As Reported by the House Ways and Means Committee

129th General Assembly Regular Session 2011-2012

H. B. No. 167

Representatives Derickson, Mallory 

Cosponsors: Representatives Grossman, Thompson, Blessing, Combs, Boose, Hall, McGregor, McClain, Beck, Damschroder, Pillich, Clyde, Reece, Yuko, Fedor, Antonio, Weddington, Szollosi, Garland, Letson, Barnes, Blair, Dovilla, Fende, Hayes, Milkovich, Stautberg, Winburn 

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A BILL

To amend section 5747.01 of the Revised Code to

1

authorize an income tax deduction for the

2

otherwise taxable portion of a federal Pell grant

3

or Ohio College Opportunity grant used to pay room

4

and board for a post-secondary student.

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, Ohio college opportunity or federal Pell grant amounts	345
received by the taxpayer or the taxpayer's spouse or dependent	346
pursuant to section 3333.122 of the Revised Code or 20 U.S.C.	347
1070a, et seq., and used to pay room or board furnished by the	348
educational institution for which the grant was awarded at the	349
institution's facilities, including meal plans administered by the	350
institution. For the purposes of this division, receipt of a grant	351
includes the distribution of a grant directly to an educational	352
institution and the crediting of the grant to the enrollee's	353
account with the institution.	354

(B) "Business income" means income, including gain or loss,	355
arising from transactions, activities, and sources in the regular	356
course of a trade or business and includes income, gain, or loss	357
from real property, tangible property, and intangible property if	358
the acquisition, rental, management, and disposition of the	359
property constitute integral parts of the regular course of a	360
trade or business operation. "Business income" includes income,	361
including gain or loss, from a partial or complete liquidation of	362
a business, including, but not limited to, gain or loss from the	363
sale or other disposition of goodwill.	364

(C) "Nonbusiness income" means all income other than business	365
income and may include, but is not limited to, compensation, rents	366
and royalties from real or tangible personal property, capital	367
gains, interest, dividends and distributions, patent or copyright	368
royalties, or lottery winnings, prizes, and awards.	369

(D) "Compensation" means any form of remuneration paid to an	370
employee for personal services.	371

(E) "Fiduciary" means a guardian, trustee, executor,	372
administrator, receiver, conservator, or any other person acting	373
in any fiduciary capacity for any individual, trust, or estate.	374

(F) "Fiscal year" means an accounting period of twelve months	375
ending on the last day of any month other than December.	376

(G) "Individual" means any natural person.

377

(H) "Internal Revenue Code" means the "Internal Revenue Code	378
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	379

(I) "Resident" means any of the following, provided that	380
division (I)(3) of this section applies only to taxable years of a	381
trust beginning in 2002 or thereafter:	382

(1) An individual who is domiciled in this state, subject to	383
section 5747.24 of the Revised Code;	384

(2) The estate of a decedent who at the time of death was	385
domiciled in this state. The domicile tests of section 5747.24 of	386
the Revised Code are not controlling for purposes of division	387
(I)(2) of this section.	388

(3) A trust that, in whole or part, resides in this state. If	389
only part of a trust resides in this state, the trust is a	390
resident only with respect to that part.	391

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

392

(a) A trust resides in this state for the trust's current	393
taxable year to the extent, as described in division (I)(3)(d) of	394
this section, that the trust consists directly or indirectly, in	395
whole or in part, of assets, net of any related liabilities, that	396
were transferred, or caused to be transferred, directly or	397
indirectly, to the trust by any of the following:	398

(i) A person, a court, or a governmental entity or	399
instrumentality on account of the death of a decedent, but only if	400
the trust is described in division (I)(3)(e)(i) or (ii) of this	401
section;	402

(ii) A person who was domiciled in this state for the	403
purposes of this chapter when the person directly or indirectly	404
transferred assets to an irrevocable trust, but only if at least	405
one of the trust's qualifying beneficiaries is domiciled in this	406
state for the purposes of this chapter during all or some portion	407
of the trust's current taxable year;	408

