Ohio § 5733.04

§ 5733.04.

As used in this chapter: (A) “ Issued and outstanding shares of stock ” applies to nonprofit corporations, as provided in section 5733.01 of the Revised Code , and includes, but is not limited to, membership certificates and other instruments

evidencing ownership of an interest in such nonprofit corporations, and with respect

to a financial institution that does not have capital stock, “ issued and outstanding shares of stock ” includes, but is not limited to, ownership interests of depositors in the capital

employed in such an institution. (B) “ Taxpayer ” means a corporation subject to the tax imposed by section 5733.06 of the Revised Code . (C) “ Resident ” means a corporation organized under the laws of this state. (D) “ Commercial domicile ” means the principal place from which the trade or business of the taxpayer is directed

or managed. (E) “ Taxable year ” means the period prescribed by division (A) of section 5733.031 of the Revised Code upon the net income of which the value of the taxpayer's issued and outstanding shares

of stock is determined under division (B) of section 5733.05 of the Revised Code or the period prescribed by division (A) of section 5733.031 of the Revised Code that immediately precedes the date as of which the total value of the corporation

is determined under division (A) or (C) of section 5733.05 of the Revised Code . (F) “ Tax year ” means the calendar year in and for which the tax imposed by section 5733.06 of the Revised Code is required to be paid. (G) “ Internal Revenue Code ” means the “Internal Revenue Code of 1986,” 100 Stat. 2085, 26 U.S.C.A. 1 , as amended. (H) “ Federal income tax ” means the income tax imposed by the Internal Revenue Code. (I) Except as provided in section 5733.058 of the Revised Code , “ net income ” means the taxpayer's taxable income before operating loss deduction and special

deductions, as required to be reported for the taxpayer's taxable year under the Internal

Revenue Code, subject to the following adjustments: (1)(a) Deduct any net operating loss incurred in any taxable years ending in 1971 or thereafter,

but exclusive of any net operating loss incurred in taxable years ending prior to

January 1, 1971.  This deduction shall not be allowed in any tax year commencing before December 31,

1973, but shall be carried over and allowed in tax years commencing after December

31, 1973, until fully utilized in the next succeeding taxable year or years in which

the taxpayer has net income, but in no case for more than the designated carryover

period as described in division (I)(1)(b) of this section.  The amount of such net operating loss, as determined under the allocation and apportionment

provisions of section 5733.051 and division (B) of section 5733.05 of the Revised Code for the year in which the net operating loss occurs, shall be deducted from net income,

as determined under the allocation and apportionment provisions of section 5733.051 and division (B) of section 5733.05 of the Revised Code , to the extent necessary to reduce net income to zero with the remaining unused portion

of the deduction, if any, carried forward to the remaining years of the designated

carryover period as described in division (I)(1)(b) of this section, or until fully

utilized, whichever occurs first. (b) For losses incurred in taxable years ending on or before December 31, 1981, the designated

carryover period shall be the five consecutive taxable years after the taxable year

in which the net operating loss occurred.  For losses incurred in taxable years ending on or after January 1, 1982, and beginning

before August 6, 1997, the designated carryover period shall be the fifteen consecutive

taxable years after the taxable year in which the net operating loss occurs.  For losses incurred in taxable years beginning on or after August 6, 1997, the designated

carryover period shall be the twenty consecutive taxable years after the taxable year

in which the net operating loss occurs. (c) The tax commissioner may require a taxpayer to furnish any information necessary

to support a claim for deduction under division (I)(1)(a) of this section and no deduction

shall be allowed unless the information is furnished. (2) Deduct any amount included in net income by application of section 78 or 951 of the Internal Revenue Code , amounts received for royalties, technical or other services derived from sources

outside the United States, and dividends received from a subsidiary, associate, or

affiliated corporation that neither transacts any substantial portion of its business

nor regularly maintains any substantial portion of its assets within the United States.  For purposes of determining net foreign source income deductible under division

