As Introduced

128th General Assembly Regular Session 2009-2010

H. B. No. 439

Representatives Phillips, Stewart 

Cosponsors: Representatives Garland, Okey, Domenick, Yuko 

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A BILL

To amend sections 1551.20, 5709.53, and 5747.01 of

1

the Revised Code to exempt from property taxation

2

the cost of energy-conservation or renewable

3

energy improvements to business property and to

4

authorize an additional income tax deduction for

5

the costs of such improvements if the property is

6

sold for a gain.

7

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

Section 1.  That sections 1551.20, 5709.53, and 5747.01 of	8
the Revised Code be amended to read as follows:	9

Sec. 1551.20.  (A) As used in this section, "solar:

10

(1) "Solar or wind energy system" means any method used	11
directly to provide space heating or cooling, hot water,	12
industrial process heat, or mechanical or electric power by the	13
collection, conversion, or storage of solar or wind energy	14
including, but not limited to, active or passive solar systems. It	15
does not include any equipment that is part of a conventional	16
system for such purposes, that is, a system that does not use	17
solar or wind energy; nor does it include a roof or any windows	18
or walls that would be contained in a similar structure not	19
designed or modified to use solar energy for space heating or	20
cooling, except for those modifications to the design or	21
construction of such roof, windows, or walls that are necessary to	22
their improved use to capture solar energy for space heating or	23
cooling.	24

As used in this section, "hydrothermal(2) "Hydrothermal	25
energy system" means any method used directly to provide a heating	26
or cooling effect by causing a thermal exchange with the earth	27
utilizing any water source, including ground or surface water by	28
use of appropriate heat exchange equipment.	29

(3) "Renewable energy property" and "resource conservation	30
improvements" have the same meanings as in section 5709.53 of the	31
Revised Code.	32

(B)(1) The director of development shall establish, and	33
revise as necessary, guidelines for identifying renewable energy	34
property and resource conservation improvements. The guidelines	35
shall be sufficiently descriptive to enable the tax commissioner	36
to identify renewable energy property and resource conservation	37
improvements and to apply the guidelines for the purpose of	38
determining the eligibility of such property for exemption from	39
taxation under division (B) of section 5709.53 of the Revised Code	40
and claiming a deduction under division (A)(28) or (S)(15) of	41
section 5747.01 of the Revised Code. The director shall publish	42
the guidelines on the department of development's web site and	43
transmit the guidelines to the tax commissioner.	44

(2) The director of development shall adopt rules in	45
accordance with Chapter 119. of the Revised Code establishing	46
guidelines for identifying solar, wind, or hydrothermal energy	47
systems and components thereof, and guidelines for the safety and	48
thermal efficiency of such systems. The rules shall distinguish	49
such systems from conventional systems and components thereof, and	50
shall distinguish from conventional roof, window, or wall design	51
or construction those modifications to the design or construction	52
of roofs, windows, or walls that are necessary to their improved	53
use to capture solar energy for space heating or cooling. The	54
rules shall determine the eligibility of solar, wind, and	55
hydrothermal energy systems for the tax exemption under division	56
(C) of section 5709.53 of the Revised Code.	57

(C) At the request of any person who designs, manufactures,	58
installs, or constructs solar, wind, or hydrothermal energy	59
systems, renewable energy property, or resource conservation	60
improvements, the director of development shall review the	61
detailed construction plans and design calculations for any such	62
system or property to determine whether the system or property	63
complies with the guidelines adopted under division (B)(1) or (2)	64
of this section. If the system or property complies with the	65
guidelines, the director shall enter the name of the system on a	66
list of solar, wind, or hydrothermal energysuch systems or	67
property that are eligible for the tax exemption under division	68
(B) or (C) of section 5709.53 of the Revised Code.	69

(D) At the request of any person who desires to design or	70
install a solar, wind, or hydrothermal energy system, renewable	71
energy property, or resource conservation improvement for histhe	72
person's own use, the director of development shall review the	73
plans for, or a narrative description of, the system, and the list	74
of components and materials to be incorporated therein to	75
determine whether the system complies with the guidelines adopted	76
under division (B)(1) or (2) of this section. If the system	77
complies, the director shall issue a certificate to that effect to	78
the applicant.	79

Sec. 5709.53. (A) As used in this section:

80

(1) "Business real property" means real property classified	81
as to use by the tax commissioner as commercial or industrial land	82
and improvements, excluding any real property owned by or leased	83
to a public utility.	84

(2) "Cost" has the same meaning as in section 179 of the	85
Internal Revenue Code.	86

(3) "Qualifying improvements" means resource conservation	87
improvements and renewable energy property.	88

(4) "Renewable energy property" includes all of the following	89
that, upon incorporation into real property, constitute real	90
property for the purposes of property taxation:	91

(a) Equipment that uses solar radiation in lieu of	92
traditional energy sources to heat water; actively heat or cool	93
spaces; passively heat spaces; illuminate; generate electricity;	94
distill liquids; desalinate; detoxify; or produce industrial or	95
commercial heat, including related devices used to collect, store,	96
exchange, or condition solar energy, or convert solar energy to	97
other useful forms of energy.	98

(b) Equipment used to capture and convert wind energy into	99
electricity or mechanical power, including related devices used to	100
convert, condition, and store the electricity produced.	101

(c) Hydroelectric generators that produce electricity by	102
water power or by the friction of water or steam that are located	103
at existing dams or in free-flowing waterways, including related	104
devices used for water supply or control and devices used to	105
convert, condition, or store the electricity generated.	106

(d) Equipment forming part of a hydrothermal energy system as	107
defined in section 1551.20 of the Revised Code or part of any	108
other geothermal energy system not employing water.	109

(5) "Resource conservation improvements" means improvements	110
to real property that are designed to reduce or conserve the use	111
of energy, including the installation of heating, ventilating, and	112
cooling equipment, thermal cooling or heating storage components	113
designed to create, store, and supply off-peak or renewable	114
electrical distributed thermal energy or reduce peak electrical	115
demand from conventional mechanical cooling or heating equipment,	116
hot water systems, interior lighting, insulating materials,	117
energy-efficient exterior windows, doors, and other building	118
envelope improvements, and that satisfy the energy star energy	119
efficiency guidelines developed by the United States environmental	120
protection agency and department of energy or qualify as "energy	121
efficient commercial building property" as defined in section 179D	122
of the Internal Revenue Code and regulations adopted pursuant to	123
that section, including partially qualifying property, without	124
regard to limitations on the date by which such property is placed	125
into service or whether the deduction authorized by that section	126
is claimed; and improvements to real property that are designed to	127
reduce or conserve the use of water.	128

(B) A portion of the assessed value of business real property	129
shall be exempted from taxation each tax year beginning with the	130
first year in which a qualifying improvement is incorporated into	131
the real property, not earlier than 2010, and ending with and	132
including the year in which title to the real property is conveyed	133
to another person. The exempted portion shall equal the lesser of	134
thirty-five per cent of the cost of the qualifying improvement or	135
the increase, if any, in the assessed value of the parcel	136
constituting the business real property from the tax year	137
preceding the incorporation of the improvement to the tax year in	138
which the parcel is next reassessed after the improvement was	139
incorporated. If the percentage of true value in money used in the	140
determination of taxable value is established at a percentage less	141
than thirty-five per cent for any tax year under section 5715.01	142
of the Revised Code, that percentage shall be substituted for	143
thirty-five per cent for the purposes of this division.	144