(iii) A person who was domiciled in this state for the	409
purposes of this chapter when the trust document or instrument or	410
part of the trust document or instrument became irrevocable, but	411
only if at least one of the trust's qualifying beneficiaries is a	412
resident domiciled in this state for the purposes of this chapter	413
during all or some portion of the trust's current taxable year. If	414
a trust document or instrument became irrevocable upon the death	415
of a person who at the time of death was domiciled in this state	416
for purposes of this chapter, that person is a person described in	417
division (I)(3)(a)(iii) of this section.	418

(b) A trust is irrevocable to the extent that the transferor	419
is not considered to be the owner of the net assets of the trust	420
under sections 671 to 678 of the Internal Revenue Code.	421

(c) With respect to a trust other than a charitable lead	422
trust, "qualifying beneficiary" has the same meaning as "potential	423
current beneficiary" as defined in section 1361(e)(2) of the	424
Internal Revenue Code, and with respect to a charitable lead trust	425
"qualifying beneficiary" is any current, future, or contingent	426
beneficiary, but with respect to any trust "qualifying	427
beneficiary" excludes a person or a governmental entity or	428
instrumentality to any of which a contribution would qualify for	429
the charitable deduction under section 170 of the Internal Revenue	430
Code.	431

(d) For the purposes of division (I)(3)(a) of this section,	432
the extent to which a trust consists directly or indirectly, in	433
whole or in part, of assets, net of any related liabilities, that	434
were transferred directly or indirectly, in whole or part, to the	435
trust by any of the sources enumerated in that division shall be	436
ascertained by multiplying the fair market value of the trust's	437
assets, net of related liabilities, by the qualifying ratio, which	438
shall be computed as follows:	439

(i) The first time the trust receives assets, the numerator	440
of the qualifying ratio is the fair market value of those assets	441
at that time, net of any related liabilities, from sources	442
enumerated in division (I)(3)(a) of this section. The denominator	443
of the qualifying ratio is the fair market value of all the	444
trust's assets at that time, net of any related liabilities.	445

(ii) Each subsequent time the trust receives assets, a	446
revised qualifying ratio shall be computed. The numerator of the	447
revised qualifying ratio is the sum of (1) the fair market value	448
of the trust's assets immediately prior to the subsequent	449
transfer, net of any related liabilities, multiplied by the	450
qualifying ratio last computed without regard to the subsequent	451
transfer, and (2) the fair market value of the subsequently	452
transferred assets at the time transferred, net of any related	453
liabilities, from sources enumerated in division (I)(3)(a) of this	454
section. The denominator of the revised qualifying ratio is the	455
fair market value of all the trust's assets immediately after the	456
subsequent transfer, net of any related liabilities.	457

(iii) Whether a transfer to the trust is by or from any of	458
the sources enumerated in division (I)(3)(a) of this section shall	459
be ascertained without regard to the domicile of the trust's	460
beneficiaries.	461

(e) For the purposes of division (I)(3)(a)(i) of this	462
section:	463

(i) A trust is described in division (I)(3)(e)(i) of this	464
section if the trust is a testamentary trust and the testator of	465
that testamentary trust was domiciled in this state at the time of	466
the testator's death for purposes of the taxes levied under	467
Chapter 5731. of the Revised Code.	468

(ii) A trust is described in division (I)(3)(e)(ii) of this	469
section if the transfer is a qualifying transfer described in any	470
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	471
irrevocable inter vivos trust, and at least one of the trust's	472
qualifying beneficiaries is domiciled in this state for purposes	473
of this chapter during all or some portion of the trust's current	474
taxable year.	475

(f) For the purposes of division (I)(3)(e)(ii) of this	476
section, a "qualifying transfer" is a transfer of assets, net of	477
any related liabilities, directly or indirectly to a trust, if the	478
transfer is described in any of the following:	479

