As Introduced

129th General Assembly Regular Session 2011-2012

H. B. No. 365

Representatives Beck, Dovilla 

Cosponsors: Representatives Stebelton, Blessing, Terhar, Hollington 

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A BILL

To amend section 5747.01 of the Revised Code to allow

1

taxpayers who claim an enhanced federal income tax

2

depreciation deduction to reduce the amount of the

3

deduction the taxpayer must add-back for Ohio

4

income tax purposes if the taxpayer increases

5

payroll in the year the enhanced federal deduction

6

is taken.

7

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

Section 1. That section 5747.01 of the Revised Code be	8
amended to read as follows:	9

Sec. 5747.01.  Except as otherwise expressly provided or	10
clearly appearing from the context, any term used in this chapter	11
that is not otherwise defined in this section has the same meaning	12
as when used in a comparable context in the laws of the United	13
States relating to federal income taxes or if not used in a	14
comparable context in those laws, has the same meaning as in	15
section 5733.40 of the Revised Code. Any reference in this chapter	16
to the Internal Revenue Code includes other laws of the United	17
States relating to federal income taxes.	18

As used in this chapter:

19

(A) "Adjusted gross income" or "Ohio adjusted gross income"	20
means federal adjusted gross income, as defined and used in the	21
Internal Revenue Code, adjusted as provided in this section:	22

(1) Add interest or dividends on obligations or securities of	23
any state or of any political subdivision or authority of any	24
state, other than this state and its subdivisions and authorities.	25

(2) Add interest or dividends on obligations of any	26
authority, commission, instrumentality, territory, or possession	27
of the United States to the extent that the interest or dividends	28
are exempt from federal income taxes but not from state income	29
taxes.	30

(3) Deduct interest or dividends on obligations of the United	31
States and its territories and possessions or of any authority,	32
commission, or instrumentality of the United States to the extent	33
that the interest or dividends are included in federal adjusted	34
gross income but exempt from state income taxes under the laws of	35
the United States.	36

(4) Deduct disability and survivor's benefits to the extent	37
included in federal adjusted gross income.	38

(5) Deduct benefits under Title II of the Social Security Act	39
and tier 1 railroad retirement benefits to the extent included in	40
federal adjusted gross income under section 86 of the Internal	41
Revenue Code.	42

(6) In the case of a taxpayer who is a beneficiary of a trust	43
that makes an accumulation distribution as defined in section 665	44
of the Internal Revenue Code, add, for the beneficiary's taxable	45
years beginning before 2002, the portion, if any, of such	46
distribution that does not exceed the undistributed net income of	47
the trust for the three taxable years preceding the taxable year	48
in which the distribution is made to the extent that the portion	49
was not included in the trust's taxable income for any of the	50
trust's taxable years beginning in 2002 or thereafter.	51
"Undistributed net income of a trust" means the taxable income of	52
the trust increased by (a)(i) the additions to adjusted gross	53
income required under division (A) of this section and (ii) the	54
personal exemptions allowed to the trust pursuant to section	55
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	56
deductions to adjusted gross income required under division (A) of	57
this section, (ii) the amount of federal income taxes attributable	58
to such income, and (iii) the amount of taxable income that has	59
been included in the adjusted gross income of a beneficiary by	60
reason of a prior accumulation distribution. Any undistributed net	61
income included in the adjusted gross income of a beneficiary	62
shall reduce the undistributed net income of the trust commencing	63
with the earliest years of the accumulation period.	64

(7) Deduct the amount of wages and salaries, if any, not	65
otherwise allowable as a deduction but that would have been	66
allowable as a deduction in computing federal adjusted gross	67
income for the taxable year, had the targeted jobs credit allowed	68
and determined under sections 38, 51, and 52 of the Internal	69
Revenue Code not been in effect.	70

(8) Deduct any interest or interest equivalent on public	71
obligations and purchase obligations to the extent that the	72
interest or interest equivalent is included in federal adjusted	73
gross income.	74

(9) Add any loss or deduct any gain resulting from the sale,	75
exchange, or other disposition of public obligations to the extent	76
that the loss has been deducted or the gain has been included in	77
computing federal adjusted gross income.	78

(10) Deduct or add amounts, as provided under section 5747.70	79
of the Revised Code, related to contributions to variable college	80
savings program accounts made or tuition units purchased pursuant	81
to Chapter 3334. of the Revised Code.	82

(11)(a) Deduct, to the extent not otherwise allowable as a	83
deduction or exclusion in computing federal or Ohio adjusted gross	84
income for the taxable year, the amount the taxpayer paid during	85
the taxable year for medical care insurance and qualified	86
long-term care insurance for the taxpayer, the taxpayer's spouse,	87
and dependents. No deduction for medical care insurance under	88
division (A)(11) of this section shall be allowed either to any	89
taxpayer who is eligible to participate in any subsidized health	90
plan maintained by any employer of the taxpayer or of the	91
taxpayer's spouse, or to any taxpayer who is entitled to, or on	92
application would be entitled to, benefits under part A of Title	93
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	94
301, as amended. For the purposes of division (A)(11)(a) of this	95
section, "subsidized health plan" means a health plan for which	96
the employer pays any portion of the plan's cost. The deduction	97
allowed under division (A)(11)(a) of this section shall be the net	98
of any related premium refunds, related premium reimbursements, or	99
related insurance premium dividends received during the taxable	100
year.	101

(b) Deduct, to the extent not otherwise deducted or excluded	102
in computing federal or Ohio adjusted gross income during the	103
taxable year, the amount the taxpayer paid during the taxable	104
year, not compensated for by any insurance or otherwise, for	105
medical care of the taxpayer, the taxpayer's spouse, and	106
dependents, to the extent the expenses exceed seven and one-half	107
per cent of the taxpayer's federal adjusted gross income.	108

(c) Deduct, to the extent not otherwise deducted or excluded	109
in computing federal or Ohio adjusted gross income, any amount	110
included in federal adjusted gross income under section 105 or not	111
excluded under section 106 of the Internal Revenue Code solely	112
because it relates to an accident and health plan for a person who	113
otherwise would be a "qualifying relative" and thus a "dependent"	114
under section 152 of the Internal Revenue Code but for the fact	115
that the person fails to meet the income and support limitations	116
under section 152(d)(1)(B) and (C) of the Internal Revenue Code.	117

