As Introduced

128th General Assembly Regular Session 2009-2010

S. B. No. 279

Senator Kearney 

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A BILL

To amend section 5747.01 of the Revised Code to

1

exempt from taxation gains from the sale of Ohio

2

property used in a trade or business and held for

3

at least two years.

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 5747.70	76
of the Revised Code, related to contributions to variable college	77
savings program accounts made or tuition units purchased pursuant	78
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) Deduct, to the extent not otherwise deducted or excluded	106
in computing federal or Ohio adjusted gross income, any amount	107
included in federal adjusted gross income under section 105 or not	108
excluded under section 106 of the Internal Revenue Code solely	109
because it relates to an accident and health plan for a person who	110
otherwise would be a "qualifying relative" and thus a "dependent"	111
under section 152 of the Internal Revenue Code but for the fact	112
that the person fails to meet the income and support limitations	113
under section 152(d)(1)(B) and (C) of the Internal Revenue Code.	114

(d) For purposes of division (A)(11) of this section,	115
"medical care" has the meaning given in section 213 of the	116
Internal Revenue Code, subject to the special rules, limitations,	117
and exclusions set forth therein, and "qualified long-term care"	118
has the same meaning given in section 7702B(c) of the Internal	119
Revenue Code. Solely for purposes of divisions (A)(11)(a) and (c)	120
of this section, "dependent" includes a person who otherwise would	121
be a "qualifying relative" and thus a "dependent" under section	122
152 of the Internal Revenue Code but for the fact that the person	123
fails to meet the income and support limitations under section	124
152(d)(1)(B) and (C) of the Internal Revenue Code.	125

(12)(a) Deduct any amount included in federal adjusted gross	126
income solely because the amount represents a reimbursement or	127
refund of expenses that in any year the taxpayer had deducted as	128
an itemized deduction pursuant to section 63 of the Internal	129
Revenue Code and applicable United States department of the	130
treasury regulations. The deduction otherwise allowed under	131
division (A)(12)(a) of this section shall be reduced to the extent	132
the reimbursement is attributable to an amount the taxpayer	133
deducted under this section in any taxable year.	134

(b) Add any amount not otherwise included in Ohio adjusted	135
gross income for any taxable year to the extent that the amount is	136
attributable to the recovery during the taxable year of any amount	137
deducted or excluded in computing federal or Ohio adjusted gross	138
income in any taxable year.	139

(13) Deduct any portion of the deduction described in section	140
1341(a)(2) of the Internal Revenue Code, for repaying previously	141
reported income received under a claim of right, that meets both	142
of the following requirements:	143

(a) It is allowable for repayment of an item that was	144
included in the taxpayer's adjusted gross income for a prior	145
taxable year and did not qualify for a credit under division (A)	146
or (B) of section 5747.05 of the Revised Code for that year;	147

(b) It does not otherwise reduce the taxpayer's adjusted	148
gross income for the current or any other taxable year.	149

(14) Deduct an amount equal to the deposits made to, and net	150
investment earnings of, a medical savings account during the	151
taxable year, in accordance with section 3924.66 of the Revised	152
Code. The deduction allowed by division (A)(14) of this section	153
does not apply to medical savings account deposits and earnings	154
otherwise deducted or excluded for the current or any other	155
taxable year from the taxpayer's federal adjusted gross income.	156

(15)(a) Add an amount equal to the funds withdrawn from a	157
medical savings account during the taxable year, and the net	158
investment earnings on those funds, when the funds withdrawn were	159
used for any purpose other than to reimburse an account holder	160
for, or to pay, eligible medical expenses, in accordance with	161
section 3924.66 of the Revised Code;	162

(b) Add the amounts distributed from a medical savings	163
account under division (A)(2) of section 3924.68 of the Revised	164
Code during the taxable year.	165

(16) Add any amount claimed as a credit under section	166
5747.059 of the Revised Code to the extent that such amount	167
satisfies either of the following:	168

(a) The amount was deducted or excluded from the computation	169
of the taxpayer's federal adjusted gross income as required to be	170
reported for the taxpayer's taxable year under the Internal	171
Revenue Code;	172

(b) The amount resulted in a reduction of the taxpayer's	173
federal adjusted gross income as required to be reported for any	174
of the taxpayer's taxable years under the Internal Revenue Code.	175

(17) Deduct the amount contributed by the taxpayer to an	176
individual development account program established by a county	177
department of job and family services pursuant to sections 329.11	178
to 329.14 of the Revised Code for the purpose of matching funds	179
deposited by program participants. On request of the tax	180
commissioner, the taxpayer shall provide any information that, in	181
the tax commissioner's opinion, is necessary to establish the	182
amount deducted under division (A)(17) of this section.	183

(18) Beginning in taxable year 2001 but not for any taxable	184
year beginning after December 31, 2005, if the taxpayer is married	185
and files a joint return and the combined federal adjusted gross	186
income of the taxpayer and the taxpayer's spouse for the taxable	187
year does not exceed one hundred thousand dollars, or if the	188
taxpayer is single and has a federal adjusted gross income for the	189
taxable year not exceeding fifty thousand dollars, deduct amounts	190
paid during the taxable year for qualified tuition and fees paid	191
to an eligible institution for the taxpayer, the taxpayer's	192
spouse, or any dependent of the taxpayer, who is a resident of	193
this state and is enrolled in or attending a program that	194
culminates in a degree or diploma at an eligible institution. The	195
deduction may be claimed only to the extent that qualified tuition	196
and fees are not otherwise deducted or excluded for any taxable	197
year from federal or Ohio adjusted gross income. The deduction may	198
not be claimed for educational expenses for which the taxpayer	199
claims a credit under section 5747.27 of the Revised Code.	200