(i) The transfer is made to a trust, created by the decedent	480
before the decedent's death and while the decedent was domiciled	481
in this state for the purposes of this chapter, and, prior to the	482
death of the decedent, the trust became irrevocable while the	483
decedent was domiciled in this state for the purposes of this	484
chapter.	485

(ii) The transfer is made to a trust to which the decedent,	486
prior to the decedent's death, had directly or indirectly	487
transferred assets, net of any related liabilities, while the	488
decedent was domiciled in this state for the purposes of this	489
chapter, and prior to the death of the decedent the trust became	490
irrevocable while the decedent was domiciled in this state for the	491
purposes of this chapter.	492

(iii) The transfer is made on account of a contractual	493
relationship existing directly or indirectly between the	494
transferor and either the decedent or the estate of the decedent	495
at any time prior to the date of the decedent's death, and the	496
decedent was domiciled in this state at the time of death for	497
purposes of the taxes levied under Chapter 5731. of the Revised	498
Code.	499

(iv) The transfer is made to a trust on account of a	500
contractual relationship existing directly or indirectly between	501
the transferor and another person who at the time of the	502
decedent's death was domiciled in this state for purposes of this	503
chapter.	504

(v) The transfer is made to a trust on account of the will of	505
a testator who was domiciled in this state at the time of the	506
testator's death for purposes of the taxes levied under Chapter	507
5731. of the Revised Code.	508

(vi) The transfer is made to a trust created by or caused to	509
be created by a court, and the trust was directly or indirectly	510
created in connection with or as a result of the death of an	511
individual who, for purposes of the taxes levied under Chapter	512
5731. of the Revised Code, was domiciled in this state at the time	513
of the individual's death.	514

(g) The tax commissioner may adopt rules to ascertain the	515
part of a trust residing in this state.	516

(J) "Nonresident" means an individual or estate that is not a	517
resident. An individual who is a resident for only part of a	518
taxable year is a nonresident for the remainder of that taxable	519
year.	520

(K) "Pass-through entity" has the same meaning as in section	521
5733.04 of the Revised Code.	522

(L) "Return" means the notifications and reports required to	523
be filed pursuant to this chapter for the purpose of reporting the	524
tax due and includes declarations of estimated tax when so	525
required.	526

(M) "Taxable year" means the calendar year or the taxpayer's	527
fiscal year ending during the calendar year, or fractional part	528
thereof, upon which the adjusted gross income is calculated	529
pursuant to this chapter.	530

(N) "Taxpayer" means any person subject to the tax imposed by	531
section 5747.02 of the Revised Code or any pass-through entity	532
that makes the election under division (D) of section 5747.08 of	533
the Revised Code.	534

(O) "Dependents" means dependents as defined in the Internal	535
Revenue Code and as claimed in the taxpayer's federal income tax	536
return for the taxable year or which the taxpayer would have been	537
permitted to claim had the taxpayer filed a federal income tax	538
return.	539

(P) "Principal county of employment" means, in the case of a	540
nonresident, the county within the state in which a taxpayer	541
performs services for an employer or, if those services are	542
performed in more than one county, the county in which the major	543
portion of the services are performed.	544

(Q) As used in sections 5747.50 to 5747.55 of the Revised	545
Code:	546

(1) "Subdivision" means any county, municipal corporation,	547
park district, or township.	548

(2) "Essential local government purposes" includes all	549
functions that any subdivision is required by general law to	550
exercise, including like functions that are exercised under a	551
charter adopted pursuant to the Ohio Constitution.	552

(R) "Overpayment" means any amount already paid that exceeds	553
the figure determined to be the correct amount of the tax.	554

(S) "Taxable income" or "Ohio taxable income" applies only to	555
estates and trusts, and means federal taxable income, as defined	556
and used in the Internal Revenue Code, adjusted as follows:	557