(I)(2) of this section, the amount of gross income from all such sources other than

dividend income and income derived by application of section 78 or 951 of the Internal Revenue Code shall be reduced by: (a) The amount of any reimbursed expenses for personal services performed by employees

of the taxpayer for the subsidiary, associate, or affiliated corporation; (b) Ten per cent of the amount of royalty income and technical assistance fees; (c) Fifteen per cent of the amount of all other income. The amounts described in divisions (I)(2)(a) to (c) of this section are deemed to

be the expenses attributable to the production of deductible foreign source income

unless the taxpayer shows, by clear and convincing evidence, less actual expenses,

or the tax commissioner shows, by clear and convincing evidence, more actual expenses. (3) Add any loss or deduct any gain resulting from the sale, exchange, or other disposition

of a capital asset, or an asset described in section 1231 of the Internal Revenue Code , to the extent that such loss or gain occurred prior to the first taxable year on

which the tax provided for in section 5733.06 of the Revised Code is computed on the corporation's net income.  For purposes of division (I)(3) of this section, the amount of the prior loss or

gain shall be measured by the difference between the original cost or other basis

of the asset and the fair market value as of the beginning of the first taxable year

on which the tax provided for in section 5733.06 of the Revised Code is computed on the corporation's net income.  At the option of the taxpayer, the amount of the prior loss or gain may be a percentage

of the gain or loss, which percentage shall be determined by multiplying the gain

or loss by a fraction, the numerator of which is the number of months from the acquisition

of the asset to the beginning of the first taxable year on which the fee provided

in section 5733.06 of the Revised Code is computed on the corporation's net income, and the denominator of which is the

number of months from the acquisition of the asset to the sale, exchange, or other

disposition of the asset.  The adjustments described in this division do not apply to any gain or loss where

the gain or loss is recognized by a qualifying taxpayer, as defined in section 5733.0510 of the Revised Code , with respect to a qualifying taxable event, as defined in that section. (4) Deduct the dividend received deduction provided by section 243 of the Internal Revenue Code . (5) Deduct any interest or interest equivalent on public obligations and purchase obligations

to the extent included in federal taxable income.  As used in divisions (I)(5) and (6) of this section, “public obligations,” “purchase

obligations,” and “interest or interest equivalent” have the same meanings as in section 5709.76 of the Revised Code . (6) Add any loss or deduct any gain resulting from the sale, exchange, or other disposition

of public obligations to the extent included in federal taxable income. (7) To the extent not otherwise allowed, deduct any dividends or distributions received

by a taxpayer from a public utility, excluding an electric company and a combined

company, and, for tax years 2005 and thereafter, a telephone company, if the taxpayer

owns at least eighty per cent of the issued and outstanding common stock of the public

utility.  As used in division (I)(7) of this section, “ public utility ” means a public utility as defined in Chapter 5727. of the Revised Code, whether

or not the public utility is doing business in the state. (8) To the extent not otherwise allowed, deduct any dividends received by a taxpayer

from an insurance company, if the taxpayer owns at least eighty per cent of the issued

and outstanding common stock of the insurance company.  As used in division (I)(8) of this section, “ insurance company ” means an insurance company that is taxable under Chapter 5725. or 5729. of the Revised

Code. (9) Deduct expenditures for modifying existing buildings or structures to meet American

national standards institute standard A-117.1-1961 (R-1971), as amended;  provided,

that no deduction shall be allowed to the extent that such deduction is not permitted

under federal law or under rules of the tax commissioner.  Those deductions as are allowed may be taken over a period of five years.  The tax commissioner shall adopt rules under Chapter 119. of the Revised Code establishing

reasonable limitations on the extent that expenditures for modifying existing buildings

or structures are attributable to the purpose of making the buildings or structures

accessible to and usable by persons with physical disabilities. (10) Deduct the amount of wages and salaries, if any, not otherwise allowable as a deduction

but that would have been allowable as a deduction in computing federal taxable income

before operating loss deduction and special deductions for the taxable year, had the

targeted jobs credit allowed and determined under sections 38 , 51 , and 52 of the Internal Revenue Code not been in effect. (11) Deduct net interest income on obligations of the United States and its territories

and possessions or of any authority, commission, or instrumentality of the United

States to the extent the laws of the United States prohibit inclusion of the net interest

for purposes of determining the value of the taxpayer's issued and outstanding shares

of stock under division (B) of section 5733.05 of the Revised Code .  As used in division (I)(11) of this section, “ net interest ” means interest net of any expenses taken on the federal income tax return that would

not have been allowed under section 265 of the Internal Revenue Code if the interest were exempt from federal income tax. (12)(a) Except as set forth in division (I)(12)(d) of this section, to the extent not included

in computing the taxpayer's federal taxable income before operating loss deduction

and special deductions, add gains and deduct losses from direct or indirect sales,

exchanges, or other dispositions, made by a related entity who is not a taxpayer,

of the taxpayer's indirect, beneficial, or constructive investment in the stock or

debt of another entity, unless the gain or loss has been included in computing the

federal taxable income before operating loss deduction and special deductions of another

taxpayer with a more closely related investment in the stock or debt of the other

entity.  The amount of gain added or loss deducted shall not exceed the product obtained

