As Introduced

129th General Assembly Regular Session 2011-2012

H. B. No. 111

Representative Williams 

Cosponsors: Representatives Goyal, Antonio, Driehaus, Pillich, Reece, Fende, Gentile 

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A BILL

To amend section 5747.01 and to enact section

1

5747.014 of the Revised Code to authorize an

2

income tax deduction for small business owners'

3

reinvestment of undistributed profits in business

4

property, employee training, or research and

5

development.

6

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

Section 1.  That section 5747.01 be amended and section	7
5747.014 of the Revised Code be enacted to read as follows:	8

Sec. 5747.01.  Except as otherwise expressly provided or	9
clearly appearing from the context, any term used in this chapter	10
that is not otherwise defined in this section has the same meaning	11
as when used in a comparable context in the laws of the United	12
States relating to federal income taxes or if not used in a	13
comparable context in those laws, has the same meaning as in	14
section 5733.40 of the Revised Code. Any reference in this chapter	15
to the Internal Revenue Code includes other laws of the United	16
States relating to federal income taxes.	17

As used in this chapter:

18

(A) "Adjusted gross income" or "Ohio adjusted gross income"	19
means federal adjusted gross income, as defined and used in the	20
Internal Revenue Code, adjusted as provided in this section:	21

(1) Add interest or dividends on obligations or securities of	22
any state or of any political subdivision or authority of any	23
state, other than this state and its subdivisions and authorities.	24

(2) Add interest or dividends on obligations of any	25
authority, commission, instrumentality, territory, or possession	26
of the United States to the extent that the interest or dividends	27
are exempt from federal income taxes but not from state income	28
taxes.	29

(3) Deduct interest or dividends on obligations of the United	30
States and its territories and possessions or of any authority,	31
commission, or instrumentality of the United States to the extent	32
that the interest or dividends are included in federal adjusted	33
gross income but exempt from state income taxes under the laws of	34
the United States.	35

(4) Deduct disability and survivor's benefits to the extent	36
included in federal adjusted gross income.	37

(5) Deduct benefits under Title II of the Social Security Act	38
and tier 1 railroad retirement benefits to the extent included in	39
federal adjusted gross income under section 86 of the Internal	40
Revenue Code.	41

(6) In the case of a taxpayer who is a beneficiary of a trust	42
that makes an accumulation distribution as defined in section 665	43
of the Internal Revenue Code, add, for the beneficiary's taxable	44
years beginning before 2002, the portion, if any, of such	45
distribution that does not exceed the undistributed net income of	46
the trust for the three taxable years preceding the taxable year	47
in which the distribution is made to the extent that the portion	48
was not included in the trust's taxable income for any of the	49
trust's taxable years beginning in 2002 or thereafter.	50
"Undistributed net income of a trust" means the taxable income of	51
the trust increased by (a)(i) the additions to adjusted gross	52
income required under division (A) of this section and (ii) the	53
personal exemptions allowed to the trust pursuant to section	54
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	55
deductions to adjusted gross income required under division (A) of	56
this section, (ii) the amount of federal income taxes attributable	57
to such income, and (iii) the amount of taxable income that has	58
been included in the adjusted gross income of a beneficiary by	59
reason of a prior accumulation distribution. Any undistributed net	60
income included in the adjusted gross income of a beneficiary	61
shall reduce the undistributed net income of the trust commencing	62
with the earliest years of the accumulation period.	63

(7) Deduct the amount of wages and salaries, if any, not	64
otherwise allowable as a deduction but that would have been	65
allowable as a deduction in computing federal adjusted gross	66
income for the taxable year, had the targeted jobs credit allowed	67
and determined under sections 38, 51, and 52 of the Internal	68
Revenue Code not been in effect.	69

(8) Deduct any interest or interest equivalent on public	70
obligations and purchase obligations to the extent that the	71
interest or interest equivalent is included in federal adjusted	72
gross income.	73

(9) Add any loss or deduct any gain resulting from the sale,	74
exchange, or other disposition of public obligations to the extent	75
that the loss has been deducted or the gain has been included in	76
computing federal adjusted gross income.	77

(10) Deduct or add amounts, as provided under section 5747.70	78
of the Revised Code, related to contributions to variable college	79
savings program accounts made or tuition units purchased pursuant	80
to Chapter 3334. of the Revised Code.	81

(11)(a) Deduct, to the extent not otherwise allowable as a	82
deduction or exclusion in computing federal or Ohio adjusted gross	83
income for the taxable year, the amount the taxpayer paid during	84
the taxable year for medical care insurance and qualified	85
long-term care insurance for the taxpayer, the taxpayer's spouse,	86
and dependents. No deduction for medical care insurance under	87
division (A)(11) of this section shall be allowed either to any	88
taxpayer who is eligible to participate in any subsidized health	89
plan maintained by any employer of the taxpayer or of the	90
taxpayer's spouse, or to any taxpayer who is entitled to, or on	91
application would be entitled to, benefits under part A of Title	92
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	93
301, as amended. For the purposes of division (A)(11)(a) of this	94
section, "subsidized health plan" means a health plan for which	95
the employer pays any portion of the plan's cost. The deduction	96
allowed under division (A)(11)(a) of this section shall be the net	97
of any related premium refunds, related premium reimbursements, or	98
related insurance premium dividends received during the taxable	99
year.	100

(b) Deduct, to the extent not otherwise deducted or excluded	101
in computing federal or Ohio adjusted gross income during the	102
taxable year, the amount the taxpayer paid during the taxable	103
year, not compensated for by any insurance or otherwise, for	104
medical care of the taxpayer, the taxpayer's spouse, and	105
dependents, to the extent the expenses exceed seven and one-half	106
per cent of the taxpayer's federal adjusted gross income.	107

(c) Deduct, to the extent not otherwise deducted or excluded	108
in computing federal or Ohio adjusted gross income, any amount	109
included in federal adjusted gross income under section 105 or not	110
excluded under section 106 of the Internal Revenue Code solely	111
because it relates to an accident and health plan for a person who	112
otherwise would be a "qualifying relative" and thus a "dependent"	113
under section 152 of the Internal Revenue Code but for the fact	114
that the person fails to meet the income and support limitations	115
under section 152(d)(1)(B) and (C) of the Internal Revenue Code.	116

