As Reported by the Senate Ways and Means and Economic Development Committee

129th General Assembly Regular Session 2011-2012

H. B. No. 239

Representative Stautberg 

Cosponsors: Representatives Balderson, Blair, Blessing, Coley, Combs, Derickson, Dovilla, Gardner, Grossman, Letson, Maag, McClain, Pillich, Ruhl, Sears, Szollosi, Uecker, Weddington, Wachtmann, Fende, Antonio, Boyd, Carney, Garland, Hackett, Johnson, Pelanda, Smith, Amstutz, Anielski, Baker, Beck, Bubp, Celeste, DeVitis, Gerberry, Hagan, C., Hall, Heard, Hill, Luckie, Lynch, Mallory, McGregor, Milkovich, Newbold, O'Brien, Stinziano, Terhar, Winburn, Yuko Speaker Batchelder 

Senator Beagle 

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A BILL

To amend section 5747.01 of the Revised Code to

1

exempt retirement pay related to service in the

2

Commissioned Corps of the National Oceanic and

3

Atmospheric Administration and the Commissioned

4

Corps of the Public Health Service.

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

(B) "Business income" means income, including gain or loss,	344
arising from transactions, activities, and sources in the regular	345
course of a trade or business and includes income, gain, or loss	346
from real property, tangible property, and intangible property if	347
the acquisition, rental, management, and disposition of the	348
property constitute integral parts of the regular course of a	349
trade or business operation. "Business income" includes income,	350
including gain or loss, from a partial or complete liquidation of	351
a business, including, but not limited to, gain or loss from the	352
sale or other disposition of goodwill.	353

(C) "Nonbusiness income" means all income other than business	354
income and may include, but is not limited to, compensation, rents	355
and royalties from real or tangible personal property, capital	356
gains, interest, dividends and distributions, patent or copyright	357
royalties, or lottery winnings, prizes, and awards.	358

(D) "Compensation" means any form of remuneration paid to an	359
employee for personal services.	360

(E) "Fiduciary" means a guardian, trustee, executor,	361
administrator, receiver, conservator, or any other person acting	362
in any fiduciary capacity for any individual, trust, or estate.	363

(F) "Fiscal year" means an accounting period of twelve months	364
ending on the last day of any month other than December.	365

(G) "Individual" means any natural person.

366

(H) "Internal Revenue Code" means the "Internal Revenue Code	367
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	368

(I) "Resident" means any of the following, provided that	369
division (I)(3) of this section applies only to taxable years of a	370
trust beginning in 2002 or thereafter:	371

(1) An individual who is domiciled in this state, subject to	372
section 5747.24 of the Revised Code;	373

(2) The estate of a decedent who at the time of death was	374
domiciled in this state. The domicile tests of section 5747.24 of	375
the Revised Code are not controlling for purposes of division	376
(I)(2) of this section.	377

(3) A trust that, in whole or part, resides in this state. If	378
only part of a trust resides in this state, the trust is a	379
resident only with respect to that part.	380

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

381

(a) A trust resides in this state for the trust's current	382
taxable year to the extent, as described in division (I)(3)(d) of	383
this section, that the trust consists directly or indirectly, in	384
whole or in part, of assets, net of any related liabilities, that	385
were transferred, or caused to be transferred, directly or	386
indirectly, to the trust by any of the following:	387

(i) A person, a court, or a governmental entity or	388
instrumentality on account of the death of a decedent, but only if	389
the trust is described in division (I)(3)(e)(i) or (ii) of this	390
section;	391

(ii) A person who was domiciled in this state for the	392
purposes of this chapter when the person directly or indirectly	393
transferred assets to an irrevocable trust, but only if at least	394
one of the trust's qualifying beneficiaries is domiciled in this	395
state for the purposes of this chapter during all or some portion	396
of the trust's current taxable year;	397

(iii) A person who was domiciled in this state for the	398
purposes of this chapter when the trust document or instrument or	399
part of the trust document or instrument became irrevocable, but	400
only if at least one of the trust's qualifying beneficiaries is a	401
resident domiciled in this state for the purposes of this chapter	402
during all or some portion of the trust's current taxable year. If	403
a trust document or instrument became irrevocable upon the death	404
of a person who at the time of death was domiciled in this state	405
for purposes of this chapter, that person is a person described in	406
division (I)(3)(a)(iii) of this section.	407

