Ohio-2013-HB246-Introduced

As Introduced

130th General Assembly

Regular Session

2013-2014

H. B. No. 246

Representatives Rogers, Blair

Cosponsors: Representatives Cera, Barborak, Celebrezze, Antonio, Maag, Gerberry, Patterson, Slesnick, Stinziano, Henne, Beck

A BILL

To amend section 5747.01 and to enact sections

5747.82 and 5751.031 of the Revised Code to allow

recent college graduates to claim an income tax

deduction for qualified higher education expenses

and allow employers of recent college graduates to

deduct the employer's costs of employing the

graduate from the employer's gross receipts

subject to the commercial activities tax.

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

Section 1. That section 5747.01 be amended and sections	9
5747.82 and 5751.031 of the Revised Code be enacted to read as	10
follows:	11

Sec. 5747.01. Except as otherwise expressly provided or	12
clearly appearing from the context, any term used in this chapter	13
that is not otherwise defined in this section has the same meaning	14
as when used in a comparable context in the laws of the United	15
States relating to federal income taxes or if not used in a	16
comparable context in those laws, has the same meaning as in	17
section 5733.40 of the Revised Code. Any reference in this chapter	18
to the Internal Revenue Code includes other laws of the United	19
States relating to federal income taxes.	20

As used in this chapter:

(A) "Adjusted gross income" or "Ohio adjusted gross income"	22
means federal adjusted gross income, as defined and used in the	23
Internal Revenue Code, adjusted as provided in this section:	24

(1) Add interest or dividends on obligations or securities of	25
any state or of any political subdivision or authority of any	26
state, other than this state and its subdivisions and authorities.	27

(2) Add interest or dividends on obligations of any	28
authority, commission, instrumentality, territory, or possession	29
of the United States to the extent that the interest or dividends	30
are exempt from federal income taxes but not from state income	31
taxes.	32

(3) Deduct interest or dividends on obligations of the United	33
States and its territories and possessions or of any authority,	34
commission, or instrumentality of the United States to the extent	35
that the interest or dividends are included in federal adjusted	36
gross income but exempt from state income taxes under the laws of	37
the United States.	38

(4) Deduct disability and survivor's benefits to the extent	39
included in federal adjusted gross income.	40

(5) Deduct benefits under Title II of the Social Security Act	41
and tier 1 railroad retirement benefits to the extent included in	42
federal adjusted gross income under section 86 of the Internal	43
Revenue Code.	44

(6) In the case of a taxpayer who is a beneficiary of a trust	45
that makes an accumulation distribution as defined in section 665	46
of the Internal Revenue Code, add, for the beneficiary's taxable	47
years beginning before 2002, the portion, if any, of such	48
distribution that does not exceed the undistributed net income of	49
the trust for the three taxable years preceding the taxable year	50
in which the distribution is made to the extent that the portion	51
was not included in the trust's taxable income for any of the	52
trust's taxable years beginning in 2002 or thereafter.	53
"Undistributed net income of a trust" means the taxable income of	54
the trust increased by (a)(i) the additions to adjusted gross	55
income required under division (A) of this section and (ii) the	56
personal exemptions allowed to the trust pursuant to section	57
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	58
deductions to adjusted gross income required under division (A) of	59
this section, (ii) the amount of federal income taxes attributable	60
to such income, and (iii) the amount of taxable income that has	61
been included in the adjusted gross income of a beneficiary by	62
reason of a prior accumulation distribution. Any undistributed net	63
income included in the adjusted gross income of a beneficiary	64
shall reduce the undistributed net income of the trust commencing	65
with the earliest years of the accumulation period.	66

(7) Deduct the amount of wages and salaries, if any, not	67
otherwise allowable as a deduction but that would have been	68
allowable as a deduction in computing federal adjusted gross	69
income for the taxable year, had the targeted jobs credit allowed	70
and determined under sections 38, 51, and 52 of the Internal	71
Revenue Code not been in effect.	72

(8) Deduct any interest or interest equivalent on public	73
obligations and purchase obligations to the extent that the	74
interest or interest equivalent is included in federal adjusted	75
gross income.	76

(9) Add any loss or deduct any gain resulting from the sale,	77
exchange, or other disposition of public obligations to the extent	78
that the loss has been deducted or the gain has been included in	79
computing federal adjusted gross income.	80

(10) Deduct or add amounts, as provided under section 5747.70	81
of the Revised Code, related to contributions to variable college	82
savings program accounts made or tuition units purchased pursuant	83
to Chapter 3334. of the Revised Code.	84

(11)(a) Deduct, to the extent not otherwise allowable as a	85
deduction or exclusion in computing federal or Ohio adjusted gross	86
income for the taxable year, the amount the taxpayer paid during	87
the taxable year for medical care insurance and qualified	88
long-term care insurance for the taxpayer, the taxpayer's spouse,	89
and dependents. No deduction for medical care insurance under	90
division (A)(11) of this section shall be allowed either to any	91
taxpayer who is eligible to participate in any subsidized health	92
plan maintained by any employer of the taxpayer or of the	93
taxpayer's spouse, or to any taxpayer who is entitled to, or on	94
application would be entitled to, benefits under part A of Title	95
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	96
301, as amended. For the purposes of division (A)(11)(a) of this	97
section, "subsidized health plan" means a health plan for which	98
the employer pays any portion of the plan's cost. The deduction	99
allowed under division (A)(11)(a) of this section shall be the net	100
of any related premium refunds, related premium reimbursements, or	101
related insurance premium dividends received during the taxable	102
year.	103

(b) Deduct, to the extent not otherwise deducted or excluded	104
in computing federal or Ohio adjusted gross income during the	105
taxable year, the amount the taxpayer paid during the taxable	106
year, not compensated for by any insurance or otherwise, for	107
medical care of the taxpayer, the taxpayer's spouse, and	108
dependents, to the extent the expenses exceed seven and one-half	109
per cent of the taxpayer's federal adjusted gross income.	110

(c) Deduct, to the extent not otherwise deducted or excluded	111
in computing federal or Ohio adjusted gross income, any amount	112
included in federal adjusted gross income under section 105 or not	113
excluded under section 106 of the Internal Revenue Code solely	114
because it relates to an accident and health plan for a person who	115
otherwise would be a "qualifying relative" and thus a "dependent"	116
under section 152 of the Internal Revenue Code but for the fact	117
that the person fails to meet the income and support limitations	118
under section 152(d)(1)(B) and (C) of the Internal Revenue Code.	119

(d) For purposes of division (A)(11) of this section,	120
"medical care" has the meaning given in section 213 of the	121
Internal Revenue Code, subject to the special rules, limitations,	122
and exclusions set forth therein, and "qualified long-term care"	123
has the same meaning given in section 7702B(c) of the Internal	124
Revenue Code. Solely for purposes of divisions (A)(11)(a) and (c)	125
of this section, "dependent" includes a person who otherwise would	126
be a "qualifying relative" and thus a "dependent" under section	127
152 of the Internal Revenue Code but for the fact that the person	128
fails to meet the income and support limitations under section	129
152(d)(1)(B) and (C) of the Internal Revenue Code.	130

(12)(a) Deduct any amount included in federal adjusted gross	131
income solely because the amount represents a reimbursement or	132
refund of expenses that in any year the taxpayer had deducted as	133
an itemized deduction pursuant to section 63 of the Internal	134
Revenue Code and applicable United States department of the	135
treasury regulations. The deduction otherwise allowed under	136
division (A)(12)(a) of this section shall be reduced to the extent	137
the reimbursement is attributable to an amount the taxpayer	138
deducted under this section in any taxable year.	139