(d) For purposes of division (A)(11) of this section,	117
"medical care" has the meaning given in section 213 of the	118
Internal Revenue Code, subject to the special rules, limitations,	119
and exclusions set forth therein, and "qualified long-term care"	120
has the same meaning given in section 7702B(c) of the Internal	121
Revenue Code. Solely for purposes of divisions (A)(11)(a) and (c)	122
of this section, "dependent" includes a person who otherwise would	123
be a "qualifying relative" and thus a "dependent" under section	124
152 of the Internal Revenue Code but for the fact that the person	125
fails to meet the income and support limitations under section	126
152(d)(1)(B) and (C) of the Internal Revenue Code.	127

(12)(a) Deduct any amount included in federal adjusted gross	128
income solely because the amount represents a reimbursement or	129
refund of expenses that in any year the taxpayer had deducted as	130
an itemized deduction pursuant to section 63 of the Internal	131
Revenue Code and applicable United States department of the	132
treasury regulations. The deduction otherwise allowed under	133
division (A)(12)(a) of this section shall be reduced to the extent	134
the reimbursement is attributable to an amount the taxpayer	135
deducted under this section in any taxable year.	136

(b) Add any amount not otherwise included in Ohio adjusted	137
gross income for any taxable year to the extent that the amount is	138
attributable to the recovery during the taxable year of any amount	139
deducted or excluded in computing federal or Ohio adjusted gross	140
income in any taxable year.	141

(13) Deduct any portion of the deduction described in section	142
1341(a)(2) of the Internal Revenue Code, for repaying previously	143
reported income received under a claim of right, that meets both	144
of the following requirements:	145

(a) It is allowable for repayment of an item that was	146
included in the taxpayer's adjusted gross income for a prior	147
taxable year and did not qualify for a credit under division (A)	148
or (B) of section 5747.05 of the Revised Code for that year;	149

(b) It does not otherwise reduce the taxpayer's adjusted	150
gross income for the current or any other taxable year.	151

(14) Deduct an amount equal to the deposits made to, and net	152
investment earnings of, a medical savings account during the	153
taxable year, in accordance with section 3924.66 of the Revised	154
Code. The deduction allowed by division (A)(14) of this section	155
does not apply to medical savings account deposits and earnings	156
otherwise deducted or excluded for the current or any other	157
taxable year from the taxpayer's federal adjusted gross income.	158

(15)(a) Add an amount equal to the funds withdrawn from a	159
medical savings account during the taxable year, and the net	160
investment earnings on those funds, when the funds withdrawn were	161
used for any purpose other than to reimburse an account holder	162
for, or to pay, eligible medical expenses, in accordance with	163
section 3924.66 of the Revised Code;	164

(b) Add the amounts distributed from a medical savings	165
account under division (A)(2) of section 3924.68 of the Revised	166
Code during the taxable year.	167

(16) Add any amount claimed as a credit under section	168
5747.059 of the Revised Code to the extent that such amount	169
satisfies either of the following:	170

(a) The amount was deducted or excluded from the computation	171
of the taxpayer's federal adjusted gross income as required to be	172
reported for the taxpayer's taxable year under the Internal	173
Revenue Code;	174

(b) The amount resulted in a reduction of the taxpayer's	175
federal adjusted gross income as required to be reported for any	176
of the taxpayer's taxable years under the Internal Revenue Code.	177

(17) Deduct the amount contributed by the taxpayer to an	178
individual development account program established by a county	179
department of job and family services pursuant to sections 329.11	180
to 329.14 of the Revised Code for the purpose of matching funds	181
deposited by program participants. On request of the tax	182
commissioner, the taxpayer shall provide any information that, in	183
the tax commissioner's opinion, is necessary to establish the	184
amount deducted under division (A)(17) of this section.	185

(18) Beginning in taxable year 2001 but not for any taxable	186
year beginning after December 31, 2005, if the taxpayer is married	187
and files a joint return and the combined federal adjusted gross	188
income of the taxpayer and the taxpayer's spouse for the taxable	189
year does not exceed one hundred thousand dollars, or if the	190
taxpayer is single and has a federal adjusted gross income for the	191
taxable year not exceeding fifty thousand dollars, deduct amounts	192
paid during the taxable year for qualified tuition and fees paid	193
to an eligible institution for the taxpayer, the taxpayer's	194
spouse, or any dependent of the taxpayer, who is a resident of	195
this state and is enrolled in or attending a program that	196
culminates in a degree or diploma at an eligible institution. The	197
deduction may be claimed only to the extent that qualified tuition	198
and fees are not otherwise deducted or excluded for any taxable	199
year from federal or Ohio adjusted gross income. The deduction may	200
not be claimed for educational expenses for which the taxpayer	201
claims a credit under section 5747.27 of the Revised Code.	202

(19) Add any reimbursement received during the taxable year	203
of any amount the taxpayer deducted under division (A)(18) of this	204
section in any previous taxable year to the extent the amount is	205
not otherwise included in Ohio adjusted gross income.	206

(20)(a)(i) Add five-sixths of the amount of depreciation	207
expense allowed by subsection (k) of section 168 of the Internal	208
Revenue Code, including the taxpayer's proportionate or	209
distributive share of the amount of depreciation expense allowed	210
by that subsection to a pass-through entity in which the taxpayer	211
has a direct or indirect ownership interest.	212

(ii) Add five-sixths of the amount of qualifying section 179	213
depreciation expense, including a person's proportionate or	214
distributive share of the amount of qualifying section 179	215
depreciation expense allowed to any pass-through entity in which	216
the person has a direct or indirect ownership. For the purposes of	217
this division, "qualifying section 179 depreciation expense" means	218
the difference between (I) the amount of depreciation expense	219
directly or indirectly allowed to the taxpayer under section 179	220
of the Internal Revenue Code, and (II) the amount of depreciation	221
expense directly or indirectly allowed to the taxpayer under	222
section 179 of the Internal Revenue Code as that section existed	223
on December 31, 2002.	224

The tax commissioner, under procedures established by the	225
commissioner, may waive the add-backs related to a pass-through	226
entity if the taxpayer owns, directly or indirectly, less than	227
five per cent of the pass-through entity.	228

(b) Nothing in division (A)(20) of this section shall be	229
construed to adjust or modify the adjusted basis of any asset.	230

(c) To the extent the add-back required under division	231
(A)(20)(a) of this section is attributable to property generating	232
nonbusiness income or loss allocated under section 5747.20 of the	233
Revised Code, the add-back shall be sitused to the same location	234
as the nonbusiness income or loss generated by the property for	235
the purpose of determining the credit under division (A) of	236
section 5747.05 of the Revised Code. Otherwise, the add-back shall	237
be apportioned, subject to one or more of the four alternative	238
methods of apportionment enumerated in section 5747.21 of the	239
Revised Code.	240