(19) Add any reimbursement received during the taxable year	201
of any amount the taxpayer deducted under division (A)(18) of this	202
section in any previous taxable year to the extent the amount is	203
not otherwise included in Ohio adjusted gross income.	204

(20)(a)(i) Add five-sixths of the amount of depreciation	205
expense allowed by subsection (k) of section 168 of the Internal	206
Revenue Code, including the taxpayer's proportionate or	207
distributive share of the amount of depreciation expense allowed	208
by that subsection to a pass-through entity in which the taxpayer	209
has a direct or indirect ownership interest.	210

(ii) Add five-sixths of the amount of qualifying section 179	211
depreciation expense, including a person's proportionate or	212
distributive share of the amount of qualifying section 179	213
depreciation expense allowed to any pass-through entity in which	214
the person has a direct or indirect ownership. For the purposes of	215
this division, "qualifying section 179 depreciation expense" means	216
the difference between (I) the amount of depreciation expense	217
directly or indirectly allowed to the taxpayer under section 179	218
of the Internal Revenue Code, and (II) the amount of depreciation	219
expense directly or indirectly allowed to the taxpayer under	220
section 179 of the Internal Revenue Code as that section existed	221
on December 31, 2002.	222

The tax commissioner, under procedures established by the	223
commissioner, may waive the add-backs related to a pass-through	224
entity if the taxpayer owns, directly or indirectly, less than	225
five per cent of the pass-through entity.	226

(b) Nothing in division (A)(20) of this section shall be	227
construed to adjust or modify the adjusted basis of any asset.	228

(c) To the extent the add-back required under division	229
(A)(20)(a) of this section is attributable to property generating	230
nonbusiness income or loss allocated under section 5747.20 of the	231
Revised Code, the add-back shall be sitused to the same location	232
as the nonbusiness income or loss generated by the property for	233
the purpose of determining the credit under division (A) of	234
section 5747.05 of the Revised Code. Otherwise, the add-back shall	235
be apportioned, subject to one or more of the four alternative	236
methods of apportionment enumerated in section 5747.21 of the	237
Revised Code.	238

(d) For the purposes of division (A) of this section, net	239
operating loss carryback and carryforward shall not include	240
five-sixths of the allowance of any net operating loss deduction	241
carryback or carryforward to the taxable year to the extent such	242
loss resulted from depreciation allowed by section 168(k) of the	243
Internal Revenue Code and by the qualifying section 179	244
depreciation expense amount.	245

(21)(a) If the taxpayer was required to add an amount under	246
division (A)(20)(a) of this section for a taxable year, deduct	247
one-fifth of the amount so added for each of the five succeeding	248
taxable years.	249

(b) If the amount deducted under division (A)(21)(a) of this	250
section is attributable to an add-back allocated under division	251
(A)(20)(c) of this section, the amount deducted shall be sitused	252
to the same location. Otherwise, the add-back shall be apportioned	253
using the apportionment factors for the taxable year in which the	254
deduction is taken, subject to one or more of the four alternative	255
methods of apportionment enumerated in section 5747.21 of the	256
Revised Code.	257

(c) No deduction is available under division (A)(21)(a) of	258
this section with regard to any depreciation allowed by section	259
168(k) of the Internal Revenue Code and by the qualifying section	260
179 depreciation expense amount to the extent that such	261
depreciation resulted in or increased a federal net operating loss	262
carryback or carryforward to a taxable year to which division	263
(A)(20)(d) of this section does not apply.	264

(22) Deduct, to the extent not otherwise deducted or excluded	265
in computing federal or Ohio adjusted gross income for the taxable	266
year, the amount the taxpayer received during the taxable year as	267
reimbursement for life insurance premiums under section 5919.31 of	268
the Revised Code.	269

(23) Deduct, to the extent not otherwise deducted or excluded	270
in computing federal or Ohio adjusted gross income for the taxable	271
year, the amount the taxpayer received during the taxable year as	272
a death benefit paid by the adjutant general under section 5919.33	273
of the Revised Code.	274

(24) Deduct, to the extent included in federal adjusted gross	275
income and not otherwise allowable as a deduction or exclusion in	276
computing federal or Ohio adjusted gross income for the taxable	277
year, military pay and allowances received by the taxpayer during	278
the taxable year for active duty service in the United States	279
army, air force, navy, marine corps, or coast guard or reserve	280
components thereof or the national guard. The deduction may not be	281
claimed for military pay and allowances received by the taxpayer	282
while the taxpayer is stationed in this state.	283

(25) Deduct, to the extent not otherwise allowable as a	284
deduction or exclusion in computing federal or Ohio adjusted gross	285
income for the taxable year and not otherwise compensated for by	286
any other source, the amount of qualified organ donation expenses	287
incurred by the taxpayer during the taxable year, not to exceed	288
ten thousand dollars. A taxpayer may deduct qualified organ	289
donation expenses only once for all taxable years beginning with	290
taxable years beginning in 2007.	291

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

292

(a) "Human organ" means all or any portion of a human liver,	293
pancreas, kidney, intestine, or lung, and any portion of human	294
bone marrow.	295

(b) "Qualified organ donation expenses" means travel	296
expenses, lodging expenses, and wages and salary forgone by a	297
taxpayer in connection with the taxpayer's donation, while living,	298
of one or more of the taxpayer's human organs to another human	299
being.	300

