimburse an account holder	145
for, or to pay, eligible medical expenses, in accordance with	146
section 3924.66 of the Revised Code;	147

(b) Add the amounts distributed from a medical savings	148
account under division (A)(2) of section 3924.68 of the Revised	149
Code during the taxable year.	150

(16) Add any amount claimed as a credit under section	151
5747.059 of the Revised Code to the extent that such amount	152
satisfies either of the following:	153

(a) The amount was deducted or excluded from the computation	154
of the taxpayer's federal adjusted gross income as required to be	155
reported for the taxpayer's taxable year under the Internal	156
Revenue Code;	157

(b) The amount resulted in a reduction of the taxpayer's	158
federal adjusted gross income as required to be reported for any	159
of the taxpayer's taxable years under the Internal Revenue Code.	160

(17) Deduct the amount contributed by the taxpayer to an	161
individual development account program established by a county	162
department of job and family services pursuant to sections 329.11	163
to 329.14 of the Revised Code for the purpose of matching funds	164
deposited by program participants. On request of the tax	165
commissioner, the taxpayer shall provide any information that, in	166
the tax commissioner's opinion, is necessary to establish the	167
amount deducted under division (A)(17) of this section.	168

(18) Beginning in taxable year 2001 but not for any taxable	169
year beginning after December 31, 2005, if the taxpayer is married	170
and files a joint return and the combined federal adjusted gross	171
income of the taxpayer and the taxpayer's spouse for the taxable	172
year does not exceed one hundred thousand dollars, or if the	173
taxpayer is single and has a federal adjusted gross income for the	174
taxable year not exceeding fifty thousand dollars, deduct amounts	175
paid during the taxable year for qualified tuition and fees paid	176
to an eligible institution for the taxpayer, the taxpayer's	177
spouse, or any dependent of the taxpayer, who is a resident of	178
this state and is enrolled in or attending a program that	179
culminates in a degree or diploma at an eligible institution. The	180
deduction may be claimed only to the extent that qualified tuition	181
and fees are not otherwise deducted or excluded for any taxable	182
year from federal or Ohio adjusted gross income. The deduction may	183
not be claimed for educational expenses for which the taxpayer	184
claims a credit under section 5747.27 of the Revised Code.	185

(19) Add any reimbursement received during the taxable year	186
of any amount the taxpayer deducted under division (A)(18) of this	187
section in any previous taxable year to the extent the amount is	188
not otherwise included in Ohio adjusted gross income.	189

(20)(a)(i) Add five-sixths of the amount of depreciation	190
expense allowed by subsection (k) of section 168 of the Internal	191
Revenue Code, including the taxpayer's proportionate or	192
distributive share of the amount of depreciation expense allowed	193
by that subsection to a pass-through entity in which the taxpayer	194
has a direct or indirect ownership interest.	195

(ii) Add five-sixths of the amount of qualifying section 179	196
depreciation expense, including a person's proportionate or	197
distributive share of the amount of qualifying section 179	198
depreciation expense allowed to any pass-through entity in which	199
the person has a direct or indirect ownership. For the purposes of	200
this division, "qualifying section 179 depreciation expense" means	201
the difference between (I) the amount of depreciation expense	202
directly or indirectly allowed to the taxpayer under section 179	203
of the Internal Revenue Code, and (II) the amount of depreciation	204
expense directly or indirectly allowed to the taxpayer under	205
section 179 of the Internal Revenue Code as that section existed	206
on December 31, 2002.	207

The tax commissioner, under procedures established by the	208
commissioner, may waive the add-backs related to a pass-through	209
entity if the taxpayer owns, directly or indirectly, less than	210
five per cent of the pass-through entity.	211

(b) Nothing in division (A)(20) of this section shall be	212
construed to adjust or modify the adjusted basis of any asset.	213

(c) To the extent the add-back required under division	214
(A)(20)(a) of this section is attributable to property generating	215
nonbusiness income or loss allocated under section 5747.20 of the	216
Revised Code, the add-back shall be sitused to the same location	217
as the nonbusiness income or loss generated by the property for	218
the purpose of determining the credit under division (A) of	219
section 5747.05 of the Revised Code. Otherwise, the add-back shall	220
be apportioned, subject to one or more of the four alternative	221
methods of apportionment enumerated in section 5747.21 of the	222
Revised Code.	223

(d) For the purposes of division (A) of this section, net	224
operating loss carryback and carryforward shall not include	225
five-sixths of the allowance of any net operating loss deduction	226
carryback or carryforward to the taxable year to the extent such	227
loss resulted from depreciation allowed by section 168(k) of the	228
Internal Revenue Code and by the qualifying section 179	229
depreciation expense amount.	230

(21)(a) If the taxpayer was required to add an amount under	231
division (A)(20)(a) of this section for a taxable year, deduct	232
one-fifth of the amount so added for each of the five succeeding	233
taxable years.	234