Renewable energy property qualifies for exemption under this	145
section only if none of the electricity or other energy produced	146
or derived from the property is sold to another person or	147
otherwise exchanged with or otherwise provided to another person	148
for consideration. For the purposes of this section, charging	149
tenants of the business real property for use of the electricity	150
or energy, or net metering as defined in section 4928.01 of the	151
Revised Code, are not considered a sale, exchange, or provision	152
for consideration, and conveyance to another person does not	153
include a conveyance between two persons that are related entities	154
as defined in section 5733.04 of the Revised Code, where	155
"taxpayer" is construed to refer to one of the parties to the	156
conveyance.	157

(C) A solar, wind, or hydrothermal energy system on which	158
construction or installation is completed during the period from	159
the effective date of this sectionAugust 14, 1979, through	160
December 31, 1985, that meets the guidelines established under	161
division (B)(2) of section 1551.20 of the Revised Code is exempt	162
from real property taxation.	163

Sec. 5747.01.  Except as otherwise expressly provided or	164
clearly appearing from the context, any term used in this chapter	165
that is not otherwise defined in this section has the same meaning	166
as when used in a comparable context in the laws of the United	167
States relating to federal income taxes or if not used in a	168
comparable context in those laws, has the same meaning as in	169
section 5733.40 of the Revised Code. Any reference in this chapter	170
to the Internal Revenue Code includes other laws of the United	171
States relating to federal income taxes.	172

As used in this chapter:

173

(A) "Adjusted gross income" or "Ohio adjusted gross income"	174
means federal adjusted gross income, as defined and used in the	175
Internal Revenue Code, adjusted as provided in this section:	176

(1) Add interest or dividends on obligations or securities of	177
any state or of any political subdivision or authority of any	178
state, other than this state and its subdivisions and authorities.	179

(2) Add interest or dividends on obligations of any	180
authority, commission, instrumentality, territory, or possession	181
of the United States to the extent that the interest or dividends	182
are exempt from federal income taxes but not from state income	183
taxes.	184

(3) Deduct interest or dividends on obligations of the United	185
States and its territories and possessions or of any authority,	186
commission, or instrumentality of the United States to the extent	187
that the interest or dividends are included in federal adjusted	188
gross income but exempt from state income taxes under the laws of	189
the United States.	190

(4) Deduct disability and survivor's benefits to the extent	191
included in federal adjusted gross income.	192

(5) Deduct benefits under Title II of the Social Security Act	193
and tier 1 railroad retirement benefits to the extent included in	194
federal adjusted gross income under section 86 of the Internal	195
Revenue Code.	196

(6) In the case of a taxpayer who is a beneficiary of a trust	197
that makes an accumulation distribution as defined in section 665	198
of the Internal Revenue Code, add, for the beneficiary's taxable	199
years beginning before 2002, the portion, if any, of such	200
distribution that does not exceed the undistributed net income of	201
the trust for the three taxable years preceding the taxable year	202
in which the distribution is made to the extent that the portion	203
was not included in the trust's taxable income for any of the	204
trust's taxable years beginning in 2002 or thereafter.	205
"Undistributed net income of a trust" means the taxable income of	206
the trust increased by (a)(i) the additions to adjusted gross	207
income required under division (A) of this section and (ii) the	208
personal exemptions allowed to the trust pursuant to section	209
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	210
deductions to adjusted gross income required under division (A) of	211
this section, (ii) the amount of federal income taxes attributable	212
to such income, and (iii) the amount of taxable income that has	213
been included in the adjusted gross income of a beneficiary by	214
reason of a prior accumulation distribution. Any undistributed net	215
income included in the adjusted gross income of a beneficiary	216
shall reduce the undistributed net income of the trust commencing	217
with the earliest years of the accumulation period.	218

(7) Deduct the amount of wages and salaries, if any, not	219
otherwise allowable as a deduction but that would have been	220
allowable as a deduction in computing federal adjusted gross	221
income for the taxable year, had the targeted jobs credit allowed	222
and determined under sections 38, 51, and 52 of the Internal	223
Revenue Code not been in effect.	224

(8) Deduct any interest or interest equivalent on public	225
obligations and purchase obligations to the extent that the	226
interest or interest equivalent is included in federal adjusted	227
gross income.	228

(9) Add any loss or deduct any gain resulting from the sale,	229
exchange, or other disposition of public obligations to the extent	230
that the loss has been deducted or the gain has been included in	231
computing federal adjusted gross income.	232

(10) Deduct or add amounts, as provided under section 5747.70	233
of the Revised Code, related to contributions to variable college	234
savings program accounts made or tuition units purchased pursuant	235
to Chapter 3334. of the Revised Code.	236

(11)(a) Deduct, to the extent not otherwise allowable as a	237
deduction or exclusion in computing federal or Ohio adjusted gross	238
income for the taxable year, the amount the taxpayer paid during	239
the taxable year for medical care insurance and qualified	240
long-term care insurance for the taxpayer, the taxpayer's spouse,	241
and dependents. No deduction for medical care insurance under	242
division (A)(11) of this section shall be allowed either to any	243
taxpayer who is eligible to participate in any subsidized health	244
plan maintained by any employer of the taxpayer or of the	245
taxpayer's spouse, or to any taxpayer who is entitled to, or on	246
application would be entitled to, benefits under part A of Title	247
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	248
301, as amended. For the purposes of division (A)(11)(a) of this	249
section, "subsidized health plan" means a health plan for which	250
the employer pays any portion of the plan's cost. The deduction	251
allowed under division (A)(11)(a) of this section shall be the net	252
of any related premium refunds, related premium reimbursements, or	253
related insurance premium dividends received during the taxable	254
year.	255

(b) Deduct, to the extent not otherwise deducted or excluded	256
in computing federal or Ohio adjusted gross income during the	257
taxable year, the amount the taxpayer paid during the taxable	258
year, not compensated for by any insurance or otherwise, for	259
medical care of the taxpayer, the taxpayer's spouse, and	260
dependents, to the extent the expenses exceed seven and one-half	261
per cent of the taxpayer's federal adjusted gross income.	262

(c) Deduct, to the extent not otherwise deducted or excluded	263
in computing federal or Ohio adjusted gross income, any amount	264
included in federal adjusted gross income under section 105 or not	265
excluded under section 106 of the Internal Revenue Code solely	266
because it relates to an accident and health plan for a person who	267
otherwise would be a "qualifying relative" and thus a "dependent"	268
under section 152 of the Internal Revenue Code but for the fact	269
that the person fails to meet the income and support limitations	270
under section 152(d)(1)(B) and (C) of the Internal Revenue Code.	271

(d) For purposes of division (A)(11) of this section,	272
"medical care" has the meaning given in section 213 of the	273
Internal Revenue Code, subject to the special rules, limitations,	274
and exclusions set forth therein, and "qualified long-term care"	275
has the same meaning given in section 7702B(c) of the Internal	276
Revenue Code. Solely for purposes of divisions (A)(11)(a) and (c)	277
of this section, "dependent" includes a person who otherwise would	278
be a "qualifying relative" and thus a "dependent" under section	279
152 of the Internal Revenue Code but for the fact that the person	280
fails to meet the income and support limitations under section	281
152(d)(1)(B) and (C) of the Internal Revenue Code.	282