(26) Deduct, to the extent not otherwise deducted or excluded	301
in computing federal or Ohio adjusted gross income for the taxable	302
year, amounts received by the taxpayer as retired military	303
personnel pay for service in the United States army, navy, air	304
force, coast guard, or marine corps or reserve components thereof,	305
or the national guard, or received by the surviving spouse or	306
former spouse of such a taxpayer under the survivor benefit plan	307
on account of such a taxpayer's death. If the taxpayer receives	308
income on account of retirement paid under the federal civil	309
service retirement system or federal employees retirement system,	310
or under any successor retirement program enacted by the congress	311
of the United States that is established and maintained for	312
retired employees of the United States government, and such	313
retirement income is based, in whole or in part, on credit for the	314
taxpayer's military service, the deduction allowed under this	315
division shall include only that portion of such retirement income	316
that is attributable to the taxpayer's military service, to the	317
extent that portion of such retirement income is otherwise	318
included in federal adjusted gross income and is not otherwise	319
deducted under this section. Any amount deducted under division	320
(A)(26) of this section is not included in a taxpayer's adjusted	321
gross income for the purposes of section 5747.055 of the Revised	322
Code. No amount may be deducted under division (A)(26) of this	323
section on the basis of which a credit was claimed under section	324
5747.055 of the Revised Code.	325

(27) Deduct, to the extent not otherwise deducted or excluded	326
in computing federal or Ohio adjusted gross income for the taxable	327
year, the amount the taxpayer received during the taxable year	328
from the military injury relief fund created in section 5101.98 of	329
the Revised Code.	330

(28) Deduct, to the extent not otherwise deducted or excluded	331
in computing federal or Ohio adjusted gross income, any gain	332
realized by the taxpayer from the sale, exchange, or involuntary	333
conversion of section 1245 property or section 1250 property	334
during the taxable year, including the taxpayer's distributive or	335
proportionate share of any such gain realized by a pass-through	336
entity in which the taxpayer has a direct or indirect ownership	337
interest, to the extent the gain is apportionable or allocable to	338
this state under sections 5747.20 to 5747.23 of the Revised Code.	339
For purposes of division (A)(28) of this section, "section 1245	340
property" and "section 1250 property" have the same meanings as in	341
sections 1245 and 1250 of the Internal Revenue Code, respectively,	342
except the property disposed of must have been purchased in 2011	343
or 2012 from a person located in Ohio and held by the taxpayer or	344
pass-through entity for at least two years.	345

(B) "Business income" means income, including gain or loss,	346
arising from transactions, activities, and sources in the regular	347
course of a trade or business and includes income, gain, or loss	348
from real property, tangible property, and intangible property if	349
the acquisition, rental, management, and disposition of the	350
property constitute integral parts of the regular course of a	351
trade or business operation. "Business income" includes income,	352
including gain or loss, from a partial or complete liquidation of	353
a business, including, but not limited to, gain or loss from the	354
sale or other disposition of goodwill.	355

(C) "Nonbusiness income" means all income other than business	356
income and may include, but is not limited to, compensation, rents	357
and royalties from real or tangible personal property, capital	358
gains, interest, dividends and distributions, patent or copyright	359
royalties, or lottery winnings, prizes, and awards.	360

(D) "Compensation" means any form of remuneration paid to an	361
employee for personal services.	362

(E) "Fiduciary" means a guardian, trustee, executor,	363
administrator, receiver, conservator, or any other person acting	364
in any fiduciary capacity for any individual, trust, or estate.	365

(F) "Fiscal year" means an accounting period of twelve months	366
ending on the last day of any month other than December.	367

(G) "Individual" means any natural person.

368

(H) "Internal Revenue Code" means the "Internal Revenue Code	369
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	370

(I) "Resident" means any of the following, provided that	371
division (I)(3) of this section applies only to taxable years of a	372
trust beginning in 2002 or thereafter:	373

(1) An individual who is domiciled in this state, subject to	374
section 5747.24 of the Revised Code;	375

(2) The estate of a decedent who at the time of death was	376
domiciled in this state. The domicile tests of section 5747.24 of	377
the Revised Code are not controlling for purposes of division	378
(I)(2) of this section.	379

(3) A trust that, in whole or part, resides in this state. If	380
only part of a trust resides in this state, the trust is a	381
resident only with respect to that part.	382

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

383

(a) A trust resides in this state for the trust's current	384
taxable year to the extent, as described in division (I)(3)(d) of	385
this section, that the trust consists directly or indirectly, in	386
whole or in part, of assets, net of any related liabilities, that	387
were transferred, or caused to be transferred, directly or	388
indirectly, to the trust by any of the following:	389

(i) A person, a court, or a governmental entity or	390
instrumentality on account of the death of a decedent, but only if	391
the trust is described in division (I)(3)(e)(i) or (ii) of this	392
section;	393

(ii) A person who was domiciled in this state for the	394
purposes of this chapter when the person directly or indirectly	395
transferred assets to an irrevocable trust, but only if at least	396
one of the trust's qualifying beneficiaries is domiciled in this	397
state for the purposes of this chapter during all or some portion	398
of the trust's current taxable year;	399

(iii) A person who was domiciled in this state for the	400
purposes of this chapter when the trust document or instrument or	401
part of the trust document or instrument became irrevocable, but	402
only if at least one of the trust's qualifying beneficiaries is a	403
resident domiciled in this state for the purposes of this chapter	404
during all or some portion of the trust's current taxable year. If	405
a trust document or instrument became irrevocable upon the death	406
of a person who at the time of death was domiciled in this state	407
for purposes of this chapter, that person is a person described in	408
division (I)(3)(a)(iii) of this section.	409