(d) For the purposes of division (A) of this section, net	241
operating loss carryback and carryforward shall not include	242
five-sixths of the allowance of any net operating loss deduction	243
carryback or carryforward to the taxable year to the extent such	244
loss resulted from depreciation allowed by section 168(k) of the	245
Internal Revenue Code and by the qualifying section 179	246
depreciation expense amount.	247

(21)(a) If the taxpayer was required to add an amount under	248
division (A)(20)(a) of this section for a taxable year, deduct	249
one-fifth of the amount so added for each of the five succeeding	250
taxable years.	251

(b) If the amount deducted under division (A)(21)(a) of this	252
section is attributable to an add-back allocated under division	253
(A)(20)(c) of this section, the amount deducted shall be sitused	254
to the same location. Otherwise, the add-back shall be apportioned	255
using the apportionment factors for the taxable year in which the	256
deduction is taken, subject to one or more of the four alternative	257
methods of apportionment enumerated in section 5747.21 of the	258
Revised Code.	259

(c) No deduction is available under division (A)(21)(a) of	260
this section with regard to any depreciation allowed by section	261
168(k) of the Internal Revenue Code and by the qualifying section	262
179 depreciation expense amount to the extent that such	263
depreciation resulted in or increased a federal net operating loss	264
carryback or carryforward to a taxable year to which division	265
(A)(20)(d) of this section does not apply.	266

(22) Deduct, to the extent not otherwise deducted or excluded	267
in computing federal or Ohio adjusted gross income for the taxable	268
year, the amount the taxpayer received during the taxable year as	269
reimbursement for life insurance premiums under section 5919.31 of	270
the Revised Code.	271

(23) Deduct, to the extent not otherwise deducted or excluded	272
in computing federal or Ohio adjusted gross income for the taxable	273
year, the amount the taxpayer received during the taxable year as	274
a death benefit paid by the adjutant general under section 5919.33	275
of the Revised Code.	276

(24) Deduct, to the extent included in federal adjusted gross	277
income and not otherwise allowable as a deduction or exclusion in	278
computing federal or Ohio adjusted gross income for the taxable	279
year, military pay and allowances received by the taxpayer during	280
the taxable year for active duty service in the United States	281
army, air force, navy, marine corps, or coast guard or reserve	282
components thereof or the national guard. The deduction may not be	283
claimed for military pay and allowances received by the taxpayer	284
while the taxpayer is stationed in this state.	285

(25) Deduct, to the extent not otherwise allowable as a	286
deduction or exclusion in computing federal or Ohio adjusted gross	287
income for the taxable year and not otherwise compensated for by	288
any other source, the amount of qualified organ donation expenses	289
incurred by the taxpayer during the taxable year, not to exceed	290
ten thousand dollars. A taxpayer may deduct qualified organ	291
donation expenses only once for all taxable years beginning with	292
taxable years beginning in 2007.	293

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

294

(a) "Human organ" means all or any portion of a human liver,	295
pancreas, kidney, intestine, or lung, and any portion of human	296
bone marrow.	297

(b) "Qualified organ donation expenses" means travel	298
expenses, lodging expenses, and wages and salary forgone by a	299
taxpayer in connection with the taxpayer's donation, while living,	300
of one or more of the taxpayer's human organs to another human	301
being.	302

(26) Deduct, to the extent not otherwise deducted or excluded	303
in computing federal or Ohio adjusted gross income for the taxable	304
year, amounts received by the taxpayer as retired military	305
personnel pay for service in the United States army, navy, air	306
force, coast guard, or marine corps or reserve components thereof,	307
or the national guard, or received by the surviving spouse or	308
former spouse of such a taxpayer under the survivor benefit plan	309
on account of such a taxpayer's death. If the taxpayer receives	310
income on account of retirement paid under the federal civil	311
service retirement system or federal employees retirement system,	312
or under any successor retirement program enacted by the congress	313
of the United States that is established and maintained for	314
retired employees of the United States government, and such	315
retirement income is based, in whole or in part, on credit for the	316
taxpayer's military service, the deduction allowed under this	317
division shall include only that portion of such retirement income	318
that is attributable to the taxpayer's military service, to the	319
extent that portion of such retirement income is otherwise	320
included in federal adjusted gross income and is not otherwise	321
deducted under this section. Any amount deducted under division	322
(A)(26) of this section is not included in a taxpayer's adjusted	323
gross income for the purposes of section 5747.055 of the Revised	324
Code. No amount may be deducted under division (A)(26) of this	325
section on the basis of which a credit was claimed under section	326
5747.055 of the Revised Code.	327

(27) Deduct, to the extent not otherwise deducted or excluded	328
in computing federal or Ohio adjusted gross income for the taxable	329
year, the amount the taxpayer received during the taxable year	330
from the military injury relief fund created in section 5101.98 of	331
the Revised Code.	332

(28) Deduct, to the extent not otherwise deducted or excluded	333
in computing federal or Ohio adjusted gross income for the taxable	334
year, the amount the taxpayer received as a veterans bonus during	335
the taxable year from the Ohio department of veterans services as	336
authorized by Section 2r of Article VIII, Ohio Constitution.	337

(29) Deduct, to the extent not otherwise deducted or excluded	338
in computing federal or Ohio adjusted gross income for the taxable	339
year, any loss from wagering transactions that is allowed as an	340
itemized deduction under section 165 of the Internal Revenue Code	341
and that the taxpayer deducted in computing federal taxable	342
income.	343

(30) Terms used in division (A)(30) of this section have the	344
meanings as in section 5747.014 of the Revised Code.	345

(a) In the case of a taxpayer who is an equity owner in an	346
eligible small business on the last day of the business' taxable	347
year, deduct an amount equal to the taxpayer's distributive or	348
proportionate share of the business' undistributed profit for the	349
business' taxable year that ends in the taxpayer's taxable year.	350
The amount deducted shall not exceed an amount equal to the	351
taxpayer's distributive or proportionate share of five per cent of	352
the business' gross income.	353

(b) In the case of a taxpayer who deducted any amount under	354
division (A)(30)(a) of this section for a prior taxable year, add	355
an amount equal to the taxpayer's distributive or proportionate	356
share of the excess, if any, of (i) the business' undistributed	357
profit for the business' qualifying taxable year that ended in	358
that prior taxable year over (ii) the increase in the business'	359
reinvestment expenditures from that qualifying taxable year to the	360
business' succeeding taxable year. The addition shall be made only	361
once for each of a taxpayer's taxable years for which the taxpayer	362
claimed a deduction under division (A)(30)(a) of this section, and	363
shall not exceed the amount deducted under that division.	364