(d) For purposes of division (A)(11) of this section,	118
"medical care" has the meaning given in section 213 of the	119
Internal Revenue Code, subject to the special rules, limitations,	120
and exclusions set forth therein, and "qualified long-term care"	121
has the same meaning given in section 7702B(c) of the Internal	122
Revenue Code. Solely for purposes of divisions (A)(11)(a) and (c)	123
of this section, "dependent" includes a person who otherwise would	124
be a "qualifying relative" and thus a "dependent" under section	125
152 of the Internal Revenue Code but for the fact that the person	126
fails to meet the income and support limitations under section	127
152(d)(1)(B) and (C) of the Internal Revenue Code.	128

(12)(a) Deduct any amount included in federal adjusted gross	129
income solely because the amount represents a reimbursement or	130
refund of expenses that in any year the taxpayer had deducted as	131
an itemized deduction pursuant to section 63 of the Internal	132
Revenue Code and applicable United States department of the	133
treasury regulations. The deduction otherwise allowed under	134
division (A)(12)(a) of this section shall be reduced to the extent	135
the reimbursement is attributable to an amount the taxpayer	136
deducted under this section in any taxable year.	137

(b) Add any amount not otherwise included in Ohio adjusted	138
gross income for any taxable year to the extent that the amount is	139
attributable to the recovery during the taxable year of any amount	140
deducted or excluded in computing federal or Ohio adjusted gross	141
income in any taxable year.	142

(13) Deduct any portion of the deduction described in section	143
1341(a)(2) of the Internal Revenue Code, for repaying previously	144
reported income received under a claim of right, that meets both	145
of the following requirements:	146

(a) It is allowable for repayment of an item that was	147
included in the taxpayer's adjusted gross income for a prior	148
taxable year and did not qualify for a credit under division (A)	149
or (B) of section 5747.05 of the Revised Code for that year;	150

(b) It does not otherwise reduce the taxpayer's adjusted	151
gross income for the current or any other taxable year.	152

(14) Deduct an amount equal to the deposits made to, and net	153
investment earnings of, a medical savings account during the	154
taxable year, in accordance with section 3924.66 of the Revised	155
Code. The deduction allowed by division (A)(14) of this section	156
does not apply to medical savings account deposits and earnings	157
otherwise deducted or excluded for the current or any other	158
taxable year from the taxpayer's federal adjusted gross income.	159

(15)(a) Add an amount equal to the funds withdrawn from a	160
medical savings account during the taxable year, and the net	161
investment earnings on those funds, when the funds withdrawn were	162
used for any purpose other than to reimburse an account holder	163
for, or to pay, eligible medical expenses, in accordance with	164
section 3924.66 of the Revised Code;	165

(b) Add the amounts distributed from a medical savings	166
account under division (A)(2) of section 3924.68 of the Revised	167
Code during the taxable year.	168

(16) Add any amount claimed as a credit under section	169
5747.059 of the Revised Code to the extent that such amount	170
satisfies either of the following:	171

(a) The amount was deducted or excluded from the computation	172
of the taxpayer's federal adjusted gross income as required to be	173
reported for the taxpayer's taxable year under the Internal	174
Revenue Code;	175

(b) The amount resulted in a reduction of the taxpayer's	176
federal adjusted gross income as required to be reported for any	177
of the taxpayer's taxable years under the Internal Revenue Code.	178

(17) Deduct the amount contributed by the taxpayer to an	179
individual development account program established by a county	180
department of job and family services pursuant to sections 329.11	181
to 329.14 of the Revised Code for the purpose of matching funds	182
deposited by program participants. On request of the tax	183
commissioner, the taxpayer shall provide any information that, in	184
the tax commissioner's opinion, is necessary to establish the	185
amount deducted under division (A)(17) of this section.	186

(18) Beginning in taxable year 2001 but not for any taxable	187
year beginning after December 31, 2005, if the taxpayer is married	188
and files a joint return and the combined federal adjusted gross	189
income of the taxpayer and the taxpayer's spouse for the taxable	190
year does not exceed one hundred thousand dollars, or if the	191
taxpayer is single and has a federal adjusted gross income for the	192
taxable year not exceeding fifty thousand dollars, deduct amounts	193
paid during the taxable year for qualified tuition and fees paid	194
to an eligible institution for the taxpayer, the taxpayer's	195
spouse, or any dependent of the taxpayer, who is a resident of	196
this state and is enrolled in or attending a program that	197
culminates in a degree or diploma at an eligible institution. The	198
deduction may be claimed only to the extent that qualified tuition	199
and fees are not otherwise deducted or excluded for any taxable	200
year from federal or Ohio adjusted gross income. The deduction may	201
not be claimed for educational expenses for which the taxpayer	202
claims a credit under section 5747.27 of the Revised Code.	203

(19) Add any reimbursement received during the taxable year	204
of any amount the taxpayer deducted under division (A)(18) of this	205
section in any previous taxable year to the extent the amount is	206
not otherwise included in Ohio adjusted gross income.	207

(20)(a)(i) Add five-sixths of the amount of adjusted section	208
168 depreciation expense allowed by subsection (k) of section 168	209
of the Internal Revenue Code, including the taxpayer's	210
proportionate or distributive share of the amount of adjusted	211
section 168 depreciation expense allowed by that subsection to	212
calculated under this division for a pass-through entity in which	213
the taxpayer has a direct or indirect ownership interest.	214

(ii) Add five-sixths of the amount of adjusted qualifying	215
section 179 depreciation expense, including a person'staxpayer's	216
proportionate or distributive share of the amount of adjusted	217
qualifying section 179 depreciation expense allowed tocalculated	218
under this division for any pass-through entity in which the	219
person has a direct or indirect ownership. For the purposes of	220
this division, "qualifying section 179 depreciation expense" means	221
the difference between (I) the amount of depreciation expense	222
directly or indirectly allowed to the taxpayer under section 179	223
of the Internal Revenue Code, and (II) the amount of depreciation	224
expense directly or indirectly allowed to the taxpayer under	225
section 179 of the Internal Revenue Code as that section existed	226
on December 31, 2002.	227

