As Introduced

128th General Assembly Regular Session 2009-2010

S. B. No. 285

Senator Kearney 

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A BILL

To amend section 5747.01 of the Revised Code to allow

1

an income tax deduction for amounts spent by law

2

enforcement officials for items used in

3

furtherance of official law enforcement

4

activities.

5

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

Section 1. That section 5747.01 of the Revised Code be	6
amended to read as follows:	7

Sec. 5747.01.  Except as otherwise expressly provided or	8
clearly appearing from the context, any term used in this chapter	9
that is not otherwise defined in this section has the same meaning	10
as when used in a comparable context in the laws of the United	11
States relating to federal income taxes or if not used in a	12
comparable context in those laws, has the same meaning as in	13
section 5733.40 of the Revised Code. Any reference in this chapter	14
to the Internal Revenue Code includes other laws of the United	15
States relating to federal income taxes.	16

As used in this chapter:

17

(A) "Adjusted gross income" or "Ohio adjusted gross income"	18
means federal adjusted gross income, as defined and used in the	19
Internal Revenue Code, adjusted as provided in this section:	20

(1) Add interest or dividends on obligations or securities of	21
any state or of any political subdivision or authority of any	22
state, other than this state and its subdivisions and authorities.	23

(2) Add interest or dividends on obligations of any	24
authority, commission, instrumentality, territory, or possession	25
of the United States to the extent that the interest or dividends	26
are exempt from federal income taxes but not from state income	27
taxes.	28

(3) Deduct interest or dividends on obligations of the United	29
States and its territories and possessions or of any authority,	30
commission, or instrumentality of the United States to the extent	31
that the interest or dividends are included in federal adjusted	32
gross income but exempt from state income taxes under the laws of	33
the United States.	34

(4) Deduct disability and survivor's benefits to the extent	35
included in federal adjusted gross income.	36

(5) Deduct benefits under Title II of the Social Security Act	37
and tier 1 railroad retirement benefits to the extent included in	38
federal adjusted gross income under section 86 of the Internal	39
Revenue Code.	40

(6) In the case of a taxpayer who is a beneficiary of a trust	41
that makes an accumulation distribution as defined in section 665	42
of the Internal Revenue Code, add, for the beneficiary's taxable	43
years beginning before 2002, the portion, if any, of such	44
distribution that does not exceed the undistributed net income of	45
the trust for the three taxable years preceding the taxable year	46
in which the distribution is made to the extent that the portion	47
was not included in the trust's taxable income for any of the	48
trust's taxable years beginning in 2002 or thereafter.	49
"Undistributed net income of a trust" means the taxable income of	50
the trust increased by (a)(i) the additions to adjusted gross	51
income required under division (A) of this section and (ii) the	52
personal exemptions allowed to the trust pursuant to section	53
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	54
deductions to adjusted gross income required under division (A) of	55
this section, (ii) the amount of federal income taxes attributable	56
to such income, and (iii) the amount of taxable income that has	57
been included in the adjusted gross income of a beneficiary by	58
reason of a prior accumulation distribution. Any undistributed net	59
income included in the adjusted gross income of a beneficiary	60
shall reduce the undistributed net income of the trust commencing	61
with the earliest years of the accumulation period.	62

(7) Deduct the amount of wages and salaries, if any, not	63
otherwise allowable as a deduction but that would have been	64
allowable as a deduction in computing federal adjusted gross	65
income for the taxable year, had the targeted jobs credit allowed	66
and determined under sections 38, 51, and 52 of the Internal	67
Revenue Code not been in effect.	68

(8) Deduct any interest or interest equivalent on public	69
obligations and purchase obligations to the extent that the	70
interest or interest equivalent is included in federal adjusted	71
gross income.	72

(9) Add any loss or deduct any gain resulting from the sale,	73
exchange, or other disposition of public obligations to the extent	74
that the loss has been deducted or the gain has been included in	75
computing federal adjusted gross income.	76

(10) Deduct or add amounts, as provided under section 5747.70	77
of the Revised Code, related to contributions to variable college	78
savings program accounts made or tuition units purchased pursuant	79
to Chapter 3334. of the Revised Code.	80

(11)(a) Deduct, to the extent not otherwise allowable as a	81
deduction or exclusion in computing federal or Ohio adjusted gross	82
income for the taxable year, the amount the taxpayer paid during	83
the taxable year for medical care insurance and qualified	84
long-term care insurance for the taxpayer, the taxpayer's spouse,	85
and dependents. No deduction for medical care insurance under	86
division (A)(11) of this section shall be allowed either to any	87
taxpayer who is eligible to participate in any subsidized health	88
plan maintained by any employer of the taxpayer or of the	89
taxpayer's spouse, or to any taxpayer who is entitled to, or on	90
application would be entitled to, benefits under part A of Title	91
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	92
301, as amended. For the purposes of division (A)(11)(a) of this	93
section, "subsidized health plan" means a health plan for which	94
the employer pays any portion of the plan's cost. The deduction	95
allowed under division (A)(11)(a) of this section shall be the net	96
of any related premium refunds, related premium reimbursements, or	97
related insurance premium dividends received during the taxable	98
year.	99

(b) Deduct, to the extent not otherwise deducted or excluded	100
in computing federal or Ohio adjusted gross income during the	101
taxable year, the amount the taxpayer paid during the taxable	102
year, not compensated for by any insurance or otherwise, for	103
medical care of the taxpayer, the taxpayer's spouse, and	104
dependents, to the extent the expenses exceed seven and one-half	105
per cent of the taxpayer's federal adjusted gross income.	106

(c) Deduct, to the extent not otherwise deducted or excluded	107
in computing federal or Ohio adjusted gross income, any amount	108
included in federal adjusted gross income under section 105 or not	109
excluded under section 106 of the Internal Revenue Code solely	110
because it relates to an accident and health plan for a person who	111
otherwise would be a "qualifying relative" and thus a "dependent"	112
under section 152 of the Internal Revenue Code but for the fact	113
that the person fails to meet the income and support limitations	114
under section 152(d)(1)(B) and (C) of the Internal Revenue Code.	115