(1) Add interest or dividends, net of ordinary, necessary,	558
and reasonable expenses not deducted in computing federal taxable	559
income, on obligations or securities of any state or of any	560
political subdivision or authority of any state, other than this	561
state and its subdivisions and authorities, but only to the extent	562
that such net amount is not otherwise includible in Ohio taxable	563
income and is described in either division (S)(1)(a) or (b) of	564
this section:	565

(a) The net amount is not attributable to the S portion of an	566
electing small business trust and has not been distributed to	567
beneficiaries for the taxable year;	568

(b) The net amount is attributable to the S portion of an	569
electing small business trust for the taxable year.	570

(2) Add interest or dividends, net of ordinary, necessary,	571
and reasonable expenses not deducted in computing federal taxable	572
income, on obligations of any authority, commission,	573
instrumentality, territory, or possession of the United States to	574
the extent that the interest or dividends are exempt from federal	575
income taxes but not from state income taxes, but only to the	576
extent that such net amount is not otherwise includible in Ohio	577
taxable income and is described in either division (S)(1)(a) or	578
(b) of this section;	579

(3) Add the amount of personal exemption allowed to the	580
estate pursuant to section 642(b) of the Internal Revenue Code;	581

(4) Deduct interest or dividends, net of related expenses	582
deducted in computing federal taxable income, on obligations of	583
the United States and its territories and possessions or of any	584
authority, commission, or instrumentality of the United States to	585
the extent that the interest or dividends are exempt from state	586
taxes under the laws of the United States, but only to the extent	587
that such amount is included in federal taxable income and is	588
described in either division (S)(1)(a) or (b) of this section;	589

(5) Deduct the amount of wages and salaries, if any, not	590
otherwise allowable as a deduction but that would have been	591
allowable as a deduction in computing federal taxable income for	592
the taxable year, had the targeted jobs credit allowed under	593
sections 38, 51, and 52 of the Internal Revenue Code not been in	594
effect, but only to the extent such amount relates either to	595
income included in federal taxable income for the taxable year or	596
to income of the S portion of an electing small business trust for	597
the taxable year;	598

(6) Deduct any interest or interest equivalent, net of	599
related expenses deducted in computing federal taxable income, on	600
public obligations and purchase obligations, but only to the	601
extent that such net amount relates either to income included in	602
federal taxable income for the taxable year or to income of the S	603
portion of an electing small business trust for the taxable year;	604

(7) Add any loss or deduct any gain resulting from sale,	605
exchange, or other disposition of public obligations to the extent	606
that such loss has been deducted or such gain has been included in	607
computing either federal taxable income or income of the S portion	608
of an electing small business trust for the taxable year;	609

(8) Except in the case of the final return of an estate, add	610
any amount deducted by the taxpayer on both its Ohio estate tax	611
return pursuant to section 5731.14 of the Revised Code, and on its	612
federal income tax return in determining federal taxable income;	613

(9)(a) Deduct any amount included in federal taxable income	614
solely because the amount represents a reimbursement or refund of	615
expenses that in a previous year the decedent had deducted as an	616
itemized deduction pursuant to section 63 of the Internal Revenue	617
Code and applicable treasury regulations. The deduction otherwise	618
allowed under division (S)(9)(a) of this section shall be reduced	619
to the extent the reimbursement is attributable to an amount the	620
taxpayer or decedent deducted under this section in any taxable	621
year.	622

(b) Add any amount not otherwise included in Ohio taxable	623
income for any taxable year to the extent that the amount is	624
attributable to the recovery during the taxable year of any amount	625
deducted or excluded in computing federal or Ohio taxable income	626
in any taxable year, but only to the extent such amount has not	627
been distributed to beneficiaries for the taxable year.	628

(10) Deduct any portion of the deduction described in section	629
1341(a)(2) of the Internal Revenue Code, for repaying previously	630
reported income received under a claim of right, that meets both	631
of the following requirements:	632