(b) A trust is irrevocable to the extent that the transferor	408
is not considered to be the owner of the net assets of the trust	409
under sections 671 to 678 of the Internal Revenue Code.	410

(c) With respect to a trust other than a charitable lead	411
trust, "qualifying beneficiary" has the same meaning as "potential	412
current beneficiary" as defined in section 1361(e)(2) of the	413
Internal Revenue Code, and with respect to a charitable lead trust	414
"qualifying beneficiary" is any current, future, or contingent	415
beneficiary, but with respect to any trust "qualifying	416
beneficiary" excludes a person or a governmental entity or	417
instrumentality to any of which a contribution would qualify for	418
the charitable deduction under section 170 of the Internal Revenue	419
Code.	420

(d) For the purposes of division (I)(3)(a) of this section,	421
the extent to which a trust consists directly or indirectly, in	422
whole or in part, of assets, net of any related liabilities, that	423
were transferred directly or indirectly, in whole or part, to the	424
trust by any of the sources enumerated in that division shall be	425
ascertained by multiplying the fair market value of the trust's	426
assets, net of related liabilities, by the qualifying ratio, which	427
shall be computed as follows:	428

(i) The first time the trust receives assets, the numerator	429
of the qualifying ratio is the fair market value of those assets	430
at that time, net of any related liabilities, from sources	431
enumerated in division (I)(3)(a) of this section. The denominator	432
of the qualifying ratio is the fair market value of all the	433
trust's assets at that time, net of any related liabilities.	434

(ii) Each subsequent time the trust receives assets, a	435
revised qualifying ratio shall be computed. The numerator of the	436
revised qualifying ratio is the sum of (1) the fair market value	437
of the trust's assets immediately prior to the subsequent	438
transfer, net of any related liabilities, multiplied by the	439
qualifying ratio last computed without regard to the subsequent	440
transfer, and (2) the fair market value of the subsequently	441
transferred assets at the time transferred, net of any related	442
liabilities, from sources enumerated in division (I)(3)(a) of this	443
section. The denominator of the revised qualifying ratio is the	444
fair market value of all the trust's assets immediately after the	445
subsequent transfer, net of any related liabilities.	446

(iii) Whether a transfer to the trust is by or from any of	447
the sources enumerated in division (I)(3)(a) of this section shall	448
be ascertained without regard to the domicile of the trust's	449
beneficiaries.	450

(e) For the purposes of division (I)(3)(a)(i) of this	451
section:	452

(i) A trust is described in division (I)(3)(e)(i) of this	453
section if the trust is a testamentary trust and the testator of	454
that testamentary trust was domiciled in this state at the time of	455
the testator's death for purposes of the taxes levied under	456
Chapter 5731. of the Revised Code.	457

(ii) A trust is described in division (I)(3)(e)(ii) of this	458
section if the transfer is a qualifying transfer described in any	459
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	460
irrevocable inter vivos trust, and at least one of the trust's	461
qualifying beneficiaries is domiciled in this state for purposes	462
of this chapter during all or some portion of the trust's current	463
taxable year.	464

(f) For the purposes of division (I)(3)(e)(ii) of this	465
section, a "qualifying transfer" is a transfer of assets, net of	466
any related liabilities, directly or indirectly to a trust, if the	467
transfer is described in any of the following:	468

(i) The transfer is made to a trust, created by the decedent	469
before the decedent's death and while the decedent was domiciled	470
in this state for the purposes of this chapter, and, prior to the	471
death of the decedent, the trust became irrevocable while the	472
decedent was domiciled in this state for the purposes of this	473
chapter.	474

(ii) The transfer is made to a trust to which the decedent,	475
prior to the decedent's death, had directly or indirectly	476
transferred assets, net of any related liabilities, while the	477
decedent was domiciled in this state for the purposes of this	478
chapter, and prior to the death of the decedent the trust became	479
irrevocable while the decedent was domiciled in this state for the	480
purposes of this chapter.	481

(iii) The transfer is made on account of a contractual	482
relationship existing directly or indirectly between the	483
transferor and either the decedent or the estate of the decedent	484
at any time prior to the date of the decedent's death, and the	485
decedent was domiciled in this state at the time of death for	486
purposes of the taxes levied under Chapter 5731. of the Revised	487
Code.	488

(iv) The transfer is made to a trust on account of a	489
contractual relationship existing directly or indirectly between	490
the transferor and another person who at the time of the	491
decedent's death was domiciled in this state for purposes of this	492
chapter.	493