(d) For purposes of division (A)(11) of this section,	116
"medical care" has the meaning given in section 213 of the	117
Internal Revenue Code, subject to the special rules, limitations,	118
and exclusions set forth therein, and "qualified long-term care"	119
has the same meaning given in section 7702B(c) of the Internal	120
Revenue Code. Solely for purposes of divisions (A)(11)(a) and (c)	121
of this section, "dependent" includes a person who otherwise would	122
be a "qualifying relative" and thus a "dependent" under section	123
152 of the Internal Revenue Code but for the fact that the person	124
fails to meet the income and support limitations under section	125
152(d)(1)(B) and (C) of the Internal Revenue Code.	126

(12)(a) Deduct any amount included in federal adjusted gross	127
income solely because the amount represents a reimbursement or	128
refund of expenses that in any year the taxpayer had deducted as	129
an itemized deduction pursuant to section 63 of the Internal	130
Revenue Code and applicable United States department of the	131
treasury regulations. The deduction otherwise allowed under	132
division (A)(12)(a) of this section shall be reduced to the extent	133
the reimbursement is attributable to an amount the taxpayer	134
deducted under this section in any taxable year.	135

(b) Add any amount not otherwise included in Ohio adjusted	136
gross income for any taxable year to the extent that the amount is	137
attributable to the recovery during the taxable year of any amount	138
deducted or excluded in computing federal or Ohio adjusted gross	139
income in any taxable year.	140

(13) Deduct any portion of the deduction described in section	141
1341(a)(2) of the Internal Revenue Code, for repaying previously	142
reported income received under a claim of right, that meets both	143
of the following requirements:	144

(a) It is allowable for repayment of an item that was	145
included in the taxpayer's adjusted gross income for a prior	146
taxable year and did not qualify for a credit under division (A)	147
or (B) of section 5747.05 of the Revised Code for that year;	148

(b) It does not otherwise reduce the taxpayer's adjusted	149
gross income for the current or any other taxable year.	150

(14) Deduct an amount equal to the deposits made to, and net	151
investment earnings of, a medical savings account during the	152
taxable year, in accordance with section 3924.66 of the Revised	153
Code. The deduction allowed by division (A)(14) of this section	154
does not apply to medical savings account deposits and earnings	155
otherwise deducted or excluded for the current or any other	156
taxable year from the taxpayer's federal adjusted gross income.	157

(15)(a) Add an amount equal to the funds withdrawn from a	158
medical savings account during the taxable year, and the net	159
investment earnings on those funds, when the funds withdrawn were	160
used for any purpose other than to reimburse an account holder	161
for, or to pay, eligible medical expenses, in accordance with	162
section 3924.66 of the Revised Code;	163

(b) Add the amounts distributed from a medical savings	164
account under division (A)(2) of section 3924.68 of the Revised	165
Code during the taxable year.	166

(16) Add any amount claimed as a credit under section	167
5747.059 of the Revised Code to the extent that such amount	168
satisfies either of the following:	169

(a) The amount was deducted or excluded from the computation	170
of the taxpayer's federal adjusted gross income as required to be	171
reported for the taxpayer's taxable year under the Internal	172
Revenue Code;	173

(b) The amount resulted in a reduction of the taxpayer's	174
federal adjusted gross income as required to be reported for any	175
of the taxpayer's taxable years under the Internal Revenue Code.	176

(17) Deduct the amount contributed by the taxpayer to an	177
individual development account program established by a county	178
department of job and family services pursuant to sections 329.11	179
to 329.14 of the Revised Code for the purpose of matching funds	180
deposited by program participants. On request of the tax	181
commissioner, the taxpayer shall provide any information that, in	182
the tax commissioner's opinion, is necessary to establish the	183
amount deducted under division (A)(17) of this section.	184

(18) Beginning in taxable year 2001 but not for any taxable	185
year beginning after December 31, 2005, if the taxpayer is married	186
and files a joint return and the combined federal adjusted gross	187
income of the taxpayer and the taxpayer's spouse for the taxable	188
year does not exceed one hundred thousand dollars, or if the	189
taxpayer is single and has a federal adjusted gross income for the	190
taxable year not exceeding fifty thousand dollars, deduct amounts	191
paid during the taxable year for qualified tuition and fees paid	192
to an eligible institution for the taxpayer, the taxpayer's	193
spouse, or any dependent of the taxpayer, who is a resident of	194
this state and is enrolled in or attending a program that	195
culminates in a degree or diploma at an eligible institution. The	196
deduction may be claimed only to the extent that qualified tuition	197
and fees are not otherwise deducted or excluded for any taxable	198
year from federal or Ohio adjusted gross income. The deduction may	199
not be claimed for educational expenses for which the taxpayer	200
claims a credit under section 5747.27 of the Revised Code.	201

(19) Add any reimbursement received during the taxable year	202
of any amount the taxpayer deducted under division (A)(18) of this	203
section in any previous taxable year to the extent the amount is	204
not otherwise included in Ohio adjusted gross income.	205

(20)(a)(i) Add five-sixths of the amount of depreciation	206
expense allowed by subsection (k) of section 168 of the Internal	207
Revenue Code, including the taxpayer's proportionate or	208
distributive share of the amount of depreciation expense allowed	209
by that subsection to a pass-through entity in which the taxpayer	210
has a direct or indirect ownership interest.	211

(ii) Add five-sixths of the amount of qualifying section 179	212
depreciation expense, including a person's proportionate or	213
distributive share of the amount of qualifying section 179	214
depreciation expense allowed to any pass-through entity in which	215
the person has a direct or indirect ownership. For the purposes of	216
this division, "qualifying section 179 depreciation expense" means	217
the difference between (I) the amount of depreciation expense	218
directly or indirectly allowed to the taxpayer under section 179	219
of the Internal Revenue Code, and (II) the amount of depreciation	220
expense directly or indirectly allowed to the taxpayer under	221
section 179 of the Internal Revenue Code as that section existed	222
on December 31, 2002.	223

The tax commissioner, under procedures established by the	224
commissioner, may waive the add-backs related to a pass-through	225
entity if the taxpayer owns, directly or indirectly, less than	226
five per cent of the pass-through entity.	227