The tax commissioner, under procedures established by the	228
commissioner, may waive the add-backs related to a pass-through	229
entity if the taxpayer owns, directly or indirectly, less than	230
five per cent of the pass-through entity.	231

(b) Nothing in division (A)(20) of this section shall be	232
construed to adjust or modify the adjusted basis of any asset.	233

(c) To the extent the add-back required under division	234
(A)(20)(a) of this section is attributable to property generating	235
nonbusiness income or loss allocated under section 5747.20 of the	236
Revised Code, the add-back shall be sitused to the same location	237
as the nonbusiness income or loss generated by the property for	238
the purpose of determining the credit under division (A) of	239
section 5747.05 of the Revised Code. Otherwise, the add-back shall	240
be apportioned, subject to one or more of the four alternative	241
methods of apportionment enumerated in section 5747.21 of the	242
Revised Code.	243

(d) For the purposes of division (A) of this section, net	244
operating loss carryback and carryforward shall not include	245
five-sixths of the allowance of any net operating loss deduction	246
carryback or carryforward to the taxable year to the extent such	247
loss resulted from depreciation allowed by section 168(k) of the	248
Internal Revenue Code and byis attributable to the adjusted	249
section 168 depreciation expense amount or the adjusted qualifying	250
section 179 depreciation expense amount.	251

(e) For the purposes of division (A)(20) of this section:

252

(i) "Income taxes withheld" means the total amount withheld	253
under section 5747.06 of the Revised Code by an employer during a	254
taxable year.	255

(ii) "Increase in income taxes withheld" means the amount by	256
which the amount of income taxes withheld by an employer during	257
the taxable year exceeds the amount of income taxes withheld by	258
that employer during the immediately preceding taxable year.	259

(iii) "Qualifying section 179 depreciation expense" means the	260
difference between (I) the amount of depreciation expense allowed	261
to a person under section 179 of the Internal Revised Code, and	262
(II) the amount of depreciation expense allowed to the person	263
under section 179 of the Internal Revenue Code as that section	264
existed on December 31, 2002.	265

(iv) "Adjusted qualifying section 179 depreciation expense"	266
means the amount, if any, by which qualifying section 179	267
depreciation expense allowed to a person for the taxable year	268
exceeds the increase in income taxes withheld by that person.	269

(v) "Adjusted section 168 depreciation expense" means the	270
amount, if any, by which depreciation expense allowed to a person	271
by subsection (k) of section 168 of the Internal Revenue Code	272
exceeds the increase in income taxes withheld by that person.	273

(21)(a) If the taxpayer was required to add an amount under	274
division (A)(20)(a) of this section for a taxable year, deduct	275
one-fifth of the amount so added for each of the five succeeding	276
taxable years.	277

(b) If the amount deducted under division (A)(21)(a) of this	278
section is attributable to an add-back allocated under division	279
(A)(20)(c) of this section, the amount deducted shall be sitused	280
to the same location. Otherwise, the add-back shall be apportioned	281
using the apportionment factors for the taxable year in which the	282
deduction is taken, subject to one or more of the four alternative	283
methods of apportionment enumerated in section 5747.21 of the	284
Revised Code.	285

(c) No deduction is available under division (A)(21)(a) of	286
this section with regard to any depreciation allowed by section	287
168(k) of the Internal Revenue Code and by the qualifying section	288
179 depreciation expense amount to the extent that such	289
depreciation resulted in or increased a federal net operating loss	290
carryback or carryforward to a taxable year to which division	291
(A)(20)(d) of this section does not apply.	292

(22) Deduct, to the extent not otherwise deducted or excluded	293
in computing federal or Ohio adjusted gross income for the taxable	294
year, the amount the taxpayer received during the taxable year as	295
reimbursement for life insurance premiums under section 5919.31 of	296
the Revised Code.	297

(23) Deduct, to the extent not otherwise deducted or excluded	298
in computing federal or Ohio adjusted gross income for the taxable	299
year, the amount the taxpayer received during the taxable year as	300
a death benefit paid by the adjutant general under section 5919.33	301
of the Revised Code.	302

(24) Deduct, to the extent included in federal adjusted gross	303
income and not otherwise allowable as a deduction or exclusion in	304
computing federal or Ohio adjusted gross income for the taxable	305
year, military pay and allowances received by the taxpayer during	306
the taxable year for active duty service in the United States	307
army, air force, navy, marine corps, or coast guard or reserve	308
components thereof or the national guard. The deduction may not be	309
claimed for military pay and allowances received by the taxpayer	310
while the taxpayer is stationed in this state.	311

(25) Deduct, to the extent not otherwise allowable as a	312
deduction or exclusion in computing federal or Ohio adjusted gross	313
income for the taxable year and not otherwise compensated for by	314
any other source, the amount of qualified organ donation expenses	315
incurred by the taxpayer during the taxable year, not to exceed	316
ten thousand dollars. A taxpayer may deduct qualified organ	317
donation expenses only once for all taxable years beginning with	318
taxable years beginning in 2007.	319

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

320

(a) "Human organ" means all or any portion of a human liver,	321
pancreas, kidney, intestine, or lung, and any portion of human	322
bone marrow.	323

(b) "Qualified organ donation expenses" means travel	324
expenses, lodging expenses, and wages and salary forgone by a	325
taxpayer in connection with the taxpayer's donation, while living,	326
of one or more of the taxpayer's human organs to another human	327
being.	328

(26) Deduct, to the extent not otherwise deducted or excluded	329
in computing federal or Ohio adjusted gross income for the taxable	330
year, amounts received by the taxpayer as retired military	331
personnel pay for service in the United States army, navy, air	332
force, coast guard, or marine corps or reserve components thereof,	333
or the national guard, or received by the surviving spouse or	334
former spouse of such a taxpayer under the survivor benefit plan	335
on account of such a taxpayer's death. If the taxpayer receives	336
income on account of retirement paid under the federal civil	337
service retirement system or federal employees retirement system,	338
or under any successor retirement program enacted by the congress	339
of the United States that is established and maintained for	340
retired employees of the United States government, and such	341
retirement income is based, in whole or in part, on credit for the	342
taxpayer's military service, the deduction allowed under this	343
division shall include only that portion of such retirement income	344
that is attributable to the taxpayer's military service, to the	345
extent that portion of such retirement income is otherwise	346
included in federal adjusted gross income and is not otherwise	347
deducted under this section. Any amount deducted under division	348
(A)(26) of this section is not included in a taxpayer's adjusted	349
gross income for the purposes of section 5747.055 of the Revised	350
Code. No amount may be deducted under division (A)(26) of this	351
section on the basis of which a credit was claimed under section	352
5747.055 of the Revised Code.	353