(v) The transfer is made to a trust on account of the will of	494
a testator who was domiciled in this state at the time of the	495
testator's death for purposes of the taxes levied under Chapter	496
5731. of the Revised Code.	497

(vi) The transfer is made to a trust created by or caused to	498
be created by a court, and the trust was directly or indirectly	499
created in connection with or as a result of the death of an	500
individual who, for purposes of the taxes levied under Chapter	501
5731. of the Revised Code, was domiciled in this state at the time	502
of the individual's death.	503

(g) The tax commissioner may adopt rules to ascertain the	504
part of a trust residing in this state.	505

(J) "Nonresident" means an individual or estate that is not a	506
resident. An individual who is a resident for only part of a	507
taxable year is a nonresident for the remainder of that taxable	508
year.	509

(K) "Pass-through entity" has the same meaning as in section	510
5733.04 of the Revised Code.	511

(L) "Return" means the notifications and reports required to	512
be filed pursuant to this chapter for the purpose of reporting the	513
tax due and includes declarations of estimated tax when so	514
required.	515

(M) "Taxable year" means the calendar year or the taxpayer's	516
fiscal year ending during the calendar year, or fractional part	517
thereof, upon which the adjusted gross income is calculated	518
pursuant to this chapter.	519

(N) "Taxpayer" means any person subject to the tax imposed by	520
section 5747.02 of the Revised Code or any pass-through entity	521
that makes the election under division (D) of section 5747.08 of	522
the Revised Code.	523

(O) "Dependents" means dependents as defined in the Internal	524
Revenue Code and as claimed in the taxpayer's federal income tax	525
return for the taxable year or which the taxpayer would have been	526
permitted to claim had the taxpayer filed a federal income tax	527
return.	528

(P) "Principal county of employment" means, in the case of a	529
nonresident, the county within the state in which a taxpayer	530
performs services for an employer or, if those services are	531
performed in more than one county, the county in which the major	532
portion of the services are performed.	533

(Q) As used in sections 5747.50 to 5747.55 of the Revised	534
Code:	535

(1) "Subdivision" means any county, municipal corporation,	536
park district, or township.	537

(2) "Essential local government purposes" includes all	538
functions that any subdivision is required by general law to	539
exercise, including like functions that are exercised under a	540
charter adopted pursuant to the Ohio Constitution.	541

(R) "Overpayment" means any amount already paid that exceeds	542
the figure determined to be the correct amount of the tax.	543

(S) "Taxable income" or "Ohio taxable income" applies only to	544
estates and trusts, and means federal taxable income, as defined	545
and used in the Internal Revenue Code, adjusted as follows:	546

(1) Add interest or dividends, net of ordinary, necessary,	547
and reasonable expenses not deducted in computing federal taxable	548
income, on obligations or securities of any state or of any	549
political subdivision or authority of any state, other than this	550
state and its subdivisions and authorities, but only to the extent	551
that such net amount is not otherwise includible in Ohio taxable	552
income and is described in either division (S)(1)(a) or (b) of	553
this section:	554

(a) The net amount is not attributable to the S portion of an	555
electing small business trust and has not been distributed to	556
beneficiaries for the taxable year;	557

(b) The net amount is attributable to the S portion of an	558
electing small business trust for the taxable year.	559

(2) Add interest or dividends, net of ordinary, necessary,	560
and reasonable expenses not deducted in computing federal taxable	561
income, on obligations of any authority, commission,	562
instrumentality, territory, or possession of the United States to	563
the extent that the interest or dividends are exempt from federal	564
income taxes but not from state income taxes, but only to the	565
extent that such net amount is not otherwise includible in Ohio	566
taxable income and is described in either division (S)(1)(a) or	567
(b) of this section;	568

(3) Add the amount of personal exemption allowed to the	569
estate pursuant to section 642(b) of the Internal Revenue Code;	570

(4) Deduct interest or dividends, net of related expenses	571
deducted in computing federal taxable income, on obligations of	572
the United States and its territories and possessions or of any	573
authority, commission, or instrumentality of the United States to	574
the extent that the interest or dividends are exempt from state	575
taxes under the laws of the United States, but only to the extent	576
that such amount is included in federal taxable income and is	577
described in either division (S)(1)(a) or (b) of this section;	578