(b) Nothing in division (A)(20) of this section shall be	228
construed to adjust or modify the adjusted basis of any asset.	229

(c) To the extent the add-back required under division	230
(A)(20)(a) of this section is attributable to property generating	231
nonbusiness income or loss allocated under section 5747.20 of the	232
Revised Code, the add-back shall be sitused to the same location	233
as the nonbusiness income or loss generated by the property for	234
the purpose of determining the credit under division (A) of	235
section 5747.05 of the Revised Code. Otherwise, the add-back shall	236
be apportioned, subject to one or more of the four alternative	237
methods of apportionment enumerated in section 5747.21 of the	238
Revised Code.	239

(d) For the purposes of division (A) of this section, net	240
operating loss carryback and carryforward shall not include	241
five-sixths of the allowance of any net operating loss deduction	242
carryback or carryforward to the taxable year to the extent such	243
loss resulted from depreciation allowed by section 168(k) of the	244
Internal Revenue Code and by the qualifying section 179	245
depreciation expense amount.	246

(21)(a) If the taxpayer was required to add an amount under	247
division (A)(20)(a) of this section for a taxable year, deduct	248
one-fifth of the amount so added for each of the five succeeding	249
taxable years.	250

(b) If the amount deducted under division (A)(21)(a) of this	251
section is attributable to an add-back allocated under division	252
(A)(20)(c) of this section, the amount deducted shall be sitused	253
to the same location. Otherwise, the add-back shall be apportioned	254
using the apportionment factors for the taxable year in which the	255
deduction is taken, subject to one or more of the four alternative	256
methods of apportionment enumerated in section 5747.21 of the	257
Revised Code.	258

(c) No deduction is available under division (A)(21)(a) of	259
this section with regard to any depreciation allowed by section	260
168(k) of the Internal Revenue Code and by the qualifying section	261
179 depreciation expense amount to the extent that such	262
depreciation resulted in or increased a federal net operating loss	263
carryback or carryforward to a taxable year to which division	264
(A)(20)(d) of this section does not apply.	265

(22) Deduct, to the extent not otherwise deducted or excluded	266
in computing federal or Ohio adjusted gross income for the taxable	267
year, the amount the taxpayer received during the taxable year as	268
reimbursement for life insurance premiums under section 5919.31 of	269
the Revised Code.	270

(23) Deduct, to the extent not otherwise deducted or excluded	271
in computing federal or Ohio adjusted gross income for the taxable	272
year, the amount the taxpayer received during the taxable year as	273
a death benefit paid by the adjutant general under section 5919.33	274
of the Revised Code.	275

(24) Deduct, to the extent included in federal adjusted gross	276
income and not otherwise allowable as a deduction or exclusion in	277
computing federal or Ohio adjusted gross income for the taxable	278
year, military pay and allowances received by the taxpayer during	279
the taxable year for active duty service in the United States	280
army, air force, navy, marine corps, or coast guard or reserve	281
components thereof or the national guard. The deduction may not be	282
claimed for military pay and allowances received by the taxpayer	283
while the taxpayer is stationed in this state.	284

(25) Deduct, to the extent not otherwise allowable as a	285
deduction or exclusion in computing federal or Ohio adjusted gross	286
income for the taxable year and not otherwise compensated for by	287
any other source, the amount of qualified organ donation expenses	288
incurred by the taxpayer during the taxable year, not to exceed	289
ten thousand dollars. A taxpayer may deduct qualified organ	290
donation expenses only once for all taxable years beginning with	291
taxable years beginning in 2007.	292

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

293

(a) "Human organ" means all or any portion of a human liver,	294
pancreas, kidney, intestine, or lung, and any portion of human	295
bone marrow.	296

(b) "Qualified organ donation expenses" means travel	297
expenses, lodging expenses, and wages and salary forgone by a	298
taxpayer in connection with the taxpayer's donation, while living,	299
of one or more of the taxpayer's human organs to another human	300
being.	301

(26) Deduct, to the extent not otherwise deducted or excluded	302
in computing federal or Ohio adjusted gross income for the taxable	303
year, amounts received by the taxpayer as retired military	304
personnel pay for service in the United States army, navy, air	305
force, coast guard, or marine corps or reserve components thereof,	306
or the national guard, or received by the surviving spouse or	307
former spouse of such a taxpayer under the survivor benefit plan	308
on account of such a taxpayer's death. If the taxpayer receives	309
income on account of retirement paid under the federal civil	310
service retirement system or federal employees retirement system,	311
or under any successor retirement program enacted by the congress	312
of the United States that is established and maintained for	313
retired employees of the United States government, and such	314
retirement income is based, in whole or in part, on credit for the	315
taxpayer's military service, the deduction allowed under this	316
division shall include only that portion of such retirement income	317
that is attributable to the taxpayer's military service, to the	318
extent that portion of such retirement income is otherwise	319
included in federal adjusted gross income and is not otherwise	320
deducted under this section. Any amount deducted under division	321
(A)(26) of this section is not included in a taxpayer's adjusted	322
gross income for the purposes of section 5747.055 of the Revised	323
Code. No amount may be deducted under division (A)(26) of this	324
section on the basis of which a credit was claimed under section	325
5747.055 of the Revised Code.	326

(27) Deduct, to the extent not otherwise deducted or excluded	327
in computing federal or Ohio adjusted gross income for the taxable	328
year, the amount the taxpayer received during the taxable year	329
from the military injury relief fund created in section 5101.98 of	330
the Revised Code.	331

(28) Deduct, to the extent not otherwise deducted or excluded	332
in computing federal or Ohio adjusted gross income for the taxable	333
year, the amount the taxpayer received as a veterans bonus during	334
the taxable year from the Ohio department of veterans services as	335
authorized by Section 2r of Article VIII, Ohio Constitution.	336

(29) Deduct, to the extent not otherwise deducted or excluded	337
in computing federal or Ohio adjusted gross income for the taxable	338
year, any loss from wagering transactions that is allowed as an	339
itemized deduction under section 165 of the Internal Revenue Code	340
and that the taxpayer deducted in computing federal taxable	341
income.	342