(b) If the amount deducted under division (A)(21)(a) of this	235
section is attributable to an add-back allocated under division	236
(A)(20)(c) of this section, the amount deducted shall be sitused	237
to the same location. Otherwise, the add-back shall be apportioned	238
using the apportionment factors for the taxable year in which the	239
deduction is taken, subject to one or more of the four alternative	240
methods of apportionment enumerated in section 5747.21 of the	241
Revised Code.	242

(c) No deduction is available under division (A)(21)(a) of	243
this section with regard to any depreciation allowed by section	244
168(k) of the Internal Revenue Code and by the qualifying section	245
179 depreciation expense amount to the extent that such	246
depreciation resulted in or increased a federal net operating loss	247
carryback or carryforward to a taxable year to which division	248
(A)(20)(d) of this section does not apply.	249

(22) Deduct, to the extent not otherwise deducted or excluded	250
in computing federal or Ohio adjusted gross income for the taxable	251
year, the amount the taxpayer received during the taxable year as	252
reimbursement for life insurance premiums under section 5919.31 of	253
the Revised Code.	254

(23) Deduct, to the extent not otherwise deducted or excluded	255
in computing federal or Ohio adjusted gross income for the taxable	256
year, the amount the taxpayer received during the taxable year as	257
a death benefit paid by the adjutant general under section 5919.33	258
of the Revised Code.	259

(24) Deduct, to the extent included in federal adjusted gross	260
income and not otherwise allowable as a deduction or exclusion in	261
computing federal or Ohio adjusted gross income for the taxable	262
year, military pay and allowances received by the taxpayer during	263
the taxable year for active duty service in the United States	264
army, air force, navy, marine corps, or coast guard or reserve	265
components thereof or the national guard. The deduction may not be	266
claimed for military pay and allowances received by the taxpayer	267
while the taxpayer is stationed in this state.	268

(25) Deduct, to the extent not otherwise allowable as a	269
deduction or exclusion in computing federal or Ohio adjusted gross	270
income for the taxable year and not otherwise compensated for by	271
any other source, the amount of qualified organ donation expenses	272
incurred by the taxpayer during the taxable year, not to exceed	273
ten thousand dollars. A taxpayer may deduct qualified organ	274
donation expenses only once for all taxable years beginning with	275
taxable years beginning in 2007.	276

For the purposes of division (A)(25) of this section:

277

(a) "Human organ" means all or any portion of a human liver,	278
pancreas, kidney, intestine, or lung, and any portion of human	279
bone marrow.	280

(b) "Qualified organ donation expenses" means travel	281
expenses, lodging expenses, and wages and salary forgone by a	282
taxpayer in connection with the taxpayer's donation, while living,	283
of one or more of the taxpayer's human organs to another human	284
being.	285

(26) Deduct, to the extent not otherwise deducted or excluded	286
in computing federal or Ohio adjusted gross income for the taxable	287
year, amounts received by the taxpayer as retired military	288
personnel pay for service in the United States army, navy, air	289
force, coast guard, or marine corps or reserve components thereof,	290
or the national guard. If the taxpayer receives income on account	291
of retirement paid under the federal civil service retirement	292
system or federal employees retirement system, or under any	293
successor retirement program enacted by the congress of the United	294
States that is established and maintained for retired employees of	295
the United States government, and such retirement income is based,	296
in whole or in part, on credit for the taxpayer's military	297
service, the deduction allowed under this division shall include	298
only that portion of such retirement income that is attributable	299
to the taxpayer's military service, to the extent that portion of	300
such retirement income is otherwise included in federal adjusted	301
gross income and is not otherwise deducted under this section. Any	302
amount deducted under division (A)(26) of this section is not	303
included in the taxpayer's adjusted gross income for the purposes	304
of section 5747.055 of the Revised Code. No amount may be	305
deducted under division (A)(26) of this section on the basis of	306
which a credit was claimed under section 5747.055 of the Revised	307
Code.	308

(27) Deduct, to the extent included in federal adjusted gross	309
income, interest from an individual's savings, checking,	310
certificate of deposit, or money market account, in an amount not	311
to exceed five hundred dollars for a separate return or one	312
thousand dollars for a joint return.	313

(B) "Business income" means income, including gain or loss,	314
arising from transactions, activities, and sources in the regular	315
course of a trade or business and includes income, gain, or loss	316
from real property, tangible property, and intangible property if	317
the acquisition, rental, management, and disposition of the	318
property constitute integral parts of the regular course of a	319
trade or business operation. "Business income" includes income,	320
including gain or loss, from a partial or complete liquidation of	321
a business, including, but not limited to, gain or loss from the	322
sale or other disposition of goodwill.	323

(C) "Nonbusiness income" means all income other than business	324
income and may include, but is not limited to, compensation, rents	325
and royalties from real or tangible personal property, capital	326
gains, interest, dividends and distributions, patent or copyright	327
royalties, or lottery winnings, prizes, and awards.	328

(D) "Compensation" means any form of remuneration paid to an	329
employee for personal services.	330

(E) "Fiduciary" means a guardian, trustee, executor,	331
administrator, receiver, conservator, or any other person acting	332
in any fiduciary capacity for any individual, trust, or estate.	333

(F) "Fiscal year" means an accounting period of twelve months	334
ending on the last day of any month other than December.	335

(G) "Individual" means any natural person.