(5) Deduct the amount of wages and salaries, if any, not	579
otherwise allowable as a deduction but that would have been	580
allowable as a deduction in computing federal taxable income for	581
the taxable year, had the targeted jobs credit allowed under	582
sections 38, 51, and 52 of the Internal Revenue Code not been in	583
effect, but only to the extent such amount relates either to	584
income included in federal taxable income for the taxable year or	585
to income of the S portion of an electing small business trust for	586
the taxable year;	587

(6) Deduct any interest or interest equivalent, net of	588
related expenses deducted in computing federal taxable income, on	589
public obligations and purchase obligations, but only to the	590
extent that such net amount relates either to income included in	591
federal taxable income for the taxable year or to income of the S	592
portion of an electing small business trust for the taxable year;	593

(7) Add any loss or deduct any gain resulting from sale,	594
exchange, or other disposition of public obligations to the extent	595
that such loss has been deducted or such gain has been included in	596
computing either federal taxable income or income of the S portion	597
of an electing small business trust for the taxable year;	598

(8) Except in the case of the final return of an estate, add	599
any amount deducted by the taxpayer on both its Ohio estate tax	600
return pursuant to section 5731.14 of the Revised Code, and on its	601
federal income tax return in determining federal taxable income;	602

(9)(a) Deduct any amount included in federal taxable income	603
solely because the amount represents a reimbursement or refund of	604
expenses that in a previous year the decedent had deducted as an	605
itemized deduction pursuant to section 63 of the Internal Revenue	606
Code and applicable treasury regulations. The deduction otherwise	607
allowed under division (S)(9)(a) of this section shall be reduced	608
to the extent the reimbursement is attributable to an amount the	609
taxpayer or decedent deducted under this section in any taxable	610
year.	611

(b) Add any amount not otherwise included in Ohio taxable	612
income for any taxable year to the extent that the amount is	613
attributable to the recovery during the taxable year of any amount	614
deducted or excluded in computing federal or Ohio taxable income	615
in any taxable year, but only to the extent such amount has not	616
been distributed to beneficiaries for the taxable year.	617

(10) Deduct any portion of the deduction described in section	618
1341(a)(2) of the Internal Revenue Code, for repaying previously	619
reported income received under a claim of right, that meets both	620
of the following requirements:	621

(a) It is allowable for repayment of an item that was	622
included in the taxpayer's taxable income or the decedent's	623
adjusted gross income for a prior taxable year and did not qualify	624
for a credit under division (A) or (B) of section 5747.05 of the	625
Revised Code for that year.	626

(b) It does not otherwise reduce the taxpayer's taxable	627
income or the decedent's adjusted gross income for the current or	628
any other taxable year.	629

(11) Add any amount claimed as a credit under section	630
5747.059 of the Revised Code to the extent that the amount	631
satisfies either of the following:	632

(a) The amount was deducted or excluded from the computation	633
of the taxpayer's federal taxable income as required to be	634
reported for the taxpayer's taxable year under the Internal	635
Revenue Code;	636

(b) The amount resulted in a reduction in the taxpayer's	637
federal taxable income as required to be reported for any of the	638
taxpayer's taxable years under the Internal Revenue Code.	639

(12) Deduct any amount, net of related expenses deducted in	640
computing federal taxable income, that a trust is required to	641
report as farm income on its federal income tax return, but only	642
if the assets of the trust include at least ten acres of land	643
satisfying the definition of "land devoted exclusively to	644
agricultural use" under section 5713.30 of the Revised Code,	645
regardless of whether the land is valued for tax purposes as such	646
land under sections 5713.30 to 5713.38 of the Revised Code. If the	647
trust is a pass-through entity investor, section 5747.231 of the	648
Revised Code applies in ascertaining if the trust is eligible to	649
claim the deduction provided by division (S)(12) of this section	650
in connection with the pass-through entity's farm income.	651

Except for farm income attributable to the S portion of an	652
electing small business trust, the deduction provided by division	653
(S)(12) of this section is allowed only to the extent that the	654
trust has not distributed such farm income. Division (S)(12) of	655
this section applies only to taxable years of a trust beginning in	656
2002 or thereafter.	657

(13) Add the net amount of income described in section 641(c)	658
of the Internal Revenue Code to the extent that amount is not	659
included in federal taxable income.	660

(14) Add or deduct the amount the taxpayer would be required	661
to add or deduct under division (A)(20) or (21) of this section if	662
the taxpayer's Ohio taxable income were computed in the same	663
manner as an individual's Ohio adjusted gross income is computed	664
under this section. In the case of a trust, division (S)(14) of	665
this section applies only to any of the trust's taxable years	666
beginning in 2002 or thereafter.	667