(27) Deduct, to the extent not otherwise deducted or excluded	354
in computing federal or Ohio adjusted gross income for the taxable	355
year, the amount the taxpayer received during the taxable year	356
from the military injury relief fund created in section 5101.98 of	357
the Revised Code.	358

(28) Deduct, to the extent not otherwise deducted or excluded	359
in computing federal or Ohio adjusted gross income for the taxable	360
year, the amount the taxpayer received as a veterans bonus during	361
the taxable year from the Ohio department of veterans services as	362
authorized by Section 2r of Article VIII, Ohio Constitution.	363

(29) Deduct, to the extent not otherwise deducted or excluded	364
in computing federal or Ohio adjusted gross income for the taxable	365
year, any loss from wagering transactions that is allowed as an	366
itemized deduction under section 165 of the Internal Revenue Code	367
and that the taxpayer deducted in computing federal taxable	368
income.	369

(30) Deduct, to the extent not otherwise deducted or excluded	370
in computing federal or Ohio adjusted gross income for the taxable	371
year, any income derived from providing public services under a	372
contract through a project owned by the state, as described in	373
section 126.604 of the Revised Code or derived from a transfer	374
agreement or from the enterprise transferred under that agreement	375
under section 4313.02 of the Revised Code.	376

(B) "Business income" means income, including gain or loss,	377
arising from transactions, activities, and sources in the regular	378
course of a trade or business and includes income, gain, or loss	379
from real property, tangible property, and intangible property if	380
the acquisition, rental, management, and disposition of the	381
property constitute integral parts of the regular course of a	382
trade or business operation. "Business income" includes income,	383
including gain or loss, from a partial or complete liquidation of	384
a business, including, but not limited to, gain or loss from the	385
sale or other disposition of goodwill.	386

(C) "Nonbusiness income" means all income other than business	387
income and may include, but is not limited to, compensation, rents	388
and royalties from real or tangible personal property, capital	389
gains, interest, dividends and distributions, patent or copyright	390
royalties, or lottery winnings, prizes, and awards.	391

(D) "Compensation" means any form of remuneration paid to an	392
employee for personal services.	393

(E) "Fiduciary" means a guardian, trustee, executor,	394
administrator, receiver, conservator, or any other person acting	395
in any fiduciary capacity for any individual, trust, or estate.	396

(F) "Fiscal year" means an accounting period of twelve months	397
ending on the last day of any month other than December.	398

(G) "Individual" means any natural person.

399

(H) "Internal Revenue Code" means the "Internal Revenue Code	400
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	401

(I) "Resident" means any of the following, provided that	402
division (I)(3) of this section applies only to taxable years of a	403
trust beginning in 2002 or thereafter:	404

(1) An individual who is domiciled in this state, subject to	405
section 5747.24 of the Revised Code;	406

(2) The estate of a decedent who at the time of death was	407
domiciled in this state. The domicile tests of section 5747.24 of	408
the Revised Code are not controlling for purposes of division	409
(I)(2) of this section.	410

(3) A trust that, in whole or part, resides in this state. If	411
only part of a trust resides in this state, the trust is a	412
resident only with respect to that part.	413

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

414

(a) A trust resides in this state for the trust's current	415
taxable year to the extent, as described in division (I)(3)(d) of	416
this section, that the trust consists directly or indirectly, in	417
whole or in part, of assets, net of any related liabilities, that	418
were transferred, or caused to be transferred, directly or	419
indirectly, to the trust by any of the following:	420

(i) A person, a court, or a governmental entity or	421
instrumentality on account of the death of a decedent, but only if	422
the trust is described in division (I)(3)(e)(i) or (ii) of this	423
section;	424

(ii) A person who was domiciled in this state for the	425
purposes of this chapter when the person directly or indirectly	426
transferred assets to an irrevocable trust, but only if at least	427
one of the trust's qualifying beneficiaries is domiciled in this	428
state for the purposes of this chapter during all or some portion	429
of the trust's current taxable year;	430

(iii) A person who was domiciled in this state for the	431
purposes of this chapter when the trust document or instrument or	432
part of the trust document or instrument became irrevocable, but	433
only if at least one of the trust's qualifying beneficiaries is a	434
resident domiciled in this state for the purposes of this chapter	435
during all or some portion of the trust's current taxable year. If	436
a trust document or instrument became irrevocable upon the death	437
of a person who at the time of death was domiciled in this state	438
for purposes of this chapter, that person is a person described in	439
division (I)(3)(a)(iii) of this section.	440

(b) A trust is irrevocable to the extent that the transferor	441
is not considered to be the owner of the net assets of the trust	442
under sections 671 to 678 of the Internal Revenue Code.	443

(c) With respect to a trust other than a charitable lead	444
trust, "qualifying beneficiary" has the same meaning as "potential	445
current beneficiary" as defined in section 1361(e)(2) of the	446
Internal Revenue Code, and with respect to a charitable lead trust	447
"qualifying beneficiary" is any current, future, or contingent	448
beneficiary, but with respect to any trust "qualifying	449
beneficiary" excludes a person or a governmental entity or	450
instrumentality to any of which a contribution would qualify for	451
the charitable deduction under section 170 of the Internal Revenue	452
Code.	453

(d) For the purposes of division (I)(3)(a) of this section,	454
the extent to which a trust consists directly or indirectly, in	455
whole or in part, of assets, net of any related liabilities, that	456
were transferred directly or indirectly, in whole or part, to the	457
trust by any of the sources enumerated in that division shall be	458
ascertained by multiplying the fair market value of the trust's	459
assets, net of related liabilities, by the qualifying ratio, which	460
shall be computed as follows:	461