(b) A trust is irrevocable to the extent that the transferor	410
is not considered to be the owner of the net assets of the trust	411
under sections 671 to 678 of the Internal Revenue Code.	412

(c) With respect to a trust other than a charitable lead	413
trust, "qualifying beneficiary" has the same meaning as "potential	414
current beneficiary" as defined in section 1361(e)(2) of the	415
Internal Revenue Code, and with respect to a charitable lead trust	416
"qualifying beneficiary" is any current, future, or contingent	417
beneficiary, but with respect to any trust "qualifying	418
beneficiary" excludes a person or a governmental entity or	419
instrumentality to any of which a contribution would qualify for	420
the charitable deduction under section 170 of the Internal Revenue	421
Code.	422

(d) For the purposes of division (I)(3)(a) of this section,	423
the extent to which a trust consists directly or indirectly, in	424
whole or in part, of assets, net of any related liabilities, that	425
were transferred directly or indirectly, in whole or part, to the	426
trust by any of the sources enumerated in that division shall be	427
ascertained by multiplying the fair market value of the trust's	428
assets, net of related liabilities, by the qualifying ratio, which	429
shall be computed as follows:	430

(i) The first time the trust receives assets, the numerator	431
of the qualifying ratio is the fair market value of those assets	432
at that time, net of any related liabilities, from sources	433
enumerated in division (I)(3)(a) of this section. The denominator	434
of the qualifying ratio is the fair market value of all the	435
trust's assets at that time, net of any related liabilities.	436

(ii) Each subsequent time the trust receives assets, a	437
revised qualifying ratio shall be computed. The numerator of the	438
revised qualifying ratio is the sum of (1) the fair market value	439
of the trust's assets immediately prior to the subsequent	440
transfer, net of any related liabilities, multiplied by the	441
qualifying ratio last computed without regard to the subsequent	442
transfer, and (2) the fair market value of the subsequently	443
transferred assets at the time transferred, net of any related	444
liabilities, from sources enumerated in division (I)(3)(a) of this	445
section. The denominator of the revised qualifying ratio is the	446
fair market value of all the trust's assets immediately after the	447
subsequent transfer, net of any related liabilities.	448

(iii) Whether a transfer to the trust is by or from any of	449
the sources enumerated in division (I)(3)(a) of this section shall	450
be ascertained without regard to the domicile of the trust's	451
beneficiaries.	452

(e) For the purposes of division (I)(3)(a)(i) of this	453
section:	454

(i) A trust is described in division (I)(3)(e)(i) of this	455
section if the trust is a testamentary trust and the testator of	456
that testamentary trust was domiciled in this state at the time of	457
the testator's death for purposes of the taxes levied under	458
Chapter 5731. of the Revised Code.	459

(ii) A trust is described in division (I)(3)(e)(ii) of this	460
section if the transfer is a qualifying transfer described in any	461
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	462
irrevocable inter vivos trust, and at least one of the trust's	463
qualifying beneficiaries is domiciled in this state for purposes	464
of this chapter during all or some portion of the trust's current	465
taxable year.	466

(f) For the purposes of division (I)(3)(e)(ii) of this	467
section, a "qualifying transfer" is a transfer of assets, net of	468
any related liabilities, directly or indirectly to a trust, if the	469
transfer is described in any of the following:	470

(i) The transfer is made to a trust, created by the decedent	471
before the decedent's death and while the decedent was domiciled	472
in this state for the purposes of this chapter, and, prior to the	473
death of the decedent, the trust became irrevocable while the	474
decedent was domiciled in this state for the purposes of this	475
chapter.	476

(ii) The transfer is made to a trust to which the decedent,	477
prior to the decedent's death, had directly or indirectly	478
transferred assets, net of any related liabilities, while the	479
decedent was domiciled in this state for the purposes of this	480
chapter, and prior to the death of the decedent the trust became	481
irrevocable while the decedent was domiciled in this state for the	482
purposes of this chapter.	483

(iii) The transfer is made on account of a contractual	484
relationship existing directly or indirectly between the	485
transferor and either the decedent or the estate of the decedent	486
at any time prior to the date of the decedent's death, and the	487
decedent was domiciled in this state at the time of death for	488
purposes of the taxes levied under Chapter 5731. of the Revised	489
Code.	490

(iv) The transfer is made to a trust on account of a	491
contractual relationship existing directly or indirectly between	492
the transferor and another person who at the time of the	493
decedent's death was domiciled in this state for purposes of this	494
chapter.	495

(v) The transfer is made to a trust on account of the will of	496
a testator who was domiciled in this state at the time of the	497
testator's death for purposes of the taxes levied under Chapter	498
5731. of the Revised Code.	499

(vi) The transfer is made to a trust created by or caused to	500
be created by a court, and the trust was directly or indirectly	501
created in connection with or as a result of the death of an	502
individual who, for purposes of the taxes levied under Chapter	503
5731. of the Revised Code, was domiciled in this state at the time	504
of the individual's death.	505

(g) The tax commissioner may adopt rules to ascertain the	506
part of a trust residing in this state.	507

(J) "Nonresident" means an individual or estate that is not a	508
resident. An individual who is a resident for only part of a	509
taxable year is a nonresident for the remainder of that taxable	510
year.	511

(K) "Pass-through entity" has the same meaning as in section	512
5733.04 of the Revised Code.	513