336

(H) "Internal Revenue Code" means the "Internal Revenue Code	337
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	338

(I) "Resident" means any of the following, provided that	339
division (I)(3) of this section applies only to taxable years of a	340
trust beginning in 2002 or thereafter:	341

(1) An individual who is domiciled in this state, subject to	342
section 5747.24 of the Revised Code;	343

(2) The estate of a decedent who at the time of death was	344
domiciled in this state. The domicile tests of section 5747.24 of	345
the Revised Code are not controlling for purposes of division	346
(I)(2) of this section.	347

(3) A trust that, in whole or part, resides in this state. If	348
only part of a trust resides in this state, the trust is a	349
resident only with respect to that part.	350

For the purposes of division (I)(3) of this section:

351

(a) A trust resides in this state for the trust's current	352
taxable year to the extent, as described in division (I)(3)(d) of	353
this section, that the trust consists directly or indirectly, in	354
whole or in part, of assets, net of any related liabilities, that	355
were transferred, or caused to be transferred, directly or	356
indirectly, to the trust by any of the following:	357

(i) A person, a court, or a governmental entity or	358
instrumentality on account of the death of a decedent, but only if	359
the trust is described in division (I)(3)(e)(i) or (ii) of this	360
section;	361

(ii) A person who was domiciled in this state for the	362
purposes of this chapter when the person directly or indirectly	363
transferred assets to an irrevocable trust, but only if at least	364
one of the trust's qualifying beneficiaries is domiciled in this	365
state for the purposes of this chapter during all or some portion	366
of the trust's current taxable year;	367

(iii) A person who was domiciled in this state for the	368
purposes of this chapter when the trust document or instrument or	369
part of the trust document or instrument became irrevocable, but	370
only if at least one of the trust's qualifying beneficiaries is a	371
resident domiciled in this state for the purposes of this chapter	372
during all or some portion of the trust's current taxable year. If	373
a trust document or instrument became irrevocable upon the death	374
of a person who at the time of death was domiciled in this state	375
for purposes of this chapter, that person is a person described in	376
division (I)(3)(a)(iii) of this section.	377

(b) A trust is irrevocable to the extent that the transferor	378
is not considered to be the owner of the net assets of the trust	379
under sections 671 to 678 of the Internal Revenue Code.	380

(c) With respect to a trust other than a charitable lead	381
trust, "qualifying beneficiary" has the same meaning as "potential	382
current beneficiary" as defined in section 1361(e)(2) of the	383
Internal Revenue Code, and with respect to a charitable lead trust	384
"qualifying beneficiary" is any current, future, or contingent	385
beneficiary, but with respect to any trust "qualifying	386
beneficiary" excludes a person or a governmental entity or	387
instrumentality to any of which a contribution would qualify for	388
the charitable deduction under section 170 of the Internal Revenue	389
Code.	390

(d) For the purposes of division (I)(3)(a) of this section,	391
the extent to which a trust consists directly or indirectly, in	392
whole or in part, of assets, net of any related liabilities, that	393
were transferred directly or indirectly, in whole or part, to the	394
trust by any of the sources enumerated in that division shall be	395
ascertained by multiplying the fair market value of the trust's	396
assets, net of related liabilities, by the qualifying ratio, which	397
shall be computed as follows:	398

(i) The first time the trust receives assets, the numerator	399
of the qualifying ratio is the fair market value of those assets	400
at that time, net of any related liabilities, from sources	401
enumerated in division (I)(3)(a) of this section. The denominator	402
of the qualifying ratio is the fair market value of all the	403
trust's assets at that time, net of any related liabilities.	404

(ii) Each subsequent time the trust receives assets, a	405
revised qualifying ratio shall be computed. The numerator of the	406
revised qualifying ratio is the sum of (1) the fair market value	407
of the trust's assets immediately prior to the subsequent	408
transfer, net of any related liabilities, multiplied by the	409
qualifying ratio last computed without regard to the subsequent	410
transfer, and (2) the fair market value of the subsequently	411
transferred assets at the time transferred, net of any related	412
liabilities, from sources enumerated in division (I)(3)(a) of this	413
section. The denominator of the revised qualifying ratio is the	414
fair market value of all the trust's assets immediately after the	415
subsequent transfer, net of any related liabilities.	416

