As Introduced

127th General Assembly Regular Session 2007-2008

S. B. No. 191

Senator Coughlin 

Cosponsors: Senators Schuler, Mumper, Buehrer, Schaffer 

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A BILL

To amend section 5747.01 of the Revised Code to

1

exempt from the personal income tax local, state,

2

and federal government employee and military

3

retirement benefits.

4

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

Section 1. That section 5747.01 of the Revised Code be	5
amended to read as follows:	6

Sec. 5747.01.  Except as otherwise expressly provided or	7
clearly appearing from the context, any term used in this chapter	8
that is not otherwise defined in this section has the same meaning	9
as when used in a comparable context in the laws of the United	10
States relating to federal income taxes or if not used in a	11
comparable context in those laws, has the same meaning as in	12
section 5733.40 of the Revised Code. Any reference in this chapter	13
to the Internal Revenue Code includes other laws of the United	14
States relating to federal income taxes.	15

As used in this chapter:

16

(A) "Adjusted gross income" or "Ohio adjusted gross income"	17
means federal adjusted gross income, as defined and used in the	18
Internal Revenue Code, adjusted as provided in this section:	19

(1) Add interest or dividends on obligations or securities of	20
any state or of any political subdivision or authority of any	21
state, other than this state and its subdivisions and authorities.	22

(2) Add interest or dividends on obligations of any	23
authority, commission, instrumentality, territory, or possession	24
of the United States to the extent that the interest or dividends	25
are exempt from federal income taxes but not from state income	26
taxes.	27

(3) Deduct interest or dividends on obligations of the United	28
States and its territories and possessions or of any authority,	29
commission, or instrumentality of the United States to the extent	30
that the interest or dividends are included in federal adjusted	31
gross income but exempt from state income taxes under the laws of	32
the United States.	33

(4) Deduct disability and survivor's benefits to the extent	34
included in federal adjusted gross income.	35

(5) Deduct benefits under Title II of the Social Security Act	36
and tier 1 railroad retirement benefits to the extent included in	37
federal adjusted gross income under section 86 of the Internal	38
Revenue Code.	39

(6) In the case of a taxpayer who is a beneficiary of a trust	40
that makes an accumulation distribution as defined in section 665	41
of the Internal Revenue Code, add, for the beneficiary's taxable	42
years beginning before 2002, the portion, if any, of such	43
distribution that does not exceed the undistributed net income of	44
the trust for the three taxable years preceding the taxable year	45
in which the distribution is made to the extent that the portion	46
was not included in the trust's taxable income for any of the	47
trust's taxable years beginning in 2002 or thereafter.	48
"Undistributed net income of a trust" means the taxable income of	49
the trust increased by (a)(i) the additions to adjusted gross	50
income required under division (A) of this section and (ii) the	51
personal exemptions allowed to the trust pursuant to section	52
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	53
deductions to adjusted gross income required under division (A) of	54
this section, (ii) the amount of federal income taxes attributable	55
to such income, and (iii) the amount of taxable income that has	56
been included in the adjusted gross income of a beneficiary by	57
reason of a prior accumulation distribution. Any undistributed net	58
income included in the adjusted gross income of a beneficiary	59
shall reduce the undistributed net income of the trust commencing	60
with the earliest years of the accumulation period.	61

(7) Deduct the amount of wages and salaries, if any, not	62
otherwise allowable as a deduction but that would have been	63
allowable as a deduction in computing federal adjusted gross	64
income for the taxable year, had the targeted jobs credit allowed	65
and determined under sections 38, 51, and 52 of the Internal	66
Revenue Code not been in effect.	67

(8) Deduct any interest or interest equivalent on public	68
obligations and purchase obligations to the extent that the	69
interest or interest equivalent is included in federal adjusted	70
gross income.	71

(9) Add any loss or deduct any gain resulting from the sale,	72
exchange, or other disposition of public obligations to the extent	73
that the loss has been deducted or the gain has been included in	74
computing federal adjusted gross income.	75

(10) Deduct or add amounts, as provided under section	76
5747.70 of the Revised Code, related to contributions to variable	77
college savings program accounts made or tuition units purchased	78
pursuant to Chapter 3334. of the Revised Code.	79

(11)(a) Deduct, to the extent not otherwise allowable as a	80
deduction or exclusion in computing federal or Ohio adjusted gross	81
income for the taxable year, the amount the taxpayer paid during	82
the taxable year for medical care insurance and qualified	83
long-term care insurance for the taxpayer, the taxpayer's spouse,	84
and dependents. No deduction for medical care insurance under	85
division (A)(11) of this section shall be allowed either to any	86
taxpayer who is eligible to participate in any subsidized health	87
plan maintained by any employer of the taxpayer or of the	88
taxpayer's spouse, or to any taxpayer who is entitled to, or on	89
application would be entitled to, benefits under part A of Title	90
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	91
301, as amended. For the purposes of division (A)(11)(a) of this	92
section, "subsidized health plan" means a health plan for which	93
the employer pays any portion of the plan's cost. The deduction	94
allowed under division (A)(11)(a) of this section shall be the net	95
of any related premium refunds, related premium reimbursements, or	96
related insurance premium dividends received during the taxable	97
year.	98

(b) Deduct, to the extent not otherwise deducted or excluded	99
in computing federal or Ohio adjusted gross income during the	100
taxable year, the amount the taxpayer paid during the taxable	101
year, not compensated for by any insurance or otherwise, for	102
medical care of the taxpayer, the taxpayer's spouse, and	103
dependents, to the extent the expenses exceed seven and one-half	104
per cent of the taxpayer's federal adjusted gross income.	105