(a) It is allowable for repayment of an item that was	633
included in the taxpayer's taxable income or the decedent's	634
adjusted gross income for a prior taxable year and did not qualify	635
for a credit under division (A) or (B) of section 5747.05 of the	636
Revised Code for that year.	637

(b) It does not otherwise reduce the taxpayer's taxable	638
income or the decedent's adjusted gross income for the current or	639
any other taxable year.	640

(11) Add any amount claimed as a credit under section	641
5747.059 of the Revised Code to the extent that the amount	642
satisfies either of the following:	643

(a) The amount was deducted or excluded from the computation	644
of the taxpayer's federal taxable income as required to be	645
reported for the taxpayer's taxable year under the Internal	646
Revenue Code;	647

(b) The amount resulted in a reduction in the taxpayer's	648
federal taxable income as required to be reported for any of the	649
taxpayer's taxable years under the Internal Revenue Code.	650

(12) Deduct any amount, net of related expenses deducted in	651
computing federal taxable income, that a trust is required to	652
report as farm income on its federal income tax return, but only	653
if the assets of the trust include at least ten acres of land	654
satisfying the definition of "land devoted exclusively to	655
agricultural use" under section 5713.30 of the Revised Code,	656
regardless of whether the land is valued for tax purposes as such	657
land under sections 5713.30 to 5713.38 of the Revised Code. If the	658
trust is a pass-through entity investor, section 5747.231 of the	659
Revised Code applies in ascertaining if the trust is eligible to	660
claim the deduction provided by division (S)(12) of this section	661
in connection with the pass-through entity's farm income.	662

Except for farm income attributable to the S portion of an	663
electing small business trust, the deduction provided by division	664
(S)(12) of this section is allowed only to the extent that the	665
trust has not distributed such farm income. Division (S)(12) of	666
this section applies only to taxable years of a trust beginning in	667
2002 or thereafter.	668

(13) Add the net amount of income described in section 641(c)	669
of the Internal Revenue Code to the extent that amount is not	670
included in federal taxable income.	671

(14) Add or deduct the amount the taxpayer would be required	672
to add or deduct under division (A)(20) or (21) of this section if	673
the taxpayer's Ohio taxable income were computed in the same	674
manner as an individual's Ohio adjusted gross income is computed	675
under this section. In the case of a trust, division (S)(14) of	676
this section applies only to any of the trust's taxable years	677
beginning in 2002 or thereafter.	678

(T) "School district income" and "school district income tax"	679
have the same meanings as in section 5748.01 of the Revised Code.	680

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	681
of this section, "public obligations," "purchase obligations," and	682
"interest or interest equivalent" have the same meanings as in	683
section 5709.76 of the Revised Code.	684

(V) "Limited liability company" means any limited liability	685
company formed under Chapter 1705. of the Revised Code or under	686
the laws of any other state.	687

(W) "Pass-through entity investor" means any person who,	688
during any portion of a taxable year of a pass-through entity, is	689
a partner, member, shareholder, or equity investor in that	690
pass-through entity.	691

(X) "Banking day" has the same meaning as in section 1304.01	692
of the Revised Code.	693

(Y) "Month" means a calendar month.

694

(Z) "Quarter" means the first three months, the second three	695
months, the third three months, or the last three months of the	696
taxpayer's taxable year.	697

(AA)(1) "Eligible institution" means a state university or	698
state institution of higher education as defined in section	699
3345.011 of the Revised Code, or a private, nonprofit college,	700
university, or other post-secondary institution located in this	701
state that possesses a certificate of authorization issued by the	702
Ohio board of regents pursuant to Chapter 1713. of the Revised	703
Code or a certificate of registration issued by the state board of	704
career colleges and schools under Chapter 3332. of the Revised	705
Code.	706