(L) "Return" means the notifications and reports required to	514
be filed pursuant to this chapter for the purpose of reporting the	515
tax due and includes declarations of estimated tax when so	516
required.	517

(M) "Taxable year" means the calendar year or the taxpayer's	518
fiscal year ending during the calendar year, or fractional part	519
thereof, upon which the adjusted gross income is calculated	520
pursuant to this chapter.	521

(N) "Taxpayer" means any person subject to the tax imposed by	522
section 5747.02 of the Revised Code or any pass-through entity	523
that makes the election under division (D) of section 5747.08 of	524
the Revised Code.	525

(O) "Dependents" means dependents as defined in the Internal	526
Revenue Code and as claimed in the taxpayer's federal income tax	527
return for the taxable year or which the taxpayer would have been	528
permitted to claim had the taxpayer filed a federal income tax	529
return.	530

(P) "Principal county of employment" means, in the case of a	531
nonresident, the county within the state in which a taxpayer	532
performs services for an employer or, if those services are	533
performed in more than one county, the county in which the major	534
portion of the services are performed.	535

(Q) As used in sections 5747.50 to 5747.55 of the Revised	536
Code:	537

(1) "Subdivision" means any county, municipal corporation,	538
park district, or township.	539

(2) "Essential local government purposes" includes all	540
functions that any subdivision is required by general law to	541
exercise, including like functions that are exercised under a	542
charter adopted pursuant to the Ohio Constitution.	543

(R) "Overpayment" means any amount already paid that exceeds	544
the figure determined to be the correct amount of the tax.	545

(S) "Taxable income" or "Ohio taxable income" applies only to	546
estates and trusts, and means federal taxable income, as defined	547
and used in the Internal Revenue Code, adjusted as follows:	548

(1) Add interest or dividends, net of ordinary, necessary,	549
and reasonable expenses not deducted in computing federal taxable	550
income, on obligations or securities of any state or of any	551
political subdivision or authority of any state, other than this	552
state and its subdivisions and authorities, but only to the extent	553
that such net amount is not otherwise includible in Ohio taxable	554
income and is described in either division (S)(1)(a) or (b) of	555
this section:	556

(a) The net amount is not attributable to the S portion of an	557
electing small business trust and has not been distributed to	558
beneficiaries for the taxable year;	559

(b) The net amount is attributable to the S portion of an	560
electing small business trust for the taxable year.	561

(2) Add interest or dividends, net of ordinary, necessary,	562
and reasonable expenses not deducted in computing federal taxable	563
income, on obligations of any authority, commission,	564
instrumentality, territory, or possession of the United States to	565
the extent that the interest or dividends are exempt from federal	566
income taxes but not from state income taxes, but only to the	567
extent that such net amount is not otherwise includible in Ohio	568
taxable income and is described in either division (S)(1)(a) or	569
(b) of this section;	570

(3) Add the amount of personal exemption allowed to the	571
estate pursuant to section 642(b) of the Internal Revenue Code;	572

(4) Deduct interest or dividends, net of related expenses	573
deducted in computing federal taxable income, on obligations of	574
the United States and its territories and possessions or of any	575
authority, commission, or instrumentality of the United States to	576
the extent that the interest or dividends are exempt from state	577
taxes under the laws of the United States, but only to the extent	578
that such amount is included in federal taxable income and is	579
described in either division (S)(1)(a) or (b) of this section;	580

(5) Deduct the amount of wages and salaries, if any, not	581
otherwise allowable as a deduction but that would have been	582
allowable as a deduction in computing federal taxable income for	583
the taxable year, had the targeted jobs credit allowed under	584
sections 38, 51, and 52 of the Internal Revenue Code not been in	585
effect, but only to the extent such amount relates either to	586
income included in federal taxable income for the taxable year or	587
to income of the S portion of an electing small business trust for	588
the taxable year;	589

(6) Deduct any interest or interest equivalent, net of	590
related expenses deducted in computing federal taxable income, on	591
public obligations and purchase obligations, but only to the	592
extent that such net amount relates either to income included in	593
federal taxable income for the taxable year or to income of the S	594
portion of an electing small business trust for the taxable year;	595

(7) Add any loss or deduct any gain resulting from sale,	596
exchange, or other disposition of public obligations to the extent	597
that such loss has been deducted or such gain has been included in	598
computing either federal taxable income or income of the S portion	599
of an electing small business trust for the taxable year;	600

(8) Except in the case of the final return of an estate, add	601
any amount deducted by the taxpayer on both its Ohio estate tax	602
return pursuant to section 5731.14 of the Revised Code, and on its	603
federal income tax return in determining federal taxable income;	604

(9)(a) Deduct any amount included in federal taxable income	605
solely because the amount represents a reimbursement or refund of	606
expenses that in a previous year the decedent had deducted as an	607
itemized deduction pursuant to section 63 of the Internal Revenue	608
Code and applicable treasury regulations. The deduction otherwise	609
allowed under division (S)(9)(a) of this section shall be reduced	610
to the extent the reimbursement is attributable to an amount the	611
taxpayer or decedent deducted under this section in any taxable	612
year.	613

(b) Add any amount not otherwise included in Ohio taxable	614
income for any taxable year to the extent that the amount is	615
attributable to the recovery during the taxable year of any amount	616
deducted or excluded in computing federal or Ohio taxable income	617
in any taxable year, but only to the extent such amount has not	618
been distributed to beneficiaries for the taxable year.	619

(10) Deduct any portion of the deduction described in section	620
1341(a)(2) of the Internal Revenue Code, for repaying previously	621
reported income received under a claim of right, that meets both	622
of the following requirements:	623