(T) "School district income" and "school district income tax"	668
have the same meanings as in section 5748.01 of the Revised Code.	669

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	670
of this section, "public obligations," "purchase obligations," and	671
"interest or interest equivalent" have the same meanings as in	672
section 5709.76 of the Revised Code.	673

(V) "Limited liability company" means any limited liability	674
company formed under Chapter 1705. of the Revised Code or under	675
the laws of any other state.	676

(W) "Pass-through entity investor" means any person who,	677
during any portion of a taxable year of a pass-through entity, is	678
a partner, member, shareholder, or equity investor in that	679
pass-through entity.	680

(X) "Banking day" has the same meaning as in section 1304.01	681
of the Revised Code.	682

(Y) "Month" means a calendar month.

683

(Z) "Quarter" means the first three months, the second three	684
months, the third three months, or the last three months of the	685
taxpayer's taxable year.	686

(AA)(1) "Eligible institution" means a state university or	687
state institution of higher education as defined in section	688
3345.011 of the Revised Code, or a private, nonprofit college,	689
university, or other post-secondary institution located in this	690
state that possesses a certificate of authorization issued by the	691
Ohio board of regents pursuant to Chapter 1713. of the Revised	692
Code or a certificate of registration issued by the state board of	693
career colleges and schools under Chapter 3332. of the Revised	694
Code.	695

(2) "Qualified tuition and fees" means tuition and fees	696
imposed by an eligible institution as a condition of enrollment or	697
attendance, not exceeding two thousand five hundred dollars in	698
each of the individual's first two years of post-secondary	699
education. If the individual is a part-time student, "qualified	700
tuition and fees" includes tuition and fees paid for the academic	701
equivalent of the first two years of post-secondary education	702
during a maximum of five taxable years, not exceeding a total of	703
five thousand dollars. "Qualified tuition and fees" does not	704
include:	705

(a) Expenses for any course or activity involving sports,	706
games, or hobbies unless the course or activity is part of the	707
individual's degree or diploma program;	708

(b) The cost of books, room and board, student activity fees,	709
athletic fees, insurance expenses, or other expenses unrelated to	710
the individual's academic course of instruction;	711

(c) Tuition, fees, or other expenses paid or reimbursed	712
through an employer, scholarship, grant in aid, or other	713
educational benefit program.	714

(BB)(1) "Modified business income" means the business income	715
included in a trust's Ohio taxable income after such taxable	716
income is first reduced by the qualifying trust amount, if any.	717

(2) "Qualifying trust amount" of a trust means capital gains	718
and losses from the sale, exchange, or other disposition of equity	719
or ownership interests in, or debt obligations of, a qualifying	720
investee to the extent included in the trust's Ohio taxable	721
income, but only if the following requirements are satisfied:	722

(a) The book value of the qualifying investee's physical	723
assets in this state and everywhere, as of the last day of the	724
qualifying investee's fiscal or calendar year ending immediately	725
prior to the date on which the trust recognizes the gain or loss,	726
is available to the trust.	727

(b) The requirements of section 5747.011 of the Revised Code	728
are satisfied for the trust's taxable year in which the trust	729
recognizes the gain or loss.	730

Any gain or loss that is not a qualifying trust amount is	731
modified business income, qualifying investment income, or	732
modified nonbusiness income, as the case may be.	733

(3) "Modified nonbusiness income" means a trust's Ohio	734
taxable income other than modified business income, other than the	735
qualifying trust amount, and other than qualifying investment	736
income, as defined in section 5747.012 of the Revised Code, to the	737
extent such qualifying investment income is not otherwise part of	738
modified business income.	739

(4) "Modified Ohio taxable income" applies only to trusts,	740
and means the sum of the amounts described in divisions (BB)(4)(a)	741
to (c) of this section:	742

(a) The fraction, calculated under section 5747.013, and	743
applying section 5747.231 of the Revised Code, multiplied by the	744
sum of the following amounts:	745

(i) The trust's modified business income;

746

(ii) The trust's qualifying investment income, as defined in	747
section 5747.012 of the Revised Code, but only to the extent the	748
qualifying investment income does not otherwise constitute	749
modified business income and does not otherwise constitute a	750
qualifying trust amount.	751