(12)(a) Deduct any amount included in federal adjusted gross	283
income solely because the amount represents a reimbursement or	284
refund of expenses that in any year the taxpayer had deducted as	285
an itemized deduction pursuant to section 63 of the Internal	286
Revenue Code and applicable United States department of the	287
treasury regulations. The deduction otherwise allowed under	288
division (A)(12)(a) of this section shall be reduced to the extent	289
the reimbursement is attributable to an amount the taxpayer	290
deducted under this section in any taxable year.	291

(b) Add any amount not otherwise included in Ohio adjusted	292
gross income for any taxable year to the extent that the amount is	293
attributable to the recovery during the taxable year of any amount	294
deducted or excluded in computing federal or Ohio adjusted gross	295
income in any taxable year.	296

(13) Deduct any portion of the deduction described in section	297
1341(a)(2) of the Internal Revenue Code, for repaying previously	298
reported income received under a claim of right, that meets both	299
of the following requirements:	300

(a) It is allowable for repayment of an item that was	301
included in the taxpayer's adjusted gross income for a prior	302
taxable year and did not qualify for a credit under division (A)	303
or (B) of section 5747.05 of the Revised Code for that year;	304

(b) It does not otherwise reduce the taxpayer's adjusted	305
gross income for the current or any other taxable year.	306

(14) Deduct an amount equal to the deposits made to, and net	307
investment earnings of, a medical savings account during the	308
taxable year, in accordance with section 3924.66 of the Revised	309
Code. The deduction allowed by division (A)(14) of this section	310
does not apply to medical savings account deposits and earnings	311
otherwise deducted or excluded for the current or any other	312
taxable year from the taxpayer's federal adjusted gross income.	313

(15)(a) Add an amount equal to the funds withdrawn from a	314
medical savings account during the taxable year, and the net	315
investment earnings on those funds, when the funds withdrawn were	316
used for any purpose other than to reimburse an account holder	317
for, or to pay, eligible medical expenses, in accordance with	318
section 3924.66 of the Revised Code;	319

(b) Add the amounts distributed from a medical savings	320
account under division (A)(2) of section 3924.68 of the Revised	321
Code during the taxable year.	322

(16) Add any amount claimed as a credit under section	323
5747.059 of the Revised Code to the extent that such amount	324
satisfies either of the following:	325

(a) The amount was deducted or excluded from the computation	326
of the taxpayer's federal adjusted gross income as required to be	327
reported for the taxpayer's taxable year under the Internal	328
Revenue Code;	329

(b) The amount resulted in a reduction of the taxpayer's	330
federal adjusted gross income as required to be reported for any	331
of the taxpayer's taxable years under the Internal Revenue Code.	332

(17) Deduct the amount contributed by the taxpayer to an	333
individual development account program established by a county	334
department of job and family services pursuant to sections 329.11	335
to 329.14 of the Revised Code for the purpose of matching funds	336
deposited by program participants. On request of the tax	337
commissioner, the taxpayer shall provide any information that, in	338
the tax commissioner's opinion, is necessary to establish the	339
amount deducted under division (A)(17) of this section.	340

(18) Beginning in taxable year 2001 but not for any taxable	341
year beginning after December 31, 2005, if the taxpayer is married	342
and files a joint return and the combined federal adjusted gross	343
income of the taxpayer and the taxpayer's spouse for the taxable	344
year does not exceed one hundred thousand dollars, or if the	345
taxpayer is single and has a federal adjusted gross income for the	346
taxable year not exceeding fifty thousand dollars, deduct amounts	347
paid during the taxable year for qualified tuition and fees paid	348
to an eligible institution for the taxpayer, the taxpayer's	349
spouse, or any dependent of the taxpayer, who is a resident of	350
this state and is enrolled in or attending a program that	351
culminates in a degree or diploma at an eligible institution. The	352
deduction may be claimed only to the extent that qualified tuition	353
and fees are not otherwise deducted or excluded for any taxable	354
year from federal or Ohio adjusted gross income. The deduction may	355
not be claimed for educational expenses for which the taxpayer	356
claims a credit under section 5747.27 of the Revised Code.	357

(19) Add any reimbursement received during the taxable year	358
of any amount the taxpayer deducted under division (A)(18) of this	359
section in any previous taxable year to the extent the amount is	360
not otherwise included in Ohio adjusted gross income.	361

(20)(a)(i) Add five-sixths of the amount of depreciation	362
expense allowed by subsection (k) of section 168 of the Internal	363
Revenue Code, including the taxpayer's proportionate or	364
distributive share of the amount of depreciation expense allowed	365
by that subsection to a pass-through entity in which the taxpayer	366
has a direct or indirect ownership interest.	367

(ii) Add five-sixths of the amount of qualifying section 179	368
depreciation expense, including a person's proportionate or	369
distributive share of the amount of qualifying section 179	370
depreciation expense allowed to any pass-through entity in which	371
the person has a direct or indirect ownership. For the purposes of	372
this division, "qualifying section 179 depreciation expense" means	373
the difference between (I) the amount of depreciation expense	374
directly or indirectly allowed to the taxpayer under section 179	375
of the Internal Revenue Code, and (II) the amount of depreciation	376
expense directly or indirectly allowed to the taxpayer under	377
section 179 of the Internal Revenue Code as that section existed	378
on December 31, 2002.	379

The tax commissioner, under procedures established by the	380
commissioner, may waive the add-backs related to a pass-through	381
entity if the taxpayer owns, directly or indirectly, less than	382
five per cent of the pass-through entity.	383

(b) Nothing in division (A)(20) of this section shall be	384
construed to adjust or modify the adjusted basis of any asset.	385

(c) To the extent the add-back required under division	386
(A)(20)(a) of this section is attributable to property generating	387
nonbusiness income or loss allocated under section 5747.20 of the	388
Revised Code, the add-back shall be sitused to the same location	389
as the nonbusiness income or loss generated by the property for	390
the purpose of determining the credit under division (A) of	391
section 5747.05 of the Revised Code. Otherwise, the add-back shall	392
be apportioned, subject to one or more of the four alternative	393
methods of apportionment enumerated in section 5747.21 of the	394
Revised Code.	395

(d) For the purposes of division (A) of this section, net	396
operating loss carryback and carryforward shall not include	397
five-sixths of the allowance of any net operating loss deduction	398
carryback or carryforward to the taxable year to the extent such	399
loss resulted from depreciation allowed by section 168(k) of the	400
Internal Revenue Code and by the qualifying section 179	401
depreciation expense amount.	402

(21)(a) If the taxpayer was required to add an amount under	403
division (A)(20)(a) of this section for a taxable year, deduct	404
one-fifth of the amount so added for each of the five succeeding	405
taxable years.	406