(30) Deduct, to the extent not otherwise deducted or excluded	343
in computing federal or Ohio adjusted gross income for the taxable	344
year, amounts spent by a law enforcement officer during the	345
taxable year on items used by that individual for official law	346
enforcement activities, not to exceed one thousand dollars.	347

On request of the tax commissioner, the law enforcement	348
officer shall provide a receipt for each item used in calculating	349
the deduction and a letter from the law enforcement officer's	350
employer confirming that the items were used for official law	351
enforcement activities.	352

For purposes of division (A)(30) of this section, "law	353
enforcement officer" means a sheriff, deputy sheriff, constable,	354
municipal police officer, police officer of a township or joint	355
township police district, marshal, deputy marshal, or state	356
highway patrolman, and also means any officer, agent, or employee	357
of the state or any of its agencies, instrumentalities, or	358
political subdivisions, upon whom, by statute, the authority to	359
arrest violators is conferred, when the officer, agent, or	360
employee is acting within the limits of statutory authority.	361

(B) "Business income" means income, including gain or loss,	362
arising from transactions, activities, and sources in the regular	363
course of a trade or business and includes income, gain, or loss	364
from real property, tangible property, and intangible property if	365
the acquisition, rental, management, and disposition of the	366
property constitute integral parts of the regular course of a	367
trade or business operation. "Business income" includes income,	368
including gain or loss, from a partial or complete liquidation of	369
a business, including, but not limited to, gain or loss from the	370
sale or other disposition of goodwill.	371

(C) "Nonbusiness income" means all income other than business	372
income and may include, but is not limited to, compensation, rents	373
and royalties from real or tangible personal property, capital	374
gains, interest, dividends and distributions, patent or copyright	375
royalties, or lottery winnings, prizes, and awards.	376

(D) "Compensation" means any form of remuneration paid to an	377
employee for personal services.	378

(E) "Fiduciary" means a guardian, trustee, executor,	379
administrator, receiver, conservator, or any other person acting	380
in any fiduciary capacity for any individual, trust, or estate.	381

(F) "Fiscal year" means an accounting period of twelve months	382
ending on the last day of any month other than December.	383

(G) "Individual" means any natural person.

384

(H) "Internal Revenue Code" means the "Internal Revenue Code	385
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	386

(I) "Resident" means any of the following, provided that	387
division (I)(3) of this section applies only to taxable years of a	388
trust beginning in 2002 or thereafter:	389

(1) An individual who is domiciled in this state, subject to	390
section 5747.24 of the Revised Code;	391

(2) The estate of a decedent who at the time of death was	392
domiciled in this state. The domicile tests of section 5747.24 of	393
the Revised Code are not controlling for purposes of division	394
(I)(2) of this section.	395

(3) A trust that, in whole or part, resides in this state. If	396
only part of a trust resides in this state, the trust is a	397
resident only with respect to that part.	398

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

399

(a) A trust resides in this state for the trust's current	400
taxable year to the extent, as described in division (I)(3)(d) of	401
this section, that the trust consists directly or indirectly, in	402
whole or in part, of assets, net of any related liabilities, that	403
were transferred, or caused to be transferred, directly or	404
indirectly, to the trust by any of the following:	405

(i) A person, a court, or a governmental entity or	406
instrumentality on account of the death of a decedent, but only if	407
the trust is described in division (I)(3)(e)(i) or (ii) of this	408
section;	409

(ii) A person who was domiciled in this state for the	410
purposes of this chapter when the person directly or indirectly	411
transferred assets to an irrevocable trust, but only if at least	412
one of the trust's qualifying beneficiaries is domiciled in this	413
state for the purposes of this chapter during all or some portion	414
of the trust's current taxable year;	415

(iii) A person who was domiciled in this state for the	416
purposes of this chapter when the trust document or instrument or	417
part of the trust document or instrument became irrevocable, but	418
only if at least one of the trust's qualifying beneficiaries is a	419
resident domiciled in this state for the purposes of this chapter	420
during all or some portion of the trust's current taxable year. If	421
a trust document or instrument became irrevocable upon the death	422
of a person who at the time of death was domiciled in this state	423
for purposes of this chapter, that person is a person described in	424
division (I)(3)(a)(iii) of this section.	425

(b) A trust is irrevocable to the extent that the transferor	426
is not considered to be the owner of the net assets of the trust	427
under sections 671 to 678 of the Internal Revenue Code.	428

(c) With respect to a trust other than a charitable lead	429
trust, "qualifying beneficiary" has the same meaning as "potential	430
current beneficiary" as defined in section 1361(e)(2) of the	431
Internal Revenue Code, and with respect to a charitable lead trust	432
"qualifying beneficiary" is any current, future, or contingent	433
beneficiary, but with respect to any trust "qualifying	434
beneficiary" excludes a person or a governmental entity or	435
instrumentality to any of which a contribution would qualify for	436
the charitable deduction under section 170 of the Internal Revenue	437
Code.	438

(d) For the purposes of division (I)(3)(a) of this section,	439
the extent to which a trust consists directly or indirectly, in	440
whole or in part, of assets, net of any related liabilities, that	441
were transferred directly or indirectly, in whole or part, to the	442
trust by any of the sources enumerated in that division shall be	443
ascertained by multiplying the fair market value of the trust's	444
assets, net of related liabilities, by the qualifying ratio, which	445
shall be computed as follows:	446

(i) The first time the trust receives assets, the numerator	447
of the qualifying ratio is the fair market value of those assets	448
at that time, net of any related liabilities, from sources	449
enumerated in division (I)(3)(a) of this section. The denominator	450
of the qualifying ratio is the fair market value of all the	451
trust's assets at that time, net of any related liabilities.	452