(iii) Whether a transfer to the trust is by or from any of	417
the sources enumerated in division (I)(3)(a) of this section shall	418
be ascertained without regard to the domicile of the trust's	419
beneficiaries.	420

(e) For the purposes of division (I)(3)(a)(i) of this	421
section:	422

(i) A trust is described in division (I)(3)(e)(i) of this	423
section if the trust is a testamentary trust and the testator of	424
that testamentary trust was domiciled in this state at the time of	425
the testator's death for purposes of the taxes levied under	426
Chapter 5731. of the Revised Code.	427

(ii) A trust is described in division (I)(3)(e)(ii) of this	428
section if the transfer is a qualifying transfer described in any	429
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	430
irrevocable inter vivos trust, and at least one of the trust's	431
qualifying beneficiaries is domiciled in this state for purposes	432
of this chapter during all or some portion of the trust's current	433
taxable year.	434

(f) For the purposes of division (I)(3)(e)(ii) of this	435
section, a "qualifying transfer" is a transfer of assets, net of	436
any related liabilities, directly or indirectly to a trust, if the	437
transfer is described in any of the following:	438

(i) The transfer is made to a trust, created by the decedent	439
before the decedent's death and while the decedent was domiciled	440
in this state for the purposes of this chapter, and, prior to the	441
death of the decedent, the trust became irrevocable while the	442
decedent was domiciled in this state for the purposes of this	443
chapter.	444

(ii) The transfer is made to a trust to which the decedent,	445
prior to the decedent's death, had directly or indirectly	446
transferred assets, net of any related liabilities, while the	447
decedent was domiciled in this state for the purposes of this	448
chapter, and prior to the death of the decedent the trust became	449
irrevocable while the decedent was domiciled in this state for the	450
purposes of this chapter.	451

(iii) The transfer is made on account of a contractual	452
relationship existing directly or indirectly between the	453
transferor and either the decedent or the estate of the decedent	454
at any time prior to the date of the decedent's death, and the	455
decedent was domiciled in this state at the time of death for	456
purposes of the taxes levied under Chapter 5731. of the Revised	457
Code.	458

(iv) The transfer is made to a trust on account of a	459
contractual relationship existing directly or indirectly between	460
the transferor and another person who at the time of the	461
decedent's death was domiciled in this state for purposes of this	462
chapter.	463

(v) The transfer is made to a trust on account of the will of	464
a testator.	465

(vi) The transfer is made to a trust created by or caused to	466
be created by a court, and the trust was directly or indirectly	467
created in connection with or as a result of the death of an	468
individual who, for purposes of the taxes levied under Chapter	469
5731. of the Revised Code, was domiciled in this state at the time	470
of the individual's death.	471

(g) The tax commissioner may adopt rules to ascertain the	472
part of a trust residing in this state.	473

(J) "Nonresident" means an individual or estate that is not a	474
resident. An individual who is a resident for only part of a	475
taxable year is a nonresident for the remainder of that taxable	476
year.	477

(K) "Pass-through entity" has the same meaning as in section	478
5733.04 of the Revised Code.	479

(L) "Return" means the notifications and reports required to	480
be filed pursuant to this chapter for the purpose of reporting the	481
tax due and includes declarations of estimated tax when so	482
required.	483

(M) "Taxable year" means the calendar year or the taxpayer's	484
fiscal year ending during the calendar year, or fractional part	485
thereof, upon which the adjusted gross income is calculated	486
pursuant to this chapter.	487

(N) "Taxpayer" means any person subject to the tax imposed by	488
section 5747.02 of the Revised Code or any pass-through entity	489
that makes the election under division (D) of section 5747.08 of	490
the Revised Code.	491

(O) "Dependents" means dependents as defined in the Internal	492
Revenue Code and as claimed in the taxpayer's federal income tax	493
return for the taxable year or which the taxpayer would have been	494
permitted to claim had the taxpayer filed a federal income tax	495
return.	496

(P) "Principal county of employment" means, in the case of a	497
nonresident, the county within the state in which a taxpayer	498
performs services for an employer or, if those services are	499
performed in more than one county, the county in which the major	500
portion of the services are performed.	501

(Q) As used in sections 5747.50 to 5747.55 of the Revised	502
Code:	503

(1) "Subdivision" means any county, municipal corporation,	504
park district, or township.	505

(2) "Essential local government purposes" includes all	506
functions that any subdivision is required by general law to	507
exercise, including like functions that are exercised under a	508
charter adopted pursuant to the Ohio Constitution.	509

(R) "Overpayment" means any amount already paid that exceeds	510
the figure determined to be the correct amount of the tax.	511

(S) "Taxable income" or "Ohio taxable income" applies only to	512
estates and trusts, and means federal taxable income, as defined	513
and used in the Internal Revenue Code, adjusted as follows:	514