(b) If the amount deducted under division (A)(21)(a) of this	407
section is attributable to an add-back allocated under division	408
(A)(20)(c) of this section, the amount deducted shall be sitused	409
to the same location. Otherwise, the add-back shall be apportioned	410
using the apportionment factors for the taxable year in which the	411
deduction is taken, subject to one or more of the four alternative	412
methods of apportionment enumerated in section 5747.21 of the	413
Revised Code.	414

(c) No deduction is available under division (A)(21)(a) of	415
this section with regard to any depreciation allowed by section	416
168(k) of the Internal Revenue Code and by the qualifying section	417
179 depreciation expense amount to the extent that such	418
depreciation resulted in or increased a federal net operating loss	419
carryback or carryforward to a taxable year to which division	420
(A)(20)(d) of this section does not apply.	421

(22) Deduct, to the extent not otherwise deducted or excluded	422
in computing federal or Ohio adjusted gross income for the taxable	423
year, the amount the taxpayer received during the taxable year as	424
reimbursement for life insurance premiums under section 5919.31 of	425
the Revised Code.	426

(23) Deduct, to the extent not otherwise deducted or excluded	427
in computing federal or Ohio adjusted gross income for the taxable	428
year, the amount the taxpayer received during the taxable year as	429
a death benefit paid by the adjutant general under section 5919.33	430
of the Revised Code.	431

(24) Deduct, to the extent included in federal adjusted gross	432
income and not otherwise allowable as a deduction or exclusion in	433
computing federal or Ohio adjusted gross income for the taxable	434
year, military pay and allowances received by the taxpayer during	435
the taxable year for active duty service in the United States	436
army, air force, navy, marine corps, or coast guard or reserve	437
components thereof or the national guard. The deduction may not be	438
claimed for military pay and allowances received by the taxpayer	439
while the taxpayer is stationed in this state.	440

(25) Deduct, to the extent not otherwise allowable as a	441
deduction or exclusion in computing federal or Ohio adjusted gross	442
income for the taxable year and not otherwise compensated for by	443
any other source, the amount of qualified organ donation expenses	444
incurred by the taxpayer during the taxable year, not to exceed	445
ten thousand dollars. A taxpayer may deduct qualified organ	446
donation expenses only once for all taxable years beginning with	447
taxable years beginning in 2007.	448

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

449

(a) "Human organ" means all or any portion of a human liver,	450
pancreas, kidney, intestine, or lung, and any portion of human	451
bone marrow.	452

(b) "Qualified organ donation expenses" means travel	453
expenses, lodging expenses, and wages and salary forgone by a	454
taxpayer in connection with the taxpayer's donation, while living,	455
of one or more of the taxpayer's human organs to another human	456
being.	457

(26) Deduct, to the extent not otherwise deducted or excluded	458
in computing federal or Ohio adjusted gross income for the taxable	459
year, amounts received by the taxpayer as retired military	460
personnel pay for service in the United States army, navy, air	461
force, coast guard, or marine corps or reserve components thereof,	462
or the national guard, or received by the surviving spouse or	463
former spouse of such a taxpayer under the survivor benefit plan	464
on account of such a taxpayer's death. If the taxpayer receives	465
income on account of retirement paid under the federal civil	466
service retirement system or federal employees retirement system,	467
or under any successor retirement program enacted by the congress	468
of the United States that is established and maintained for	469
retired employees of the United States government, and such	470
retirement income is based, in whole or in part, on credit for the	471
taxpayer's military service, the deduction allowed under this	472
division shall include only that portion of such retirement income	473
that is attributable to the taxpayer's military service, to the	474
extent that portion of such retirement income is otherwise	475
included in federal adjusted gross income and is not otherwise	476
deducted under this section. Any amount deducted under division	477
(A)(26) of this section is not included in a taxpayer's adjusted	478
gross income for the purposes of section 5747.055 of the Revised	479
Code. No amount may be deducted under division (A)(26) of this	480
section on the basis of which a credit was claimed under section	481
5747.055 of the Revised Code.	482

(27) Deduct, to the extent not otherwise deducted or excluded	483
in computing federal or Ohio adjusted gross income for the taxable	484
year, the amount the taxpayer received during the taxable year	485
from the military injury relief fund created in section 5101.98 of	486
the Revised Code.	487

(28) For any taxable year for which a capital gain is	488
recognized from the sale of business real property in this state	489
to which a qualifying improvement was made while the property was	490
owned by the taxpayer or a pass-through entity of which the	491
taxpayer is an equity owner, deduct an amount equal to the	492
applicable percentage of the cost of the qualifying improvement to	493
the extent that amount does not exceed the capital gain. The	494
applicable percentage is one hundred per cent for a qualifying	495
improvement that was placed into service not more than five years	496
before the end of the taxable year, seventy-five per cent for a	497
qualifying improvement that was placed into service more than five	498
years but not more than ten years before the end of the taxable	499
year, and fifty per cent for a qualifying improvement that was	500
placed into service more than ten years before the end of the	501
taxable year. If the property was owned by a pass-through entity	502
of which the taxpayer is an equity owner, the taxpayer shall	503
deduct the taxpayer's distributive or proportionate share of such	504
amount to the extent that share does not exceed the taxpayer's	505
distributive or proportionate share of the capital gain, and the	506
taxable year on the basis of which the applicable percentage is	507
determined shall be the entity's taxable year. No amount may be	508
deducted under this division on the basis of a qualifying	509
improvement that is no longer incorporated into the business real	510
property at the time of the sale.	511

As used in division (A)(28) of this section, "qualifying	512
improvement" and "business real property" have the same meanings	513
as in section 5709.53 of the Revised Code, and "cost" has the same	514
meaning as in section 179 of the Internal Revenue Code.	515

(B) "Business income" means income, including gain or loss,	516
arising from transactions, activities, and sources in the regular	517
course of a trade or business and includes income, gain, or loss	518
from real property, tangible property, and intangible property if	519
the acquisition, rental, management, and disposition of the	520
property constitute integral parts of the regular course of a	521
trade or business operation. "Business income" includes income,	522
including gain or loss, from a partial or complete liquidation of	523
a business, including, but not limited to, gain or loss from the	524
sale or other disposition of goodwill.	525

(C) "Nonbusiness income" means all income other than business	526
income and may include, but is not limited to, compensation, rents	527
and royalties from real or tangible personal property, capital	528
gains, interest, dividends and distributions, patent or copyright	529
royalties, or lottery winnings, prizes, and awards.	530

(D) "Compensation" means any form of remuneration paid to an	531
employee for personal services.	532

(E) "Fiduciary" means a guardian, trustee, executor,	533
administrator, receiver, conservator, or any other person acting	534
in any fiduciary capacity for any individual, trust, or estate.	535

(F) "Fiscal year" means an accounting period of twelve months	536
ending on the last day of any month other than December.	537

(G) "Individual" means any natural person.