(ii) Each subsequent time the trust receives assets, a	453
revised qualifying ratio shall be computed. The numerator of the	454
revised qualifying ratio is the sum of (1) the fair market value	455
of the trust's assets immediately prior to the subsequent	456
transfer, net of any related liabilities, multiplied by the	457
qualifying ratio last computed without regard to the subsequent	458
transfer, and (2) the fair market value of the subsequently	459
transferred assets at the time transferred, net of any related	460
liabilities, from sources enumerated in division (I)(3)(a) of this	461
section. The denominator of the revised qualifying ratio is the	462
fair market value of all the trust's assets immediately after the	463
subsequent transfer, net of any related liabilities.	464

(iii) Whether a transfer to the trust is by or from any of	465
the sources enumerated in division (I)(3)(a) of this section shall	466
be ascertained without regard to the domicile of the trust's	467
beneficiaries.	468

(e) For the purposes of division (I)(3)(a)(i) of this	469
section:	470

(i) A trust is described in division (I)(3)(e)(i) of this	471
section if the trust is a testamentary trust and the testator of	472
that testamentary trust was domiciled in this state at the time of	473
the testator's death for purposes of the taxes levied under	474
Chapter 5731. of the Revised Code.	475

(ii) A trust is described in division (I)(3)(e)(ii) of this	476
section if the transfer is a qualifying transfer described in any	477
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	478
irrevocable inter vivos trust, and at least one of the trust's	479
qualifying beneficiaries is domiciled in this state for purposes	480
of this chapter during all or some portion of the trust's current	481
taxable year.	482

(f) For the purposes of division (I)(3)(e)(ii) of this	483
section, a "qualifying transfer" is a transfer of assets, net of	484
any related liabilities, directly or indirectly to a trust, if the	485
transfer is described in any of the following:	486

(i) The transfer is made to a trust, created by the decedent	487
before the decedent's death and while the decedent was domiciled	488
in this state for the purposes of this chapter, and, prior to the	489
death of the decedent, the trust became irrevocable while the	490
decedent was domiciled in this state for the purposes of this	491
chapter.	492

(ii) The transfer is made to a trust to which the decedent,	493
prior to the decedent's death, had directly or indirectly	494
transferred assets, net of any related liabilities, while the	495
decedent was domiciled in this state for the purposes of this	496
chapter, and prior to the death of the decedent the trust became	497
irrevocable while the decedent was domiciled in this state for the	498
purposes of this chapter.	499

(iii) The transfer is made on account of a contractual	500
relationship existing directly or indirectly between the	501
transferor and either the decedent or the estate of the decedent	502
at any time prior to the date of the decedent's death, and the	503
decedent was domiciled in this state at the time of death for	504
purposes of the taxes levied under Chapter 5731. of the Revised	505
Code.	506

(iv) The transfer is made to a trust on account of a	507
contractual relationship existing directly or indirectly between	508
the transferor and another person who at the time of the	509
decedent's death was domiciled in this state for purposes of this	510
chapter.	511

(v) The transfer is made to a trust on account of the will of	512
a testator who was domiciled in this state at the time of the	513
testator's death for purposes of the taxes levied under Chapter	514
5731. of the Revised Code.	515

(vi) The transfer is made to a trust created by or caused to	516
be created by a court, and the trust was directly or indirectly	517
created in connection with or as a result of the death of an	518
individual who, for purposes of the taxes levied under Chapter	519
5731. of the Revised Code, was domiciled in this state at the time	520
of the individual's death.	521

(g) The tax commissioner may adopt rules to ascertain the	522
part of a trust residing in this state.	523

(J) "Nonresident" means an individual or estate that is not a	524
resident. An individual who is a resident for only part of a	525
taxable year is a nonresident for the remainder of that taxable	526
year.	527

(K) "Pass-through entity" has the same meaning as in section	528
5733.04 of the Revised Code.	529

(L) "Return" means the notifications and reports required to	530
be filed pursuant to this chapter for the purpose of reporting the	531
tax due and includes declarations of estimated tax when so	532
required.	533

(M) "Taxable year" means the calendar year or the taxpayer's	534
fiscal year ending during the calendar year, or fractional part	535
thereof, upon which the adjusted gross income is calculated	536
pursuant to this chapter.	537

(N) "Taxpayer" means any person subject to the tax imposed by	538
section 5747.02 of the Revised Code or any pass-through entity	539
that makes the election under division (D) of section 5747.08 of	540
the Revised Code.	541

(O) "Dependents" means dependents as defined in the Internal	542
Revenue Code and as claimed in the taxpayer's federal income tax	543
return for the taxable year or which the taxpayer would have been	544
permitted to claim had the taxpayer filed a federal income tax	545
return.	546

(P) "Principal county of employment" means, in the case of a	547
nonresident, the county within the state in which a taxpayer	548
performs services for an employer or, if those services are	549
performed in more than one county, the county in which the major	550
portion of the services are performed.	551

(Q) As used in sections 5747.50 to 5747.55 of the Revised	552
Code:	553

(1) "Subdivision" means any county, municipal corporation,	554
park district, or township.	555

(2) "Essential local government purposes" includes all	556
functions that any subdivision is required by general law to	557
exercise, including like functions that are exercised under a	558
charter adopted pursuant to the Ohio Constitution.	559

(R) "Overpayment" means any amount already paid that exceeds	560
the figure determined to be the correct amount of the tax.	561

(S) "Taxable income" or "Ohio taxable income" applies only to	562
estates and trusts, and means federal taxable income, as defined	563
and used in the Internal Revenue Code, adjusted as follows:	564

(1) Add interest or dividends, net of ordinary, necessary,	565
and reasonable expenses not deducted in computing federal taxable	566
income, on obligations or securities of any state or of any	567
political subdivision or authority of any state, other than this	568
state and its subdivisions and authorities, but only to the extent	569
that such net amount is not otherwise includible in Ohio taxable	570
income and is described in either division (S)(1)(a) or (b) of	571
this section:	572

(a) The net amount is not attributable to the S portion of an	573
electing small business trust and has not been distributed to	574
beneficiaries for the taxable year;	575

(b) The net amount is attributable to the S portion of an	576
electing small business trust for the taxable year.	577