(b) Add any amount not otherwise included in Ohio adjusted	140
gross income for any taxable year to the extent that the amount is	141
attributable to the recovery during the taxable year of any amount	142
deducted or excluded in computing federal or Ohio adjusted gross	143
income in any taxable year.	144

(13) Deduct any portion of the deduction described in section	145
1341(a)(2) of the Internal Revenue Code, for repaying previously	146
reported income received under a claim of right, that meets both	147
of the following requirements:	148

(a) It is allowable for repayment of an item that was	149
included in the taxpayer's adjusted gross income for a prior	150
taxable year and did not qualify for a credit under division (A)	151
or (B) of section 5747.05 of the Revised Code for that year;	152

(b) It does not otherwise reduce the taxpayer's adjusted	153
gross income for the current or any other taxable year.	154

(14) Deduct an amount equal to the deposits made to, and net	155
investment earnings of, a medical savings account during the	156
taxable year, in accordance with section 3924.66 of the Revised	157
Code. The deduction allowed by division (A)(14) of this section	158
does not apply to medical savings account deposits and earnings	159
otherwise deducted or excluded for the current or any other	160
taxable year from the taxpayer's federal adjusted gross income.	161

(15)(a) Add an amount equal to the funds withdrawn from a	162
medical savings account during the taxable year, and the net	163
investment earnings on those funds, when the funds withdrawn were	164
used for any purpose other than to reimburse an account holder	165
for, or to pay, eligible medical expenses, in accordance with	166
section 3924.66 of the Revised Code;	167

(b) Add the amounts distributed from a medical savings	168
account under division (A)(2) of section 3924.68 of the Revised	169
Code during the taxable year.	170

(16) Add any amount claimed as a credit under section	171
5747.059 or 5747.65 of the Revised Code to the extent that such	172
amount satisfies either of the following:	173

(a) The amount was deducted or excluded from the computation	174
of the taxpayer's federal adjusted gross income as required to be	175
reported for the taxpayer's taxable year under the Internal	176
Revenue Code;	177

(b) The amount resulted in a reduction of the taxpayer's	178
federal adjusted gross income as required to be reported for any	179
of the taxpayer's taxable years under the Internal Revenue Code.	180

(17) Deduct the amount contributed by the taxpayer to an	181
individual development account program established by a county	182
department of job and family services pursuant to sections 329.11	183
to 329.14 of the Revised Code for the purpose of matching funds	184
deposited by program participants. On request of the tax	185
commissioner, the taxpayer shall provide any information that, in	186
the tax commissioner's opinion, is necessary to establish the	187
amount deducted under division (A)(17) of this section.	188

(18) Beginning in taxable year 2001 but not for any taxable	189
year beginning after December 31, 2005, if the taxpayer is married	190
and files a joint return and the combined federal adjusted gross	191
income of the taxpayer and the taxpayer's spouse for the taxable	192
year does not exceed one hundred thousand dollars, or if the	193
taxpayer is single and has a federal adjusted gross income for the	194
taxable year not exceeding fifty thousand dollars, deduct amounts	195
paid during the taxable year for qualified tuition and fees paid	196
to an eligible institution for the taxpayer, the taxpayer's	197
spouse, or any dependent of the taxpayer, who is a resident of	198
this state and is enrolled in or attending a program that	199
culminates in a degree or diploma at an eligible institution. The	200
deduction may be claimed only to the extent that qualified tuition	201
and fees are not otherwise deducted or excluded for any taxable	202
year from federal or Ohio adjusted gross income. The deduction may	203
not be claimed for educational expenses for which the taxpayer	204
claims a credit under section 5747.27 of the Revised Code.	205

(19) Add any reimbursement received during the taxable year	206
of any amount the taxpayer deducted under division (A)(18) of this	207
section in any previous taxable year to the extent the amount is	208
not otherwise included in Ohio adjusted gross income.	209

(20)(a)(i) Subject to divisions (A)(20)(a)(iii), (iv), and	210
(v) of this section, add five-sixths of the amount of depreciation	211
expense allowed by subsection (k) of section 168 of the Internal	212
Revenue Code, including the taxpayer's proportionate or	213
distributive share of the amount of depreciation expense allowed	214
by that subsection to a pass-through entity in which the taxpayer	215
has a direct or indirect ownership interest.	216

(ii) Subject to divisions (A)(20)(a)(iii), (iv), and (v) of	217
this section, add five-sixths of the amount of qualifying section	218
179 depreciation expense, including the taxpayer's proportionate	219
or distributive share of the amount of qualifying section 179	220
depreciation expense allowed to any pass-through entity in which	221
the taxpayer has a direct or indirect ownership interest.	222

(iii) Subject to division (A)(20)(a)(v) of this section, for	223
taxable years beginning in 2012 or thereafter, if the increase in	224
income taxes withheld by the taxpayer is equal to or greater than	225
ten per cent of income taxes withheld by the taxpayer during the	226
taxpayer's immediately preceding taxable year, "two-thirds" shall	227
be substituted for "five-sixths" for the purpose of divisions	228
(A)(20)(a)(i) and (ii) of this section.	229

(iv) Subject to division (A)(20)(a)(v) of this section, for	230
taxable years beginning in 2012 or thereafter, a taxpayer is not	231
required to add an amount under division (A)(20) of this section	232
if the increase in income taxes withheld by the taxpayer and by	233
any pass-through entity in which the taxpayer has a direct or	234
indirect ownership interest is equal to or greater than the sum of	235
(I) the amount of qualifying section 179 depreciation expense and	236
(II) the amount of depreciation expense allowed to the taxpayer by	237
subsection (k) of section 168 of the Internal Revenue Code, and	238
including the taxpayer's proportionate or distributive shares of	239
such amounts allowed to any such pass-through entities.	240

(v) If a taxpayer directly or indirectly incurs a net	241
operating loss for the taxable year for federal income tax	242
purposes, to the extent such loss resulted from depreciation	243
expense allowed by subsection (k) of section 168 of the Internal	244
Revenue Code and by qualifying section 179 depreciation expense,	245
"the entire" shall be substituted for "five-sixths of the" for the	246
purpose of divisions (A)(20)(a)(i) and (ii) of this section.	247

The tax commissioner, under procedures established by the	248
commissioner, may waive the add-backs related to a pass-through	249
entity if the taxpayer owns, directly or indirectly, less than	250
five per cent of the pass-through entity.	251

(b) Nothing in division (A)(20) of this section shall be	252
construed to adjust or modify the adjusted basis of any asset.	253

(c) To the extent the add-back required under division	254
(A)(20)(a) of this section is attributable to property generating	255
nonbusiness income or loss allocated under section 5747.20 of the	256
Revised Code, the add-back shall be sitused to the same location	257
as the nonbusiness income or loss generated by the property for	258
the purpose of determining the credit under division (A) of	259
section 5747.05 of the Revised Code. Otherwise, the add-back shall	260
be apportioned, subject to one or more of the four alternative	261
methods of apportionment enumerated in section 5747.21 of the	262
Revised Code.	263

(d) For the purposes of division (A)(20)(a)(v) of this	264
section, net operating loss carryback and carryforward shall not	265
include the allowance of any net operating loss deduction	266
carryback or carryforward to the taxable year to the extent such	267
loss resulted from depreciation allowed by section 168(k) of the	268
Internal Revenue Code and by the qualifying section 179	269
depreciation expense amount.	270