by multiplying such gain or loss by the taxpayer's proportionate share, directly,

indirectly, beneficially, or constructively, of the outstanding stock of the related

entity immediately prior to the direct or indirect sale, exchange, or other disposition. (b) Except as set forth in division (I)(12)(e) of this section, to the extent not included

in computing the taxpayer's federal taxable income before operating loss deduction

and special deductions, add gains and deduct losses from direct or indirect sales,

exchanges, or other dispositions made by a related entity who is not a taxpayer, of

intangible property other than stock, securities, and debt, if such property was owned,

or used in whole or in part, at any time prior to or at the time of the sale, exchange,

or disposition by either the taxpayer or by a related entity that was a taxpayer at

any time during the related entity's ownership or use of such property, unless the

gain or loss has been included in computing the federal taxable income before operating

loss deduction and special deductions of another taxpayer with a more closely related

ownership or use of such intangible property.  The amount of gain added or loss deducted shall not exceed the product obtained

by multiplying such gain or loss by the taxpayer's proportionate share, directly,

indirectly, beneficially, or constructively, of the outstanding stock of the related

entity immediately prior to the direct or indirect sale, exchange, or other disposition. (c) As used in division (I)(12) of this section, “ related entity ” means those entities described in divisions (I)(12)(c)(i) to (iii) of this section: (i) An individual stockholder, or a member of the stockholder's family enumerated in section 318 of the Internal Revenue Code , if the stockholder and the members of the stockholder's family own, directly, indirectly,

beneficially, or constructively, in the aggregate, at least fifty per cent of the

value of the taxpayer's outstanding stock; (ii) A stockholder, or a stockholder's partnership, estate, trust, or corporation, if

the stockholder and the stockholder's partnerships, estates, trusts, and corporations

own directly, indirectly, beneficially, or constructively, in the aggregate, at least

fifty per cent of the value of the taxpayer's outstanding stock; (iii) A corporation, or a party related to the corporation in a manner that would require

an attribution of stock from the corporation to the party or from the party to the

corporation under division (I)(12)(c)(iv) of this section, if the taxpayer owns, directly,

indirectly, beneficially, or constructively, at least fifty per cent of the value

of the corporation's outstanding stock. (iv) The attribution rules of section 318 of the Internal Revenue Code apply for purposes of determining whether the ownership requirements in divisions

(I)(12)(c)(i) to (iii) of this section have been met. (d) For purposes of the adjustments required by division (I)(12)(a) of this section,

the term “ investment in the stock or debt of another entity ” means only those investments where the taxpayer and the taxpayer's related entities

directly, indirectly, beneficially, or constructively own, in the aggregate, at any

time during the twenty-four month period commencing one year prior to the direct or

indirect sale, exchange, or other disposition of such investment at least fifty per

cent or more of the value of either the outstanding stock or such debt of such other

entity. (e) For purposes of the adjustments required by division (I)(12)(b) of this section,

the term “related entity” excludes all of the following: (i) Foreign corporations as defined in section 7701 of the Internal Revenue Code ; (ii) Foreign partnerships as defined in section 7701 of the Internal Revenue Code ; (iii) Corporations, partnerships, estates, and trusts created or organized in or under

the laws of the Commonwealth of Puerto Rico or any possession of the United States; (iv) Foreign estates and foreign trusts as defined in section 7701 of the Internal Revenue Code . The exclusions described in divisions (I)(12)(e)(i) to (iv) of this section do not

apply if the corporation, partnership, estate, or trust is described in any one of

divisions (C)(1) to (5) of section 5733.042 of the Revised Code. (f) Nothing in division (I)(12) of this section shall require or permit a taxpayer to

add any gains or deduct any losses described in divisions (I)(12)(f)(i) and (ii) of

this section: (i) Gains or losses recognized for federal income tax purposes by an individual, estate,

or trust without regard to the attribution rules described in division (I)(12)(c)

of this section; (ii) A related entity's gains or losses described in division (I)(12)(b) of this section

if the taxpayer's ownership of or use of such intangible property was limited to a

period not exceeding nine months and was attributable to a transaction or a series

of transactions executed in accordance with the election or elections made by the

taxpayer or a related entity pursuant to section 338 of the Internal Revenue Code . (13) Any adjustment required by section 5733.042 of the Revised Code . (14) Add any amount claimed as a credit under section 5733.0611 of the Revised Code to the extent that such amount satisfies either of the following: (a) It was deducted or excluded from the computation of the corporation's taxable income

before operating loss deduction and special deductions as required to be reported

for the corporation's taxable year under the Internal Revenue Code; (b) It resulted in a reduction of the corporation's taxable income before operating loss