(B) "Business income" means income, including gain or loss,	365
arising from transactions, activities, and sources in the regular	366
course of a trade or business and includes income, gain, or loss	367
from real property, tangible property, and intangible property if	368
the acquisition, rental, management, and disposition of the	369
property constitute integral parts of the regular course of a	370
trade or business operation. "Business income" includes income,	371
including gain or loss, from a partial or complete liquidation of	372
a business, including, but not limited to, gain or loss from the	373
sale or other disposition of goodwill.	374

(C) "Nonbusiness income" means all income other than business	375
income and may include, but is not limited to, compensation, rents	376
and royalties from real or tangible personal property, capital	377
gains, interest, dividends and distributions, patent or copyright	378
royalties, or lottery winnings, prizes, and awards.	379

(D) "Compensation" means any form of remuneration paid to an	380
employee for personal services.	381

(E) "Fiduciary" means a guardian, trustee, executor,	382
administrator, receiver, conservator, or any other person acting	383
in any fiduciary capacity for any individual, trust, or estate.	384

(F) "Fiscal year" means an accounting period of twelve months	385
ending on the last day of any month other than December.	386

(G) "Individual" means any natural person.

387

(H) "Internal Revenue Code" means the "Internal Revenue Code	388
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	389

(I) "Resident" means any of the following, provided that	390
division (I)(3) of this section applies only to taxable years of a	391
trust beginning in 2002 or thereafter:	392

(1) An individual who is domiciled in this state, subject to	393
section 5747.24 of the Revised Code;	394

(2) The estate of a decedent who at the time of death was	395
domiciled in this state. The domicile tests of section 5747.24 of	396
the Revised Code are not controlling for purposes of division	397
(I)(2) of this section.	398

(3) A trust that, in whole or part, resides in this state. If	399
only part of a trust resides in this state, the trust is a	400
resident only with respect to that part.	401

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

402

(a) A trust resides in this state for the trust's current	403
taxable year to the extent, as described in division (I)(3)(d) of	404
this section, that the trust consists directly or indirectly, in	405
whole or in part, of assets, net of any related liabilities, that	406
were transferred, or caused to be transferred, directly or	407
indirectly, to the trust by any of the following:	408

(i) A person, a court, or a governmental entity or	409
instrumentality on account of the death of a decedent, but only if	410
the trust is described in division (I)(3)(e)(i) or (ii) of this	411
section;	412

(ii) A person who was domiciled in this state for the	413
purposes of this chapter when the person directly or indirectly	414
transferred assets to an irrevocable trust, but only if at least	415
one of the trust's qualifying beneficiaries is domiciled in this	416
state for the purposes of this chapter during all or some portion	417
of the trust's current taxable year;	418

(iii) A person who was domiciled in this state for the	419
purposes of this chapter when the trust document or instrument or	420
part of the trust document or instrument became irrevocable, but	421
only if at least one of the trust's qualifying beneficiaries is a	422
resident domiciled in this state for the purposes of this chapter	423
during all or some portion of the trust's current taxable year. If	424
a trust document or instrument became irrevocable upon the death	425
of a person who at the time of death was domiciled in this state	426
for purposes of this chapter, that person is a person described in	427
division (I)(3)(a)(iii) of this section.	428

(b) A trust is irrevocable to the extent that the transferor	429
is not considered to be the owner of the net assets of the trust	430
under sections 671 to 678 of the Internal Revenue Code.	431

(c) With respect to a trust other than a charitable lead	432
trust, "qualifying beneficiary" has the same meaning as "potential	433
current beneficiary" as defined in section 1361(e)(2) of the	434
Internal Revenue Code, and with respect to a charitable lead trust	435
"qualifying beneficiary" is any current, future, or contingent	436
beneficiary, but with respect to any trust "qualifying	437
beneficiary" excludes a person or a governmental entity or	438
instrumentality to any of which a contribution would qualify for	439
the charitable deduction under section 170 of the Internal Revenue	440
Code.	441

(d) For the purposes of division (I)(3)(a) of this section,	442
the extent to which a trust consists directly or indirectly, in	443
whole or in part, of assets, net of any related liabilities, that	444
were transferred directly or indirectly, in whole or part, to the	445
trust by any of the sources enumerated in that division shall be	446
ascertained by multiplying the fair market value of the trust's	447
assets, net of related liabilities, by the qualifying ratio, which	448
shall be computed as follows:	449

(i) The first time the trust receives assets, the numerator	450
of the qualifying ratio is the fair market value of those assets	451
at that time, net of any related liabilities, from sources	452
enumerated in division (I)(3)(a) of this section. The denominator	453
of the qualifying ratio is the fair market value of all the	454
trust's assets at that time, net of any related liabilities.	455

(ii) Each subsequent time the trust receives assets, a	456
revised qualifying ratio shall be computed. The numerator of the	457
revised qualifying ratio is the sum of (1) the fair market value	458
of the trust's assets immediately prior to the subsequent	459
transfer, net of any related liabilities, multiplied by the	460
qualifying ratio last computed without regard to the subsequent	461
transfer, and (2) the fair market value of the subsequently	462
transferred assets at the time transferred, net of any related	463
liabilities, from sources enumerated in division (I)(3)(a) of this	464
section. The denominator of the revised qualifying ratio is the	465
fair market value of all the trust's assets immediately after the	466
subsequent transfer, net of any related liabilities.	467

(iii) Whether a transfer to the trust is by or from any of	468
the sources enumerated in division (I)(3)(a) of this section shall	469
be ascertained without regard to the domicile of the trust's	470
beneficiaries.	471

(e) For the purposes of division (I)(3)(a)(i) of this	472
section:	473

(i) A trust is described in division (I)(3)(e)(i) of this	474
section if the trust is a testamentary trust and the testator of	475
that testamentary trust was domiciled in this state at the time of	476
the testator's death for purposes of the taxes levied under	477
Chapter 5731. of the Revised Code.	478

(ii) A trust is described in division (I)(3)(e)(ii) of this	479
section if the transfer is a qualifying transfer described in any	480
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	481
irrevocable inter vivos trust, and at least one of the trust's	482
qualifying beneficiaries is domiciled in this state for purposes	483
of this chapter during all or some portion of the trust's current	484
taxable year.	485