(e) For the purposes of divisions (A)(20) and (21) of this	271
section:	272

(i) "Income taxes withheld" means the total amount withheld	273
and remitted under sections 5747.06 and 5747.07 of the Revised	274
Code by an employer during the employer's taxable year.	275

(ii) "Increase in income taxes withheld" means the amount by	276
which the amount of income taxes withheld by an employer during	277
the employer's current taxable year exceeds the amount of income	278
taxes withheld by that employer during the employer's immediately	279
preceding taxable year.	280

(iii) "Qualifying section 179 depreciation expense" means the	281
difference between (I) the amount of depreciation expense directly	282
or indirectly allowed to a taxpayer under section 179 of the	283
Internal Revised Code, and (II) the amount of depreciation expense	284
directly or indirectly allowed to the taxpayer under section 179	285
of the Internal Revenue Code as that section existed on December	286
31, 2002.	287

(21)(a) If the taxpayer was required to add an amount under	288
division (A)(20)(a) of this section for a taxable year, deduct one	289
of the following:	290

(i) One-fifth of the amount so added for each of the five	291
succeeding taxable years if the amount so added was five-sixths of	292
qualifying section 179 depreciation expense or depreciation	293
expense allowed by subsection (k) of section 168 of the Internal	294
Revenue Code;	295

(ii) One-half of the amount so added for each of the two	296
succeeding taxable years if the amount so added was two-thirds of	297
such depreciation expense;	298

(iii) One-sixth of the amount so added for each of the six	299
succeeding taxable years if the entire amount of such depreciation	300
expense was so added.	301

(b) If the amount deducted under division (A)(21)(a) of this	302
section is attributable to an add-back allocated under division	303
(A)(20)(c) of this section, the amount deducted shall be sitused	304
to the same location. Otherwise, the add-back shall be apportioned	305
using the apportionment factors for the taxable year in which the	306
deduction is taken, subject to one or more of the four alternative	307
methods of apportionment enumerated in section 5747.21 of the	308
Revised Code.	309

(c) No deduction is available under division (A)(21)(a) of	310
this section with regard to any depreciation allowed by section	311
168(k) of the Internal Revenue Code and by the qualifying section	312
179 depreciation expense amount to the extent that such	313
depreciation results in or increases a federal net operating loss	314
carryback or carryforward. If no such deduction is available for a	315
taxable year, the taxpayer may carry forward the amount not	316
deducted in such taxable year to the next taxable year and add	317
that amount to any deduction otherwise available under division	318
(A)(21)(a) of this section for that next taxable year. The	319
carryforward of amounts not so deducted shall continue until the	320
entire addition required by division (A)(20)(a) of this section	321
has been deducted.	322

(d) No refund shall be allowed as a result of adjustments	323
made by division (A)(21) of this section.	324

(22) Deduct, to the extent not otherwise deducted or excluded	325
in computing federal or Ohio adjusted gross income for the taxable	326
year, the amount the taxpayer received during the taxable year as	327
reimbursement for life insurance premiums under section 5919.31 of	328
the Revised Code.	329

(23) Deduct, to the extent not otherwise deducted or excluded	330
in computing federal or Ohio adjusted gross income for the taxable	331
year, the amount the taxpayer received during the taxable year as	332
a death benefit paid by the adjutant general under section 5919.33	333
of the Revised Code.	334

(24) Deduct, to the extent included in federal adjusted gross	335
income and not otherwise allowable as a deduction or exclusion in	336
computing federal or Ohio adjusted gross income for the taxable	337
year, military pay and allowances received by the taxpayer during	338
the taxable year for active duty service in the United States	339
army, air force, navy, marine corps, or coast guard or reserve	340
components thereof or the national guard. The deduction may not be	341
claimed for military pay and allowances received by the taxpayer	342
while the taxpayer is stationed in this state.	343

(25) Deduct, to the extent not otherwise allowable as a	344
deduction or exclusion in computing federal or Ohio adjusted gross	345
income for the taxable year and not otherwise compensated for by	346
any other source, the amount of qualified organ donation expenses	347
incurred by the taxpayer during the taxable year, not to exceed	348
ten thousand dollars. A taxpayer may deduct qualified organ	349
donation expenses only once for all taxable years beginning with	350
taxable years beginning in 2007.	351

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

352

(a) "Human organ" means all or any portion of a human liver,	353
pancreas, kidney, intestine, or lung, and any portion of human	354
bone marrow.	355

(b) "Qualified organ donation expenses" means travel	356
expenses, lodging expenses, and wages and salary forgone by a	357
taxpayer in connection with the taxpayer's donation, while living,	358
of one or more of the taxpayer's human organs to another human	359
being.	360

(26) Deduct, to the extent not otherwise deducted or excluded	361
in computing federal or Ohio adjusted gross income for the taxable	362
year, amounts received by the taxpayer as retired personnel pay	363
for service in the uniformed services or reserve components	364
thereof, or the national guard, or received by the surviving	365
spouse or former spouse of such a taxpayer under the survivor	366
benefit plan on account of such a taxpayer's death. If the	367
taxpayer receives income on account of retirement paid under the	368
federal civil service retirement system or federal employees	369
retirement system, or under any successor retirement program	370
enacted by the congress of the United States that is established	371
and maintained for retired employees of the United States	372
government, and such retirement income is based, in whole or in	373
part, on credit for the taxpayer's uniformed service, the	374
deduction allowed under this division shall include only that	375
portion of such retirement income that is attributable to the	376
taxpayer's uniformed service, to the extent that portion of such	377
retirement income is otherwise included in federal adjusted gross	378
income and is not otherwise deducted under this section. Any	379
amount deducted under division (A)(26) of this section is not	380
included in a taxpayer's adjusted gross income for the purposes of	381
section 5747.055 of the Revised Code. No amount may be deducted	382
under division (A)(26) of this section on the basis of which a	383
credit was claimed under section 5747.055 of the Revised Code.	384

(27) Deduct, to the extent not otherwise deducted or excluded	385
in computing federal or Ohio adjusted gross income for the taxable	386
year, the amount the taxpayer received during the taxable year	387
from the military injury relief fund created in section 5101.98 of	388
the Revised Code.	389

(28) Deduct, to the extent not otherwise deducted or excluded	390
in computing federal or Ohio adjusted gross income for the taxable	391
year, the amount the taxpayer received as a veterans bonus during	392
the taxable year from the Ohio department of veterans services as	393
authorized by Section 2r of Article VIII, Ohio Constitution.	394

(29) Deduct, to the extent not otherwise deducted or excluded	395
in computing federal or Ohio adjusted gross income for the taxable	396
year, any income derived from a transfer agreement or from the	397
enterprise transferred under that agreement under section 4313.02	398
of the Revised Code.	399

(30) Deduct, to the extent not otherwise deducted or excluded	400
in computing federal or Ohio adjusted gross income for the taxable	401
year, Ohio college opportunity or federal Pell grant amounts	402
received by the taxpayer or the taxpayer's spouse or dependent	403
pursuant to section 3333.122 of the Revised Code or 20 U.S.C.	404
1070a, et seq., and used to pay room or board furnished by the	405
educational institution for which the grant was awarded at the	406
institution's facilities, including meal plans administered by the	407
institution. For the purposes of this division, receipt of a grant	408
includes the distribution of a grant directly to an educational	409
institution and the crediting of the grant to the enrollee's	410
account with the institution.	411