deduction and special deductions as required to be reported for any of the corporation's

taxable years under the Internal Revenue Code. (15) Deduct the amount contributed by the taxpayer to an individual development account

program established by a county department of job and family services pursuant to sections 329.11 to 329.14 of the Revised Code for the purpose of matching funds deposited by program participants.  On request of the tax commissioner, the taxpayer shall provide any information that,

in the tax commissioner's opinion, is necessary to establish the amount deducted under

division (I)(15) of this section. (16) Any adjustment required by section 5733.0510 or 5733.0511 of the Revised Code . (17)(a)(i) Add five-sixths of the amount of depreciation expense allowed under subsection (k) of section 168 of the Internal Revenue Code , 1 including a person's proportionate or distributive share of the amount of depreciation

expense allowed by that subsection to any pass-through entity in which the person

has direct or indirect ownership. (ii) Add five-sixths of the amount of qualifying section 179 depreciation expense, including

a person's proportionate or distributive share of the amount of qualifying section

179 depreciation expense allowed to any pass-through entity in which the person has

a direct or indirect ownership.  For the purposes of this division, “ qualifying section 179 depreciation expense ” means the difference between (I) the amount of depreciation expense directly or

indirectly allowed to the taxpayer under section 179 of the Internal Revenue Code , and (II) the amount of depreciation expense directly or indirectly allowed to the

taxpayer under section 179 of the Internal Revenue Code as that section existed on December 31, 2002. The tax commissioner, under procedures established by the commissioner, may waive

the add-backs related to a pass-through entity if the person owns, directly or indirectly,

less than five per cent of the pass-through entity. (b) Nothing in division (I)(17) of this section shall be construed to adjust or modify

the adjusted basis of any asset. (c) To the extent the add-back is attributable to property generating income or loss

allocable under section 5733.051 of the Revised Code , the add-back shall be allocated to the same location as the income or loss generated

by that property.  Otherwise, the add-back shall be apportioned, subject to division (B)(2)(d) of section 5733.05 of the Revised Code . (18)(a) If a person is required to make the add-back under division (I)(17)(a) of this section

for a tax year, the person shall deduct one-fifth of the amount added back for each

of the succeeding five tax years. (b) If the amount deducted under division (I)(18)(a) of this section is attributable

to an add-back allocated under division (I)(17)(c) of this section, the amount deducted

shall be allocated to the same location.  Otherwise, the amount shall be apportioned using the apportionment factors for the

taxable year in which the deduction is taken, subject to division (B)(2)(d) of section 5733.05 of the Revised Code . (J) Except as otherwise expressly provided or clearly appearing from the context, any

term used in this chapter has the same meaning as when used in a comparable context

in the laws of the United States relating to federal income taxes.  Any reference in this chapter to the Internal Revenue Code includes other laws of

the United States relating to federal income taxes. (K) “ Financial institution ” has the meaning given by section 5725.01 of the Revised Code but does not include a production credit association as described in 85 Stat. 597, 12 U.S.C.A. 2091 . (L)(1) A “ qualifying holding company ” is any corporation satisfying all of the following requirements: (a) Subject to divisions (L)(2) and (3) of this section, the net book value of the corporation's

intangible assets is greater than or equal to ninety per cent of the net book value

of all of its assets and at least fifty per cent of the net book value of all of its

assets represents direct or indirect investments in the equity of, loans and advances

to, and accounts receivable due from related members; (b) At least ninety per cent of the corporation's gross income for the taxable year is

attributable to the following: (i) The maintenance, management, ownership, acquisition, use, and disposition of its

intangible property, its aircraft the use of which is not subject to regulation under 14 C.F.R. part 121 or part 135 , and any real property described in division (L)(2)(c) of this section; (ii) The collection and distribution of income from such property. (c) The corporation is not a financial institution on the last day of the taxable year

ending prior to the first day of the tax year; (d) The corporation's related members make a good faith and reasonable effort to make

timely and fully the adjustments required by division (D) of section 5733.05 of the Revised Code and to pay timely and fully all uncontested taxes, interest, penalties, and other

fees and charges imposed under this chapter; (e) Subject to division (L)(4) of this section, the corporation elects to be treated

as a qualifying holding company for the tax year. A corporation otherwise satisfying divisions (L)(1)(a) to (e) of this section that

does not elect to be a qualifying holding company is not a qualifying holding company

for the purposes of this chapter. (2)(a)(i) For purposes of making the ninety per cent computation under division (L)(1)(a) of

this section, the net book value of the corporation's assets shall not include the