(2) "Qualified tuition and fees" means tuition and fees	707
imposed by an eligible institution as a condition of enrollment or	708
attendance, not exceeding two thousand five hundred dollars in	709
each of the individual's first two years of post-secondary	710
education. If the individual is a part-time student, "qualified	711
tuition and fees" includes tuition and fees paid for the academic	712
equivalent of the first two years of post-secondary education	713
during a maximum of five taxable years, not exceeding a total of	714
five thousand dollars. "Qualified tuition and fees" does not	715
include:	716

(a) Expenses for any course or activity involving sports,	717
games, or hobbies unless the course or activity is part of the	718
individual's degree or diploma program;	719

(b) The cost of books, room and board, student activity fees,	720
athletic fees, insurance expenses, or other expenses unrelated to	721
the individual's academic course of instruction;	722

(c) Tuition, fees, or other expenses paid or reimbursed	723
through an employer, scholarship, grant in aid, or other	724
educational benefit program.	725

(BB)(1) "Modified business income" means the business income	726
included in a trust's Ohio taxable income after such taxable	727
income is first reduced by the qualifying trust amount, if any.	728

(2) "Qualifying trust amount" of a trust means capital gains	729
and losses from the sale, exchange, or other disposition of equity	730
or ownership interests in, or debt obligations of, a qualifying	731
investee to the extent included in the trust's Ohio taxable	732
income, but only if the following requirements are satisfied:	733

(a) The book value of the qualifying investee's physical	734
assets in this state and everywhere, as of the last day of the	735
qualifying investee's fiscal or calendar year ending immediately	736
prior to the date on which the trust recognizes the gain or loss,	737
is available to the trust.	738

(b) The requirements of section 5747.011 of the Revised Code	739
are satisfied for the trust's taxable year in which the trust	740
recognizes the gain or loss.	741

Any gain or loss that is not a qualifying trust amount is	742
modified business income, qualifying investment income, or	743
modified nonbusiness income, as the case may be.	744

(3) "Modified nonbusiness income" means a trust's Ohio	745
taxable income other than modified business income, other than the	746
qualifying trust amount, and other than qualifying investment	747
income, as defined in section 5747.012 of the Revised Code, to the	748
extent such qualifying investment income is not otherwise part of	749
modified business income.	750

(4) "Modified Ohio taxable income" applies only to trusts,	751
and means the sum of the amounts described in divisions (BB)(4)(a)	752
to (c) of this section:	753

(a) The fraction, calculated under section 5747.013, and	754
applying section 5747.231 of the Revised Code, multiplied by the	755
sum of the following amounts:	756

(i) The trust's modified business income;

757

(ii) The trust's qualifying investment income, as defined in	758
section 5747.012 of the Revised Code, but only to the extent the	759
qualifying investment income does not otherwise constitute	760
modified business income and does not otherwise constitute a	761
qualifying trust amount.	762

(b) The qualifying trust amount multiplied by a fraction, the	763
numerator of which is the sum of the book value of the qualifying	764
investee's physical assets in this state on the last day of the	765
qualifying investee's fiscal or calendar year ending immediately	766
prior to the day on which the trust recognizes the qualifying	767
trust amount, and the denominator of which is the sum of the book	768
value of the qualifying investee's total physical assets	769
everywhere on the last day of the qualifying investee's fiscal or	770
calendar year ending immediately prior to the day on which the	771
trust recognizes the qualifying trust amount. If, for a taxable	772
year, the trust recognizes a qualifying trust amount with respect	773
to more than one qualifying investee, the amount described in	774
division (BB)(4)(b) of this section shall equal the sum of the	775
products so computed for each such qualifying investee.	776

(c)(i) With respect to a trust or portion of a trust that is	777
a resident as ascertained in accordance with division (I)(3)(d) of	778
this section, its modified nonbusiness income.	779