(31) Deduct one-half of the taxpayer's Ohio small business	412
investor income, the deduction not to exceed sixty-two thousand	413
five hundred dollars for each spouse if spouses file separate	414
returns under section 5747.08 of the Revised Code or one hundred	415
twenty-five thousand dollars for all other taxpayers. No	416
pass-through entity may claim a deduction under this division.	417

For the purposes of this division, "Ohio small business	418
investor income" means the portion of a taxpayer's adjusted gross	419
income that is business income reduced by deductions from business	420
income and apportioned or allocated to this state under sections	421
5747.21 and 5747.22 of the Revised Code, to the extent not	422
otherwise deducted or excluded in computing federal or Ohio	423
adjusted gross income for the taxable year.	424

(32) Deduct qualified higher education expenses to the extent	425
allowed under section 5747.82 of the Revised Code.	426

(B) "Business income" means income, including gain or loss,	427
arising from transactions, activities, and sources in the regular	428
course of a trade or business and includes income, gain, or loss	429
from real property, tangible property, and intangible property if	430
the acquisition, rental, management, and disposition of the	431
property constitute integral parts of the regular course of a	432
trade or business operation. "Business income" includes income,	433
including gain or loss, from a partial or complete liquidation of	434
a business, including, but not limited to, gain or loss from the	435
sale or other disposition of goodwill.	436

(C) "Nonbusiness income" means all income other than business	437
income and may include, but is not limited to, compensation, rents	438
and royalties from real or tangible personal property, capital	439
gains, interest, dividends and distributions, patent or copyright	440
royalties, or lottery winnings, prizes, and awards.	441

(D) "Compensation" means any form of remuneration paid to an	442
employee for personal services.	443

(E) "Fiduciary" means a guardian, trustee, executor,	444
administrator, receiver, conservator, or any other person acting	445
in any fiduciary capacity for any individual, trust, or estate.	446

(F) "Fiscal year" means an accounting period of twelve months	447
ending on the last day of any month other than December.	448

(G) "Individual" means any natural person.

449

(H) "Internal Revenue Code" means the "Internal Revenue Code	450
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	451

(I) "Resident" means any of the following, provided that	452
division (I)(3) of this section applies only to taxable years of a	453
trust beginning in 2002 or thereafter:	454

(1) An individual who is domiciled in this state, subject to	455
section 5747.24 of the Revised Code;	456

(2) The estate of a decedent who at the time of death was	457
domiciled in this state. The domicile tests of section 5747.24 of	458
the Revised Code are not controlling for purposes of division	459
(I)(2) of this section.	460

(3) A trust that, in whole or part, resides in this state. If	461
only part of a trust resides in this state, the trust is a	462
resident only with respect to that part.	463

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

464

(a) A trust resides in this state for the trust's current	465
taxable year to the extent, as described in division (I)(3)(d) of	466
this section, that the trust consists directly or indirectly, in	467
whole or in part, of assets, net of any related liabilities, that	468
were transferred, or caused to be transferred, directly or	469
indirectly, to the trust by any of the following:	470

(i) A person, a court, or a governmental entity or	471
instrumentality on account of the death of a decedent, but only if	472
the trust is described in division (I)(3)(e)(i) or (ii) of this	473
section;	474

(ii) A person who was domiciled in this state for the	475
purposes of this chapter when the person directly or indirectly	476
transferred assets to an irrevocable trust, but only if at least	477
one of the trust's qualifying beneficiaries is domiciled in this	478
state for the purposes of this chapter during all or some portion	479
of the trust's current taxable year;	480

(iii) A person who was domiciled in this state for the	481
purposes of this chapter when the trust document or instrument or	482
part of the trust document or instrument became irrevocable, but	483
only if at least one of the trust's qualifying beneficiaries is a	484
resident domiciled in this state for the purposes of this chapter	485
during all or some portion of the trust's current taxable year. If	486
a trust document or instrument became irrevocable upon the death	487
of a person who at the time of death was domiciled in this state	488
for purposes of this chapter, that person is a person described in	489
division (I)(3)(a)(iii) of this section.	490

(b) A trust is irrevocable to the extent that the transferor	491
is not considered to be the owner of the net assets of the trust	492
under sections 671 to 678 of the Internal Revenue Code.	493

(c) With respect to a trust other than a charitable lead	494
trust, "qualifying beneficiary" has the same meaning as "potential	495
current beneficiary" as defined in section 1361(e)(2) of the	496
Internal Revenue Code, and with respect to a charitable lead trust	497
"qualifying beneficiary" is any current, future, or contingent	498
beneficiary, but with respect to any trust "qualifying	499
beneficiary" excludes a person or a governmental entity or	500
instrumentality to any of which a contribution would qualify for	501
the charitable deduction under section 170 of the Internal Revenue	502
Code.	503

(d) For the purposes of division (I)(3)(a) of this section,	504
the extent to which a trust consists directly or indirectly, in	505
whole or in part, of assets, net of any related liabilities, that	506
were transferred directly or indirectly, in whole or part, to the	507
trust by any of the sources enumerated in that division shall be	508
ascertained by multiplying the fair market value of the trust's	509
assets, net of related liabilities, by the qualifying ratio, which	510
shall be computed as follows:	511

(i) The first time the trust receives assets, the numerator	512
of the qualifying ratio is the fair market value of those assets	513
at that time, net of any related liabilities, from sources	514
enumerated in division (I)(3)(a) of this section. The denominator	515
of the qualifying ratio is the fair market value of all the	516
trust's assets at that time, net of any related liabilities.	517

(ii) Each subsequent time the trust receives assets, a	518
revised qualifying ratio shall be computed. The numerator of the	519
revised qualifying ratio is the sum of (1) the fair market value	520
of the trust's assets immediately prior to the subsequent	521
transfer, net of any related liabilities, multiplied by the	522
qualifying ratio last computed without regard to the subsequent	523
transfer, and (2) the fair market value of the subsequently	524
transferred assets at the time transferred, net of any related	525
liabilities, from sources enumerated in division (I)(3)(a) of this	526
section. The denominator of the revised qualifying ratio is the	527
fair market value of all the trust's assets immediately after the	528
subsequent transfer, net of any related liabilities.	529

(iii) Whether a transfer to the trust is by or from any of	530
the sources enumerated in division (I)(3)(a) of this section shall	531
be ascertained without regard to the domicile of the trust's	532
beneficiaries.	533

(e) For the purposes of division (I)(3)(a)(i) of this	534
section:	535

(i) A trust is described in division (I)(3)(e)(i) of this	536
section if the trust is a testamentary trust and the testator of	537
that testamentary trust was domiciled in this state at the time of	538
the testator's death for purposes of the taxes levied under	539
Chapter 5731. of the Revised Code.	540

(ii) A trust is described in division (I)(3)(e)(ii) of this	541
section if the transfer is a qualifying transfer described in any	542
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	543
irrevocable inter vivos trust, and at least one of the trust's	544
qualifying beneficiaries is domiciled in this state for purposes	545
of this chapter during all or some portion of the trust's current	546
taxable year.	547

(f) For the purposes of division (I)(3)(e)(ii) of this	548
section, a "qualifying transfer" is a transfer of assets, net of	549
any related liabilities, directly or indirectly to a trust, if the	550
transfer is described in any of the following:	551

(i) The transfer is made to a trust, created by the decedent	552
before the decedent's death and while the decedent was domiciled	553
in this state for the purposes of this chapter, and, prior to the	554
death of the decedent, the trust became irrevocable while the	555
decedent was domiciled in this state for the purposes of this	556
chapter.	557