net book value of aircraft or real property described in division (L)(1)(b)(i) of

this section. (ii) For purposes of making the fifty per cent computation under division (L)(1)(a) of

this section, the net book value of assets shall include the net book value of aircraft

or real property described in division (L)(1)(b)(i) of this section. (b)(i) As used in division (L) of this section, “ intangible asset ” includes, but is not limited to, the corporation's direct interest in each pass-through

entity only if at all times during the corporation's taxable year ending prior to

the first day of the tax year the corporation's and the corporation's related members'

combined direct and indirect interests in the capital or profits of such pass-through

entity do not exceed fifty per cent.  If the corporation's interest in the pass-through entity is an intangible asset

for that taxable year, then the distributive share of any income from the pass-through

entity shall be income from an intangible asset for that taxable year. (ii) If a corporation's and the corporation's related members' combined direct and indirect

interests in the capital or profits of a pass-through entity exceed fifty per cent

at any time during the corporation's taxable year ending prior to the first day of

the tax year, “intangible asset” does not include the corporation's direct interest

in the pass-through entity, and the corporation shall include in its assets its proportionate

share of the assets of any such pass-through entity and shall include in its gross

income its distributive share of the gross income of such pass-through entity in the

same form as was earned by the pass-through entity. (iii) A pass-through entity's direct or indirect proportionate share of any other pass-through

entity's assets shall be included for the purpose of computing the corporation's proportionate

share of the pass-through entity's assets under division (L)(2)(b)(ii) of this section,

and such pass-through entity's distributive share of any other pass-through entity's

gross income shall be included for purposes of computing the corporation's distributive

share of the pass-through entity's gross income under division (L)(2)(b)(ii) of this

section. (c) For the purposes of divisions (L)(1)(b)(i), (1)(b)(ii), (2)(a)(i), and (2)(a)(ii)

of this section, real property is described in division (L)(2)(c) of this section

only if all of the following conditions are present at all times during the taxable

year ending prior to the first day of the tax year: (i) The real property serves as the headquarters of the corporation's trade or business,

or is the place from which the corporation's trade or business is principally managed

or directed; (ii) Not more than ten per cent of the value of the real property and not more than ten

per cent of the square footage of the building or buildings that are part of the real

property is used, made available, or occupied for the purpose of providing, acquiring,

transferring, selling, or disposing of tangible property or services in the normal

course of business to persons other than related members, the corporation's employees

and their families, and such related members' employees and their families. (d) As used in division (L) of this section, “related member” has the same meaning as

in division (A)(6) of section 5733.042 of the Revised Code without regard to division (B) of that section. (3) The percentages described in division (L)(1)(a) of this section shall be equal to

the quarterly average of those percentages as calculated during the corporation's

taxable year ending prior to the first day of the tax year. (4) With respect to the election described in division (L)(1)(e) of this section: (a) The election need not accompany a timely filed report; (b) The election need not accompany the report;  rather, the election may accompany a

subsequently filed but timely application for refund and timely amended report, or

a subsequently filed but timely petition for reassessment; (c) The election is not irrevocable; (d) The election applies only to the tax year specified by the corporation; (e) The corporation's related members comply with division (L)(1)(d) of this section. Nothing in division (L)(4) of this section shall be construed to extend any statute

of limitations set forth in this chapter. (M) “ Qualifying controlled group ” means two or more corporations that satisfy the ownership and control requirements

of division (A) of section 5733.052 of the Revised Code . (N) “ Limited liability company ” means any limited liability company formed under Chapter 1705. or 1706. of the Revised

Code or under the laws of any other state. (O) “ Pass-through entity ” means any entity that is eligible to make and that has made an election under subchapter

S of Chapter 1 of Subtitle A of the Internal Revenue Code for its taxable year under

that code, or a partnership, limited liability company, or any other person, other

than an individual, trust, or estate, if the partnership, limited liability company,

or other person is not classified for federal income tax purposes as an association

taxed as a corporation. (P) “Electric company,” “combined company,” and “telephone company” have the same meanings

as in section 5727.01 of the Revised Code . (Q) “ Business income ” means income arising from transactions, activities, and sources in the regular course

of a trade or business and includes income from real property, tangible personal property,

and intangible personal property if the acquisition, rental, management, and disposition

of the property constitute integral parts of the regular course of a trade or business

operation.  “ Business income ” includes income, including gain or loss, from a partial or complete liquidation

of a business, including, but not limited to, gain or loss from the sale or other

disposition of goodwill. (R) “ Nonbusiness income ” means all income other than business income. 1

 26 U.S.C.A. § 168(k).