538

(H) "Internal Revenue Code" means the "Internal Revenue Code	539
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	540

(I) "Resident" means any of the following, provided that	541
division (I)(3) of this section applies only to taxable years of a	542
trust beginning in 2002 or thereafter:	543

(1) An individual who is domiciled in this state, subject to	544
section 5747.24 of the Revised Code;	545

(2) The estate of a decedent who at the time of death was	546
domiciled in this state. The domicile tests of section 5747.24 of	547
the Revised Code are not controlling for purposes of division	548
(I)(2) of this section.	549

(3) A trust that, in whole or part, resides in this state. If	550
only part of a trust resides in this state, the trust is a	551
resident only with respect to that part.	552

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

553

(a) A trust resides in this state for the trust's current	554
taxable year to the extent, as described in division (I)(3)(d) of	555
this section, that the trust consists directly or indirectly, in	556
whole or in part, of assets, net of any related liabilities, that	557
were transferred, or caused to be transferred, directly or	558
indirectly, to the trust by any of the following:	559

(i) A person, a court, or a governmental entity or	560
instrumentality on account of the death of a decedent, but only if	561
the trust is described in division (I)(3)(e)(i) or (ii) of this	562
section;	563

(ii) A person who was domiciled in this state for the	564
purposes of this chapter when the person directly or indirectly	565
transferred assets to an irrevocable trust, but only if at least	566
one of the trust's qualifying beneficiaries is domiciled in this	567
state for the purposes of this chapter during all or some portion	568
of the trust's current taxable year;	569

(iii) A person who was domiciled in this state for the	570
purposes of this chapter when the trust document or instrument or	571
part of the trust document or instrument became irrevocable, but	572
only if at least one of the trust's qualifying beneficiaries is a	573
resident domiciled in this state for the purposes of this chapter	574
during all or some portion of the trust's current taxable year. If	575
a trust document or instrument became irrevocable upon the death	576
of a person who at the time of death was domiciled in this state	577
for purposes of this chapter, that person is a person described in	578
division (I)(3)(a)(iii) of this section.	579

(b) A trust is irrevocable to the extent that the transferor	580
is not considered to be the owner of the net assets of the trust	581
under sections 671 to 678 of the Internal Revenue Code.	582

(c) With respect to a trust other than a charitable lead	583
trust, "qualifying beneficiary" has the same meaning as "potential	584
current beneficiary" as defined in section 1361(e)(2) of the	585
Internal Revenue Code, and with respect to a charitable lead trust	586
"qualifying beneficiary" is any current, future, or contingent	587
beneficiary, but with respect to any trust "qualifying	588
beneficiary" excludes a person or a governmental entity or	589
instrumentality to any of which a contribution would qualify for	590
the charitable deduction under section 170 of the Internal Revenue	591
Code.	592

(d) For the purposes of division (I)(3)(a) of this section,	593
the extent to which a trust consists directly or indirectly, in	594
whole or in part, of assets, net of any related liabilities, that	595
were transferred directly or indirectly, in whole or part, to the	596
trust by any of the sources enumerated in that division shall be	597
ascertained by multiplying the fair market value of the trust's	598
assets, net of related liabilities, by the qualifying ratio, which	599
shall be computed as follows:	600

(i) The first time the trust receives assets, the numerator	601
of the qualifying ratio is the fair market value of those assets	602
at that time, net of any related liabilities, from sources	603
enumerated in division (I)(3)(a) of this section. The denominator	604
of the qualifying ratio is the fair market value of all the	605
trust's assets at that time, net of any related liabilities.	606

(ii) Each subsequent time the trust receives assets, a	607
revised qualifying ratio shall be computed. The numerator of the	608
revised qualifying ratio is the sum of (1) the fair market value	609
of the trust's assets immediately prior to the subsequent	610
transfer, net of any related liabilities, multiplied by the	611
qualifying ratio last computed without regard to the subsequent	612
transfer, and (2) the fair market value of the subsequently	613
transferred assets at the time transferred, net of any related	614
liabilities, from sources enumerated in division (I)(3)(a) of this	615
section. The denominator of the revised qualifying ratio is the	616
fair market value of all the trust's assets immediately after the	617
subsequent transfer, net of any related liabilities.	618

(iii) Whether a transfer to the trust is by or from any of	619
the sources enumerated in division (I)(3)(a) of this section shall	620
be ascertained without regard to the domicile of the trust's	621
beneficiaries.	622

(e) For the purposes of division (I)(3)(a)(i) of this	623
section:	624

(i) A trust is described in division (I)(3)(e)(i) of this	625
section if the trust is a testamentary trust and the testator of	626
that testamentary trust was domiciled in this state at the time of	627
the testator's death for purposes of the taxes levied under	628
Chapter 5731. of the Revised Code.	629

(ii) A trust is described in division (I)(3)(e)(ii) of this	630
section if the transfer is a qualifying transfer described in any	631
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	632
irrevocable inter vivos trust, and at least one of the trust's	633
qualifying beneficiaries is domiciled in this state for purposes	634
of this chapter during all or some portion of the trust's current	635
taxable year.	636

(f) For the purposes of division (I)(3)(e)(ii) of this	637
section, a "qualifying transfer" is a transfer of assets, net of	638
any related liabilities, directly or indirectly to a trust, if the	639
transfer is described in any of the following:	640

(i) The transfer is made to a trust, created by the decedent	641
before the decedent's death and while the decedent was domiciled	642
in this state for the purposes of this chapter, and, prior to the	643
death of the decedent, the trust became irrevocable while the	644
decedent was domiciled in this state for the purposes of this	645
chapter.	646

(ii) The transfer is made to a trust to which the decedent,	647
prior to the decedent's death, had directly or indirectly	648
transferred assets, net of any related liabilities, while the	649
decedent was domiciled in this state for the purposes of this	650
chapter, and prior to the death of the decedent the trust became	651
irrevocable while the decedent was domiciled in this state for the	652
purposes of this chapter.	653

(iii) The transfer is made on account of a contractual	654
relationship existing directly or indirectly between the	655
transferor and either the decedent or the estate of the decedent	656
at any time prior to the date of the decedent's death, and the	657
decedent was domiciled in this state at the time of death for	658
purposes of the taxes levied under Chapter 5731. of the Revised	659
Code.	660

(iv) The transfer is made to a trust on account of a	661
contractual relationship existing directly or indirectly between	662
the transferor and another person who at the time of the	663
decedent's death was domiciled in this state for purposes of this	664
chapter.	665

(v) The transfer is made to a trust on account of the will of	666
a testator.	667

(vi) The transfer is made to a trust created by or caused to	668
be created by a court, and the trust was directly or indirectly	669
created in connection with or as a result of the death of an	670
individual who, for purposes of the taxes levied under Chapter	671
5731. of the Revised Code, was domiciled in this state at the time	672
of the individual's death.	673

(g) The tax commissioner may adopt rules to ascertain the	674
part of a trust residing in this state.	675

(J) "Nonresident" means an individual or estate that is not a	676
resident. An individual who is a resident for only part of a	677
taxable year is a nonresident for the remainder of that taxable	678
year.	679

(K) "Pass-through entity" has the same meaning as in section	680
5733.04 of the Revised Code.	681

(L) "Return" means the notifications and reports required to	682
be filed pursuant to this chapter for the purpose of reporting the	683
tax due and includes declarations of estimated tax when so	684
required.	685

(M) "Taxable year" means the calendar year or the taxpayer's	686
fiscal year ending during the calendar year, or fractional part	687
thereof, upon which the adjusted gross income is calculated	688
pursuant to this chapter.	689

(N) "Taxpayer" means any person subject to the tax imposed by	690
section 5747.02 of the Revised Code or any pass-through entity	691
that makes the election under division (D) of section 5747.08 of	692
the Revised Code.	693