(1) Add interest or dividends, net of ordinary, necessary,	515
and reasonable expenses not deducted in computing federal taxable	516
income, on obligations or securities of any state or of any	517
political subdivision or authority of any state, other than this	518
state and its subdivisions and authorities, but only to the extent	519
that such net amount is not otherwise includible in Ohio taxable	520
income and is described in either division (S)(1)(a) or (b) of	521
this section:	522

(a) The net amount is not attributable to the S portion of an	523
electing small business trust and has not been distributed to	524
beneficiaries for the taxable year;	525

(b) The net amount is attributable to the S portion of an	526
electing small business trust for the taxable year.	527

(2) Add interest or dividends, net of ordinary, necessary,	528
and reasonable expenses not deducted in computing federal taxable	529
income, on obligations of any authority, commission,	530
instrumentality, territory, or possession of the United States to	531
the extent that the interest or dividends are exempt from federal	532
income taxes but not from state income taxes, but only to the	533
extent that such net amount is not otherwise includible in Ohio	534
taxable income and is described in either division (S)(1)(a) or	535
(b) of this section;	536

(3) Add the amount of personal exemption allowed to the	537
estate pursuant to section 642(b) of the Internal Revenue Code;	538

(4) Deduct interest or dividends, net of related expenses	539
deducted in computing federal taxable income, on obligations of	540
the United States and its territories and possessions or of any	541
authority, commission, or instrumentality of the United States to	542
the extent that the interest or dividends are exempt from state	543
taxes under the laws of the United States, but only to the extent	544
that such amount is included in federal taxable income and is	545
described in either division (S)(1)(a) or (b) of this section;	546

(5) Deduct the amount of wages and salaries, if any, not	547
otherwise allowable as a deduction but that would have been	548
allowable as a deduction in computing federal taxable income for	549
the taxable year, had the targeted jobs credit allowed under	550
sections 38, 51, and 52 of the Internal Revenue Code not been in	551
effect, but only to the extent such amount relates either to	552
income included in federal taxable income for the taxable year or	553
to income of the S portion of an electing small business trust for	554
the taxable year;	555

(6) Deduct any interest or interest equivalent, net of	556
related expenses deducted in computing federal taxable income, on	557
public obligations and purchase obligations, but only to the	558
extent that such net amount relates either to income included in	559
federal taxable income for the taxable year or to income of the S	560
portion of an electing small business trust for the taxable year;	561

(7) Add any loss or deduct any gain resulting from sale,	562
exchange, or other disposition of public obligations to the extent	563
that such loss has been deducted or such gain has been included in	564
computing either federal taxable income or income of the S portion	565
of an electing small business trust for the taxable year;	566

(8) Except in the case of the final return of an estate, add	567
any amount deducted by the taxpayer on both its Ohio estate tax	568
return pursuant to section 5731.14 of the Revised Code, and on its	569
federal income tax return in determining federal taxable income;	570

(9)(a) Deduct any amount included in federal taxable income	571
solely because the amount represents a reimbursement or refund of	572
expenses that in a previous year the decedent had deducted as an	573
itemized deduction pursuant to section 63 of the Internal Revenue	574
Code and applicable treasury regulations. The deduction otherwise	575
allowed under division (S)(9)(a) of this section shall be reduced	576
to the extent the reimbursement is attributable to an amount the	577
taxpayer or decedent deducted under this section in any taxable	578
year.	579

(b) Add any amount not otherwise included in Ohio taxable	580
income for any taxable year to the extent that the amount is	581
attributable to the recovery during the taxable year of any amount	582
deducted or excluded in computing federal or Ohio taxable income	583
in any taxable year, but only to the extent such amount has not	584
been distributed to beneficiaries for the taxable year.	585

(10) Deduct any portion of the deduction described in section	586
1341(a)(2) of the Internal Revenue Code, for repaying previously	587
reported income received under a claim of right, that meets both	588
of the following requirements:	589

(a) It is allowable for repayment of an item that was	590
included in the taxpayer's taxable income or the decedent's	591
adjusted gross income for a prior taxable year and did not qualify	592
for a credit under division (A) or (B) of section 5747.05 of the	593
Revised Code for that year.	594

(b) It does not otherwise reduce the taxpayer's taxable	595
income or the decedent's adjusted gross income for the current or	596
any other taxable year.	597

(11) Add any amount claimed as a credit under section	598
5747.059 of the Revised Code to the extent that the amount	599
satisfies either of the following:	600

(a) The amount was deducted or excluded from the computation	601
of the taxpayer's federal taxable income as required to be	602
reported for the taxpayer's taxable year under the Internal	603
Revenue Code;	604

(b) The amount resulted in a reduction in the taxpayer's	605
federal taxable income as required to be reported for any of the	606
taxpayer's taxable years under the Internal Revenue Code.	607