(2) Add interest or dividends, net of ordinary, necessary,	578
and reasonable expenses not deducted in computing federal taxable	579
income, on obligations of any authority, commission,	580
instrumentality, territory, or possession of the United States to	581
the extent that the interest or dividends are exempt from federal	582
income taxes but not from state income taxes, but only to the	583
extent that such net amount is not otherwise includible in Ohio	584
taxable income and is described in either division (S)(1)(a) or	585
(b) of this section;	586

(3) Add the amount of personal exemption allowed to the	587
estate pursuant to section 642(b) of the Internal Revenue Code;	588

(4) Deduct interest or dividends, net of related expenses	589
deducted in computing federal taxable income, on obligations of	590
the United States and its territories and possessions or of any	591
authority, commission, or instrumentality of the United States to	592
the extent that the interest or dividends are exempt from state	593
taxes under the laws of the United States, but only to the extent	594
that such amount is included in federal taxable income and is	595
described in either division (S)(1)(a) or (b) of this section;	596

(5) Deduct the amount of wages and salaries, if any, not	597
otherwise allowable as a deduction but that would have been	598
allowable as a deduction in computing federal taxable income for	599
the taxable year, had the targeted jobs credit allowed under	600
sections 38, 51, and 52 of the Internal Revenue Code not been in	601
effect, but only to the extent such amount relates either to	602
income included in federal taxable income for the taxable year or	603
to income of the S portion of an electing small business trust for	604
the taxable year;	605

(6) Deduct any interest or interest equivalent, net of	606
related expenses deducted in computing federal taxable income, on	607
public obligations and purchase obligations, but only to the	608
extent that such net amount relates either to income included in	609
federal taxable income for the taxable year or to income of the S	610
portion of an electing small business trust for the taxable year;	611

(7) Add any loss or deduct any gain resulting from sale,	612
exchange, or other disposition of public obligations to the extent	613
that such loss has been deducted or such gain has been included in	614
computing either federal taxable income or income of the S portion	615
of an electing small business trust for the taxable year;	616

(8) Except in the case of the final return of an estate, add	617
any amount deducted by the taxpayer on both its Ohio estate tax	618
return pursuant to section 5731.14 of the Revised Code, and on its	619
federal income tax return in determining federal taxable income;	620

(9)(a) Deduct any amount included in federal taxable income	621
solely because the amount represents a reimbursement or refund of	622
expenses that in a previous year the decedent had deducted as an	623
itemized deduction pursuant to section 63 of the Internal Revenue	624
Code and applicable treasury regulations. The deduction otherwise	625
allowed under division (S)(9)(a) of this section shall be reduced	626
to the extent the reimbursement is attributable to an amount the	627
taxpayer or decedent deducted under this section in any taxable	628
year.	629

(b) Add any amount not otherwise included in Ohio taxable	630
income for any taxable year to the extent that the amount is	631
attributable to the recovery during the taxable year of any amount	632
deducted or excluded in computing federal or Ohio taxable income	633
in any taxable year, but only to the extent such amount has not	634
been distributed to beneficiaries for the taxable year.	635

(10) Deduct any portion of the deduction described in section	636
1341(a)(2) of the Internal Revenue Code, for repaying previously	637
reported income received under a claim of right, that meets both	638
of the following requirements:	639

(a) It is allowable for repayment of an item that was	640
included in the taxpayer's taxable income or the decedent's	641
adjusted gross income for a prior taxable year and did not qualify	642
for a credit under division (A) or (B) of section 5747.05 of the	643
Revised Code for that year.	644

(b) It does not otherwise reduce the taxpayer's taxable	645
income or the decedent's adjusted gross income for the current or	646
any other taxable year.	647

(11) Add any amount claimed as a credit under section	648
5747.059 of the Revised Code to the extent that the amount	649
satisfies either of the following:	650

(a) The amount was deducted or excluded from the computation	651
of the taxpayer's federal taxable income as required to be	652
reported for the taxpayer's taxable year under the Internal	653
Revenue Code;	654

(b) The amount resulted in a reduction in the taxpayer's	655
federal taxable income as required to be reported for any of the	656
taxpayer's taxable years under the Internal Revenue Code.	657

(12) Deduct any amount, net of related expenses deducted in	658
computing federal taxable income, that a trust is required to	659
report as farm income on its federal income tax return, but only	660
if the assets of the trust include at least ten acres of land	661
satisfying the definition of "land devoted exclusively to	662
agricultural use" under section 5713.30 of the Revised Code,	663
regardless of whether the land is valued for tax purposes as such	664
land under sections 5713.30 to 5713.38 of the Revised Code. If the	665
trust is a pass-through entity investor, section 5747.231 of the	666
Revised Code applies in ascertaining if the trust is eligible to	667
claim the deduction provided by division (S)(12) of this section	668
in connection with the pass-through entity's farm income.	669

Except for farm income attributable to the S portion of an	670
electing small business trust, the deduction provided by division	671
(S)(12) of this section is allowed only to the extent that the	672
trust has not distributed such farm income. Division (S)(12) of	673
this section applies only to taxable years of a trust beginning in	674
2002 or thereafter.	675

(13) Add the net amount of income described in section 641(c)	676
of the Internal Revenue Code to the extent that amount is not	677
included in federal taxable income.	678

(14) Add or deduct the amount the taxpayer would be required	679
to add or deduct under division (A)(20) or (21) of this section if	680
the taxpayer's Ohio taxable income were computed in the same	681
manner as an individual's Ohio adjusted gross income is computed	682
under this section. In the case of a trust, division (S)(14) of	683
this section applies only to any of the trust's taxable years	684
beginning in 2002 or thereafter.	685

(T) "School district income" and "school district income tax"	686
have the same meanings as in section 5748.01 of the Revised Code.	687

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	688
of this section, "public obligations," "purchase obligations," and	689
"interest or interest equivalent" have the same meanings as in	690
section 5709.76 of the Revised Code.	691

(V) "Limited liability company" means any limited liability	692
company formed under Chapter 1705. of the Revised Code or under	693
the laws of any other state.	694

(W) "Pass-through entity investor" means any person who,	695
during any portion of a taxable year of a pass-through entity, is	696
a partner, member, shareholder, or equity investor in that	697
pass-through entity.	698

(X) "Banking day" has the same meaning as in section 1304.01	699
of the Revised Code.	700

(Y) "Month" means a calendar month.