(f) For the purposes of division (I)(3)(e)(ii) of this	486
section, a "qualifying transfer" is a transfer of assets, net of	487
any related liabilities, directly or indirectly to a trust, if the	488
transfer is described in any of the following:	489

(i) The transfer is made to a trust, created by the decedent	490
before the decedent's death and while the decedent was domiciled	491
in this state for the purposes of this chapter, and, prior to the	492
death of the decedent, the trust became irrevocable while the	493
decedent was domiciled in this state for the purposes of this	494
chapter.	495

(ii) The transfer is made to a trust to which the decedent,	496
prior to the decedent's death, had directly or indirectly	497
transferred assets, net of any related liabilities, while the	498
decedent was domiciled in this state for the purposes of this	499
chapter, and prior to the death of the decedent the trust became	500
irrevocable while the decedent was domiciled in this state for the	501
purposes of this chapter.	502

(iii) The transfer is made on account of a contractual	503
relationship existing directly or indirectly between the	504
transferor and either the decedent or the estate of the decedent	505
at any time prior to the date of the decedent's death, and the	506
decedent was domiciled in this state at the time of death for	507
purposes of the taxes levied under Chapter 5731. of the Revised	508
Code.	509

(iv) The transfer is made to a trust on account of a	510
contractual relationship existing directly or indirectly between	511
the transferor and another person who at the time of the	512
decedent's death was domiciled in this state for purposes of this	513
chapter.	514

(v) The transfer is made to a trust on account of the will of	515
a testator who was domiciled in this state at the time of the	516
testator's death for purposes of the taxes levied under Chapter	517
5731. of the Revised Code.	518

(vi) The transfer is made to a trust created by or caused to	519
be created by a court, and the trust was directly or indirectly	520
created in connection with or as a result of the death of an	521
individual who, for purposes of the taxes levied under Chapter	522
5731. of the Revised Code, was domiciled in this state at the time	523
of the individual's death.	524

(g) The tax commissioner may adopt rules to ascertain the	525
part of a trust residing in this state.	526

(J) "Nonresident" means an individual or estate that is not a	527
resident. An individual who is a resident for only part of a	528
taxable year is a nonresident for the remainder of that taxable	529
year.	530

(K) "Pass-through entity" has the same meaning as in section	531
5733.04 of the Revised Code.	532

(L) "Return" means the notifications and reports required to	533
be filed pursuant to this chapter for the purpose of reporting the	534
tax due and includes declarations of estimated tax when so	535
required.	536

(M) "Taxable year" means the calendar year or the taxpayer's	537
fiscal year ending during the calendar year, or fractional part	538
thereof, upon which the adjusted gross income is calculated	539
pursuant to this chapter.	540

(N) "Taxpayer" means any person subject to the tax imposed by	541
section 5747.02 of the Revised Code or any pass-through entity	542
that makes the election under division (D) of section 5747.08 of	543
the Revised Code.	544

(O) "Dependents" means dependents as defined in the Internal	545
Revenue Code and as claimed in the taxpayer's federal income tax	546
return for the taxable year or which the taxpayer would have been	547
permitted to claim had the taxpayer filed a federal income tax	548
return.	549

(P) "Principal county of employment" means, in the case of a	550
nonresident, the county within the state in which a taxpayer	551
performs services for an employer or, if those services are	552
performed in more than one county, the county in which the major	553
portion of the services are performed.	554

(Q) As used in sections 5747.50 to 5747.55 of the Revised	555
Code:	556

(1) "Subdivision" means any county, municipal corporation,	557
park district, or township.	558

(2) "Essential local government purposes" includes all	559
functions that any subdivision is required by general law to	560
exercise, including like functions that are exercised under a	561
charter adopted pursuant to the Ohio Constitution.	562

(R) "Overpayment" means any amount already paid that exceeds	563
the figure determined to be the correct amount of the tax.	564

(S) "Taxable income" or "Ohio taxable income" applies only to	565
estates and trusts, and means federal taxable income, as defined	566
and used in the Internal Revenue Code, adjusted as follows:	567

(1) Add interest or dividends, net of ordinary, necessary,	568
and reasonable expenses not deducted in computing federal taxable	569
income, on obligations or securities of any state or of any	570
political subdivision or authority of any state, other than this	571
state and its subdivisions and authorities, but only to the extent	572
that such net amount is not otherwise includible in Ohio taxable	573
income and is described in either division (S)(1)(a) or (b) of	574
this section:	575

(a) The net amount is not attributable to the S portion of an	576
electing small business trust and has not been distributed to	577
beneficiaries for the taxable year;	578

(b) The net amount is attributable to the S portion of an	579
electing small business trust for the taxable year.	580

(2) Add interest or dividends, net of ordinary, necessary,	581
and reasonable expenses not deducted in computing federal taxable	582
income, on obligations of any authority, commission,	583
instrumentality, territory, or possession of the United States to	584
the extent that the interest or dividends are exempt from federal	585
income taxes but not from state income taxes, but only to the	586
extent that such net amount is not otherwise includible in Ohio	587
taxable income and is described in either division (S)(1)(a) or	588
(b) of this section;	589

(3) Add the amount of personal exemption allowed to the	590
estate pursuant to section 642(b) of the Internal Revenue Code;	591

(4) Deduct interest or dividends, net of related expenses	592
deducted in computing federal taxable income, on obligations of	593
the United States and its territories and possessions or of any	594
authority, commission, or instrumentality of the United States to	595
the extent that the interest or dividends are exempt from state	596
taxes under the laws of the United States, but only to the extent	597
that such amount is included in federal taxable income and is	598
described in either division (S)(1)(a) or (b) of this section;	599

(5) Deduct the amount of wages and salaries, if any, not	600
otherwise allowable as a deduction but that would have been	601
allowable as a deduction in computing federal taxable income for	602
the taxable year, had the targeted jobs credit allowed under	603
sections 38, 51, and 52 of the Internal Revenue Code not been in	604
effect, but only to the extent such amount relates either to	605
income included in federal taxable income for the taxable year or	606
to income of the S portion of an electing small business trust for	607
the taxable year;	608

(6) Deduct any interest or interest equivalent, net of	609
related expenses deducted in computing federal taxable income, on	610
public obligations and purchase obligations, but only to the	611
extent that such net amount relates either to income included in	612
federal taxable income for the taxable year or to income of the S	613
portion of an electing small business trust for the taxable year;	614

(7) Add any loss or deduct any gain resulting from sale,	615
exchange, or other disposition of public obligations to the extent	616
that such loss has been deducted or such gain has been included in	617
computing either federal taxable income or income of the S portion	618
of an electing small business trust for the taxable year;	619