(c) For purposes of division (A)(11) of this section,	106
"medical care" has the meaning given in section 213 of the	107
Internal Revenue Code, subject to the special rules, limitations,	108
and exclusions set forth therein, and "qualified long-term care"	109
has the same meaning given in section 7702B(c) of the Internal	110
Revenue Code.	111

(12)(a) Deduct any amount included in federal adjusted gross	112
income solely because the amount represents a reimbursement or	113
refund of expenses that in any year the taxpayer had deducted as	114
an itemized deduction pursuant to section 63 of the Internal	115
Revenue Code and applicable United States department of the	116
treasury regulations. The deduction otherwise allowed under	117
division (A)(12)(a) of this section shall be reduced to the extent	118
the reimbursement is attributable to an amount the taxpayer	119
deducted under this section in any taxable year.	120

(b) Add any amount not otherwise included in Ohio adjusted	121
gross income for any taxable year to the extent that the amount is	122
attributable to the recovery during the taxable year of any amount	123
deducted or excluded in computing federal or Ohio adjusted gross	124
income in any taxable year.	125

(13) Deduct any portion of the deduction described in section	126
1341(a)(2) of the Internal Revenue Code, for repaying previously	127
reported income received under a claim of right, that meets both	128
of the following requirements:	129

(a) It is allowable for repayment of an item that was	130
included in the taxpayer's adjusted gross income for a prior	131
taxable year and did not qualify for a credit under division (A)	132
or (B) of section 5747.05 of the Revised Code for that year;	133

(b) It does not otherwise reduce the taxpayer's adjusted	134
gross income for the current or any other taxable year.	135

(14) Deduct an amount equal to the deposits made to, and net	136
investment earnings of, a medical savings account during the	137
taxable year, in accordance with section 3924.66 of the Revised	138
Code. The deduction allowed by division (A)(14) of this section	139
does not apply to medical savings account deposits and earnings	140
otherwise deducted or excluded for the current or any other	141
taxable year from the taxpayer's federal adjusted gross income.	142

(15)(a) Add an amount equal to the funds withdrawn from a	143
medical savings account during the taxable year, and the net	144
investment earnings on those funds, when the funds withdrawn were	145
used for any purpose other than to reimburse an account holder	146
for, or to pay, eligible medical expenses, in accordance with	147
section 3924.66 of the Revised Code;	148

(b) Add the amounts distributed from a medical savings	149
account under division (A)(2) of section 3924.68 of the Revised	150
Code during the taxable year.	151

(16) Add any amount claimed as a credit under section	152
5747.059 of the Revised Code to the extent that such amount	153
satisfies either of the following:	154

(a) The amount was deducted or excluded from the computation	155
of the taxpayer's federal adjusted gross income as required to be	156
reported for the taxpayer's taxable year under the Internal	157
Revenue Code;	158

(b) The amount resulted in a reduction of the taxpayer's	159
federal adjusted gross income as required to be reported for any	160
of the taxpayer's taxable years under the Internal Revenue Code.	161

(17) Deduct the amount contributed by the taxpayer to an	162
individual development account program established by a county	163
department of job and family services pursuant to sections 329.11	164
to 329.14 of the Revised Code for the purpose of matching funds	165
deposited by program participants. On request of the tax	166
commissioner, the taxpayer shall provide any information that, in	167
the tax commissioner's opinion, is necessary to establish the	168
amount deducted under division (A)(17) of this section.	169

(18) Beginning in taxable year 2001 but not for any taxable	170
year beginning after December 31, 2005, if the taxpayer is married	171
and files a joint return and the combined federal adjusted gross	172
income of the taxpayer and the taxpayer's spouse for the taxable	173
year does not exceed one hundred thousand dollars, or if the	174
taxpayer is single and has a federal adjusted gross income for the	175
taxable year not exceeding fifty thousand dollars, deduct amounts	176
paid during the taxable year for qualified tuition and fees paid	177
to an eligible institution for the taxpayer, the taxpayer's	178
spouse, or any dependent of the taxpayer, who is a resident of	179
this state and is enrolled in or attending a program that	180
culminates in a degree or diploma at an eligible institution. The	181
deduction may be claimed only to the extent that qualified tuition	182
and fees are not otherwise deducted or excluded for any taxable	183
year from federal or Ohio adjusted gross income. The deduction may	184
not be claimed for educational expenses for which the taxpayer	185
claims a credit under section 5747.27 of the Revised Code.	186

(19) Add any reimbursement received during the taxable year	187
of any amount the taxpayer deducted under division (A)(18) of this	188
section in any previous taxable year to the extent the amount is	189
not otherwise included in Ohio adjusted gross income.	190

(20)(a)(i) Add five-sixths of the amount of depreciation	191
expense allowed by subsection (k) of section 168 of the Internal	192
Revenue Code, including the taxpayer's proportionate or	193
distributive share of the amount of depreciation expense allowed	194
by that subsection to a pass-through entity in which the taxpayer	195
has a direct or indirect ownership interest.	196

(ii) Add five-sixths of the amount of qualifying section 179	197
depreciation expense, including a person's proportionate or	198
distributive share of the amount of qualifying section 179	199
depreciation expense allowed to any pass-through entity in which	200
the person has a direct or indirect ownership. For the purposes of	201
this division, "qualifying section 179 depreciation expense" means	202
the difference between (I) the amount of depreciation expense	203
directly or indirectly allowed to the taxpayer under section 179	204
of the Internal Revenue Code, and (II) the amount of depreciation	205
expense directly or indirectly allowed to the taxpayer under	206
section 179 of the Internal Revenue Code as that section existed	207
on December 31, 2002.	208