(O) "Dependents" means dependents as defined in the Internal	694
Revenue Code and as claimed in the taxpayer's federal income tax	695
return for the taxable year or which the taxpayer would have been	696
permitted to claim had the taxpayer filed a federal income tax	697
return.	698

(P) "Principal county of employment" means, in the case of a	699
nonresident, the county within the state in which a taxpayer	700
performs services for an employer or, if those services are	701
performed in more than one county, the county in which the major	702
portion of the services are performed.	703

(Q) As used in sections 5747.50 to 5747.55 of the Revised	704
Code:	705

(1) "Subdivision" means any county, municipal corporation,	706
park district, or township.	707

(2) "Essential local government purposes" includes all	708
functions that any subdivision is required by general law to	709
exercise, including like functions that are exercised under a	710
charter adopted pursuant to the Ohio Constitution.	711

(R) "Overpayment" means any amount already paid that exceeds	712
the figure determined to be the correct amount of the tax.	713

(S) "Taxable income" or "Ohio taxable income" applies only to	714
estates and trusts, and means federal taxable income, as defined	715
and used in the Internal Revenue Code, adjusted as follows:	716

(1) Add interest or dividends, net of ordinary, necessary,	717
and reasonable expenses not deducted in computing federal taxable	718
income, on obligations or securities of any state or of any	719
political subdivision or authority of any state, other than this	720
state and its subdivisions and authorities, but only to the extent	721
that such net amount is not otherwise includible in Ohio taxable	722
income and is described in either division (S)(1)(a) or (b) of	723
this section:	724

(a) The net amount is not attributable to the S portion of an	725
electing small business trust and has not been distributed to	726
beneficiaries for the taxable year;	727

(b) The net amount is attributable to the S portion of an	728
electing small business trust for the taxable year.	729

(2) Add interest or dividends, net of ordinary, necessary,	730
and reasonable expenses not deducted in computing federal taxable	731
income, on obligations of any authority, commission,	732
instrumentality, territory, or possession of the United States to	733
the extent that the interest or dividends are exempt from federal	734
income taxes but not from state income taxes, but only to the	735
extent that such net amount is not otherwise includible in Ohio	736
taxable income and is described in either division (S)(1)(a) or	737
(b) of this section;	738

(3) Add the amount of personal exemption allowed to the	739
estate pursuant to section 642(b) of the Internal Revenue Code;	740

(4) Deduct interest or dividends, net of related expenses	741
deducted in computing federal taxable income, on obligations of	742
the United States and its territories and possessions or of any	743
authority, commission, or instrumentality of the United States to	744
the extent that the interest or dividends are exempt from state	745
taxes under the laws of the United States, but only to the extent	746
that such amount is included in federal taxable income and is	747
described in either division (S)(1)(a) or (b) of this section;	748

(5) Deduct the amount of wages and salaries, if any, not	749
otherwise allowable as a deduction but that would have been	750
allowable as a deduction in computing federal taxable income for	751
the taxable year, had the targeted jobs credit allowed under	752
sections 38, 51, and 52 of the Internal Revenue Code not been in	753
effect, but only to the extent such amount relates either to	754
income included in federal taxable income for the taxable year or	755
to income of the S portion of an electing small business trust for	756
the taxable year;	757

(6) Deduct any interest or interest equivalent, net of	758
related expenses deducted in computing federal taxable income, on	759
public obligations and purchase obligations, but only to the	760
extent that such net amount relates either to income included in	761
federal taxable income for the taxable year or to income of the S	762
portion of an electing small business trust for the taxable year;	763

(7) Add any loss or deduct any gain resulting from sale,	764
exchange, or other disposition of public obligations to the extent	765
that such loss has been deducted or such gain has been included in	766
computing either federal taxable income or income of the S portion	767
of an electing small business trust for the taxable year;	768

(8) Except in the case of the final return of an estate, add	769
any amount deducted by the taxpayer on both its Ohio estate tax	770
return pursuant to section 5731.14 of the Revised Code, and on its	771
federal income tax return in determining federal taxable income;	772

(9)(a) Deduct any amount included in federal taxable income	773
solely because the amount represents a reimbursement or refund of	774
expenses that in a previous year the decedent had deducted as an	775
itemized deduction pursuant to section 63 of the Internal Revenue	776
Code and applicable treasury regulations. The deduction otherwise	777
allowed under division (S)(9)(a) of this section shall be reduced	778
to the extent the reimbursement is attributable to an amount the	779
taxpayer or decedent deducted under this section in any taxable	780
year.	781

(b) Add any amount not otherwise included in Ohio taxable	782
income for any taxable year to the extent that the amount is	783
attributable to the recovery during the taxable year of any amount	784
deducted or excluded in computing federal or Ohio taxable income	785
in any taxable year, but only to the extent such amount has not	786
been distributed to beneficiaries for the taxable year.	787

(10) Deduct any portion of the deduction described in section	788
1341(a)(2) of the Internal Revenue Code, for repaying previously	789
reported income received under a claim of right, that meets both	790
of the following requirements:	791

(a) It is allowable for repayment of an item that was	792
included in the taxpayer's taxable income or the decedent's	793
adjusted gross income for a prior taxable year and did not qualify	794
for a credit under division (A) or (B) of section 5747.05 of the	795
Revised Code for that year.	796

(b) It does not otherwise reduce the taxpayer's taxable	797
income or the decedent's adjusted gross income for the current or	798
any other taxable year.	799

(11) Add any amount claimed as a credit under section	800
5747.059 of the Revised Code to the extent that the amount	801
satisfies either of the following:	802

(a) The amount was deducted or excluded from the computation	803
of the taxpayer's federal taxable income as required to be	804
reported for the taxpayer's taxable year under the Internal	805
Revenue Code;	806

(b) The amount resulted in a reduction in the taxpayer's	807
federal taxable income as required to be reported for any of the	808
taxpayer's taxable years under the Internal Revenue Code.	809

(12) Deduct any amount, net of related expenses deducted in	810
computing federal taxable income, that a trust is required to	811
report as farm income on its federal income tax return, but only	812
if the assets of the trust include at least ten acres of land	813
satisfying the definition of "land devoted exclusively to	814
agricultural use" under section 5713.30 of the Revised Code,	815
regardless of whether the land is valued for tax purposes as such	816
land under sections 5713.30 to 5713.38 of the Revised Code. If the	817
trust is a pass-through entity investor, section 5747.231 of the	818
Revised Code applies in ascertaining if the trust is eligible to	819
claim the deduction provided by division (S)(12) of this section	820
in connection with the pass-through entity's farm income.	821

Except for farm income attributable to the S portion of an	822
electing small business trust, the deduction provided by division	823
(S)(12) of this section is allowed only to the extent that the	824
trust has not distributed such farm income. Division (S)(12) of	825
this section applies only to taxable years of a trust beginning in	826
2002 or thereafter.	827

(13) Add the net amount of income described in section 641(c)	828
of the Internal Revenue Code to the extent that amount is not	829
included in federal taxable income.	830