(8) Except in the case of the final return of an estate, add	620
any amount deducted by the taxpayer on both its Ohio estate tax	621
return pursuant to section 5731.14 of the Revised Code, and on its	622
federal income tax return in determining federal taxable income;	623

(9)(a) Deduct any amount included in federal taxable income	624
solely because the amount represents a reimbursement or refund of	625
expenses that in a previous year the decedent had deducted as an	626
itemized deduction pursuant to section 63 of the Internal Revenue	627
Code and applicable treasury regulations. The deduction otherwise	628
allowed under division (S)(9)(a) of this section shall be reduced	629
to the extent the reimbursement is attributable to an amount the	630
taxpayer or decedent deducted under this section in any taxable	631
year.	632

(b) Add any amount not otherwise included in Ohio taxable	633
income for any taxable year to the extent that the amount is	634
attributable to the recovery during the taxable year of any amount	635
deducted or excluded in computing federal or Ohio taxable income	636
in any taxable year, but only to the extent such amount has not	637
been distributed to beneficiaries for the taxable year.	638

(10) Deduct any portion of the deduction described in section	639
1341(a)(2) of the Internal Revenue Code, for repaying previously	640
reported income received under a claim of right, that meets both	641
of the following requirements:	642

(a) It is allowable for repayment of an item that was	643
included in the taxpayer's taxable income or the decedent's	644
adjusted gross income for a prior taxable year and did not qualify	645
for a credit under division (A) or (B) of section 5747.05 of the	646
Revised Code for that year.	647

(b) It does not otherwise reduce the taxpayer's taxable	648
income or the decedent's adjusted gross income for the current or	649
any other taxable year.	650

(11) Add any amount claimed as a credit under section	651
5747.059 of the Revised Code to the extent that the amount	652
satisfies either of the following:	653

(a) The amount was deducted or excluded from the computation	654
of the taxpayer's federal taxable income as required to be	655
reported for the taxpayer's taxable year under the Internal	656
Revenue Code;	657

(b) The amount resulted in a reduction in the taxpayer's	658
federal taxable income as required to be reported for any of the	659
taxpayer's taxable years under the Internal Revenue Code.	660

(12) Deduct any amount, net of related expenses deducted in	661
computing federal taxable income, that a trust is required to	662
report as farm income on its federal income tax return, but only	663
if the assets of the trust include at least ten acres of land	664
satisfying the definition of "land devoted exclusively to	665
agricultural use" under section 5713.30 of the Revised Code,	666
regardless of whether the land is valued for tax purposes as such	667
land under sections 5713.30 to 5713.38 of the Revised Code. If the	668
trust is a pass-through entity investor, section 5747.231 of the	669
Revised Code applies in ascertaining if the trust is eligible to	670
claim the deduction provided by division (S)(12) of this section	671
in connection with the pass-through entity's farm income.	672

Except for farm income attributable to the S portion of an	673
electing small business trust, the deduction provided by division	674
(S)(12) of this section is allowed only to the extent that the	675
trust has not distributed such farm income. Division (S)(12) of	676
this section applies only to taxable years of a trust beginning in	677
2002 or thereafter.	678

(13) Add the net amount of income described in section 641(c)	679
of the Internal Revenue Code to the extent that amount is not	680
included in federal taxable income.	681

(14) Add or deduct the amount the taxpayer would be required	682
to add or deduct under division (A)(20) or (21) of this section if	683
the taxpayer's Ohio taxable income were computed in the same	684
manner as an individual's Ohio adjusted gross income is computed	685
under this section. In the case of a trust, division (S)(14) of	686
this section applies only to any of the trust's taxable years	687
beginning in 2002 or thereafter.	688

(15) Terms used in division (S)(15) of this section have the	689
meanings as in section 5747.014 of the Revised Code.	690

(a) In the case of a taxpayer who is an equity owner in an	691
eligible small business on the last day of the business' taxable	692
year, deduct an amount equal to the taxpayer's distributive or	693
proportionate share of the business' undistributed profit for the	694
business' taxable year that ends in the taxpayer's taxable year.	695
The amount deducted shall not exceed an amount equal to the	696
taxpayer's distributive or proportionate share of five per cent of	697
the business' gross income.	698

(b) In the case of a taxpayer who deducted any amount under	699
division (S)(15)(a) of this section for a prior taxable year, add	700
an amount equal to the taxpayer's distributive or proportionate	701
share of the excess, if any, of (i) the business' undistributed	702
profit for the business' qualifying taxable year that ended in	703
that prior taxable year over (ii) the increase in the business'	704
reinvestment expenditures from that qualifying taxable year to the	705
business' succeeding taxable year. The addition shall be made only	706
once for each of a taxpayer's taxable years for which the taxpayer	707
claimed a deduction under division (S)(15)(a) of this section, and	708
shall not exceed the amount deducted under that division.	709

(T) "School district income" and "school district income tax"	710
have the same meanings as in section 5748.01 of the Revised Code.	711

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	712
of this section, "public obligations," "purchase obligations," and	713
"interest or interest equivalent" have the same meanings as in	714
section 5709.76 of the Revised Code.	715

(V) "Limited liability company" means any limited liability	716
company formed under Chapter 1705. of the Revised Code or under	717
the laws of any other state.	718

(W) "Pass-through entity investor" means any person who,	719
during any portion of a taxable year of a pass-through entity, is	720
a partner, member, shareholder, or equity investor in that	721
pass-through entity.	722

(X) "Banking day" has the same meaning as in section 1304.01	723
of the Revised Code.	724

(Y) "Month" means a calendar month.