The tax commissioner, under procedures established by the	209
commissioner, may waive the add-backs related to a pass-through	210
entity if the taxpayer owns, directly or indirectly, less than	211
five per cent of the pass-through entity.	212

(b) Nothing in division (A)(20) of this section shall be	213
construed to adjust or modify the adjusted basis of any asset.	214

(c) To the extent the add-back required under division	215
(A)(20)(a) of this section is attributable to property generating	216
nonbusiness income or loss allocated under section 5747.20 of the	217
Revised Code, the add-back shall be sitused to the same location	218
as the nonbusiness income or loss generated by the property for	219
the purpose of determining the credit under division (A) of	220
section 5747.05 of the Revised Code. Otherwise, the add-back shall	221
be apportioned, subject to one or more of the four alternative	222
methods of apportionment enumerated in section 5747.21 of the	223
Revised Code.	224

(d) For the purposes of division (A) of this section, net	225
operating loss carryback and carryforward shall not include	226
five-sixths of the allowance of any net operating loss deduction	227
carryback or carryforward to the taxable year to the extent such	228
loss resulted from depreciation allowed by section 168(k) of the	229
Internal Revenue Code and by the qualifying section 179	230
depreciation expense amount.	231

(21)(a) If the taxpayer was required to add an amount under	232
division (A)(20)(a) of this section for a taxable year, deduct	233
one-fifth of the amount so added for each of the five succeeding	234
taxable years.	235

(b) If the amount deducted under division (A)(21)(a) of this	236
section is attributable to an add-back allocated under division	237
(A)(20)(c) of this section, the amount deducted shall be sitused	238
to the same location. Otherwise, the add-back shall be apportioned	239
using the apportionment factors for the taxable year in which the	240
deduction is taken, subject to one or more of the four alternative	241
methods of apportionment enumerated in section 5747.21 of the	242
Revised Code.	243

(c) No deduction is available under division (A)(21)(a) of	244
this section with regard to any depreciation allowed by section	245
168(k) of the Internal Revenue Code and by the qualifying section	246
179 depreciation expense amount to the extent that such	247
depreciation resulted in or increased a federal net operating loss	248
carryback or carryforward to a taxable year to which division	249
(A)(20)(d) of this section does not apply.	250

(22) Deduct, to the extent not otherwise deducted or excluded	251
in computing federal or Ohio adjusted gross income for the taxable	252
year, the amount the taxpayer received during the taxable year as	253
reimbursement for life insurance premiums under section 5919.31 of	254
the Revised Code.	255

(23) Deduct, to the extent not otherwise deducted or excluded	256
in computing federal or Ohio adjusted gross income for the taxable	257
year, the amount the taxpayer received during the taxable year as	258
a death benefit paid by the adjutant general under section 5919.33	259
of the Revised Code.	260

(24) Deduct, to the extent included in federal adjusted gross	261
income and not otherwise allowable as a deduction or exclusion in	262
computing federal or Ohio adjusted gross income for the taxable	263
year, military pay and allowances received by the taxpayer during	264
the taxable year for active duty service in the United States	265
army, air force, navy, marine corps, or coast guard or reserve	266
components thereof or the national guard. The deduction may not be	267
claimed for military pay and allowances received by the taxpayer	268
while the taxpayer is stationed in this state.	269

(25) Deduct, to the extent included in federal adjusted gross	270
income, pensions, annuities, allowances, benefits, or other	271
payments made:	272

(a) On account of age and service retirement pursuant to	273
Chapter 145., 742., 3307., 3309., or 5505. of the Revised Code;	274

(b) Pursuant to subchapter III, Chapter 83 or subchapter II,	275
Chapter 84 of Title 5 of the United States Code; or	276

(c) As retired military personnel pay for service in the	277
United States army, navy, air force, coast guard, or marine corps	278
or reserve components thereof, or the national guard.	279

The deduction under division (A)(25) of this section shall	280
not exceed four thousand dollars for taxable years beginning in	281
2007, seven thousand dollars for taxable years beginning in 2008,	282
and ten thousand dollars for taxable years beginning in or after	283
2009.	284

A taxpayer shall not deduct under division (A)(25) of this	285
section any amount deducted under division (A)(4) of this section.	286

(B) "Business income" means income, including gain or loss,	287
arising from transactions, activities, and sources in the regular	288
course of a trade or business and includes income, gain, or loss	289
from real property, tangible property, and intangible property if	290
the acquisition, rental, management, and disposition of the	291
property constitute integral parts of the regular course of a	292
trade or business operation. "Business income" includes income,	293
including gain or loss, from a partial or complete liquidation of	294
a business, including, but not limited to, gain or loss from the	295
sale or other disposition of goodwill.	296

(C) "Nonbusiness income" means all income other than business	297
income and may include, but is not limited to, compensation, rents	298
and royalties from real or tangible personal property, capital	299
gains, interest, dividends and distributions, patent or copyright	300
royalties, or lottery winnings, prizes, and awards.	301

(D) "Compensation" means any form of remuneration paid to an	302
employee for personal services.	303

(E) "Fiduciary" means a guardian, trustee, executor,	304
administrator, receiver, conservator, or any other person acting	305
in any fiduciary capacity for any individual, trust, or estate.	306

(F) "Fiscal year" means an accounting period of twelve months	307
ending on the last day of any month other than December.	308

(G) "Individual" means any natural person.