(14) Add or deduct the amount the taxpayer would be required	831
to add or deduct under division (A)(20) or (21) of this section if	832
the taxpayer's Ohio taxable income were computed in the same	833
manner as an individual's Ohio adjusted gross income is computed	834
under this section. In the case of a trust, division (S)(14) of	835
this section applies only to any of the trust's taxable years	836
beginning in 2002 or thereafter.	837

(15) For any taxable year for which a capital gain is	838
recognized from the sale of business real property in this state	839
to which a qualifying improvement was made while the property was	840
owned by the taxpayer or a pass-through entity of which the	841
taxpayer is an equity owner, deduct an amount equal to the	842
applicable percentage of the cost of the qualifying improvement to	843
the extent that amount does not exceed the capital gain. The	844
applicable percentage shall be determined in the manner prescribed	845
by division (A)(28) of this section. If the property was owned by	846
a pass-through entity of which the taxpayer is an equity owner,	847
the taxpayer shall deduct the taxpayer's distributive or	848
proportionate share of such amount to the extent that share does	849
not exceed the taxpayer's distributive or proportionate share of	850
the capital gain. No amount may be deducted under this division on	851
the basis of a qualifying improvement that is no longer	852
incorporated into the business real property at the time of the	853
sale.	854

As used in division (S)(15) of this section, "qualifying	855
improvement" and "business real property" have the same meanings	856
as in section 5709.53 of the Revised Code, and "cost" has the same	857
meaning as in section 179 of the Internal Revenue Code.	858

(T) "School district income" and "school district income tax"	859
have the same meanings as in section 5748.01 of the Revised Code.	860

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	861
of this section, "public obligations," "purchase obligations," and	862
"interest or interest equivalent" have the same meanings as in	863
section 5709.76 of the Revised Code.	864

(V) "Limited liability company" means any limited liability	865
company formed under Chapter 1705. of the Revised Code or under	866
the laws of any other state.	867

(W) "Pass-through entity investor" means any person who,	868
during any portion of a taxable year of a pass-through entity, is	869
a partner, member, shareholder, or equity investor in that	870
pass-through entity.	871

(X) "Banking day" has the same meaning as in section 1304.01	872
of the Revised Code.	873

(Y) "Month" means a calendar month.

874

(Z) "Quarter" means the first three months, the second three	875
months, the third three months, or the last three months of the	876
taxpayer's taxable year.	877

(AA)(1) "Eligible institution" means a state university or	878
state institution of higher education as defined in section	879
3345.011 of the Revised Code, or a private, nonprofit college,	880
university, or other post-secondary institution located in this	881
state that possesses a certificate of authorization issued by the	882
Ohio board of regents pursuant to Chapter 1713. of the Revised	883
Code or a certificate of registration issued by the state board of	884
career colleges and schools under Chapter 3332. of the Revised	885
Code.	886

(2) "Qualified tuition and fees" means tuition and fees	887
imposed by an eligible institution as a condition of enrollment or	888
attendance, not exceeding two thousand five hundred dollars in	889
each of the individual's first two years of post-secondary	890
education. If the individual is a part-time student, "qualified	891
tuition and fees" includes tuition and fees paid for the academic	892
equivalent of the first two years of post-secondary education	893
during a maximum of five taxable years, not exceeding a total of	894
five thousand dollars. "Qualified tuition and fees" does not	895
include:	896

(a) Expenses for any course or activity involving sports,	897
games, or hobbies unless the course or activity is part of the	898
individual's degree or diploma program;	899

(b) The cost of books, room and board, student activity fees,	900
athletic fees, insurance expenses, or other expenses unrelated to	901
the individual's academic course of instruction;	902

(c) Tuition, fees, or other expenses paid or reimbursed	903
through an employer, scholarship, grant in aid, or other	904
educational benefit program.	905

(BB)(1) "Modified business income" means the business income	906
included in a trust's Ohio taxable income after such taxable	907
income is first reduced by the qualifying trust amount, if any.	908

(2) "Qualifying trust amount" of a trust means capital gains	909
and losses from the sale, exchange, or other disposition of equity	910
or ownership interests in, or debt obligations of, a qualifying	911
investee to the extent included in the trust's Ohio taxable	912
income, but only if the following requirements are satisfied:	913

(a) The book value of the qualifying investee's physical	914
assets in this state and everywhere, as of the last day of the	915
qualifying investee's fiscal or calendar year ending immediately	916
prior to the date on which the trust recognizes the gain or loss,	917
is available to the trust.	918

(b) The requirements of section 5747.011 of the Revised Code	919
are satisfied for the trust's taxable year in which the trust	920
recognizes the gain or loss.	921

Any gain or loss that is not a qualifying trust amount is	922
modified business income, qualifying investment income, or	923
modified nonbusiness income, as the case may be.	924

(3) "Modified nonbusiness income" means a trust's Ohio	925
taxable income other than modified business income, other than the	926
qualifying trust amount, and other than qualifying investment	927
income, as defined in section 5747.012 of the Revised Code, to the	928
extent such qualifying investment income is not otherwise part of	929
modified business income.	930

(4) "Modified Ohio taxable income" applies only to trusts,	931
and means the sum of the amounts described in divisions (BB)(4)(a)	932
to (c) of this section:	933

(a) The fraction, calculated under section 5747.013, and	934
applying section 5747.231 of the Revised Code, multiplied by the	935
sum of the following amounts:	936

(i) The trust's modified business income;

937

(ii) The trust's qualifying investment income, as defined in	938
section 5747.012 of the Revised Code, but only to the extent the	939
qualifying investment income does not otherwise constitute	940
modified business income and does not otherwise constitute a	941
qualifying trust amount.	942

(b) The qualifying trust amount multiplied by a fraction, the	943
numerator of which is the sum of the book value of the qualifying	944
investee's physical assets in this state on the last day of the	945
qualifying investee's fiscal or calendar year ending immediately	946
prior to the day on which the trust recognizes the qualifying	947
trust amount, and the denominator of which is the sum of the book	948
value of the qualifying investee's total physical assets	949
everywhere on the last day of the qualifying investee's fiscal or	950
calendar year ending immediately prior to the day on which the	951
trust recognizes the qualifying trust amount. If, for a taxable	952
year, the trust recognizes a qualifying trust amount with respect	953
to more than one qualifying investee, the amount described in	954
division (BB)(4)(b) of this section shall equal the sum of the	955
products so computed for each such qualifying investee.	956

(c)(i) With respect to a trust or portion of a trust that is	957
a resident as ascertained in accordance with division (I)(3)(d) of	958
this section, its modified nonbusiness income.	959

(ii) With respect to a trust or portion of a trust that is	960
not a resident as ascertained in accordance with division	961
(I)(3)(d) of this section, the amount of its modified nonbusiness	962
income satisfying the descriptions in divisions (B)(2) to (5) of	963
section 5747.20 of the Revised Code, except as otherwise provided	964
in division (BB)(4)(c)(ii) of this section. With respect to a	965
trust or portion of a trust that is not a resident as ascertained	966
in accordance with division (I)(3)(d) of this section, the trust's	967
portion of modified nonbusiness income recognized from the sale,	968
exchange, or other disposition of a debt interest in or equity	969
interest in a section 5747.212 entity, as defined in section	970
5747.212 of the Revised Code, without regard to division (A) of	971
that section, shall not be allocated to this state in accordance	972
with section 5747.20 of the Revised Code but shall be apportioned	973
to this state in accordance with division (B) of section 5747.212	974
of the Revised Code without regard to division (A) of that	975
section.	976