725

(Z) "Quarter" means the first three months, the second three	726
months, the third three months, or the last three months of the	727
taxpayer's taxable year.	728

(AA)(1) "Eligible institution" means a state university or	729
state institution of higher education as defined in section	730
3345.011 of the Revised Code, or a private, nonprofit college,	731
university, or other post-secondary institution located in this	732
state that possesses a certificate of authorization issued by the	733
Ohio board of regents pursuant to Chapter 1713. of the Revised	734
Code or a certificate of registration issued by the state board of	735
career colleges and schools under Chapter 3332. of the Revised	736
Code.	737

(2) "Qualified tuition and fees" means tuition and fees	738
imposed by an eligible institution as a condition of enrollment or	739
attendance, not exceeding two thousand five hundred dollars in	740
each of the individual's first two years of post-secondary	741
education. If the individual is a part-time student, "qualified	742
tuition and fees" includes tuition and fees paid for the academic	743
equivalent of the first two years of post-secondary education	744
during a maximum of five taxable years, not exceeding a total of	745
five thousand dollars. "Qualified tuition and fees" does not	746
include:	747

(a) Expenses for any course or activity involving sports,	748
games, or hobbies unless the course or activity is part of the	749
individual's degree or diploma program;	750

(b) The cost of books, room and board, student activity fees,	751
athletic fees, insurance expenses, or other expenses unrelated to	752
the individual's academic course of instruction;	753

(c) Tuition, fees, or other expenses paid or reimbursed	754
through an employer, scholarship, grant in aid, or other	755
educational benefit program.	756

(BB)(1) "Modified business income" means the business income	757
included in a trust's Ohio taxable income after such taxable	758
income is first reduced by the qualifying trust amount, if any.	759

(2) "Qualifying trust amount" of a trust means capital gains	760
and losses from the sale, exchange, or other disposition of equity	761
or ownership interests in, or debt obligations of, a qualifying	762
investee to the extent included in the trust's Ohio taxable	763
income, but only if the following requirements are satisfied:	764

(a) The book value of the qualifying investee's physical	765
assets in this state and everywhere, as of the last day of the	766
qualifying investee's fiscal or calendar year ending immediately	767
prior to the date on which the trust recognizes the gain or loss,	768
is available to the trust.	769

(b) The requirements of section 5747.011 of the Revised Code	770
are satisfied for the trust's taxable year in which the trust	771
recognizes the gain or loss.	772

Any gain or loss that is not a qualifying trust amount is	773
modified business income, qualifying investment income, or	774
modified nonbusiness income, as the case may be.	775

(3) "Modified nonbusiness income" means a trust's Ohio	776
taxable income other than modified business income, other than the	777
qualifying trust amount, and other than qualifying investment	778
income, as defined in section 5747.012 of the Revised Code, to the	779
extent such qualifying investment income is not otherwise part of	780
modified business income.	781

(4) "Modified Ohio taxable income" applies only to trusts,	782
and means the sum of the amounts described in divisions (BB)(4)(a)	783
to (c) of this section:	784

(a) The fraction, calculated under section 5747.013, and	785
applying section 5747.231 of the Revised Code, multiplied by the	786
sum of the following amounts:	787

(i) The trust's modified business income;

788

(ii) The trust's qualifying investment income, as defined in	789
section 5747.012 of the Revised Code, but only to the extent the	790
qualifying investment income does not otherwise constitute	791
modified business income and does not otherwise constitute a	792
qualifying trust amount.	793

(b) The qualifying trust amount multiplied by a fraction, the	794
numerator of which is the sum of the book value of the qualifying	795
investee's physical assets in this state on the last day of the	796
qualifying investee's fiscal or calendar year ending immediately	797
prior to the day on which the trust recognizes the qualifying	798
trust amount, and the denominator of which is the sum of the book	799
value of the qualifying investee's total physical assets	800
everywhere on the last day of the qualifying investee's fiscal or	801
calendar year ending immediately prior to the day on which the	802
trust recognizes the qualifying trust amount. If, for a taxable	803
year, the trust recognizes a qualifying trust amount with respect	804
to more than one qualifying investee, the amount described in	805
division (BB)(4)(b) of this section shall equal the sum of the	806
products so computed for each such qualifying investee.	807

(c)(i) With respect to a trust or portion of a trust that is	808
a resident as ascertained in accordance with division (I)(3)(d) of	809
this section, its modified nonbusiness income.	810

(ii) With respect to a trust or portion of a trust that is	811
not a resident as ascertained in accordance with division	812
(I)(3)(d) of this section, the amount of its modified nonbusiness	813
income satisfying the descriptions in divisions (B)(2) to (5) of	814
section 5747.20 of the Revised Code, except as otherwise provided	815
in division (BB)(4)(c)(ii) of this section. With respect to a	816
trust or portion of a trust that is not a resident as ascertained	817
in accordance with division (I)(3)(d) of this section, the trust's	818
portion of modified nonbusiness income recognized from the sale,	819
exchange, or other disposition of a debt interest in or equity	820
interest in a section 5747.212 entity, as defined in section	821
5747.212 of the Revised Code, without regard to division (A) of	822
that section, shall not be allocated to this state in accordance	823
with section 5747.20 of the Revised Code but shall be apportioned	824
to this state in accordance with division (B) of section 5747.212	825
of the Revised Code without regard to division (A) of that	826
section.	827

If the allocation and apportionment of a trust's income under	828
divisions (BB)(4)(a) and (c) of this section do not fairly	829
represent the modified Ohio taxable income of the trust in this	830
state, the alternative methods described in division (C) of	831
section 5747.21 of the Revised Code may be applied in the manner	832
and to the same extent provided in that section.	833

(5)(a) Except as set forth in division (BB)(5)(b) of this	834
section, "qualifying investee" means a person in which a trust has	835
an equity or ownership interest, or a person or unit of government	836
the debt obligations of either of which are owned by a trust. For	837
the purposes of division (BB)(2)(a) of this section and for the	838
purpose of computing the fraction described in division (BB)(4)(b)	839
of this section, all of the following apply:	840

(i) If the qualifying investee is a member of a qualifying	841
controlled group on the last day of the qualifying investee's	842
fiscal or calendar year ending immediately prior to the date on	843
which the trust recognizes the gain or loss, then "qualifying	844
investee" includes all persons in the qualifying controlled group	845
on such last day.	846

(ii) If the qualifying investee, or if the qualifying	847
investee and any members of the qualifying controlled group of	848
which the qualifying investee is a member on the last day of the	849
qualifying investee's fiscal or calendar year ending immediately	850
prior to the date on which the trust recognizes the gain or loss,	851
separately or cumulatively own, directly or indirectly, on the	852
last day of the qualifying investee's fiscal or calendar year	853
ending immediately prior to the date on which the trust recognizes	854
the qualifying trust amount, more than fifty per cent of the	855
equity of a pass-through entity, then the qualifying investee and	856
the other members are deemed to own the proportionate share of the	857
pass-through entity's physical assets which the pass-through	858
entity directly or indirectly owns on the last day of the	859
pass-through entity's calendar or fiscal year ending within or	860
with the last day of the qualifying investee's fiscal or calendar	861
year ending immediately prior to the date on which the trust	862
recognizes the qualifying trust amount.	863

(iii) For the purposes of division (BB)(5)(a)(iii) of this	864
section, "upper level pass-through entity" means a pass-through	865
entity directly or indirectly owning any equity of another	866
pass-through entity, and "lower level pass-through entity" means	867
that other pass-through entity.	868