(ii) With respect to a trust or portion of a trust that is	780
not a resident as ascertained in accordance with division	781
(I)(3)(d) of this section, the amount of its modified nonbusiness	782
income satisfying the descriptions in divisions (B)(2) to (5) of	783
section 5747.20 of the Revised Code, except as otherwise provided	784
in division (BB)(4)(c)(ii) of this section. With respect to a	785
trust or portion of a trust that is not a resident as ascertained	786
in accordance with division (I)(3)(d) of this section, the trust's	787
portion of modified nonbusiness income recognized from the sale,	788
exchange, or other disposition of a debt interest in or equity	789
interest in a section 5747.212 entity, as defined in section	790
5747.212 of the Revised Code, without regard to division (A) of	791
that section, shall not be allocated to this state in accordance	792
with section 5747.20 of the Revised Code but shall be apportioned	793
to this state in accordance with division (B) of section 5747.212	794
of the Revised Code without regard to division (A) of that	795
section.	796

If the allocation and apportionment of a trust's income under	797
divisions (BB)(4)(a) and (c) of this section do not fairly	798
represent the modified Ohio taxable income of the trust in this	799
state, the alternative methods described in division (C) of	800
section 5747.21 of the Revised Code may be applied in the manner	801
and to the same extent provided in that section.	802

(5)(a) Except as set forth in division (BB)(5)(b) of this	803
section, "qualifying investee" means a person in which a trust has	804
an equity or ownership interest, or a person or unit of government	805
the debt obligations of either of which are owned by a trust. For	806
the purposes of division (BB)(2)(a) of this section and for the	807
purpose of computing the fraction described in division (BB)(4)(b)	808
of this section, all of the following apply:	809

(i) If the qualifying investee is a member of a qualifying	810
controlled group on the last day of the qualifying investee's	811
fiscal or calendar year ending immediately prior to the date on	812
which the trust recognizes the gain or loss, then "qualifying	813
investee" includes all persons in the qualifying controlled group	814
on such last day.	815

(ii) If the qualifying investee, or if the qualifying	816
investee and any members of the qualifying controlled group of	817
which the qualifying investee is a member on the last day of the	818
qualifying investee's fiscal or calendar year ending immediately	819
prior to the date on which the trust recognizes the gain or loss,	820
separately or cumulatively own, directly or indirectly, on the	821
last day of the qualifying investee's fiscal or calendar year	822
ending immediately prior to the date on which the trust recognizes	823
the qualifying trust amount, more than fifty per cent of the	824
equity of a pass-through entity, then the qualifying investee and	825
the other members are deemed to own the proportionate share of the	826
pass-through entity's physical assets which the pass-through	827
entity directly or indirectly owns on the last day of the	828
pass-through entity's calendar or fiscal year ending within or	829
with the last day of the qualifying investee's fiscal or calendar	830
year ending immediately prior to the date on which the trust	831
recognizes the qualifying trust amount.	832

(iii) For the purposes of division (BB)(5)(a)(iii) of this	833
section, "upper level pass-through entity" means a pass-through	834
entity directly or indirectly owning any equity of another	835
pass-through entity, and "lower level pass-through entity" means	836
that other pass-through entity.	837

An upper level pass-through entity, whether or not it is also	838
a qualifying investee, is deemed to own, on the last day of the	839
upper level pass-through entity's calendar or fiscal year, the	840
proportionate share of the lower level pass-through entity's	841
physical assets that the lower level pass-through entity directly	842
or indirectly owns on the last day of the lower level pass-through	843
entity's calendar or fiscal year ending within or with the last	844
day of the upper level pass-through entity's fiscal or calendar	845
year. If the upper level pass-through entity directly and	846
indirectly owns less than fifty per cent of the equity of the	847
lower level pass-through entity on each day of the upper level	848
pass-through entity's calendar or fiscal year in which or with	849
which ends the calendar or fiscal year of the lower level	850
pass-through entity and if, based upon clear and convincing	851
evidence, complete information about the location and cost of the	852
physical assets of the lower pass-through entity is not available	853
to the upper level pass-through entity, then solely for purposes	854
of ascertaining if a gain or loss constitutes a qualifying trust	855
amount, the upper level pass-through entity shall be deemed as	856
owning no equity of the lower level pass-through entity for each	857
day during the upper level pass-through entity's calendar or	858
fiscal year in which or with which ends the lower level	859
pass-through entity's calendar or fiscal year. Nothing in division	860
(BB)(5)(a)(iii) of this section shall be construed to provide for	861
any deduction or exclusion in computing any trust's Ohio taxable	862
income.	863