701

(Z) "Quarter" means the first three months, the second three	702
months, the third three months, or the last three months of the	703
taxpayer's taxable year.	704

(AA)(1) "Eligible institution" means a state university or	705
state institution of higher education as defined in section	706
3345.011 of the Revised Code, or a private, nonprofit college,	707
university, or other post-secondary institution located in this	708
state that possesses a certificate of authorization issued by the	709
Ohio board of regents pursuant to Chapter 1713. of the Revised	710
Code or a certificate of registration issued by the state board of	711
career colleges and schools under Chapter 3332. of the Revised	712
Code.	713

(2) "Qualified tuition and fees" means tuition and fees	714
imposed by an eligible institution as a condition of enrollment or	715
attendance, not exceeding two thousand five hundred dollars in	716
each of the individual's first two years of post-secondary	717
education. If the individual is a part-time student, "qualified	718
tuition and fees" includes tuition and fees paid for the academic	719
equivalent of the first two years of post-secondary education	720
during a maximum of five taxable years, not exceeding a total of	721
five thousand dollars. "Qualified tuition and fees" does not	722
include:	723

(a) Expenses for any course or activity involving sports,	724
games, or hobbies unless the course or activity is part of the	725
individual's degree or diploma program;	726

(b) The cost of books, room and board, student activity fees,	727
athletic fees, insurance expenses, or other expenses unrelated to	728
the individual's academic course of instruction;	729

(c) Tuition, fees, or other expenses paid or reimbursed	730
through an employer, scholarship, grant in aid, or other	731
educational benefit program.	732

(BB)(1) "Modified business income" means the business income	733
included in a trust's Ohio taxable income after such taxable	734
income is first reduced by the qualifying trust amount, if any.	735

(2) "Qualifying trust amount" of a trust means capital gains	736
and losses from the sale, exchange, or other disposition of equity	737
or ownership interests in, or debt obligations of, a qualifying	738
investee to the extent included in the trust's Ohio taxable	739
income, but only if the following requirements are satisfied:	740

(a) The book value of the qualifying investee's physical	741
assets in this state and everywhere, as of the last day of the	742
qualifying investee's fiscal or calendar year ending immediately	743
prior to the date on which the trust recognizes the gain or loss,	744
is available to the trust.	745

(b) The requirements of section 5747.011 of the Revised Code	746
are satisfied for the trust's taxable year in which the trust	747
recognizes the gain or loss.	748

Any gain or loss that is not a qualifying trust amount is	749
modified business income, qualifying investment income, or	750
modified nonbusiness income, as the case may be.	751

(3) "Modified nonbusiness income" means a trust's Ohio	752
taxable income other than modified business income, other than the	753
qualifying trust amount, and other than qualifying investment	754
income, as defined in section 5747.012 of the Revised Code, to the	755
extent such qualifying investment income is not otherwise part of	756
modified business income.	757

(4) "Modified Ohio taxable income" applies only to trusts,	758
and means the sum of the amounts described in divisions (BB)(4)(a)	759
to (c) of this section:	760

(a) The fraction, calculated under section 5747.013, and	761
applying section 5747.231 of the Revised Code, multiplied by the	762
sum of the following amounts:	763

(i) The trust's modified business income;

764

(ii) The trust's qualifying investment income, as defined in	765
section 5747.012 of the Revised Code, but only to the extent the	766
qualifying investment income does not otherwise constitute	767
modified business income and does not otherwise constitute a	768
qualifying trust amount.	769

(b) The qualifying trust amount multiplied by a fraction, the	770
numerator of which is the sum of the book value of the qualifying	771
investee's physical assets in this state on the last day of the	772
qualifying investee's fiscal or calendar year ending immediately	773
prior to the day on which the trust recognizes the qualifying	774
trust amount, and the denominator of which is the sum of the book	775
value of the qualifying investee's total physical assets	776
everywhere on the last day of the qualifying investee's fiscal or	777
calendar year ending immediately prior to the day on which the	778
trust recognizes the qualifying trust amount. If, for a taxable	779
year, the trust recognizes a qualifying trust amount with respect	780
to more than one qualifying investee, the amount described in	781
division (BB)(4)(b) of this section shall equal the sum of the	782
products so computed for each such qualifying investee.	783

(c)(i) With respect to a trust or portion of a trust that is	784
a resident as ascertained in accordance with division (I)(3)(d) of	785
this section, its modified nonbusiness income.	786

(ii) With respect to a trust or portion of a trust that is	787
not a resident as ascertained in accordance with division	788
(I)(3)(d) of this section, the amount of its modified nonbusiness	789
income satisfying the descriptions in divisions (B)(2) to (5) of	790
section 5747.20 of the Revised Code, except as otherwise provided	791
in division (BB)(4)(c)(ii) of this section. With respect to a	792
trust or portion of a trust that is not a resident as ascertained	793
in accordance with division (I)(3)(d) of this section, the trust's	794
portion of modified nonbusiness income recognized from the sale,	795
exchange, or other disposition of a debt interest in or equity	796
interest in a section 5747.212 entity, as defined in section	797
5747.212 of the Revised Code, without regard to division (A) of	798
that section, shall not be allocated to this state in accordance	799
with section 5747.20 of the Revised Code but shall be apportioned	800
to this state in accordance with division (B) of section 5747.212	801
of the Revised Code without regard to division (A) of that	802
section.	803

If the allocation and apportionment of a trust's income under	804
divisions (BB)(4)(a) and (c) of this section do not fairly	805
represent the modified Ohio taxable income of the trust in this	806
state, the alternative methods described in division (C) of	807
section 5747.21 of the Revised Code may be applied in the manner	808
and to the same extent provided in that section.	809

(5)(a) Except as set forth in division (BB)(5)(b) of this	810
section, "qualifying investee" means a person in which a trust has	811
an equity or ownership interest, or a person or unit of government	812
the debt obligations of either of which are owned by a trust. For	813
the purposes of division (BB)(2)(a) of this section and for the	814
purpose of computing the fraction described in division (BB)(4)(b)	815
of this section, all of the following apply:	816