(ii) The transfer is made to a trust to which the decedent,	558
prior to the decedent's death, had directly or indirectly	559
transferred assets, net of any related liabilities, while the	560
decedent was domiciled in this state for the purposes of this	561
chapter, and prior to the death of the decedent the trust became	562
irrevocable while the decedent was domiciled in this state for the	563
purposes of this chapter.	564

(iii) The transfer is made on account of a contractual	565
relationship existing directly or indirectly between the	566
transferor and either the decedent or the estate of the decedent	567
at any time prior to the date of the decedent's death, and the	568
decedent was domiciled in this state at the time of death for	569
purposes of the taxes levied under Chapter 5731. of the Revised	570
Code.	571

(iv) The transfer is made to a trust on account of a	572
contractual relationship existing directly or indirectly between	573
the transferor and another person who at the time of the	574
decedent's death was domiciled in this state for purposes of this	575
chapter.	576

(v) The transfer is made to a trust on account of the will of	577
a testator who was domiciled in this state at the time of the	578
testator's death for purposes of the taxes levied under Chapter	579
5731. of the Revised Code.	580

(vi) The transfer is made to a trust created by or caused to	581
be created by a court, and the trust was directly or indirectly	582
created in connection with or as a result of the death of an	583
individual who, for purposes of the taxes levied under Chapter	584
5731. of the Revised Code, was domiciled in this state at the time	585
of the individual's death.	586

(g) The tax commissioner may adopt rules to ascertain the	587
part of a trust residing in this state.	588

(J) "Nonresident" means an individual or estate that is not a	589
resident. An individual who is a resident for only part of a	590
taxable year is a nonresident for the remainder of that taxable	591
year.	592

(K) "Pass-through entity" has the same meaning as in section	593
5733.04 of the Revised Code.	594

(L) "Return" means the notifications and reports required to	595
be filed pursuant to this chapter for the purpose of reporting the	596
tax due and includes declarations of estimated tax when so	597
required.	598

(M) "Taxable year" means the calendar year or the taxpayer's	599
fiscal year ending during the calendar year, or fractional part	600
thereof, upon which the adjusted gross income is calculated	601
pursuant to this chapter.	602

(N) "Taxpayer" means any person subject to the tax imposed by	603
section 5747.02 of the Revised Code or any pass-through entity	604
that makes the election under division (D) of section 5747.08 of	605
the Revised Code.	606

(O) "Dependents" means dependents as defined in the Internal	607
Revenue Code and as claimed in the taxpayer's federal income tax	608
return for the taxable year or which the taxpayer would have been	609
permitted to claim had the taxpayer filed a federal income tax	610
return.	611

(P) "Principal county of employment" means, in the case of a	612
nonresident, the county within the state in which a taxpayer	613
performs services for an employer or, if those services are	614
performed in more than one county, the county in which the major	615
portion of the services are performed.	616

(Q) As used in sections 5747.50 to 5747.55 of the Revised	617
Code:	618

(1) "Subdivision" means any county, municipal corporation,	619
park district, or township.	620

(2) "Essential local government purposes" includes all	621
functions that any subdivision is required by general law to	622
exercise, including like functions that are exercised under a	623
charter adopted pursuant to the Ohio Constitution.	624

(R) "Overpayment" means any amount already paid that exceeds	625
the figure determined to be the correct amount of the tax.	626

(S) "Taxable income" or "Ohio taxable income" applies only to	627
estates and trusts, and means federal taxable income, as defined	628
and used in the Internal Revenue Code, adjusted as follows:	629

(1) Add interest or dividends, net of ordinary, necessary,	630
and reasonable expenses not deducted in computing federal taxable	631
income, on obligations or securities of any state or of any	632
political subdivision or authority of any state, other than this	633
state and its subdivisions and authorities, but only to the extent	634
that such net amount is not otherwise includible in Ohio taxable	635
income and is described in either division (S)(1)(a) or (b) of	636
this section:	637

(a) The net amount is not attributable to the S portion of an	638
electing small business trust and has not been distributed to	639
beneficiaries for the taxable year;	640

(b) The net amount is attributable to the S portion of an	641
electing small business trust for the taxable year.	642

(2) Add interest or dividends, net of ordinary, necessary,	643
and reasonable expenses not deducted in computing federal taxable	644
income, on obligations of any authority, commission,	645
instrumentality, territory, or possession of the United States to	646
the extent that the interest or dividends are exempt from federal	647
income taxes but not from state income taxes, but only to the	648
extent that such net amount is not otherwise includible in Ohio	649
taxable income and is described in either division (S)(1)(a) or	650
(b) of this section;	651

(3) Add the amount of personal exemption allowed to the	652
estate pursuant to section 642(b) of the Internal Revenue Code;	653

(4) Deduct interest or dividends, net of related expenses	654
deducted in computing federal taxable income, on obligations of	655
the United States and its territories and possessions or of any	656
authority, commission, or instrumentality of the United States to	657
the extent that the interest or dividends are exempt from state	658
taxes under the laws of the United States, but only to the extent	659
that such amount is included in federal taxable income and is	660
described in either division (S)(1)(a) or (b) of this section;	661

(5) Deduct the amount of wages and salaries, if any, not	662
otherwise allowable as a deduction but that would have been	663
allowable as a deduction in computing federal taxable income for	664
the taxable year, had the targeted jobs credit allowed under	665
sections 38, 51, and 52 of the Internal Revenue Code not been in	666
effect, but only to the extent such amount relates either to	667
income included in federal taxable income for the taxable year or	668
to income of the S portion of an electing small business trust for	669
the taxable year;	670

(6) Deduct any interest or interest equivalent, net of	671
related expenses deducted in computing federal taxable income, on	672
public obligations and purchase obligations, but only to the	673
extent that such net amount relates either to income included in	674
federal taxable income for the taxable year or to income of the S	675
portion of an electing small business trust for the taxable year;	676

(7) Add any loss or deduct any gain resulting from sale,	677
exchange, or other disposition of public obligations to the extent	678
that such loss has been deducted or such gain has been included in	679
computing either federal taxable income or income of the S portion	680
of an electing small business trust for the taxable year;	681

(8) Except in the case of the final return of an estate, add	682
any amount deducted by the taxpayer on both its Ohio estate tax	683
return pursuant to section 5731.14 of the Revised Code, and on its	684
federal income tax return in determining federal taxable income;	685

(9)(a) Deduct any amount included in federal taxable income	686
solely because the amount represents a reimbursement or refund of	687
expenses that in a previous year the decedent had deducted as an	688
itemized deduction pursuant to section 63 of the Internal Revenue	689
Code and applicable treasury regulations. The deduction otherwise	690
allowed under division (S)(9)(a) of this section shall be reduced	691
to the extent the reimbursement is attributable to an amount the	692
taxpayer or decedent deducted under this section in any taxable	693
year.	694

(b) Add any amount not otherwise included in Ohio taxable	695
income for any taxable year to the extent that the amount is	696
attributable to the recovery during the taxable year of any amount	697
deducted or excluded in computing federal or Ohio taxable income	698
in any taxable year, but only to the extent such amount has not	699
been distributed to beneficiaries for the taxable year.	700

(10) Deduct any portion of the deduction described in section	701
1341(a)(2) of the Internal Revenue Code, for repaying previously	702
reported income received under a claim of right, that meets both	703
of the following requirements:	704

(a) It is allowable for repayment of an item that was	705
included in the taxpayer's taxable income or the decedent's	706
adjusted gross income for a prior taxable year and did not qualify	707
for a credit under division (A) or (B) of section 5747.05 of the	708
Revised Code for that year.	709