(i) The first time the trust receives assets, the numerator	462
of the qualifying ratio is the fair market value of those assets	463
at that time, net of any related liabilities, from sources	464
enumerated in division (I)(3)(a) of this section. The denominator	465
of the qualifying ratio is the fair market value of all the	466
trust's assets at that time, net of any related liabilities.	467

(ii) Each subsequent time the trust receives assets, a	468
revised qualifying ratio shall be computed. The numerator of the	469
revised qualifying ratio is the sum of (1) the fair market value	470
of the trust's assets immediately prior to the subsequent	471
transfer, net of any related liabilities, multiplied by the	472
qualifying ratio last computed without regard to the subsequent	473
transfer, and (2) the fair market value of the subsequently	474
transferred assets at the time transferred, net of any related	475
liabilities, from sources enumerated in division (I)(3)(a) of this	476
section. The denominator of the revised qualifying ratio is the	477
fair market value of all the trust's assets immediately after the	478
subsequent transfer, net of any related liabilities.	479

(iii) Whether a transfer to the trust is by or from any of	480
the sources enumerated in division (I)(3)(a) of this section shall	481
be ascertained without regard to the domicile of the trust's	482
beneficiaries.	483

(e) For the purposes of division (I)(3)(a)(i) of this	484
section:	485

(i) A trust is described in division (I)(3)(e)(i) of this	486
section if the trust is a testamentary trust and the testator of	487
that testamentary trust was domiciled in this state at the time of	488
the testator's death for purposes of the taxes levied under	489
Chapter 5731. of the Revised Code.	490

(ii) A trust is described in division (I)(3)(e)(ii) of this	491
section if the transfer is a qualifying transfer described in any	492
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	493
irrevocable inter vivos trust, and at least one of the trust's	494
qualifying beneficiaries is domiciled in this state for purposes	495
of this chapter during all or some portion of the trust's current	496
taxable year.	497

(f) For the purposes of division (I)(3)(e)(ii) of this	498
section, a "qualifying transfer" is a transfer of assets, net of	499
any related liabilities, directly or indirectly to a trust, if the	500
transfer is described in any of the following:	501

(i) The transfer is made to a trust, created by the decedent	502
before the decedent's death and while the decedent was domiciled	503
in this state for the purposes of this chapter, and, prior to the	504
death of the decedent, the trust became irrevocable while the	505
decedent was domiciled in this state for the purposes of this	506
chapter.	507

(ii) The transfer is made to a trust to which the decedent,	508
prior to the decedent's death, had directly or indirectly	509
transferred assets, net of any related liabilities, while the	510
decedent was domiciled in this state for the purposes of this	511
chapter, and prior to the death of the decedent the trust became	512
irrevocable while the decedent was domiciled in this state for the	513
purposes of this chapter.	514

(iii) The transfer is made on account of a contractual	515
relationship existing directly or indirectly between the	516
transferor and either the decedent or the estate of the decedent	517
at any time prior to the date of the decedent's death, and the	518
decedent was domiciled in this state at the time of death for	519
purposes of the taxes levied under Chapter 5731. of the Revised	520
Code.	521

(iv) The transfer is made to a trust on account of a	522
contractual relationship existing directly or indirectly between	523
the transferor and another person who at the time of the	524
decedent's death was domiciled in this state for purposes of this	525
chapter.	526

(v) The transfer is made to a trust on account of the will of	527
a testator who was domiciled in this state at the time of the	528
testator's death for purposes of the taxes levied under Chapter	529
5731. of the Revised Code.	530

(vi) The transfer is made to a trust created by or caused to	531
be created by a court, and the trust was directly or indirectly	532
created in connection with or as a result of the death of an	533
individual who, for purposes of the taxes levied under Chapter	534
5731. of the Revised Code, was domiciled in this state at the time	535
of the individual's death.	536

(g) The tax commissioner may adopt rules to ascertain the	537
part of a trust residing in this state.	538

(J) "Nonresident" means an individual or estate that is not a	539
resident. An individual who is a resident for only part of a	540
taxable year is a nonresident for the remainder of that taxable	541
year.	542

(K) "Pass-through entity" has the same meaning as in section	543
5733.04 of the Revised Code.	544

(L) "Return" means the notifications and reports required to	545
be filed pursuant to this chapter for the purpose of reporting the	546
tax due and includes declarations of estimated tax when so	547
required.	548

(M) "Taxable year" means the calendar year or the taxpayer's	549
fiscal year ending during the calendar year, or fractional part	550
thereof, upon which the adjusted gross income is calculated	551
pursuant to this chapter.	552

(N) "Taxpayer" means any person subject to the tax imposed by	553
section 5747.02 of the Revised Code or any pass-through entity	554
that makes the election under division (D) of section 5747.08 of	555
the Revised Code.	556

(O) "Dependents" means dependents as defined in the Internal	557
Revenue Code and as claimed in the taxpayer's federal income tax	558
return for the taxable year or which the taxpayer would have been	559
permitted to claim had the taxpayer filed a federal income tax	560
return.	561

(P) "Principal county of employment" means, in the case of a	562
nonresident, the county within the state in which a taxpayer	563
performs services for an employer or, if those services are	564
performed in more than one county, the county in which the major	565
portion of the services are performed.	566

(Q) As used in sections 5747.50 to 5747.55 of the Revised	567
Code:	568

(1) "Subdivision" means any county, municipal corporation,	569
park district, or township.	570

(2) "Essential local government purposes" includes all	571
functions that any subdivision is required by general law to	572
exercise, including like functions that are exercised under a	573
charter adopted pursuant to the Ohio Constitution.	574

(R) "Overpayment" means any amount already paid that exceeds	575
the figure determined to be the correct amount of the tax.	576

(S) "Taxable income" or "Ohio taxable income" applies only to	577
estates and trusts, and means federal taxable income, as defined	578
and used in the Internal Revenue Code, adjusted as follows:	579

(1) Add interest or dividends, net of ordinary, necessary,	580
and reasonable expenses not deducted in computing federal taxable	581
income, on obligations or securities of any state or of any	582
political subdivision or authority of any state, other than this	583
state and its subdivisions and authorities, but only to the extent	584
that such net amount is not otherwise includible in Ohio taxable	585
income and is described in either division (S)(1)(a) or (b) of	586
this section:	587