(b) The qualifying trust amount multiplied by a fraction, the	752
numerator of which is the sum of the book value of the qualifying	753
investee's physical assets in this state on the last day of the	754
qualifying investee's fiscal or calendar year ending immediately	755
prior to the day on which the trust recognizes the qualifying	756
trust amount, and the denominator of which is the sum of the book	757
value of the qualifying investee's total physical assets	758
everywhere on the last day of the qualifying investee's fiscal or	759
calendar year ending immediately prior to the day on which the	760
trust recognizes the qualifying trust amount. If, for a taxable	761
year, the trust recognizes a qualifying trust amount with respect	762
to more than one qualifying investee, the amount described in	763
division (BB)(4)(b) of this section shall equal the sum of the	764
products so computed for each such qualifying investee.	765

(c)(i) With respect to a trust or portion of a trust that is	766
a resident as ascertained in accordance with division (I)(3)(d) of	767
this section, its modified nonbusiness income.	768

(ii) With respect to a trust or portion of a trust that is	769
not a resident as ascertained in accordance with division	770
(I)(3)(d) of this section, the amount of its modified nonbusiness	771
income satisfying the descriptions in divisions (B)(2) to (5) of	772
section 5747.20 of the Revised Code, except as otherwise provided	773
in division (BB)(4)(c)(ii) of this section. With respect to a	774
trust or portion of a trust that is not a resident as ascertained	775
in accordance with division (I)(3)(d) of this section, the trust's	776
portion of modified nonbusiness income recognized from the sale,	777
exchange, or other disposition of a debt interest in or equity	778
interest in a section 5747.212 entity, as defined in section	779
5747.212 of the Revised Code, without regard to division (A) of	780
that section, shall not be allocated to this state in accordance	781
with section 5747.20 of the Revised Code but shall be apportioned	782
to this state in accordance with division (B) of section 5747.212	783
of the Revised Code without regard to division (A) of that	784
section.	785

If the allocation and apportionment of a trust's income under	786
divisions (BB)(4)(a) and (c) of this section do not fairly	787
represent the modified Ohio taxable income of the trust in this	788
state, the alternative methods described in division (C) of	789
section 5747.21 of the Revised Code may be applied in the manner	790
and to the same extent provided in that section.	791

(5)(a) Except as set forth in division (BB)(5)(b) of this	792
section, "qualifying investee" means a person in which a trust has	793
an equity or ownership interest, or a person or unit of government	794
the debt obligations of either of which are owned by a trust. For	795
the purposes of division (BB)(2)(a) of this section and for the	796
purpose of computing the fraction described in division (BB)(4)(b)	797
of this section, all of the following apply:	798

(i) If the qualifying investee is a member of a qualifying	799
controlled group on the last day of the qualifying investee's	800
fiscal or calendar year ending immediately prior to the date on	801
which the trust recognizes the gain or loss, then "qualifying	802
investee" includes all persons in the qualifying controlled group	803
on such last day.	804

(ii) If the qualifying investee, or if the qualifying	805
investee and any members of the qualifying controlled group of	806
which the qualifying investee is a member on the last day of the	807
qualifying investee's fiscal or calendar year ending immediately	808
prior to the date on which the trust recognizes the gain or loss,	809
separately or cumulatively own, directly or indirectly, on the	810
last day of the qualifying investee's fiscal or calendar year	811
ending immediately prior to the date on which the trust recognizes	812
the qualifying trust amount, more than fifty per cent of the	813
equity of a pass-through entity, then the qualifying investee and	814
the other members are deemed to own the proportionate share of the	815
pass-through entity's physical assets which the pass-through	816
entity directly or indirectly owns on the last day of the	817
pass-through entity's calendar or fiscal year ending within or	818
with the last day of the qualifying investee's fiscal or calendar	819
year ending immediately prior to the date on which the trust	820
recognizes the qualifying trust amount.	821

(iii) For the purposes of division (BB)(5)(a)(iii) of this	822
section, "upper level pass-through entity" means a pass-through	823
entity directly or indirectly owning any equity of another	824
pass-through entity, and "lower level pass-through entity" means	825
that other pass-through entity.	826