(b) It does not otherwise reduce the taxpayer's taxable	710
income or the decedent's adjusted gross income for the current or	711
any other taxable year.	712

(11) Add any amount claimed as a credit under section	713
5747.059 or 5747.65 of the Revised Code to the extent that the	714
amount satisfies either of the following:	715

(a) The amount was deducted or excluded from the computation	716
of the taxpayer's federal taxable income as required to be	717
reported for the taxpayer's taxable year under the Internal	718
Revenue Code;	719

(b) The amount resulted in a reduction in the taxpayer's	720
federal taxable income as required to be reported for any of the	721
taxpayer's taxable years under the Internal Revenue Code.	722

(12) Deduct any amount, net of related expenses deducted in	723
computing federal taxable income, that a trust is required to	724
report as farm income on its federal income tax return, but only	725
if the assets of the trust include at least ten acres of land	726
satisfying the definition of "land devoted exclusively to	727
agricultural use" under section 5713.30 of the Revised Code,	728
regardless of whether the land is valued for tax purposes as such	729
land under sections 5713.30 to 5713.38 of the Revised Code. If the	730
trust is a pass-through entity investor, section 5747.231 of the	731
Revised Code applies in ascertaining if the trust is eligible to	732
claim the deduction provided by division (S)(12) of this section	733
in connection with the pass-through entity's farm income.	734

Except for farm income attributable to the S portion of an	735
electing small business trust, the deduction provided by division	736
(S)(12) of this section is allowed only to the extent that the	737
trust has not distributed such farm income. Division (S)(12) of	738
this section applies only to taxable years of a trust beginning in	739
2002 or thereafter.	740

(13) Add the net amount of income described in section 641(c)	741
of the Internal Revenue Code to the extent that amount is not	742
included in federal taxable income.	743

(14) Add or deduct the amount the taxpayer would be required	744
to add or deduct under division (A)(20) or (21) of this section if	745
the taxpayer's Ohio taxable income were computed in the same	746
manner as an individual's Ohio adjusted gross income is computed	747
under this section. In the case of a trust, division (S)(14) of	748
this section applies only to any of the trust's taxable years	749
beginning in 2002 or thereafter.	750

(T) "School district income" and "school district income tax"	751
have the same meanings as in section 5748.01 of the Revised Code.	752

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	753
of this section, "public obligations," "purchase obligations," and	754
"interest or interest equivalent" have the same meanings as in	755
section 5709.76 of the Revised Code.	756

(V) "Limited liability company" means any limited liability	757
company formed under Chapter 1705. of the Revised Code or under	758
the laws of any other state.	759

(W) "Pass-through entity investor" means any person who,	760
during any portion of a taxable year of a pass-through entity, is	761
a partner, member, shareholder, or equity investor in that	762
pass-through entity.	763

(X) "Banking day" has the same meaning as in section 1304.01	764
of the Revised Code.	765

(Y) "Month" means a calendar month.

766

(Z) "Quarter" means the first three months, the second three	767
months, the third three months, or the last three months of the	768
taxpayer's taxable year.	769

(AA)(1) "Eligible institution" means a state university or	770
state institution of higher education as defined in section	771
3345.011 of the Revised Code, or a private, nonprofit college,	772
university, or other post-secondary institution located in this	773
state that possesses a certificate of authorization issued by the	774
Ohio board of regents pursuant to Chapter 1713. of the Revised	775
Code or a certificate of registration issued by the state board of	776
career colleges and schools under Chapter 3332. of the Revised	777
Code.	778

(2) "Qualified tuition and fees" means tuition and fees	779
imposed by an eligible institution as a condition of enrollment or	780
attendance, not exceeding two thousand five hundred dollars in	781
each of the individual's first two years of post-secondary	782
education. If the individual is a part-time student, "qualified	783
tuition and fees" includes tuition and fees paid for the academic	784
equivalent of the first two years of post-secondary education	785
during a maximum of five taxable years, not exceeding a total of	786
five thousand dollars. "Qualified tuition and fees" does not	787
include:	788

(a) Expenses for any course or activity involving sports,	789
games, or hobbies unless the course or activity is part of the	790
individual's degree or diploma program;	791

(b) The cost of books, room and board, student activity fees,	792
athletic fees, insurance expenses, or other expenses unrelated to	793
the individual's academic course of instruction;	794

(c) Tuition, fees, or other expenses paid or reimbursed	795
through an employer, scholarship, grant in aid, or other	796
educational benefit program.	797

(BB)(1) "Modified business income" means the business income	798
included in a trust's Ohio taxable income after such taxable	799
income is first reduced by the qualifying trust amount, if any.	800

(2) "Qualifying trust amount" of a trust means capital gains	801
and losses from the sale, exchange, or other disposition of equity	802
or ownership interests in, or debt obligations of, a qualifying	803
investee to the extent included in the trust's Ohio taxable	804
income, but only if the following requirements are satisfied:	805

(a) The book value of the qualifying investee's physical	806
assets in this state and everywhere, as of 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
is available to the trust.	810

(b) The requirements of section 5747.011 of the Revised Code	811
are satisfied for the trust's taxable year in which the trust	812
recognizes the gain or loss.	813

Any gain or loss that is not a qualifying trust amount is	814
modified business income, qualifying investment income, or	815
modified nonbusiness income, as the case may be.	816

(3) "Modified nonbusiness income" means a trust's Ohio	817
taxable income other than modified business income, other than the	818
qualifying trust amount, and other than qualifying investment	819
income, as defined in section 5747.012 of the Revised Code, to the	820
extent such qualifying investment income is not otherwise part of	821
modified business income.	822

(4) "Modified Ohio taxable income" applies only to trusts,	823
and means the sum of the amounts described in divisions (BB)(4)(a)	824
to (c) of this section:	825

(a) The fraction, calculated under section 5747.013, and	826
applying section 5747.231 of the Revised Code, multiplied by the	827
sum of the following amounts:	828

(i) The trust's modified business income;

829

(ii) The trust's qualifying investment income, as defined in	830
section 5747.012 of the Revised Code, but only to the extent the	831
qualifying investment income does not otherwise constitute	832
modified business income and does not otherwise constitute a	833
qualifying trust amount.	834

(b) The qualifying trust amount multiplied by a fraction, the	835
numerator of which is the sum of the book value of the qualifying	836
investee's physical assets in this state on the last day of the	837
qualifying investee's fiscal or calendar year ending immediately	838
prior to the day on which the trust recognizes the qualifying	839
trust amount, and the denominator of which is the sum of the book	840
value of the qualifying investee's total physical assets	841
everywhere on the last day of the qualifying investee's fiscal or	842
calendar year ending immediately prior to the day on which the	843
trust recognizes the qualifying trust amount. If, for a taxable	844
year, the trust recognizes a qualifying trust amount with respect	845
to more than one qualifying investee, the amount described in	846
division (BB)(4)(b) of this section shall equal the sum of the	847
products so computed for each such qualifying investee.	848

(c)(i) With respect to a trust or portion of a trust that is	849
a resident as ascertained in accordance with division (I)(3)(d) of	850
this section, its modified nonbusiness income.	851