(i) If the qualifying investee is a member of a qualifying	817
controlled group on the last day of the qualifying investee's	818
fiscal or calendar year ending immediately prior to the date on	819
which the trust recognizes the gain or loss, then "qualifying	820
investee" includes all persons in the qualifying controlled group	821
on such last day.	822

(ii) If the qualifying investee, or if the qualifying	823
investee and any members of the qualifying controlled group of	824
which the qualifying investee is a member on the last day of the	825
qualifying investee's fiscal or calendar year ending immediately	826
prior to the date on which the trust recognizes the gain or loss,	827
separately or cumulatively own, directly or indirectly, on the	828
last day of the qualifying investee's fiscal or calendar year	829
ending immediately prior to the date on which the trust recognizes	830
the qualifying trust amount, more than fifty per cent of the	831
equity of a pass-through entity, then the qualifying investee and	832
the other members are deemed to own the proportionate share of the	833
pass-through entity's physical assets which the pass-through	834
entity directly or indirectly owns on the last day of the	835
pass-through entity's calendar or fiscal year ending within or	836
with the last day of the qualifying investee's fiscal or calendar	837
year ending immediately prior to the date on which the trust	838
recognizes the qualifying trust amount.	839

(iii) For the purposes of division (BB)(5)(a)(iii) of this	840
section, "upper level pass-through entity" means a pass-through	841
entity directly or indirectly owning any equity of another	842
pass-through entity, and "lower level pass-through entity" means	843
that other pass-through entity.	844

An upper level pass-through entity, whether or not it is also	845
a qualifying investee, is deemed to own, on the last day of the	846
upper level pass-through entity's calendar or fiscal year, the	847
proportionate share of the lower level pass-through entity's	848
physical assets that the lower level pass-through entity directly	849
or indirectly owns on the last day of the lower level pass-through	850
entity's calendar or fiscal year ending within or with the last	851
day of the upper level pass-through entity's fiscal or calendar	852
year. If the upper level pass-through entity directly and	853
indirectly owns less than fifty per cent of the equity of the	854
lower level pass-through entity on each day of the upper level	855
pass-through entity's calendar or fiscal year in which or with	856
which ends the calendar or fiscal year of the lower level	857
pass-through entity and if, based upon clear and convincing	858
evidence, complete information about the location and cost of the	859
physical assets of the lower pass-through entity is not available	860
to the upper level pass-through entity, then solely for purposes	861
of ascertaining if a gain or loss constitutes a qualifying trust	862
amount, the upper level pass-through entity shall be deemed as	863
owning no equity of the lower level pass-through entity for each	864
day during the upper level pass-through entity's calendar or	865
fiscal year in which or with which ends the lower level	866
pass-through entity's calendar or fiscal year. Nothing in division	867
(BB)(5)(a)(iii) of this section shall be construed to provide for	868
any deduction or exclusion in computing any trust's Ohio taxable	869
income.	870

(b) With respect to a trust that is not a resident for the	871
taxable year and with respect to a part of a trust that is not a	872
resident for the taxable year, "qualifying investee" for that	873
taxable year does not include a C corporation if both of the	874
following apply:	875

(i) During the taxable year the trust or part of the trust	876
recognizes a gain or loss from the sale, exchange, or other	877
disposition of equity or ownership interests in, or debt	878
obligations of, the C corporation.	879

(ii) Such gain or loss constitutes nonbusiness income.

880

(6) "Available" means information is such that a person is	881
able to learn of the information by the due date plus extensions,	882
if any, for filing the return for the taxable year in which the	883
trust recognizes the gain or loss.	884

(CC) "Qualifying controlled group" has the same meaning as in	885
section 5733.04 of the Revised Code.	886

(DD) "Related member" has the same meaning as in section	887
5733.042 of the Revised Code.	888

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

889

(a) "Qualifying person" means any person other than a	890
qualifying corporation.	891

(b) "Qualifying corporation" means any person classified for	892
federal income tax purposes as an association taxable as a	893
corporation, except either of the following:	894

(i) A corporation that has made an election under subchapter	895
S, chapter one, subtitle A, of the Internal Revenue Code for its	896
taxable year ending within, or on the last day of, the investor's	897
taxable year;	898

(ii) A subsidiary that is wholly owned by any corporation	899
that has made an election under subchapter S, chapter one,	900
subtitle A of the Internal Revenue Code for its taxable year	901
ending within, or on the last day of, the investor's taxable year.	902

(2) For the purposes of this chapter, unless expressly stated	903
otherwise, no qualifying person indirectly owns any asset directly	904
or indirectly owned by any qualifying corporation.	905

(FF) For purposes of this chapter and Chapter 5751. of the	906
Revised Code:	907

(1) "Trust" does not include a qualified pre-income tax	908
trust.	909

(2) A "qualified pre-income tax trust" is any pre-income tax	910
trust that makes a qualifying pre-income tax trust election as	911
described in division (FF)(3) of this section.	912

(3) A "qualifying pre-income tax trust election" is an	913
election by a pre-income tax trust to subject to the tax imposed	914
by section 5751.02 of the Revised Code the pre-income tax trust	915
and all pass-through entities of which the trust owns or controls,	916
directly, indirectly, or constructively through related interests,	917
five per cent or more of the ownership or equity interests. The	918
trustee shall notify the tax commissioner in writing of the	919
election on or before April 15, 2006. The election, if timely	920
made, shall be effective on and after January 1, 2006, and shall	921
apply for all tax periods and tax years until revoked by the	922
trustee of the trust.	923

(4) A "pre-income tax trust" is a trust that satisfies all of	924
the following requirements:	925

(a) The document or instrument creating the trust was	926
executed by the grantor before January 1, 1972;	927

(b) The trust became irrevocable upon the creation of the	928
trust; and	929

(c) The grantor was domiciled in this state at the time the	930
trust was created.	931

Section 2. That existing section 5747.01 of the Revised Code	932
is hereby repealed.	933

Section 3. The amendment by this act of section 5747.01 of	934
the Revised Code applies to taxable years ending on or after the	935
effective date of this act.	936