(12) Deduct any amount, net of related expenses deducted in	608
computing federal taxable income, that a trust is required to	609
report as farm income on its federal income tax return, but only	610
if the assets of the trust include at least ten acres of land	611
satisfying the definition of "land devoted exclusively to	612
agricultural use" under section 5713.30 of the Revised Code,	613
regardless of whether the land is valued for tax purposes as such	614
land under sections 5713.30 to 5713.38 of the Revised Code. If the	615
trust is a pass-through entity investor, section 5747.231 of the	616
Revised Code applies in ascertaining if the trust is eligible to	617
claim the deduction provided by division (S)(12) of this section	618
in connection with the pass-through entity's farm income.	619

Except for farm income attributable to the S portion of an	620
electing small business trust, the deduction provided by division	621
(S)(12) of this section is allowed only to the extent that the	622
trust has not distributed such farm income. Division (S)(12) of	623
this section applies only to taxable years of a trust beginning in	624
2002 or thereafter.	625

(13) Add the net amount of income described in section 641(c)	626
of the Internal Revenue Code to the extent that amount is not	627
included in federal taxable income.	628

(14) Add or deduct the amount the taxpayer would be required	629
to add or deduct under division (A)(20) or (21) of this section if	630
the taxpayer's Ohio taxable income were computed in the same	631
manner as an individual's Ohio adjusted gross income is computed	632
under this section. In the case of a trust, division (S)(14) of	633
this section applies only to any of the trust's taxable years	634
beginning in 2002 or thereafter.	635

(T) "School district income" and "school district income tax"	636
have the same meanings as in section 5748.01 of the Revised Code.	637

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	638
of this section, "public obligations," "purchase obligations," and	639
"interest or interest equivalent" have the same meanings as in	640
section 5709.76 of the Revised Code.	641

(V) "Limited liability company" means any limited liability	642
company formed under Chapter 1705. of the Revised Code or under	643
the laws of any other state.	644

(W) "Pass-through entity investor" means any person who,	645
during any portion of a taxable year of a pass-through entity, is	646
a partner, member, shareholder, or equity investor in that	647
pass-through entity.	648

(X) "Banking day" has the same meaning as in section 1304.01	649
of the Revised Code.	650

(Y) "Month" means a calendar month.

651

(Z) "Quarter" means the first three months, the second three	652
months, the third three months, or the last three months of the	653
taxpayer's taxable year.	654

(AA)(1) "Eligible institution" means a state university or	655
state institution of higher education as defined in section	656
3345.011 of the Revised Code, or a private, nonprofit college,	657
university, or other post-secondary institution located in this	658
state that possesses a certificate of authorization issued by the	659
Ohio board of regents pursuant to Chapter 1713. of the Revised	660
Code or a certificate of registration issued by the state board of	661
career colleges and schools under Chapter 3332. of the Revised	662
Code.	663

(2) "Qualified tuition and fees" means tuition and fees	664
imposed by an eligible institution as a condition of enrollment or	665
attendance, not exceeding two thousand five hundred dollars in	666
each of the individual's first two years of post-secondary	667
education. If the individual is a part-time student, "qualified	668
tuition and fees" includes tuition and fees paid for the academic	669
equivalent of the first two years of post-secondary education	670
during a maximum of five taxable years, not exceeding a total of	671
five thousand dollars. "Qualified tuition and fees" does not	672
include:	673

(a) Expenses for any course or activity involving sports,	674
games, or hobbies unless the course or activity is part of the	675
individual's degree or diploma program;	676

(b) The cost of books, room and board, student activity fees,	677
athletic fees, insurance expenses, or other expenses unrelated to	678
the individual's academic course of instruction;	679

(c) Tuition, fees, or other expenses paid or reimbursed	680
through an employer, scholarship, grant in aid, or other	681
educational benefit program.	682

(BB)(1) "Modified business income" means the business income	683
included in a trust's Ohio taxable income after such taxable	684
income is first reduced by the qualifying trust amount, if any.	685

(2) "Qualifying trust amount" of a trust means capital gains	686
and losses from the sale, exchange, or other disposition of equity	687
or ownership interests in, or debt obligations of, a qualifying	688
investee to the extent included in the trust's Ohio taxable	689
income, but only if the following requirements are satisfied:	690

(a) The book value of the qualifying investee's physical	691
assets in this state and everywhere, as of the last day of the	692
qualifying investee's fiscal or calendar year ending immediately	693
prior to the date on which the trust recognizes the gain or loss,	694
is available to the trust.	695

(b) The requirements of section 5747.011 of the Revised Code	696
are satisfied for the trust's taxable year in which the trust	697
recognizes the gain or loss.	698

Any gain or loss that is not a qualifying trust amount is	699
modified business income, qualifying investment income, or	700
modified nonbusiness income, as the case may be.	701