(ii) With respect to a trust or portion of a trust that is	852
not a resident as ascertained in accordance with division	853
(I)(3)(d) of this section, the amount of its modified nonbusiness	854
income satisfying the descriptions in divisions (B)(2) to (5) of	855
section 5747.20 of the Revised Code, except as otherwise provided	856
in division (BB)(4)(c)(ii) of this section. With respect to a	857
trust or portion of a trust that is not a resident as ascertained	858
in accordance with division (I)(3)(d) of this section, the trust's	859
portion of modified nonbusiness income recognized from the sale,	860
exchange, or other disposition of a debt interest in or equity	861
interest in a section 5747.212 entity, as defined in section	862
5747.212 of the Revised Code, without regard to division (A) of	863
that section, shall not be allocated to this state in accordance	864
with section 5747.20 of the Revised Code but shall be apportioned	865
to this state in accordance with division (B) of section 5747.212	866
of the Revised Code without regard to division (A) of that	867
section.	868

If the allocation and apportionment of a trust's income under	869
divisions (BB)(4)(a) and (c) of this section do not fairly	870
represent the modified Ohio taxable income of the trust in this	871
state, the alternative methods described in division (C) of	872
section 5747.21 of the Revised Code may be applied in the manner	873
and to the same extent provided in that section.	874

(5)(a) Except as set forth in division (BB)(5)(b) of this	875
section, "qualifying investee" means a person in which a trust has	876
an equity or ownership interest, or a person or unit of government	877
the debt obligations of either of which are owned by a trust. For	878
the purposes of division (BB)(2)(a) of this section and for the	879
purpose of computing the fraction described in division (BB)(4)(b)	880
of this section, all of the following apply:	881

(i) If the qualifying investee is a member of a qualifying	882
controlled group on the last day of the qualifying investee's	883
fiscal or calendar year ending immediately prior to the date on	884
which the trust recognizes the gain or loss, then "qualifying	885
investee" includes all persons in the qualifying controlled group	886
on such last day.	887

(ii) If the qualifying investee, or if the qualifying	888
investee and any members of the qualifying controlled group of	889
which the qualifying investee is a member on the last day of the	890
qualifying investee's fiscal or calendar year ending immediately	891
prior to the date on which the trust recognizes the gain or loss,	892
separately or cumulatively own, directly or indirectly, on the	893
last day of the qualifying investee's fiscal or calendar year	894
ending immediately prior to the date on which the trust recognizes	895
the qualifying trust amount, more than fifty per cent of the	896
equity of a pass-through entity, then the qualifying investee and	897
the other members are deemed to own the proportionate share of the	898
pass-through entity's physical assets which the pass-through	899
entity directly or indirectly owns on the last day of the	900
pass-through entity's calendar or fiscal year ending within or	901
with the last day of the qualifying investee's fiscal or calendar	902
year ending immediately prior to the date on which the trust	903
recognizes the qualifying trust amount.	904

(iii) For the purposes of division (BB)(5)(a)(iii) of this	905
section, "upper level pass-through entity" means a pass-through	906
entity directly or indirectly owning any equity of another	907
pass-through entity, and "lower level pass-through entity" means	908
that other pass-through entity.	909

An upper level pass-through entity, whether or not it is also	910
a qualifying investee, is deemed to own, on the last day of the	911
upper level pass-through entity's calendar or fiscal year, the	912
proportionate share of the lower level pass-through entity's	913
physical assets that the lower level pass-through entity directly	914
or indirectly owns on the last day of the lower level pass-through	915
entity's calendar or fiscal year ending within or with the last	916
day of the upper level pass-through entity's fiscal or calendar	917
year. If the upper level pass-through entity directly and	918
indirectly owns less than fifty per cent of the equity of the	919
lower level pass-through entity on each day of the upper level	920
pass-through entity's calendar or fiscal year in which or with	921
which ends the calendar or fiscal year of the lower level	922
pass-through entity and if, based upon clear and convincing	923
evidence, complete information about the location and cost of the	924
physical assets of the lower pass-through entity is not available	925
to the upper level pass-through entity, then solely for purposes	926
of ascertaining if a gain or loss constitutes a qualifying trust	927
amount, the upper level pass-through entity shall be deemed as	928
owning no equity of the lower level pass-through entity for each	929
day during the upper level pass-through entity's calendar or	930
fiscal year in which or with which ends the lower level	931
pass-through entity's calendar or fiscal year. Nothing in division	932
(BB)(5)(a)(iii) of this section shall be construed to provide for	933
any deduction or exclusion in computing any trust's Ohio taxable	934
income.	935

(b) With respect to a trust that is not a resident for the	936
taxable year and with respect to a part of a trust that is not a	937
resident for the taxable year, "qualifying investee" for that	938
taxable year does not include a C corporation if both of the	939
following apply:	940

(i) During the taxable year the trust or part of the trust	941
recognizes a gain or loss from the sale, exchange, or other	942
disposition of equity or ownership interests in, or debt	943
obligations of, the C corporation.	944

(ii) Such gain or loss constitutes nonbusiness income.

945

(6) "Available" means information is such that a person is	946
able to learn of the information by the due date plus extensions,	947
if any, for filing the return for the taxable year in which the	948
trust recognizes the gain or loss.	949

(CC) "Qualifying controlled group" has the same meaning as in	950
section 5733.04 of the Revised Code.	951

(DD) "Related member" has the same meaning as in section	952
5733.042 of the Revised Code.	953

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

954

(a) "Qualifying person" means any person other than a	955
qualifying corporation.	956

(b) "Qualifying corporation" means any person classified for	957
federal income tax purposes as an association taxable as a	958
corporation, except either of the following:	959

(i) A corporation that has made an election under subchapter	960
S, chapter one, subtitle A, of the Internal Revenue Code for its	961
taxable year ending within, or on the last day of, the investor's	962
taxable year;	963

(ii) A subsidiary that is wholly owned by any corporation	964
that has made an election under subchapter S, chapter one,	965
subtitle A of the Internal Revenue Code for its taxable year	966
ending within, or on the last day of, the investor's taxable year.	967

(2) For the purposes of this chapter, unless expressly stated	968
otherwise, no qualifying person indirectly owns any asset directly	969
or indirectly owned by any qualifying corporation.	970

(FF) For purposes of this chapter and Chapter 5751. of the	971
Revised Code:	972

(1) "Trust" does not include a qualified pre-income tax	973
trust.	974

(2) A "qualified pre-income tax trust" is any pre-income tax	975
trust that makes a qualifying pre-income tax trust election as	976
described in division (FF)(3) of this section.	977

(3) A "qualifying pre-income tax trust election" is an	978
election by a pre-income tax trust to subject to the tax imposed	979
by section 5751.02 of the Revised Code the pre-income tax trust	980
and all pass-through entities of which the trust owns or controls,	981
directly, indirectly, or constructively through related interests,	982
five per cent or more of the ownership or equity interests. The	983
trustee shall notify the tax commissioner in writing of the	984
election on or before April 15, 2006. The election, if timely	985
made, shall be effective on and after January 1, 2006, and shall	986
apply for all tax periods and tax years until revoked by the	987
trustee of the trust.	988

(4) A "pre-income tax trust" is a trust that satisfies all of	989
the following requirements:	990

(a) The document or instrument creating the trust was	991
executed by the grantor before January 1, 1972;	992

(b) The trust became irrevocable upon the creation of the	993
trust; and	994

(c) The grantor was domiciled in this state at the time the	995
trust was created.	996

(GG) "Uniformed services" has the same meaning as in 10	997
U.S.C. 101.	998

Sec. 5747.82. (A) As used in this section:

999

(1) "Higher education expenses" means all of the following	1000
expenses incurred by a taxpayer while enrolled in an eligible	1001
educational institution:	1002

(a) Tuition, fees, books, supplies, and equipment required	1003
for the enrollment or attendance of the taxpayer at the eligible	1004
educational institution;	1005