(a) It is allowable for repayment of an item that was	624
included in the taxpayer's taxable income or the decedent's	625
adjusted gross income for a prior taxable year and did not qualify	626
for a credit under division (A) or (B) of section 5747.05 of the	627
Revised Code for that year.	628

(b) It does not otherwise reduce the taxpayer's taxable	629
income or the decedent's adjusted gross income for the current or	630
any other taxable year.	631

(11) Add any amount claimed as a credit under section	632
5747.059 of the Revised Code to the extent that the amount	633
satisfies either of the following:	634

(a) The amount was deducted or excluded from the computation	635
of the taxpayer's federal taxable income as required to be	636
reported for the taxpayer's taxable year under the Internal	637
Revenue Code;	638

(b) The amount resulted in a reduction in the taxpayer's	639
federal taxable income as required to be reported for any of the	640
taxpayer's taxable years under the Internal Revenue Code.	641

(12) Deduct any amount, net of related expenses deducted in	642
computing federal taxable income, that a trust is required to	643
report as farm income on its federal income tax return, but only	644
if the assets of the trust include at least ten acres of land	645
satisfying the definition of "land devoted exclusively to	646
agricultural use" under section 5713.30 of the Revised Code,	647
regardless of whether the land is valued for tax purposes as such	648
land under sections 5713.30 to 5713.38 of the Revised Code. If the	649
trust is a pass-through entity investor, section 5747.231 of the	650
Revised Code applies in ascertaining if the trust is eligible to	651
claim the deduction provided by division (S)(12) of this section	652
in connection with the pass-through entity's farm income.	653

Except for farm income attributable to the S portion of an	654
electing small business trust, the deduction provided by division	655
(S)(12) of this section is allowed only to the extent that the	656
trust has not distributed such farm income. Division (S)(12) of	657
this section applies only to taxable years of a trust beginning in	658
2002 or thereafter.	659

(13) Add the net amount of income described in section 641(c)	660
of the Internal Revenue Code to the extent that amount is not	661
included in federal taxable income.	662

(14) Add or deduct the amount the taxpayer would be required	663
to add or deduct under division (A)(20) or (21) of this section if	664
the taxpayer's Ohio taxable income were computed in the same	665
manner as an individual's Ohio adjusted gross income is computed	666
under this section. In the case of a trust, division (S)(14) of	667
this section applies only to any of the trust's taxable years	668
beginning in 2002 or thereafter.	669

(15) Deduct, to the extent not otherwise deducted or excluded	670
in computing federal or Ohio taxable income, any gain realized by	671
the taxpayer from the sale, exchange, or involuntary conversion of	672
section 1245 property or section 1250 property during the taxable	673
year, including the taxpayer's distributive or proportionate share	674
of any such gain realized by a pass-through entity in which the	675
taxpayer has a direct or indirect ownership interest, to the	676
extent the gain is apportionable or allocable to this state under	677
sections 5747.20 to 5747.23 of the Revised Code. For purposes of	678
division (A)(28) of this section, "section 1245 property" and	679
"section 1250 property" have the same meanings as in sections 1245	680
and 1250 of the Internal Revenue Code, respectively, except the	681
property disposed of must have been purchased in 2011 or 2012 from	682
a person located in Ohio and held by the taxpayer or pass-through	683
entity for at least two years.	684

(T) "School district income" and "school district income tax"	685
have the same meanings as in section 5748.01 of the Revised Code.	686

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	687
of this section, "public obligations," "purchase obligations," and	688
"interest or interest equivalent" have the same meanings as in	689
section 5709.76 of the Revised Code.	690

(V) "Limited liability company" means any limited liability	691
company formed under Chapter 1705. of the Revised Code or under	692
the laws of any other state.	693

(W) "Pass-through entity investor" means any person who,	694
during any portion of a taxable year of a pass-through entity, is	695
a partner, member, shareholder, or equity investor in that	696
pass-through entity.	697

(X) "Banking day" has the same meaning as in section 1304.01	698
of the Revised Code.	699

(Y) "Month" means a calendar month.

700

(Z) "Quarter" means the first three months, the second three	701
months, the third three months, or the last three months of the	702
taxpayer's taxable year.	703

(AA)(1) "Eligible institution" means a state university or	704
state institution of higher education as defined in section	705
3345.011 of the Revised Code, or a private, nonprofit college,	706
university, or other post-secondary institution located in this	707
state that possesses a certificate of authorization issued by the	708
Ohio board of regents pursuant to Chapter 1713. of the Revised	709
Code or a certificate of registration issued by the state board of	710
career colleges and schools under Chapter 3332. of the Revised	711
Code.	712

(2) "Qualified tuition and fees" means tuition and fees	713
imposed by an eligible institution as a condition of enrollment or	714
attendance, not exceeding two thousand five hundred dollars in	715
each of the individual's first two years of post-secondary	716
education. If the individual is a part-time student, "qualified	717
tuition and fees" includes tuition and fees paid for the academic	718
equivalent of the first two years of post-secondary education	719
during a maximum of five taxable years, not exceeding a total of	720
five thousand dollars. "Qualified tuition and fees" does not	721
include:	722

(a) Expenses for any course or activity involving sports,	723
games, or hobbies unless the course or activity is part of the	724
individual's degree or diploma program;	725

(b) The cost of books, room and board, student activity fees,	726
athletic fees, insurance expenses, or other expenses unrelated to	727
the individual's academic course of instruction;	728