309

(H) "Internal Revenue Code" means the "Internal Revenue Code	310
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	311

(I) "Resident" means any of the following, provided that	312
division (I)(3) of this section applies only to taxable years of a	313
trust beginning in 2002 or thereafter:	314

(1) An individual who is domiciled in this state, subject to	315
section 5747.24 of the Revised Code;	316

(2) The estate of a decedent who at the time of death was	317
domiciled in this state. The domicile tests of section 5747.24 of	318
the Revised Code are not controlling for purposes of division	319
(I)(2) of this section.	320

(3) A trust that, in whole or part, resides in this state. If	321
only part of a trust resides in this state, the trust is a	322
resident only with respect to that part.	323

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

324

(a) A trust resides in this state for the trust's current	325
taxable year to the extent, as described in division (I)(3)(d) of	326
this section, that the trust consists directly or indirectly, in	327
whole or in part, of assets, net of any related liabilities, that	328
were transferred, or caused to be transferred, directly or	329
indirectly, to the trust by any of the following:	330

(i) A person, a court, or a governmental entity or	331
instrumentality on account of the death of a decedent, but only if	332
the trust is described in division (I)(3)(e)(i) or (ii) of this	333
section;	334

(ii) A person who was domiciled in this state for the	335
purposes of this chapter when the person directly or indirectly	336
transferred assets to an irrevocable trust, but only if at least	337
one of the trust's qualifying beneficiaries is domiciled in this	338
state for the purposes of this chapter during all or some portion	339
of the trust's current taxable year;	340

(iii) A person who was domiciled in this state for the	341
purposes of this chapter when the trust document or instrument or	342
part of the trust document or instrument became irrevocable, but	343
only if at least one of the trust's qualifying beneficiaries is a	344
resident domiciled in this state for the purposes of this chapter	345
during all or some portion of the trust's current taxable year. If	346
a trust document or instrument became irrevocable upon the death	347
of a person who at the time of death was domiciled in this state	348
for purposes of this chapter, that person is a person described in	349
division (I)(3)(a)(iii) of this section.	350

(b) A trust is irrevocable to the extent that the transferor	351
is not considered to be the owner of the net assets of the trust	352
under sections 671 to 678 of the Internal Revenue Code.	353

(c) With respect to a trust other than a charitable lead	354
trust, "qualifying beneficiary" has the same meaning as "potential	355
current beneficiary" as defined in section 1361(e)(2) of the	356
Internal Revenue Code, and with respect to a charitable lead trust	357
"qualifying beneficiary" is any current, future, or contingent	358
beneficiary, but with respect to any trust "qualifying	359
beneficiary" excludes a person or a governmental entity or	360
instrumentality to any of which a contribution would qualify for	361
the charitable deduction under section 170 of the Internal Revenue	362
Code.	363

(d) For the purposes of division (I)(3)(a) of this section,	364
the extent to which a trust consists directly or indirectly, in	365
whole or in part, of assets, net of any related liabilities, that	366
were transferred directly or indirectly, in whole or part, to the	367
trust by any of the sources enumerated in that division shall be	368
ascertained by multiplying the fair market value of the trust's	369
assets, net of related liabilities, by the qualifying ratio, which	370
shall be computed as follows:	371

(i) The first time the trust receives assets, the numerator	372
of the qualifying ratio is the fair market value of those assets	373
at that time, net of any related liabilities, from sources	374
enumerated in division (I)(3)(a) of this section. The denominator	375
of the qualifying ratio is the fair market value of all the	376
trust's assets at that time, net of any related liabilities.	377

(ii) Each subsequent time the trust receives assets, a	378
revised qualifying ratio shall be computed. The numerator of the	379
revised qualifying ratio is the sum of (1) the fair market value	380
of the trust's assets immediately prior to the subsequent	381
transfer, net of any related liabilities, multiplied by the	382
qualifying ratio last computed without regard to the subsequent	383
transfer, and (2) the fair market value of the subsequently	384
transferred assets at the time transferred, net of any related	385
liabilities, from sources enumerated in division (I)(3)(a) of this	386
section. The denominator of the revised qualifying ratio is the	387
fair market value of all the trust's assets immediately after the	388
subsequent transfer, net of any related liabilities.	389

(iii) Whether a transfer to the trust is by or from any of	390
the sources enumerated in division (I)(3)(a) of this section shall	391
be ascertained without regard to the domicile of the trust's	392
beneficiaries.	393

(e) For the purposes of division (I)(3)(a)(i) of this	394
section:	395

(i) A trust is described in division (I)(3)(e)(i) of this	396
section if the trust is a testamentary trust and the testator of	397
that testamentary trust was domiciled in this state at the time of	398
the testator's death for purposes of the taxes levied under	399
Chapter 5731. of the Revised Code.	400

(ii) A trust is described in division (I)(3)(e)(ii) of this	401
section if the transfer is a qualifying transfer described in any	402
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	403
irrevocable inter vivos trust, and at least one of the trust's	404
qualifying beneficiaries is domiciled in this state for purposes	405
of this chapter during all or some portion of the trust's current	406
taxable year.	407

(f) For the purposes of division (I)(3)(e)(ii) of this	408
section, a "qualifying transfer" is a transfer of assets, net of	409
any related liabilities, directly or indirectly to a trust, if the	410
transfer is described in any of the following:	411

(i) The transfer is made to a trust, created by the decedent	412
before the decedent's death and while the decedent was domiciled	413
in this state for the purposes of this chapter, and, prior to the	414
death of the decedent, the trust became irrevocable while the	415
decedent was domiciled in this state for the purposes of this	416
chapter.	417