(b) Room and board expenses incurred while the taxpayer is	1006
carrying at least one-half of the normal full-time academic	1007
workload for the course of the study the taxpayer is pursuing, as	1008
determined by the eligible educational institution, to the extent	1009
that the expenses for an academic period do not exceed the greater	1010
of the following:	1011

(i) The allowance for room and board determined by the	1012
eligible educational institution for federal financial aid	1013
purposes for that academic period;	1014

(ii) If the taxpayer lives in a residence that is owned or	1015
operated by or located on the campus of the eligible educational	1016
institution, the amount actually charged to the taxpayer for room	1017
and board for that academic period;	1018

(c) Expenses for special needs services required by the	1019
taxpayer in connection with the taxpayer's enrollment or	1020
attendance at the eligible educational institution.	1021

(2) "Eligible educational institution" has the same meaning	1022
as in section 529 of the Internal Revenue Code.	1023

(3) "Qualified higher education expenses" means the total	1024
amount of higher education expenses paid by a taxpayer toward the	1025
completion of a degree program at an eligible educational	1026
institution, excluding all of the following:	1027

(a) The amount of such expenses paid on behalf of the	1028
taxpayer in the form of grants, scholarships, gifts, or bequests;	1029

(b) The amount of any tuition units or payments applied	1030
toward such expenses under a qualified tuition program established	1031
under section 529 of the Internal Revenue Code;	1032

(c) The amount of any reduction in federal income tax	1033
resulting from a federal deduction or credit claimed by the	1034
taxpayer on the basis of such expenses.	1035

(B)(1) An individual who graduates on or after the effective	1036
date of the enactment of this section with an associate or	1037
technical degree from an eligible educational institution may	1038
deduct from the individual's federal adjusted gross income for a	1039
taxable year one-fifth of the qualified higher education expenses	1040
paid by the taxpayer toward the completion of that degree to the	1041
extent that such expenses are not otherwise deducted or excluded	1042
in computing Ohio adjusted gross income for the taxable year. The	1043
taxpayer may make the deduction for the taxable year immediately	1044
following the taxable year in which the taxpayer earned the degree	1045
and for the ensuing four taxable years.	1046

(2) An individual who graduates on or after the effective	1047
date of the enactment of this section with a baccalaureate,	1048
master's, professional, or other advanced degree from an eligible	1049
educational institution may deduct from the individual's federal	1050
adjusted gross income for a taxable year one-tenth of the	1051
qualified higher education expenses paid by the taxpayer toward	1052
the completion of that degree to the extent that such expenses are	1053
not otherwise deducted or excluded in computing Ohio adjusted	1054
gross income for the taxable year. The taxpayer may make the	1055
deduction for the taxable year immediately following the taxable	1056
year in which the taxpayer earned the degree and for the ensuing	1057
nine taxable years.	1058

(C) An individual who is allowed a deduction under this	1059
section and division (A)(32) of section 5747.01 of the Revised	1060
Code may elect to defer the deduction for each taxable year that	1061
includes a date on which the individual is enrolled full-time in	1062
an eligible educational institution to pursue a more advanced	1063
degree. Evidence of such enrollment shall be retained for	1064
inspection by the tax commissioner until the expiration of four	1065
years after the end of the last taxable year the deduction is	1066
made.	1067

(D) An individual who is allowed a deduction under this	1068
section and division (A)(32) of section 5747.01 of the Revised	1069
Code shall retain evidence of graduation for inspection by the tax	1070
commissioner until the expiration of four years after the end of	1071
the last taxable year the deduction is made.	1072

Any amount deducted pursuant to this section shall be	1073
included in Ohio adjusted gross income for the purpose of	1074
determining eligibility for the credit allowed under section	1075
5747.056 of the Revised Code.	1076

Sec. 5751.031. (A) As used in this section:

1077

(1) "Eligible costs" means the following costs a taxpayer	1078
incurs as a result of employing a qualifying new employee:	1079

(a) The qualifying new employee's wages;

1080

(b) Amounts paid by the taxpayer under section 3111 of the	1081
Internal Revenue Code on the basis of the qualifying new	1082
employee's wages;	1083

(c) Health insurance premiums paid by the taxpayer to provide	1084
health insurance to the qualifying new employee;	1085

(d) Workers' compensation premiums paid by the taxpayer as a	1086
result of employing the qualifying new employee as required under	1087
Chapter 4123. of the Revised Code;	1088

(e) Additional amounts paid by the taxpayer under sections	1089
3301 to 3311 of the Internal Revenue Code or section 4141.25 of	1090
the Revised Code as a result of employing the qualifying new	1091
employee.	1092

(2) "Qualifying new employee" means an employee who is hired	1093
by a taxpayer on or after the effective date of the enactment of	1094
this section, who is employed by the taxpayer in a full-time	1095
position in this state, and who, within the two calendar years	1096
preceding the employee's hiring date, obtained a degree from an	1097
eligible educational institution.	1098

(3) "Full-time position" means an employment position for	1099
which the employee hired to fill the position is compensated for	1100
at least two thousand eighty hours in a consecutive twelve-month	1101
period.	1102

(4) "Employment year" means the first month in which a	1103
qualifying new employee is employed by a taxpayer, or the	1104
anniversary of that month, and the succeeding eleven months.	1105

(5) "Eligible educational institution" has the same meaning	1106
as in section 529 of the Internal Revenue Code.	1107

(B) A taxpayer may deduct from the taxpayer's taxable gross	1108
receipts an amount equal to a percentage of the eligible costs of	1109
employing a qualifying new employee for the first five employment	1110
years as described in divisions (B)(1) to (5) of this section.	1111
Amounts deducted under this section shall be deducted from the	1112
taxpayer's taxable gross receipts for the tax period in which the	1113
taxpayer paid the eligible costs of a qualifying new employee.	1114
Except as provided in division (D) of this section, the amount	1115
that may be deducted for each qualifying new employee shall equal	1116
the following percentage of the eligible costs of that employee	1117
for the employment year indicated:	1118

(1) One hundred per cent for the first employment year;

1119

(2) Fifty per cent for the second employment year;

1120

(3) Twenty-five per cent for the third employment year;

1121

(4) Twelve and one-half per cent for the fourth employment	1122
year;	1123

(5) Six and one-quarter for the fifth employment year.

1124

No deduction is allowed for eligible costs paid on or after	1125
the last day of the qualifying new employee's fifth employment	1126
year.	1127

(C) If the employment relationship between a qualifying new	1128
employee and a taxpayer terminates during any of the employment	1129
years described in divisions (B)(1) to (5) of this section, the	1130
amount that the taxpayer may deduct on the basis of the next	1131
qualifying new employee hired by the taxpayer following the date	1132
the former employee leaves employment shall be the amount of the	1133
new employee's eligible costs that the taxpayer could deduct for	1134
that employment year if the new employee was the former qualifying	1135
new employee, in accordance with division (B) of this section. If	1136
no amount could be deducted for the former employee for that	1137
employment year under that division, the taxpayer may deduct the	1138
eligible costs of the qualifying new employee in the manner	1139
described in divisions (B)(1) to (5) of this section.	1140

(D) A taxpayer may not deduct any amount under this section	1141
on the basis of a qualifying new employee if the employment of	1142
that employee would not cause the number of employees employed in	1143
full-time positions by a taxpayer to exceed the number of	1144
employees employed by the taxpayer in full-time positions on the	1145
effective date of the enactment of this section.	1146

Section 2. That existing section 5747.01 of the Revised Code	1147
is hereby repealed.	1148