(a) The net amount is not attributable to the S portion of an	588
electing small business trust and has not been distributed to	589
beneficiaries for the taxable year;	590

(b) The net amount is attributable to the S portion of an	591
electing small business trust for the taxable year.	592

(2) Add interest or dividends, net of ordinary, necessary,	593
and reasonable expenses not deducted in computing federal taxable	594
income, on obligations of any authority, commission,	595
instrumentality, territory, or possession of the United States to	596
the extent that the interest or dividends are exempt from federal	597
income taxes but not from state income taxes, but only to the	598
extent that such net amount is not otherwise includible in Ohio	599
taxable income and is described in either division (S)(1)(a) or	600
(b) of this section;	601

(3) Add the amount of personal exemption allowed to the	602
estate pursuant to section 642(b) of the Internal Revenue Code;	603

(4) Deduct interest or dividends, net of related expenses	604
deducted in computing federal taxable income, on obligations of	605
the United States and its territories and possessions or of any	606
authority, commission, or instrumentality of the United States to	607
the extent that the interest or dividends are exempt from state	608
taxes under the laws of the United States, but only to the extent	609
that such amount is included in federal taxable income and is	610
described in either division (S)(1)(a) or (b) of this section;	611

(5) Deduct the amount of wages and salaries, if any, not	612
otherwise allowable as a deduction but that would have been	613
allowable as a deduction in computing federal taxable income for	614
the taxable year, had the targeted jobs credit allowed under	615
sections 38, 51, and 52 of the Internal Revenue Code not been in	616
effect, but only to the extent such amount relates either to	617
income included in federal taxable income for the taxable year or	618
to income of the S portion of an electing small business trust for	619
the taxable year;	620

(6) Deduct any interest or interest equivalent, net of	621
related expenses deducted in computing federal taxable income, on	622
public obligations and purchase obligations, but only to the	623
extent that such net amount relates either to income included in	624
federal taxable income for the taxable year or to income of the S	625
portion of an electing small business trust for the taxable year;	626

(7) Add any loss or deduct any gain resulting from sale,	627
exchange, or other disposition of public obligations to the extent	628
that such loss has been deducted or such gain has been included in	629
computing either federal taxable income or income of the S portion	630
of an electing small business trust for the taxable year;	631

(8) Except in the case of the final return of an estate, add	632
any amount deducted by the taxpayer on both its Ohio estate tax	633
return pursuant to section 5731.14 of the Revised Code, and on its	634
federal income tax return in determining federal taxable income;	635

(9)(a) Deduct any amount included in federal taxable income	636
solely because the amount represents a reimbursement or refund of	637
expenses that in a previous year the decedent had deducted as an	638
itemized deduction pursuant to section 63 of the Internal Revenue	639
Code and applicable treasury regulations. The deduction otherwise	640
allowed under division (S)(9)(a) of this section shall be reduced	641
to the extent the reimbursement is attributable to an amount the	642
taxpayer or decedent deducted under this section in any taxable	643
year.	644

(b) Add any amount not otherwise included in Ohio taxable	645
income for any taxable year to the extent that the amount is	646
attributable to the recovery during the taxable year of any amount	647
deducted or excluded in computing federal or Ohio taxable income	648
in any taxable year, but only to the extent such amount has not	649
been distributed to beneficiaries for the taxable year.	650

(10) Deduct any portion of the deduction described in section	651
1341(a)(2) of the Internal Revenue Code, for repaying previously	652
reported income received under a claim of right, that meets both	653
of the following requirements:	654

(a) It is allowable for repayment of an item that was	655
included in the taxpayer's taxable income or the decedent's	656
adjusted gross income for a prior taxable year and did not qualify	657
for a credit under division (A) or (B) of section 5747.05 of the	658
Revised Code for that year.	659

(b) It does not otherwise reduce the taxpayer's taxable	660
income or the decedent's adjusted gross income for the current or	661
any other taxable year.	662

(11) Add any amount claimed as a credit under section	663
5747.059 of the Revised Code to the extent that the amount	664
satisfies either of the following:	665

(a) The amount was deducted or excluded from the computation	666
of the taxpayer's federal taxable income as required to be	667
reported for the taxpayer's taxable year under the Internal	668
Revenue Code;	669

(b) The amount resulted in a reduction in the taxpayer's	670
federal taxable income as required to be reported for any of the	671
taxpayer's taxable years under the Internal Revenue Code.	672

(12) Deduct any amount, net of related expenses deducted in	673
computing federal taxable income, that a trust is required to	674
report as farm income on its federal income tax return, but only	675
if the assets of the trust include at least ten acres of land	676
satisfying the definition of "land devoted exclusively to	677
agricultural use" under section 5713.30 of the Revised Code,	678
regardless of whether the land is valued for tax purposes as such	679
land under sections 5713.30 to 5713.38 of the Revised Code. If the	680
trust is a pass-through entity investor, section 5747.231 of the	681
Revised Code applies in ascertaining if the trust is eligible to	682
claim the deduction provided by division (S)(12) of this section	683
in connection with the pass-through entity's farm income.	684

Except for farm income attributable to the S portion of an	685
electing small business trust, the deduction provided by division	686
(S)(12) of this section is allowed only to the extent that the	687
trust has not distributed such farm income. Division (S)(12) of	688
this section applies only to taxable years of a trust beginning in	689
2002 or thereafter.	690

(13) Add the net amount of income described in section 641(c)	691
of the Internal Revenue Code to the extent that amount is not	692
included in federal taxable income.	693

(14) Add or deduct the amount the taxpayer would be required	694
to add or deduct under division (A)(20) or (21) of this section if	695
the taxpayer's Ohio taxable income were computed in the same	696
manner as an individual's Ohio adjusted gross income is computed	697
under this section. In the case of a trust, division (S)(14) of	698
this section applies only to any of the trust's taxable years	699
beginning in 2002 or thereafter.	700

(T) "School district income" and "school district income tax"	701
have the same meanings as in section 5748.01 of the Revised Code.	702

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	703
of this section, "public obligations," "purchase obligations," and	704
"interest or interest equivalent" have the same meanings as in	705
section 5709.76 of the Revised Code.	706

(V) "Limited liability company" means any limited liability	707
company formed under Chapter 1705. of the Revised Code or under	708
the laws of any other state.	709

(W) "Pass-through entity investor" means any person who,	710
during any portion of a taxable year of a pass-through entity, is	711
a partner, member, shareholder, or equity investor in that	712
pass-through entity.	713

(X) "Banking day" has the same meaning as in section 1304.01	714
of the Revised Code.	715

(Y) "Month" means a calendar month.