(c) Tuition, fees, or other expenses paid or reimbursed	729
through an employer, scholarship, grant in aid, or other	730
educational benefit program.	731

(BB)(1) "Modified business income" means the business income	732
included in a trust's Ohio taxable income after such taxable	733
income is first reduced by the qualifying trust amount, if any.	734

(2) "Qualifying trust amount" of a trust means capital gains	735
and losses from the sale, exchange, or other disposition of equity	736
or ownership interests in, or debt obligations of, a qualifying	737
investee to the extent included in the trust's Ohio taxable	738
income, but only if the following requirements are satisfied:	739

(a) The book value of the qualifying investee's physical	740
assets in this state and everywhere, as of the last day of the	741
qualifying investee's fiscal or calendar year ending immediately	742
prior to the date on which the trust recognizes the gain or loss,	743
is available to the trust.	744

(b) The requirements of section 5747.011 of the Revised Code	745
are satisfied for the trust's taxable year in which the trust	746
recognizes the gain or loss.	747

Any gain or loss that is not a qualifying trust amount is	748
modified business income, qualifying investment income, or	749
modified nonbusiness income, as the case may be.	750

(3) "Modified nonbusiness income" means a trust's Ohio	751
taxable income other than modified business income, other than the	752
qualifying trust amount, and other than qualifying investment	753
income, as defined in section 5747.012 of the Revised Code, to the	754
extent such qualifying investment income is not otherwise part of	755
modified business income.	756

(4) "Modified Ohio taxable income" applies only to trusts,	757
and means the sum of the amounts described in divisions (BB)(4)(a)	758
to (c) of this section:	759

(a) The fraction, calculated under section 5747.013, and	760
applying section 5747.231 of the Revised Code, multiplied by the	761
sum of the following amounts:	762

(i) The trust's modified business income;

763

(ii) The trust's qualifying investment income, as defined in	764
section 5747.012 of the Revised Code, but only to the extent the	765
qualifying investment income does not otherwise constitute	766
modified business income and does not otherwise constitute a	767
qualifying trust amount.	768

(b) The qualifying trust amount multiplied by a fraction, the	769
numerator of which is the sum of the book value of the qualifying	770
investee's physical assets in this state on the last day of the	771
qualifying investee's fiscal or calendar year ending immediately	772
prior to the day on which the trust recognizes the qualifying	773
trust amount, and the denominator of which is the sum of the book	774
value of the qualifying investee's total physical assets	775
everywhere on the last day of the qualifying investee's fiscal or	776
calendar year ending immediately prior to the day on which the	777
trust recognizes the qualifying trust amount. If, for a taxable	778
year, the trust recognizes a qualifying trust amount with respect	779
to more than one qualifying investee, the amount described in	780
division (BB)(4)(b) of this section shall equal the sum of the	781
products so computed for each such qualifying investee.	782

(c)(i) With respect to a trust or portion of a trust that is	783
a resident as ascertained in accordance with division (I)(3)(d) of	784
this section, its modified nonbusiness income.	785

(ii) With respect to a trust or portion of a trust that is	786
not a resident as ascertained in accordance with division	787
(I)(3)(d) of this section, the amount of its modified nonbusiness	788
income satisfying the descriptions in divisions (B)(2) to (5) of	789
section 5747.20 of the Revised Code, except as otherwise provided	790
in division (BB)(4)(c)(ii) of this section. With respect to a	791
trust or portion of a trust that is not a resident as ascertained	792
in accordance with division (I)(3)(d) of this section, the trust's	793
portion of modified nonbusiness income recognized from the sale,	794
exchange, or other disposition of a debt interest in or equity	795
interest in a section 5747.212 entity, as defined in section	796
5747.212 of the Revised Code, without regard to division (A) of	797
that section, shall not be allocated to this state in accordance	798
with section 5747.20 of the Revised Code but shall be apportioned	799
to this state in accordance with division (B) of section 5747.212	800
of the Revised Code without regard to division (A) of that	801
section.	802

If the allocation and apportionment of a trust's income under	803
divisions (BB)(4)(a) and (c) of this section do not fairly	804
represent the modified Ohio taxable income of the trust in this	805
state, the alternative methods described in division (C) of	806
section 5747.21 of the Revised Code may be applied in the manner	807
and to the same extent provided in that section.	808

(5)(a) Except as set forth in division (BB)(5)(b) of this	809
section, "qualifying investee" means a person in which a trust has	810
an equity or ownership interest, or a person or unit of government	811
the debt obligations of either of which are owned by a trust. For	812
the purposes of division (BB)(2)(a) of this section and for the	813
purpose of computing the fraction described in division (BB)(4)(b)	814
of this section, all of the following apply:	815

(i) If the qualifying investee is a member of a qualifying	816
controlled group on the last day of the qualifying investee's	817
fiscal or calendar year ending immediately prior to the date on	818
which the trust recognizes the gain or loss, then "qualifying	819
investee" includes all persons in the qualifying controlled group	820
on such last day.	821

(ii) If the qualifying investee, or if the qualifying	822
investee and any members of the qualifying controlled group of	823
which the qualifying investee is a member on the last day of the	824
qualifying investee's fiscal or calendar year ending immediately	825
prior to the date on which the trust recognizes the gain or loss,	826
separately or cumulatively own, directly or indirectly, on the	827
last day of the qualifying investee's fiscal or calendar year	828
ending immediately prior to the date on which the trust recognizes	829
the qualifying trust amount, more than fifty per cent of the	830
equity of a pass-through entity, then the qualifying investee and	831
the other members are deemed to own the proportionate share of the	832
pass-through entity's physical assets which the pass-through	833
entity directly or indirectly owns on the last day of the	834
pass-through entity's calendar or fiscal year ending within or	835
with the last day of the qualifying investee's fiscal or calendar	836
year ending immediately prior to the date on which the trust	837
recognizes the qualifying trust amount.	838