(b) With respect to a trust that is not a resident for the	864
taxable year and with respect to a part of a trust that is not a	865
resident for the taxable year, "qualifying investee" for that	866
taxable year does not include a C corporation if both of the	867
following apply:	868

(i) During the taxable year the trust or part of the trust	869
recognizes a gain or loss from the sale, exchange, or other	870
disposition of equity or ownership interests in, or debt	871
obligations of, the C corporation.	872

(ii) Such gain or loss constitutes nonbusiness income.

873

(6) "Available" means information is such that a person is	874
able to learn of the information by the due date plus extensions,	875
if any, for filing the return for the taxable year in which the	876
trust recognizes the gain or loss.	877

(CC) "Qualifying controlled group" has the same meaning as in	878
section 5733.04 of the Revised Code.	879

(DD) "Related member" has the same meaning as in section	880
5733.042 of the Revised Code.	881

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

882

(a) "Qualifying person" means any person other than a	883
qualifying corporation.	884

(b) "Qualifying corporation" means any person classified for	885
federal income tax purposes as an association taxable as a	886
corporation, except either of the following:	887

(i) A corporation that has made an election under subchapter	888
S, chapter one, subtitle A, of the Internal Revenue Code for its	889
taxable year ending within, or on the last day of, the investor's	890
taxable year;	891

(ii) A subsidiary that is wholly owned by any corporation	892
that has made an election under subchapter S, chapter one,	893
subtitle A of the Internal Revenue Code for its taxable year	894
ending within, or on the last day of, the investor's taxable year.	895

(2) For the purposes of this chapter, unless expressly stated	896
otherwise, no qualifying person indirectly owns any asset directly	897
or indirectly owned by any qualifying corporation.	898

(FF) For purposes of this chapter and Chapter 5751. of the	899
Revised Code:	900

(1) "Trust" does not include a qualified pre-income tax	901
trust.	902

(2) A "qualified pre-income tax trust" is any pre-income tax	903
trust that makes a qualifying pre-income tax trust election as	904
described in division (FF)(3) of this section.	905

(3) A "qualifying pre-income tax trust election" is an	906
election by a pre-income tax trust to subject to the tax imposed	907
by section 5751.02 of the Revised Code the pre-income tax trust	908
and all pass-through entities of which the trust owns or controls,	909
directly, indirectly, or constructively through related interests,	910
five per cent or more of the ownership or equity interests. The	911
trustee shall notify the tax commissioner in writing of the	912
election on or before April 15, 2006. The election, if timely	913
made, shall be effective on and after January 1, 2006, and shall	914
apply for all tax periods and tax years until revoked by the	915
trustee of the trust.	916

(4) A "pre-income tax trust" is a trust that satisfies all of	917
the following requirements:	918

(a) The document or instrument creating the trust was	919
executed by the grantor before January 1, 1972;	920

(b) The trust became irrevocable upon the creation of the	921
trust; and	922

(c) The grantor was domiciled in this state at the time the	923
trust was created.	924

Section 2. That existing section 5747.01 of the Revised Code	925
is hereby repealed.	926

Section 3. The amendment by this act of section 5747.01 of	927
the Revised Code applies to taxable years ending on or after the	928
effective date of this act.	929