(ii) The transfer is made to a trust to which the decedent,	418
prior to the decedent's death, had directly or indirectly	419
transferred assets, net of any related liabilities, while the	420
decedent was domiciled in this state for the purposes of this	421
chapter, and prior to the death of the decedent the trust became	422
irrevocable while the decedent was domiciled in this state for the	423
purposes of this chapter.	424

(iii) The transfer is made on account of a contractual	425
relationship existing directly or indirectly between the	426
transferor and either the decedent or the estate of the decedent	427
at any time prior to the date of the decedent's death, and the	428
decedent was domiciled in this state at the time of death for	429
purposes of the taxes levied under Chapter 5731. of the Revised	430
Code.	431

(iv) The transfer is made to a trust on account of a	432
contractual relationship existing directly or indirectly between	433
the transferor and another person who at the time of the	434
decedent's death was domiciled in this state for purposes of this	435
chapter.	436

(v) The transfer is made to a trust on account of the will of	437
a testator.	438

(vi) The transfer is made to a trust created by or caused to	439
be created by a court, and the trust was directly or indirectly	440
created in connection with or as a result of the death of an	441
individual who, for purposes of the taxes levied under Chapter	442
5731. of the Revised Code, was domiciled in this state at the time	443
of the individual's death.	444

(g) The tax commissioner may adopt rules to ascertain the	445
part of a trust residing in this state.	446

(J) "Nonresident" means an individual or estate that is not a	447
resident. An individual who is a resident for only part of a	448
taxable year is a nonresident for the remainder of that taxable	449
year.	450

(K) "Pass-through entity" has the same meaning as in section	451
5733.04 of the Revised Code.	452

(L) "Return" means the notifications and reports required to	453
be filed pursuant to this chapter for the purpose of reporting the	454
tax due and includes declarations of estimated tax when so	455
required.	456

(M) "Taxable year" means the calendar year or the taxpayer's	457
fiscal year ending during the calendar year, or fractional part	458
thereof, upon which the adjusted gross income is calculated	459
pursuant to this chapter.	460

(N) "Taxpayer" means any person subject to the tax imposed by	461
section 5747.02 of the Revised Code or any pass-through entity	462
that makes the election under division (D) of section 5747.08 of	463
the Revised Code.	464

(O) "Dependents" means dependents as defined in the Internal	465
Revenue Code and as claimed in the taxpayer's federal income tax	466
return for the taxable year or which the taxpayer would have been	467
permitted to claim had the taxpayer filed a federal income tax	468
return.	469

(P) "Principal county of employment" means, in the case of a	470
nonresident, the county within the state in which a taxpayer	471
performs services for an employer or, if those services are	472
performed in more than one county, the county in which the major	473
portion of the services are performed.	474

(Q) As used in sections 5747.50 to 5747.55 of the Revised	475
Code:	476

(1) "Subdivision" means any county, municipal corporation,	477
park district, or township.	478

(2) "Essential local government purposes" includes all	479
functions that any subdivision is required by general law to	480
exercise, including like functions that are exercised under a	481
charter adopted pursuant to the Ohio Constitution.	482

(R) "Overpayment" means any amount already paid that exceeds	483
the figure determined to be the correct amount of the tax.	484

(S) "Taxable income" or "Ohio taxable income" applies only to	485
estates and trusts, and means federal taxable income, as defined	486
and used in the Internal Revenue Code, adjusted as follows:	487

(1) Add interest or dividends, net of ordinary, necessary,	488
and reasonable expenses not deducted in computing federal taxable	489
income, on obligations or securities of any state or of any	490
political subdivision or authority of any state, other than this	491
state and its subdivisions and authorities, but only to the extent	492
that such net amount is not otherwise includible in Ohio taxable	493
income and is described in either division (S)(1)(a) or (b) of	494
this section:	495

(a) The net amount is not attributable to the S portion of an	496
electing small business trust and has not been distributed to	497
beneficiaries for the taxable year;	498

(b) The net amount is attributable to the S portion of an	499
electing small business trust for the taxable year.	500

(2) Add interest or dividends, net of ordinary, necessary,	501
and reasonable expenses not deducted in computing federal taxable	502
income, on obligations of any authority, commission,	503
instrumentality, territory, or possession of the United States to	504
the extent that the interest or dividends are exempt from federal	505
income taxes but not from state income taxes, but only to the	506
extent that such net amount is not otherwise includible in Ohio	507
taxable income and is described in either division (S)(1)(a) or	508
(b) of this section;	509

(3) Add the amount of personal exemption allowed to the	510
estate pursuant to section 642(b) of the Internal Revenue Code;	511

(4) Deduct interest or dividends, net of related expenses	512
deducted in computing federal taxable income, on obligations of	513
the United States and its territories and possessions or of any	514
authority, commission, or instrumentality of the United States to	515
the extent that the interest or dividends are exempt from state	516
taxes under the laws of the United States, but only to the extent	517
that such amount is included in federal taxable income and is	518
described in either division (S)(1)(a) or (b) of this section;	519

(5) Deduct the amount of wages and salaries, if any, not	520
otherwise allowable as a deduction but that would have been	521
allowable as a deduction in computing federal taxable income for	522
the taxable year, had the targeted jobs credit allowed under	523
sections 38, 51, and 52 of the Internal Revenue Code not been in	524
effect, but only to the extent such amount relates either to	525
income included in federal taxable income for the taxable year or	526
to income of the S portion of an electing small business trust for	527
the taxable year;	528

(6) Deduct any interest or interest equivalent, net of	529
related expenses deducted in computing federal taxable income, on	530
public obligations and purchase obligations, but only to the	531
extent that such net amount relates either to income included in	532
federal taxable income for the taxable year or to income of the S	533
portion of an electing small business trust for the taxable year;	534