An upper level pass-through entity, whether or not it is also	869
a qualifying investee, is deemed to own, on the last day of the	870
upper level pass-through entity's calendar or fiscal year, the	871
proportionate share of the lower level pass-through entity's	872
physical assets that the lower level pass-through entity directly	873
or indirectly owns on the last day of the lower level pass-through	874
entity's calendar or fiscal year ending within or with the last	875
day of the upper level pass-through entity's fiscal or calendar	876
year. If the upper level pass-through entity directly and	877
indirectly owns less than fifty per cent of the equity of the	878
lower level pass-through entity on each day of the upper level	879
pass-through entity's calendar or fiscal year in which or with	880
which ends the calendar or fiscal year of the lower level	881
pass-through entity and if, based upon clear and convincing	882
evidence, complete information about the location and cost of the	883
physical assets of the lower pass-through entity is not available	884
to the upper level pass-through entity, then solely for purposes	885
of ascertaining if a gain or loss constitutes a qualifying trust	886
amount, the upper level pass-through entity shall be deemed as	887
owning no equity of the lower level pass-through entity for each	888
day during the upper level pass-through entity's calendar or	889
fiscal year in which or with which ends the lower level	890
pass-through entity's calendar or fiscal year. Nothing in division	891
(BB)(5)(a)(iii) of this section shall be construed to provide for	892
any deduction or exclusion in computing any trust's Ohio taxable	893
income.	894

(b) With respect to a trust that is not a resident for the	895
taxable year and with respect to a part of a trust that is not a	896
resident for the taxable year, "qualifying investee" for that	897
taxable year does not include a C corporation if both of the	898
following apply:	899

(i) During the taxable year the trust or part of the trust	900
recognizes a gain or loss from the sale, exchange, or other	901
disposition of equity or ownership interests in, or debt	902
obligations of, the C corporation.	903

(ii) Such gain or loss constitutes nonbusiness income.

904

(6) "Available" means information is such that a person is	905
able to learn of the information by the due date plus extensions,	906
if any, for filing the return for the taxable year in which the	907
trust recognizes the gain or loss.	908

(CC) "Qualifying controlled group" has the same meaning as in	909
section 5733.04 of the Revised Code.	910

(DD) "Related member" has the same meaning as in section	911
5733.042 of the Revised Code.	912

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

913

(a) "Qualifying person" means any person other than a	914
qualifying corporation.	915

(b) "Qualifying corporation" means any person classified for	916
federal income tax purposes as an association taxable as a	917
corporation, except either of the following:	918

(i) A corporation that has made an election under subchapter	919
S, chapter one, subtitle A, of the Internal Revenue Code for its	920
taxable year ending within, or on the last day of, the investor's	921
taxable year;	922

(ii) A subsidiary that is wholly owned by any corporation	923
that has made an election under subchapter S, chapter one,	924
subtitle A of the Internal Revenue Code for its taxable year	925
ending within, or on the last day of, the investor's taxable year.	926

(2) For the purposes of this chapter, unless expressly stated	927
otherwise, no qualifying person indirectly owns any asset directly	928
or indirectly owned by any qualifying corporation.	929

(FF) For purposes of this chapter and Chapter 5751. of the	930
Revised Code:	931

(1) "Trust" does not include a qualified pre-income tax	932
trust.	933

(2) A "qualified pre-income tax trust" is any pre-income tax	934
trust that makes a qualifying pre-income tax trust election as	935
described in division (FF)(3) of this section.	936

(3) A "qualifying pre-income tax trust election" is an	937
election by a pre-income tax trust to subject to the tax imposed	938
by section 5751.02 of the Revised Code the pre-income tax trust	939
and all pass-through entities of which the trust owns or controls,	940
directly, indirectly, or constructively through related interests,	941
five per cent or more of the ownership or equity interests. The	942
trustee shall notify the tax commissioner in writing of the	943
election on or before April 15, 2006. The election, if timely	944
made, shall be effective on and after January 1, 2006, and shall	945
apply for all tax periods and tax years until revoked by the	946
trustee of the trust.	947

(4) A "pre-income tax trust" is a trust that satisfies all of	948
the following requirements:	949

(a) The document or instrument creating the trust was	950
executed by the grantor before January 1, 1972;	951

(b) The trust became irrevocable upon the creation of the	952
trust; and	953

(c) The grantor was domiciled in this state at the time the	954
trust was created.	955

Sec. 5747.014.  (A) As used in this section and in divisions	956
(A)(30) and (S)(15) of section 5747.01 of the Revised Code:	957

(1) "Small business" means a sole proprietorship or	958
pass-through entity having gross income for its qualifying taxable	959
year not exceeding one million dollars.	960

(2) "Gross income" means the gross income reported by the	961
small business for its qualifying taxable year for federal income	962
tax purposes.	963

(3) "Eligible small business" means a small business that,	964
for federal income tax purposes, reports net profit for its	965
qualifying taxable year in an amount exceeding three per cent of	966
its gross income for that year, and that, in that taxable year,	967
distributes the net profit to its owners in an amount less than	968
the difference between the following:	969

(a) The net profit of the business;

970

(b) Three per cent of the gross income of the business.

971

(4) "Undistributed profit" means net profit of an eligible	972
small business that is not distributed to equity owners of the	973
business in the business' taxable year for which the net profit is	974
reported for federal income tax purposes.	975

(5) "Qualifying reinvestment expenditures" means expenditures	976
by an eligible small business for employee training costs; costs	977
of research and development as defined in section 122.15 of the	978
Revised Code; or costs of purchasing real or tangible personal	979
property used in the trade or business and chargeable to a capital	980
account.	981

(6) "Qualifying taxable year" of an eligible small business	982
means the business' taxable year ending in a taxpayer's taxable	983
year for which the taxpayer may claim the deduction under division	984
(A)(30)(a) or (S)(15)(a) of section 5747.01 of the Revised Code.	985

(7) "Employee training costs" means direct instructional	986
costs incurred to improve employees' job skills. "Employee	987
training costs" does not include the cost of executive,	988
management, or personal enrichment training programs or of	989
training programs intended exclusively for personal career	990
development.	991

Section 2.  That existing section 5747.01 of the Revised Code	992
is hereby repealed.	993

Section 3. The amendment or enactment by this act of sections	994
5747.01 and 5747.014 of the Revised Code apply to a taxpayer's	995
taxable years beginning on or after the effective date of this	996
act.	997