(3) "Modified nonbusiness income" means a trust's Ohio	702
taxable income other than modified business income, other than the	703
qualifying trust amount, and other than qualifying investment	704
income, as defined in section 5747.012 of the Revised Code, to the	705
extent such qualifying investment income is not otherwise part of	706
modified business income.	707

(4) "Modified Ohio taxable income" applies only to trusts,	708
and means the sum of the amounts described in divisions (BB)(4)(a)	709
to (c) of this section:	710

(a) The fraction, calculated under section 5747.013, and	711
applying section 5747.231 of the Revised Code, multiplied by the	712
sum of the following amounts:	713

(i) The trust's modified business income;

714

(ii) The trust's qualifying investment income, as defined in	715
section 5747.012 of the Revised Code, but only to the extent the	716
qualifying investment income does not otherwise constitute	717
modified business income and does not otherwise constitute a	718
qualifying trust amount.	719

(b) The qualifying trust amount multiplied by a fraction, the	720
numerator of which is the sum of the book value of the qualifying	721
investee's physical assets in this state on the last day of the	722
qualifying investee's fiscal or calendar year ending immediately	723
prior to the day on which the trust recognizes the qualifying	724
trust amount, and the denominator of which is the sum of the book	725
value of the qualifying investee's total physical assets	726
everywhere on the last day of the qualifying investee's fiscal or	727
calendar year ending immediately prior to the day on which the	728
trust recognizes the qualifying trust amount. If, for a taxable	729
year, the trust recognizes a qualifying trust amount with respect	730
to more than one qualifying investee, the amount described in	731
division (BB)(4)(b) of this section shall equal the sum of the	732
products so computed for each such qualifying investee.	733

(c)(i) With respect to a trust or portion of a trust that is	734
a resident as ascertained in accordance with division (I)(3)(d) of	735
this section, its modified nonbusiness income.	736

(ii) With respect to a trust or portion of a trust that is	737
not a resident as ascertained in accordance with division	738
(I)(3)(d) of this section, the amount of its modified nonbusiness	739
income satisfying the descriptions in divisions (B)(2) to (5) of	740
section 5747.20 of the Revised Code, except as otherwise provided	741
in division (BB)(4)(c)(ii) of this section. With respect to a	742
trust or portion of a trust that is not a resident as ascertained	743
in accordance with division (I)(3)(d) of this section, the trust's	744
portion of modified nonbusiness income recognized from the sale,	745
exchange, or other disposition of a debt interest in or equity	746
interest in a section 5747.212 entity, as defined in section	747
5747.212 of the Revised Code, without regard to division (A) of	748
that section, shall not be allocated to this state in accordance	749
with section 5747.20 of the Revised Code but shall be apportioned	750
to this state in accordance with division (B) of section 5747.212	751
of the Revised Code without regard to division (A) of that	752
section.	753

If the allocation and apportionment of a trust's income under	754
divisions (BB)(4)(a) and (c) of this section do not fairly	755
represent the modified Ohio taxable income of the trust in this	756
state, the alternative methods described in division (C) of	757
section 5747.21 of the Revised Code may be applied in the manner	758
and to the same extent provided in that section.	759

(5)(a) Except as set forth in division (BB)(5)(b) of this	760
section, "qualifying investee" means a person in which a trust has	761
an equity or ownership interest, or a person or unit of government	762
the debt obligations of either of which are owned by a trust. For	763
the purposes of division (BB)(2)(a) of this section and for the	764
purpose of computing the fraction described in division (BB)(4)(b)	765
of this section, all of the following apply:	766

(i) If the qualifying investee is a member of a qualifying	767
controlled group on the last day of the qualifying investee's	768
fiscal or calendar year ending immediately prior to the date on	769
which the trust recognizes the gain or loss, then "qualifying	770
investee" includes all persons in the qualifying controlled group	771
on such last day.	772

(ii) If the qualifying investee, or if the qualifying	773
investee and any members of the qualifying controlled group of	774
which the qualifying investee is a member on the last day of the	775
qualifying investee's fiscal or calendar year ending immediately	776
prior to the date on which the trust recognizes the gain or loss,	777
separately or cumulatively own, directly or indirectly, on the	778
last day of the qualifying investee's fiscal or calendar year	779
ending immediately prior to the date on which the trust recognizes	780
the qualifying trust amount, more than fifty per cent of the	781
equity of a pass-through entity, then the qualifying investee and	782
the other members are deemed to own the proportionate share of the	783
pass-through entity's physical assets which the pass-through	784
entity directly or indirectly owns on the last day of the	785
pass-through entity's calendar or fiscal year ending within or	786
with the last day of the qualifying investee's fiscal or calendar	787
year ending immediately prior to the date on which the trust	788
recognizes the qualifying trust amount.	789