(7) Add any loss or deduct any gain resulting from sale,	535
exchange, or other disposition of public obligations to the extent	536
that such loss has been deducted or such gain has been included in	537
computing either federal taxable income or income of the S portion	538
of an electing small business trust for the taxable year;	539

(8) Except in the case of the final return of an estate, add	540
any amount deducted by the taxpayer on both its Ohio estate tax	541
return pursuant to section 5731.14 of the Revised Code, and on its	542
federal income tax return in determining federal taxable income;	543

(9)(a) Deduct any amount included in federal taxable income	544
solely because the amount represents a reimbursement or refund of	545
expenses that in a previous year the decedent had deducted as an	546
itemized deduction pursuant to section 63 of the Internal Revenue	547
Code and applicable treasury regulations. The deduction otherwise	548
allowed under division (S)(9)(a) of this section shall be reduced	549
to the extent the reimbursement is attributable to an amount the	550
taxpayer or decedent deducted under this section in any taxable	551
year.	552

(b) Add any amount not otherwise included in Ohio taxable	553
income for any taxable year to the extent that the amount is	554
attributable to the recovery during the taxable year of any amount	555
deducted or excluded in computing federal or Ohio taxable income	556
in any taxable year, but only to the extent such amount has not	557
been distributed to beneficiaries for the taxable year.	558

(10) Deduct any portion of the deduction described in section	559
1341(a)(2) of the Internal Revenue Code, for repaying previously	560
reported income received under a claim of right, that meets both	561
of the following requirements:	562

(a) It is allowable for repayment of an item that was	563
included in the taxpayer's taxable income or the decedent's	564
adjusted gross income for a prior taxable year and did not qualify	565
for a credit under division (A) or (B) of section 5747.05 of the	566
Revised Code for that year.	567

(b) It does not otherwise reduce the taxpayer's taxable	568
income or the decedent's adjusted gross income for the current or	569
any other taxable year.	570

(11) Add any amount claimed as a credit under section	571
5747.059 of the Revised Code to the extent that the amount	572
satisfies either of the following:	573

(a) The amount was deducted or excluded from the computation	574
of the taxpayer's federal taxable income as required to be	575
reported for the taxpayer's taxable year under the Internal	576
Revenue Code;	577

(b) The amount resulted in a reduction in the taxpayer's	578
federal taxable income as required to be reported for any of the	579
taxpayer's taxable years under the Internal Revenue Code.	580

(12) Deduct any amount, net of related expenses deducted in	581
computing federal taxable income, that a trust is required to	582
report as farm income on its federal income tax return, but only	583
if the assets of the trust include at least ten acres of land	584
satisfying the definition of "land devoted exclusively to	585
agricultural use" under section 5713.30 of the Revised Code,	586
regardless of whether the land is valued for tax purposes as such	587
land under sections 5713.30 to 5713.38 of the Revised Code. If the	588
trust is a pass-through entity investor, section 5747.231 of the	589
Revised Code applies in ascertaining if the trust is eligible to	590
claim the deduction provided by division (S)(12) of this section	591
in connection with the pass-through entity's farm income.	592

Except for farm income attributable to the S portion of an	593
electing small business trust, the deduction provided by division	594
(S)(12) of this section is allowed only to the extent that the	595
trust has not distributed such farm income. Division (S)(12) of	596
this section applies only to taxable years of a trust beginning in	597
2002 or thereafter.	598

(13) Add the net amount of income described in section 641(c)	599
of the Internal Revenue Code to the extent that amount is not	600
included in federal taxable income.	601

(14) Add or deduct the amount the taxpayer would be required	602
to add or deduct under division (A)(20) or (21) of this section if	603
the taxpayer's Ohio taxable income were computed in the same	604
manner as an individual's Ohio adjusted gross income is computed	605
under this section. In the case of a trust, division (S)(14) of	606
this section applies only to any of the trust's taxable years	607
beginning in 2002 or thereafter.	608

(T) "School district income" and "school district income tax"	609
have the same meanings as in section 5748.01 of the Revised Code.	610

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	611
of this section, "public obligations," "purchase obligations," and	612
"interest or interest equivalent" have the same meanings as in	613
section 5709.76 of the Revised Code.	614

(V) "Limited liability company" means any limited liability	615
company formed under Chapter 1705. of the Revised Code or under	616
the laws of any other state.	617

(W) "Pass-through entity investor" means any person who,	618
during any portion of a taxable year of a pass-through entity, is	619
a partner, member, shareholder, or equity investor in that	620
pass-through entity.	621

(X) "Banking day" has the same meaning as in section 1304.01	622
of the Revised Code.	623

(Y) "Month" means a calendar month.

624

(Z) "Quarter" means the first three months, the second three	625
months, the third three months, or the last three months of the	626
taxpayer's taxable year.	627

(AA)(1) "Eligible institution" means a state university or	628
state institution of higher education as defined in section	629
3345.011 of the Revised Code, or a private, nonprofit college,	630
university, or other post-secondary institution located in this	631
state that possesses a certificate of authorization issued by the	632
Ohio board of regents pursuant to Chapter 1713. of the Revised	633
Code or a certificate of registration issued by the state board of	634
career colleges and schools under Chapter 3332. of the Revised	635
Code.	636

(2) "Qualified tuition and fees" means tuition and fees	637
imposed by an eligible institution as a condition of enrollment or	638
attendance, not exceeding two thousand five hundred dollars in	639
each of the individual's first two years of post-secondary	640
education. If the individual is a part-time student, "qualified	641
tuition and fees" includes tuition and fees paid for the academic	642
equivalent of the first two years of post-secondary education	643
during a maximum of five taxable years, not exceeding a total of	644
five thousand dollars. "Qualified tuition and fees" does not	645
include:	646