716

(Z) "Quarter" means the first three months, the second three	717
months, the third three months, or the last three months of the	718
taxpayer's taxable year.	719

(AA)(1) "Eligible institution" means a state university or	720
state institution of higher education as defined in section	721
3345.011 of the Revised Code, or a private, nonprofit college,	722
university, or other post-secondary institution located in this	723
state that possesses a certificate of authorization issued by the	724
Ohio board of regents pursuant to Chapter 1713. of the Revised	725
Code or a certificate of registration issued by the state board of	726
career colleges and schools under Chapter 3332. of the Revised	727
Code.	728

(2) "Qualified tuition and fees" means tuition and fees	729
imposed by an eligible institution as a condition of enrollment or	730
attendance, not exceeding two thousand five hundred dollars in	731
each of the individual's first two years of post-secondary	732
education. If the individual is a part-time student, "qualified	733
tuition and fees" includes tuition and fees paid for the academic	734
equivalent of the first two years of post-secondary education	735
during a maximum of five taxable years, not exceeding a total of	736
five thousand dollars. "Qualified tuition and fees" does not	737
include:	738

(a) Expenses for any course or activity involving sports,	739
games, or hobbies unless the course or activity is part of the	740
individual's degree or diploma program;	741

(b) The cost of books, room and board, student activity fees,	742
athletic fees, insurance expenses, or other expenses unrelated to	743
the individual's academic course of instruction;	744

(c) Tuition, fees, or other expenses paid or reimbursed	745
through an employer, scholarship, grant in aid, or other	746
educational benefit program.	747

(BB)(1) "Modified business income" means the business income	748
included in a trust's Ohio taxable income after such taxable	749
income is first reduced by the qualifying trust amount, if any.	750

(2) "Qualifying trust amount" of a trust means capital gains	751
and losses from the sale, exchange, or other disposition of equity	752
or ownership interests in, or debt obligations of, a qualifying	753
investee to the extent included in the trust's Ohio taxable	754
income, but only if the following requirements are satisfied:	755

(a) The book value of the qualifying investee's physical	756
assets in this state and everywhere, as of the last day of the	757
qualifying investee's fiscal or calendar year ending immediately	758
prior to the date on which the trust recognizes the gain or loss,	759
is available to the trust.	760

(b) The requirements of section 5747.011 of the Revised Code	761
are satisfied for the trust's taxable year in which the trust	762
recognizes the gain or loss.	763

Any gain or loss that is not a qualifying trust amount is	764
modified business income, qualifying investment income, or	765
modified nonbusiness income, as the case may be.	766

(3) "Modified nonbusiness income" means a trust's Ohio	767
taxable income other than modified business income, other than the	768
qualifying trust amount, and other than qualifying investment	769
income, as defined in section 5747.012 of the Revised Code, to the	770
extent such qualifying investment income is not otherwise part of	771
modified business income.	772

(4) "Modified Ohio taxable income" applies only to trusts,	773
and means the sum of the amounts described in divisions (BB)(4)(a)	774
to (c) of this section:	775

(a) The fraction, calculated under section 5747.013, and	776
applying section 5747.231 of the Revised Code, multiplied by the	777
sum of the following amounts:	778

(i) The trust's modified business income;

779

(ii) The trust's qualifying investment income, as defined in	780
section 5747.012 of the Revised Code, but only to the extent the	781
qualifying investment income does not otherwise constitute	782
modified business income and does not otherwise constitute a	783
qualifying trust amount.	784

(b) The qualifying trust amount multiplied by a fraction, the	785
numerator of which is the sum of the book value of the qualifying	786
investee's physical assets in this state on the last day of the	787
qualifying investee's fiscal or calendar year ending immediately	788
prior to the day on which the trust recognizes the qualifying	789
trust amount, and the denominator of which is the sum of the book	790
value of the qualifying investee's total physical assets	791
everywhere on the last day of the qualifying investee's fiscal or	792
calendar year ending immediately prior to the day on which the	793
trust recognizes the qualifying trust amount. If, for a taxable	794
year, the trust recognizes a qualifying trust amount with respect	795
to more than one qualifying investee, the amount described in	796
division (BB)(4)(b) of this section shall equal the sum of the	797
products so computed for each such qualifying investee.	798

(c)(i) With respect to a trust or portion of a trust that is	799
a resident as ascertained in accordance with division (I)(3)(d) of	800
this section, its modified nonbusiness income.	801

(ii) With respect to a trust or portion of a trust that is	802
not a resident as ascertained in accordance with division	803
(I)(3)(d) of this section, the amount of its modified nonbusiness	804
income satisfying the descriptions in divisions (B)(2) to (5) of	805
section 5747.20 of the Revised Code, except as otherwise provided	806
in division (BB)(4)(c)(ii) of this section. With respect to a	807
trust or portion of a trust that is not a resident as ascertained	808
in accordance with division (I)(3)(d) of this section, the trust's	809
portion of modified nonbusiness income recognized from the sale,	810
exchange, or other disposition of a debt interest in or equity	811
interest in a section 5747.212 entity, as defined in section	812
5747.212 of the Revised Code, without regard to division (A) of	813
that section, shall not be allocated to this state in accordance	814
with section 5747.20 of the Revised Code but shall be apportioned	815
to this state in accordance with division (B) of section 5747.212	816
of the Revised Code without regard to division (A) of that	817
section.	818

If the allocation and apportionment of a trust's income under	819
divisions (BB)(4)(a) and (c) of this section do not fairly	820
represent the modified Ohio taxable income of the trust in this	821
state, the alternative methods described in division (C) of	822
section 5747.21 of the Revised Code may be applied in the manner	823
and to the same extent provided in that section.	824