An upper level pass-through entity, whether or not it is also	827
a qualifying investee, is deemed to own, on the last day of the	828
upper level pass-through entity's calendar or fiscal year, the	829
proportionate share of the lower level pass-through entity's	830
physical assets that the lower level pass-through entity directly	831
or indirectly owns on the last day of the lower level pass-through	832
entity's calendar or fiscal year ending within or with the last	833
day of the upper level pass-through entity's fiscal or calendar	834
year. If the upper level pass-through entity directly and	835
indirectly owns less than fifty per cent of the equity of the	836
lower level pass-through entity on each day of the upper level	837
pass-through entity's calendar or fiscal year in which or with	838
which ends the calendar or fiscal year of the lower level	839
pass-through entity and if, based upon clear and convincing	840
evidence, complete information about the location and cost of the	841
physical assets of the lower pass-through entity is not available	842
to the upper level pass-through entity, then solely for purposes	843
of ascertaining if a gain or loss constitutes a qualifying trust	844
amount, the upper level pass-through entity shall be deemed as	845
owning no equity of the lower level pass-through entity for each	846
day during the upper level pass-through entity's calendar or	847
fiscal year in which or with which ends the lower level	848
pass-through entity's calendar or fiscal year. Nothing in division	849
(BB)(5)(a)(iii) of this section shall be construed to provide for	850
any deduction or exclusion in computing any trust's Ohio taxable	851
income.	852

(b) With respect to a trust that is not a resident for the	853
taxable year and with respect to a part of a trust that is not a	854
resident for the taxable year, "qualifying investee" for that	855
taxable year does not include a C corporation if both of the	856
following apply:	857

(i) During the taxable year the trust or part of the trust	858
recognizes a gain or loss from the sale, exchange, or other	859
disposition of equity or ownership interests in, or debt	860
obligations of, the C corporation.	861

(ii) Such gain or loss constitutes nonbusiness income.

862

(6) "Available" means information is such that a person is	863
able to learn of the information by the due date plus extensions,	864
if any, for filing the return for the taxable year in which the	865
trust recognizes the gain or loss.	866

(CC) "Qualifying controlled group" has the same meaning as in	867
section 5733.04 of the Revised Code.	868

(DD) "Related member" has the same meaning as in section	869
5733.042 of the Revised Code.	870

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

871

(a) "Qualifying person" means any person other than a	872
qualifying corporation.	873

(b) "Qualifying corporation" means any person classified for	874
federal income tax purposes as an association taxable as a	875
corporation, except either of the following:	876

(i) A corporation that has made an election under subchapter	877
S, chapter one, subtitle A, of the Internal Revenue Code for its	878
taxable year ending within, or on the last day of, the investor's	879
taxable year;	880

(ii) A subsidiary that is wholly owned by any corporation	881
that has made an election under subchapter S, chapter one,	882
subtitle A of the Internal Revenue Code for its taxable year	883
ending within, or on the last day of, the investor's taxable year.	884

(2) For the purposes of this chapter, unless expressly stated	885
otherwise, no qualifying person indirectly owns any asset directly	886
or indirectly owned by any qualifying corporation.	887

(FF) For purposes of this chapter and Chapter 5751. of the	888
Revised Code:	889

(1) "Trust" does not include a qualified pre-income tax	890
trust.	891

(2) A "qualified pre-income tax trust" is any pre-income tax	892
trust that makes a qualifying pre-income tax trust election as	893
described in division (FF)(3) of this section.	894

(3) A "qualifying pre-income tax trust election" is an	895
election by a pre-income tax trust to subject to the tax imposed	896
by section 5751.02 of the Revised Code the pre-income tax trust	897
and all pass-through entities of which the trust owns or controls,	898
directly, indirectly, or constructively through related interests,	899
five per cent or more of the ownership or equity interests. The	900
trustee shall notify the tax commissioner in writing of the	901
election on or before April 15, 2006. The election, if timely	902
made, shall be effective on and after January 1, 2006, and shall	903
apply for all tax periods and tax years until revoked by the	904
trustee of the trust.	905

(4) A "pre-income tax trust" is a trust that satisfies all of	906
the following requirements:	907

(a) The document or instrument creating the trust was	908
executed by the grantor before January 1, 1972;	909

(b) The trust became irrevocable upon the creation of the	910
trust; and	911

(c) The grantor was domiciled in this state at the time the	912
trust was created.	913

(GG) "Uniformed services" has the same meaning as in 10	914
U.S.C. 101.	915

Section 2. That existing section 5747.01 of the Revised Code	916
is hereby repealed.	917

Section 3. That the amendment by this act of section 5747.01	918
of the Revised Code applies to taxable years ending on or after	919
the effective date of this act.	920