(a) Expenses for any course or activity involving sports,	647
games, or hobbies unless the course or activity is part of the	648
individual's degree or diploma program;	649

(b) The cost of books, room and board, student activity fees,	650
athletic fees, insurance expenses, or other expenses unrelated to	651
the individual's academic course of instruction;	652

(c) Tuition, fees, or other expenses paid or reimbursed	653
through an employer, scholarship, grant in aid, or other	654
educational benefit program.	655

(BB)(1) "Modified business income" means the business income	656
included in a trust's Ohio taxable income after such taxable	657
income is first reduced by the qualifying trust amount, if any.	658

(2) "Qualifying trust amount" of a trust means capital gains	659
and losses from the sale, exchange, or other disposition of equity	660
or ownership interests in, or debt obligations of, a qualifying	661
investee to the extent included in the trust's Ohio taxable	662
income, but only if the following requirements are satisfied:	663

(a) The book value of the qualifying investee's physical	664
assets in this state and everywhere, as of the last day of the	665
qualifying investee's fiscal or calendar year ending immediately	666
prior to the date on which the trust recognizes the gain or loss,	667
is available to the trust.	668

(b) The requirements of section 5747.011 of the Revised Code	669
are satisfied for the trust's taxable year in which the trust	670
recognizes the gain or loss.	671

Any gain or loss that is not a qualifying trust amount is	672
modified business income, qualifying investment income, or	673
modified nonbusiness income, as the case may be.	674

(3) "Modified nonbusiness income" means a trust's Ohio	675
taxable income other than modified business income, other than the	676
qualifying trust amount, and other than qualifying investment	677
income, as defined in section 5747.012 of the Revised Code, to the	678
extent such qualifying investment income is not otherwise part of	679
modified business income.	680

(4) "Modified Ohio taxable income" applies only to trusts,	681
and means the sum of the amounts described in divisions (BB)(4)(a)	682
to (c) of this section:	683

(a) The fraction, calculated under section 5747.013, and	684
applying section 5747.231 of the Revised Code, multiplied by the	685
sum of the following amounts:	686

(i) The trust's modified business income;

687

(ii) The trust's qualifying investment income, as defined in	688
section 5747.012 of the Revised Code, but only to the extent the	689
qualifying investment income does not otherwise constitute	690
modified business income and does not otherwise constitute a	691
qualifying trust amount.	692

(b) The qualifying trust amount multiplied by a fraction, the	693
numerator of which is the sum of the book value of the qualifying	694
investee's physical assets in this state on the last day of the	695
qualifying investee's fiscal or calendar year ending immediately	696
prior to the day on which the trust recognizes the qualifying	697
trust amount, and the denominator of which is the sum of the book	698
value of the qualifying investee's total physical assets	699
everywhere on the last day of the qualifying investee's fiscal or	700
calendar year ending immediately prior to the day on which the	701
trust recognizes the qualifying trust amount. If, for a taxable	702
year, the trust recognizes a qualifying trust amount with respect	703
to more than one qualifying investee, the amount described in	704
division (BB)(4)(b) of this section shall equal the sum of the	705
products so computed for each such qualifying investee.	706

(c)(i) With respect to a trust or portion of a trust that is	707
a resident as ascertained in accordance with division (I)(3)(d) of	708
this section, its modified nonbusiness income.	709

(ii) With respect to a trust or portion of a trust that is	710
not a resident as ascertained in accordance with division	711
(I)(3)(d) of this section, the amount of its modified nonbusiness	712
income satisfying the descriptions in divisions (B)(2) to (5) of	713
section 5747.20 of the Revised Code, except as otherwise provided	714
in division (BB)(4)(c)(ii) of this section. With respect to a	715
trust or portion of a trust that is not a resident as ascertained	716
in accordance with division (I)(3)(d) of this section, the trust's	717
portion of modified nonbusiness income recognized from the sale,	718
exchange, or other disposition of a debt interest in or equity	719
interest in a section 5747.212 entity, as defined in section	720
5747.212 of the Revised Code, without regard to division (A) of	721
that section, shall not be allocated to this state in accordance	722
with section 5747.20 of the Revised Code but shall be apportioned	723
to this state in accordance with division (B) of section 5747.212	724
of the Revised Code without regard to division (A) of that	725
section.	726

If the allocation and apportionment of a trust's income under	727
divisions (BB)(4)(a) and (c) of this section do not fairly	728
represent the modified Ohio taxable income of the trust in this	729
state, the alternative methods described in division (C) of	730
section 5747.21 of the Revised Code may be applied in the manner	731
and to the same extent provided in that section.	732

(5)(a) Except as set forth in division (BB)(5)(b) of this	733
section, "qualifying investee" means a person in which a trust has	734
an equity or ownership interest, or a person or unit of government	735
the debt obligations of either of which are owned by a trust. For	736
the purposes of division (BB)(2)(a) of this section and for the	737
purpose of computing the fraction described in division (BB)(4)(b)	738
of this section, all of the following apply:	739

(i) If the qualifying investee is a member of a qualifying	740
controlled group on the last day of the qualifying investee's	741
fiscal or calendar year ending immediately prior to the date on	742
which the trust recognizes the gain or loss, then "qualifying	743
investee" includes all persons in the qualifying controlled group	744
on such last day.	745