(5)(a) Except as set forth in division (BB)(5)(b) of this	825
section, "qualifying investee" means a person in which a trust has	826
an equity or ownership interest, or a person or unit of government	827
the debt obligations of either of which are owned by a trust. For	828
the purposes of division (BB)(2)(a) of this section and for the	829
purpose of computing the fraction described in division (BB)(4)(b)	830
of this section, all of the following apply:	831

(i) If the qualifying investee is a member of a qualifying	832
controlled group on the last day of the qualifying investee's	833
fiscal or calendar year ending immediately prior to the date on	834
which the trust recognizes the gain or loss, then "qualifying	835
investee" includes all persons in the qualifying controlled group	836
on such last day.	837

(ii) If the qualifying investee, or if the qualifying	838
investee and any members of the qualifying controlled group of	839
which the qualifying investee is a member on the last day of the	840
qualifying investee's fiscal or calendar year ending immediately	841
prior to the date on which the trust recognizes the gain or loss,	842
separately or cumulatively own, directly or indirectly, on the	843
last day of the qualifying investee's fiscal or calendar year	844
ending immediately prior to the date on which the trust recognizes	845
the qualifying trust amount, more than fifty per cent of the	846
equity of a pass-through entity, then the qualifying investee and	847
the other members are deemed to own the proportionate share of the	848
pass-through entity's physical assets which the pass-through	849
entity directly or indirectly owns on the last day of the	850
pass-through entity's calendar or fiscal year ending within or	851
with the last day of the qualifying investee's fiscal or calendar	852
year ending immediately prior to the date on which the trust	853
recognizes the qualifying trust amount.	854

(iii) For the purposes of division (BB)(5)(a)(iii) of this	855
section, "upper level pass-through entity" means a pass-through	856
entity directly or indirectly owning any equity of another	857
pass-through entity, and "lower level pass-through entity" means	858
that other pass-through entity.	859

An upper level pass-through entity, whether or not it is also	860
a qualifying investee, is deemed to own, on the last day of the	861
upper level pass-through entity's calendar or fiscal year, the	862
proportionate share of the lower level pass-through entity's	863
physical assets that the lower level pass-through entity directly	864
or indirectly owns on the last day of the lower level pass-through	865
entity's calendar or fiscal year ending within or with the last	866
day of the upper level pass-through entity's fiscal or calendar	867
year. If the upper level pass-through entity directly and	868
indirectly owns less than fifty per cent of the equity of the	869
lower level pass-through entity on each day of the upper level	870
pass-through entity's calendar or fiscal year in which or with	871
which ends the calendar or fiscal year of the lower level	872
pass-through entity and if, based upon clear and convincing	873
evidence, complete information about the location and cost of the	874
physical assets of the lower pass-through entity is not available	875
to the upper level pass-through entity, then solely for purposes	876
of ascertaining if a gain or loss constitutes a qualifying trust	877
amount, the upper level pass-through entity shall be deemed as	878
owning no equity of the lower level pass-through entity for each	879
day during the upper level pass-through entity's calendar or	880
fiscal year in which or with which ends the lower level	881
pass-through entity's calendar or fiscal year. Nothing in division	882
(BB)(5)(a)(iii) of this section shall be construed to provide for	883
any deduction or exclusion in computing any trust's Ohio taxable	884
income.	885

(b) With respect to a trust that is not a resident for the	886
taxable year and with respect to a part of a trust that is not a	887
resident for the taxable year, "qualifying investee" for that	888
taxable year does not include a C corporation if both of the	889
following apply:	890

(i) During the taxable year the trust or part of the trust	891
recognizes a gain or loss from the sale, exchange, or other	892
disposition of equity or ownership interests in, or debt	893
obligations of, the C corporation.	894

(ii) Such gain or loss constitutes nonbusiness income.

895

(6) "Available" means information is such that a person is	896
able to learn of the information by the due date plus extensions,	897
if any, for filing the return for the taxable year in which the	898
trust recognizes the gain or loss.	899

(CC) "Qualifying controlled group" has the same meaning as in	900
section 5733.04 of the Revised Code.	901

(DD) "Related member" has the same meaning as in section	902
5733.042 of the Revised Code.	903

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

904

(a) "Qualifying person" means any person other than a	905
qualifying corporation.	906

(b) "Qualifying corporation" means any person classified for	907
federal income tax purposes as an association taxable as a	908
corporation, except either of the following:	909

(i) A corporation that has made an election under subchapter	910
S, chapter one, subtitle A, of the Internal Revenue Code for its	911
taxable year ending within, or on the last day of, the investor's	912
taxable year;	913

(ii) A subsidiary that is wholly owned by any corporation	914
that has made an election under subchapter S, chapter one,	915
subtitle A of the Internal Revenue Code for its taxable year	916
ending within, or on the last day of, the investor's taxable year.	917

(2) For the purposes of this chapter, unless expressly stated	918
otherwise, no qualifying person indirectly owns any asset directly	919
or indirectly owned by any qualifying corporation.	920

(FF) For purposes of this chapter and Chapter 5751. of the	921
Revised Code:	922

(1) "Trust" does not include a qualified pre-income tax	923
trust.	924

(2) A "qualified pre-income tax trust" is any pre-income tax	925
trust that makes a qualifying pre-income tax trust election as	926
described in division (FF)(3) of this section.	927

(3) A "qualifying pre-income tax trust election" is an	928
election by a pre-income tax trust to subject to the tax imposed	929
by section 5751.02 of the Revised Code the pre-income tax trust	930
and all pass-through entities of which the trust owns or controls,	931
directly, indirectly, or constructively through related interests,	932
five per cent or more of the ownership or equity interests. The	933
trustee shall notify the tax commissioner in writing of the	934
election on or before April 15, 2006. The election, if timely	935
made, shall be effective on and after January 1, 2006, and shall	936
apply for all tax periods and tax years until revoked by the	937
trustee of the trust.	938

(4) A "pre-income tax trust" is a trust that satisfies all of	939
the following requirements:	940

(a) The document or instrument creating the trust was	941
executed by the grantor before January 1, 1972;	942

(b) The trust became irrevocable upon the creation of the	943
trust; and	944

(c) The grantor was domiciled in this state at the time the	945
trust was created.	946

Section 2. That existing section 5747.01 of the Revised Code	947
is hereby repealed.	948