(iii) For the purposes of division (BB)(5)(a)(iii) of this	839
section, "upper level pass-through entity" means a pass-through	840
entity directly or indirectly owning any equity of another	841
pass-through entity, and "lower level pass-through entity" means	842
that other pass-through entity.	843

An upper level pass-through entity, whether or not it is also	844
a qualifying investee, is deemed to own, on the last day of the	845
upper level pass-through entity's calendar or fiscal year, the	846
proportionate share of the lower level pass-through entity's	847
physical assets that the lower level pass-through entity directly	848
or indirectly owns on the last day of the lower level pass-through	849
entity's calendar or fiscal year ending within or with the last	850
day of the upper level pass-through entity's fiscal or calendar	851
year. If the upper level pass-through entity directly and	852
indirectly owns less than fifty per cent of the equity of the	853
lower level pass-through entity on each day of the upper level	854
pass-through entity's calendar or fiscal year in which or with	855
which ends the calendar or fiscal year of the lower level	856
pass-through entity and if, based upon clear and convincing	857
evidence, complete information about the location and cost of the	858
physical assets of the lower pass-through entity is not available	859
to the upper level pass-through entity, then solely for purposes	860
of ascertaining if a gain or loss constitutes a qualifying trust	861
amount, the upper level pass-through entity shall be deemed as	862
owning no equity of the lower level pass-through entity for each	863
day during the upper level pass-through entity's calendar or	864
fiscal year in which or with which ends the lower level	865
pass-through entity's calendar or fiscal year. Nothing in division	866
(BB)(5)(a)(iii) of this section shall be construed to provide for	867
any deduction or exclusion in computing any trust's Ohio taxable	868
income.	869

(b) With respect to a trust that is not a resident for the	870
taxable year and with respect to a part of a trust that is not a	871
resident for the taxable year, "qualifying investee" for that	872
taxable year does not include a C corporation if both of the	873
following apply:	874

(i) During the taxable year the trust or part of the trust	875
recognizes a gain or loss from the sale, exchange, or other	876
disposition of equity or ownership interests in, or debt	877
obligations of, the C corporation.	878

(ii) Such gain or loss constitutes nonbusiness income.

879

(6) "Available" means information is such that a person is	880
able to learn of the information by the due date plus extensions,	881
if any, for filing the return for the taxable year in which the	882
trust recognizes the gain or loss.	883

(CC) "Qualifying controlled group" has the same meaning as in	884
section 5733.04 of the Revised Code.	885

(DD) "Related member" has the same meaning as in section	886
5733.042 of the Revised Code.	887

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

888

(a) "Qualifying person" means any person other than a	889
qualifying corporation.	890

(b) "Qualifying corporation" means any person classified for	891
federal income tax purposes as an association taxable as a	892
corporation, except either of the following:	893

(i) A corporation that has made an election under subchapter	894
S, chapter one, subtitle A, of the Internal Revenue Code for its	895
taxable year ending within, or on the last day of, the investor's	896
taxable year;	897

(ii) A subsidiary that is wholly owned by any corporation	898
that has made an election under subchapter S, chapter one,	899
subtitle A of the Internal Revenue Code for its taxable year	900
ending within, or on the last day of, the investor's taxable year.	901

(2) For the purposes of this chapter, unless expressly stated	902
otherwise, no qualifying person indirectly owns any asset directly	903
or indirectly owned by any qualifying corporation.	904

(FF) For purposes of this chapter and Chapter 5751. of the	905
Revised Code:	906

(1) "Trust" does not include a qualified pre-income tax	907
trust.	908

(2) A "qualified pre-income tax trust" is any pre-income tax	909
trust that makes a qualifying pre-income tax trust election as	910
described in division (FF)(3) of this section.	911

(3) A "qualifying pre-income tax trust election" is an	912
election by a pre-income tax trust to subject to the tax imposed	913
by section 5751.02 of the Revised Code the pre-income tax trust	914
and all pass-through entities of which the trust owns or controls,	915
directly, indirectly, or constructively through related interests,	916
five per cent or more of the ownership or equity interests. The	917
trustee shall notify the tax commissioner in writing of the	918
election on or before April 15, 2006. The election, if timely	919
made, shall be effective on and after January 1, 2006, and shall	920
apply for all tax periods and tax years until revoked by the	921
trustee of the trust.	922

(4) A "pre-income tax trust" is a trust that satisfies all of	923
the following requirements:	924

(a) The document or instrument creating the trust was	925
executed by the grantor before January 1, 1972;	926

(b) The trust became irrevocable upon the creation of the	927
trust; and	928

(c) The grantor was domiciled in this state at the time the	929
trust was created.	930

Section 2. That existing section 5747.01 of the Revised Code	931
is hereby repealed.	932

Section 3.  Section 5747.01 of the Revised Code is presented	933
in this act as a composite of the section as amended by both Am.	934
Sub. H.B. 1 and Sub. S.B. 106 of the 128th General Assembly. The	935
General Assembly, applying the principle stated in division (B) of	936
section 1.52 of the Revised Code that amendments are to be	937
harmonized if reasonably capable of simultaneous operation, finds	938
that the composite is the resulting version of the section in	939
effect prior to the effective date of the section as presented in	940
this act.	941