(ii) If the qualifying investee, or if the qualifying	746
investee and any members of the qualifying controlled group of	747
which the qualifying investee is a member on the last day of the	748
qualifying investee's fiscal or calendar year ending immediately	749
prior to the date on which the trust recognizes the gain or loss,	750
separately or cumulatively own, directly or indirectly, on the	751
last day of the qualifying investee's fiscal or calendar year	752
ending immediately prior to the date on which the trust recognizes	753
the qualifying trust amount, more than fifty per cent of the	754
equity of a pass-through entity, then the qualifying investee and	755
the other members are deemed to own the proportionate share of the	756
pass-through entity's physical assets which the pass-through	757
entity directly or indirectly owns on the last day of the	758
pass-through entity's calendar or fiscal year ending within or	759
with the last day of the qualifying investee's fiscal or calendar	760
year ending immediately prior to the date on which the trust	761
recognizes the qualifying trust amount.	762

(iii) For the purposes of division (BB)(5)(a)(iii) of this	763
section, "upper level pass-through entity" means a pass-through	764
entity directly or indirectly owning any equity of another	765
pass-through entity, and "lower level pass-through entity" means	766
that other pass-through entity.	767

An upper level pass-through entity, whether or not it is also	768
a qualifying investee, is deemed to own, on the last day of the	769
upper level pass-through entity's calendar or fiscal year, the	770
proportionate share of the lower level pass-through entity's	771
physical assets that the lower level pass-through entity directly	772
or indirectly owns on the last day of the lower level pass-through	773
entity's calendar or fiscal year ending within or with the last	774
day of the upper level pass-through entity's fiscal or calendar	775
year. If the upper level pass-through entity directly and	776
indirectly owns less than fifty per cent of the equity of the	777
lower level pass-through entity on each day of the upper level	778
pass-through entity's calendar or fiscal year in which or with	779
which ends the calendar or fiscal year of the lower level	780
pass-through entity and if, based upon clear and convincing	781
evidence, complete information about the location and cost of the	782
physical assets of the lower pass-through entity is not available	783
to the upper level pass-through entity, then solely for purposes	784
of ascertaining if a gain or loss constitutes a qualifying trust	785
amount, the upper level pass-through entity shall be deemed as	786
owning no equity of the lower level pass-through entity for each	787
day during the upper level pass-through entity's calendar or	788
fiscal year in which or with which ends the lower level	789
pass-through entity's calendar or fiscal year. Nothing in division	790
(BB)(5)(a)(iii) of this section shall be construed to provide for	791
any deduction or exclusion in computing any trust's Ohio taxable	792
income.	793

(b) With respect to a trust that is not a resident for the	794
taxable year and with respect to a part of a trust that is not a	795
resident for the taxable year, "qualifying investee" for that	796
taxable year does not include a C corporation if both of the	797
following apply:	798

(i) During the taxable year the trust or part of the trust	799
recognizes a gain or loss from the sale, exchange, or other	800
disposition of equity or ownership interests in, or debt	801
obligations of, the C corporation.	802

(ii) Such gain or loss constitutes nonbusiness income.

803

(6) "Available" means information is such that a person is	804
able to learn of the information by the due date plus extensions,	805
if any, for filing the return for the taxable year in which the	806
trust recognizes the gain or loss.	807

(CC) "Qualifying controlled group" has the same meaning as in	808
section 5733.04 of the Revised Code.	809

(DD) "Related member" has the same meaning as in section	810
5733.042 of the Revised Code.	811

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

812

(a) "Qualifying person" means any person other than a	813
qualifying corporation.	814

(b) "Qualifying corporation" means any person classified for	815
federal income tax purposes as an association taxable as a	816
corporation, except either of the following:	817

(i) A corporation that has made an election under subchapter	818
S, chapter one, subtitle A, of the Internal Revenue Code for its	819
taxable year ending within, or on the last day of, the investor's	820
taxable year;	821

(ii) A subsidiary that is wholly owned by any corporation	822
that has made an election under subchapter S, chapter one,	823
subtitle A of the Internal Revenue Code for its taxable year	824
ending within, or on the last day of, the investor's taxable year.	825

(2) For the purposes of this chapter, unless expressly stated	826
otherwise, no qualifying person indirectly owns any asset directly	827
or indirectly owned by any qualifying corporation.	828

(FF) For purposes of this chapter and Chapter 5751. of the	829
Revised Code:	830

(1) "Trust" does not include a qualified pre-income tax	831
trust.	832

(2) A "qualified pre-income tax trust" is any pre-income tax	833
trust that makes a qualifying pre-income tax trust election as	834
described in division (FF)(3) of this section.	835

(3) A "qualifying pre-income tax trust election" is an	836
election by a pre-income tax trust to subject to the tax imposed	837
by section 5751.02 of the Revised Code the pre-income tax trust	838
and all pass-through entities of which the trust owns or controls,	839
directly, indirectly, or constructively through related interests,	840
five per cent or more of the ownership or equity interests. The	841
trustee shall notify the tax commissioner in writing of the	842
election on or before April 15, 2006. The election, if timely	843
made, shall be effective on and after January 1, 2006, and shall	844
apply for all tax periods and tax years until revoked by the	845
trustee of the trust.	846

(4) A "pre-income tax trust" is a trust that satisfies all of	847
the following requirements:	848

(a) The document or instrument creating the trust was	849
executed by the grantor before January 1, 1972;	850

(b) The trust became irrevocable upon the creation of the	851
trust; and	852

(c) The grantor was domiciled in this state at the time the	853
trust was created.	854

Section 2. That existing section 5747.01 of the Revised Code	855
is hereby repealed.	856