(iii) For the purposes of division (BB)(5)(a)(iii) of this	790
section, "upper level pass-through entity" means a pass-through	791
entity directly or indirectly owning any equity of another	792
pass-through entity, and "lower level pass-through entity" means	793
that other pass-through entity.	794

An upper level pass-through entity, whether or not it is also	795
a qualifying investee, is deemed to own, on the last day of the	796
upper level pass-through entity's calendar or fiscal year, the	797
proportionate share of the lower level pass-through entity's	798
physical assets that the lower level pass-through entity directly	799
or indirectly owns on the last day of the lower level pass-through	800
entity's calendar or fiscal year ending within or with the last	801
day of the upper level pass-through entity's fiscal or calendar	802
year. If the upper level pass-through entity directly and	803
indirectly owns less than fifty per cent of the equity of the	804
lower level pass-through entity on each day of the upper level	805
pass-through entity's calendar or fiscal year in which or with	806
which ends the calendar or fiscal year of the lower level	807
pass-through entity and if, based upon clear and convincing	808
evidence, complete information about the location and cost of the	809
physical assets of the lower pass-through entity is not available	810
to the upper level pass-through entity, then solely for purposes	811
of ascertaining if a gain or loss constitutes a qualifying trust	812
amount, the upper level pass-through entity shall be deemed as	813
owning no equity of the lower level pass-through entity for each	814
day during the upper level pass-through entity's calendar or	815
fiscal year in which or with which ends the lower level	816
pass-through entity's calendar or fiscal year. Nothing in division	817
(BB)(5)(a)(iii) of this section shall be construed to provide for	818
any deduction or exclusion in computing any trust's Ohio taxable	819
income.	820

(b) With respect to a trust that is not a resident for the	821
taxable year and with respect to a part of a trust that is not a	822
resident for the taxable year, "qualifying investee" for that	823
taxable year does not include a C corporation if both of the	824
following apply:	825

(i) During the taxable year the trust or part of the trust	826
recognizes a gain or loss from the sale, exchange, or other	827
disposition of equity or ownership interests in, or debt	828
obligations of, the C corporation.	829

(ii) Such gain or loss constitutes nonbusiness income.

830

(6) "Available" means information is such that a person is	831
able to learn of the information by the due date plus extensions,	832
if any, for filing the return for the taxable year in which the	833
trust recognizes the gain or loss.	834

(CC) "Qualifying controlled group" has the same meaning as in	835
section 5733.04 of the Revised Code.	836

(DD) "Related member" has the same meaning as in section	837
5733.042 of the Revised Code.	838

(EE)(1) For the purposes of division (EE) of this section:

839

(a) "Qualifying person" means any person other than a	840
qualifying corporation.	841

(b) "Qualifying corporation" means any person classified for	842
federal income tax purposes as an association taxable as a	843
corporation, except either of the following:	844

(i) A corporation that has made an election under subchapter	845
S, chapter one, subtitle A, of the Internal Revenue Code for its	846
taxable year ending within, or on the last day of, the investor's	847
taxable year;	848

(ii) A subsidiary that is wholly owned by any corporation	849
that has made an election under subchapter S, chapter one,	850
subtitle A of the Internal Revenue Code for its taxable year	851
ending within, or on the last day of, the investor's taxable year.	852

(2) For the purposes of this chapter, unless expressly stated	853
otherwise, no qualifying person indirectly owns any asset directly	854
or indirectly owned by any qualifying corporation.	855

(FF) For purposes of this chapter and Chapter 5751. of the	856
Revised Code:	857

(1) "Trust" does not include a qualified pre-income tax	858
trust.	859

(2) A "qualified pre-income tax trust" is any pre-income tax	860
trust that makes a qualifying pre-income tax trust election as	861
described in division (FF)(3) of this section.	862

(3) A "qualifying pre-income tax trust election" is an	863
election by a pre-income tax trust to subject to the tax imposed	864
by section 5751.02 of the Revised Code the pre-income tax trust	865
and all pass-through entities of which the trust owns or controls,	866
directly, indirectly, or constructively through related interests,	867
five per cent or more of the ownership or equity interests. The	868
trustee shall notify the tax commissioner in writing of the	869
election on or before April 15, 2006. The election, if timely	870
made, shall be effective on and after January 1, 2006, and shall	871
apply for all tax periods and tax years until revoked by the	872
trustee of the trust.	873

(4) A "pre-income tax trust" is a trust that satisfies all of	874
the following requirements:	875

(a) The document or instrument creating the trust was	876
executed by the grantor before January 1, 1972;	877

(b) The trust became irrevocable upon the creation of the	878
trust; and	879

(c) The grantor was domiciled in this state at the time the	880
trust was created.	881

Section 2. That existing section 5747.01 of the Revised Code	882
is hereby repealed.	883

Section 3. The amendment by this act of section 5747.01 of	884
the Revised Code applies to taxable years beginning on or after	885
January 1, 2008.	886