If the allocation and apportionment of a trust's income under	977
divisions (BB)(4)(a) and (c) of this section do not fairly	978
represent the modified Ohio taxable income of the trust in this	979
state, the alternative methods described in division (C) of	980
section 5747.21 of the Revised Code may be applied in the manner	981
and to the same extent provided in that section.	982

(5)(a) Except as set forth in division (BB)(5)(b) of this	983
section, "qualifying investee" means a person in which a trust has	984
an equity or ownership interest, or a person or unit of government	985
the debt obligations of either of which are owned by a trust. For	986
the purposes of division (BB)(2)(a) of this section and for the	987
purpose of computing the fraction described in division (BB)(4)(b)	988
of this section, all of the following apply:	989

(i) If the qualifying investee is a member of a qualifying	990
controlled group on the last day of the qualifying investee's	991
fiscal or calendar year ending immediately prior to the date on	992
which the trust recognizes the gain or loss, then "qualifying	993
investee" includes all persons in the qualifying controlled group	994
on such last day.	995

(ii) If the qualifying investee, or if the qualifying	996
investee and any members of the qualifying controlled group of	997
which the qualifying investee is a member on the last day of the	998
qualifying investee's fiscal or calendar year ending immediately	999
prior to the date on which the trust recognizes the gain or loss,	1000
separately or cumulatively own, directly or indirectly, on the	1001
last day of the qualifying investee's fiscal or calendar year	1002
ending immediately prior to the date on which the trust recognizes	1003
the qualifying trust amount, more than fifty per cent of the	1004
equity of a pass-through entity, then the qualifying investee and	1005
the other members are deemed to own the proportionate share of the	1006
pass-through entity's physical assets which the pass-through	1007
entity directly or indirectly owns on the last day of the	1008
pass-through entity's calendar or fiscal year ending within or	1009
with the last day of the qualifying investee's fiscal or calendar	1010
year ending immediately prior to the date on which the trust	1011
recognizes the qualifying trust amount.	1012

(iii) For the purposes of division (BB)(5)(a)(iii) of this	1013
section, "upper level pass-through entity" means a pass-through	1014
entity directly or indirectly owning any equity of another	1015
pass-through entity, and "lower level pass-through entity" means	1016
that other pass-through entity.	1017

An upper level pass-through entity, whether or not it is also	1018
a qualifying investee, is deemed to own, on the last day of the	1019
upper level pass-through entity's calendar or fiscal year, the	1020
proportionate share of the lower level pass-through entity's	1021
physical assets that the lower level pass-through entity directly	1022
or indirectly owns on the last day of the lower level pass-through	1023
entity's calendar or fiscal year ending within or with the last	1024
day of the upper level pass-through entity's fiscal or calendar	1025
year. If the upper level pass-through entity directly and	1026
indirectly owns less than fifty per cent of the equity of the	1027
lower level pass-through entity on each day of the upper level	1028
pass-through entity's calendar or fiscal year in which or with	1029
which ends the calendar or fiscal year of the lower level	1030
pass-through entity and if, based upon clear and convincing	1031
evidence, complete information about the location and cost of the	1032
physical assets of the lower pass-through entity is not available	1033
to the upper level pass-through entity, then solely for purposes	1034
of ascertaining if a gain or loss constitutes a qualifying trust	1035
amount, the upper level pass-through entity shall be deemed as	1036
owning no equity of the lower level pass-through entity for each	1037
day during the upper level pass-through entity's calendar or	1038
fiscal year in which or with which ends the lower level	1039
pass-through entity's calendar or fiscal year. Nothing in division	1040
(BB)(5)(a)(iii) of this section shall be construed to provide for	1041
any deduction or exclusion in computing any trust's Ohio taxable	1042
income.	1043

(b) With respect to a trust that is not a resident for the	1044
taxable year and with respect to a part of a trust that is not a	1045
resident for the taxable year, "qualifying investee" for that	1046
taxable year does not include a C corporation if both of the	1047
following apply:	1048

(i) During the taxable year the trust or part of the trust	1049
recognizes a gain or loss from the sale, exchange, or other	1050
disposition of equity or ownership interests in, or debt	1051
obligations of, the C corporation.	1052

(ii) Such gain or loss constitutes nonbusiness income.

1053

(6) "Available" means information is such that a person is	1054
able to learn of the information by the due date plus extensions,	1055
if any, for filing the return for the taxable year in which the	1056
trust recognizes the gain or loss.	1057

(CC) "Qualifying controlled group" has the same meaning as in	1058
section 5733.04 of the Revised Code.	1059

(DD) "Related member" has the same meaning as in section	1060
5733.042 of the Revised Code.	1061

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

1062

(a) "Qualifying person" means any person other than a	1063
qualifying corporation.	1064

(b) "Qualifying corporation" means any person classified for	1065
federal income tax purposes as an association taxable as a	1066
corporation, except either of the following:	1067

(i) A corporation that has made an election under subchapter	1068
S, chapter one, subtitle A, of the Internal Revenue Code for its	1069
taxable year ending within, or on the last day of, the investor's	1070
taxable year;	1071

(ii) A subsidiary that is wholly owned by any corporation	1072
that has made an election under subchapter S, chapter one,	1073
subtitle A of the Internal Revenue Code for its taxable year	1074
ending within, or on the last day of, the investor's taxable year.	1075

(2) For the purposes of this chapter, unless expressly stated	1076
otherwise, no qualifying person indirectly owns any asset directly	1077
or indirectly owned by any qualifying corporation.	1078

(FF) For purposes of this chapter and Chapter 5751. of the	1079
Revised Code:	1080

(1) "Trust" does not include a qualified pre-income tax	1081
trust.	1082

(2) A "qualified pre-income tax trust" is any pre-income tax	1083
trust that makes a qualifying pre-income tax trust election as	1084
described in division (FF)(3) of this section.	1085

(3) A "qualifying pre-income tax trust election" is an	1086
election by a pre-income tax trust to subject to the tax imposed	1087
by section 5751.02 of the Revised Code the pre-income tax trust	1088
and all pass-through entities of which the trust owns or controls,	1089
directly, indirectly, or constructively through related interests,	1090
five per cent or more of the ownership or equity interests. The	1091
trustee shall notify the tax commissioner in writing of the	1092
election on or before April 15, 2006. The election, if timely	1093
made, shall be effective on and after January 1, 2006, and shall	1094
apply for all tax periods and tax years until revoked by the	1095
trustee of the trust.	1096

(4) A "pre-income tax trust" is a trust that satisfies all of	1097
the following requirements:	1098

(a) The document or instrument creating the trust was	1099
executed by the grantor before January 1, 1972;	1100

(b) The trust became irrevocable upon the creation of the	1101
trust; and	1102

(c) The grantor was domiciled in this state at the time the	1103
trust was created.	1104

Section 2.  That existing sections 1551.20, 5709.53, and	1105
5747.01 of the Revised Code are hereby repealed.	1106

Section 3.  That the amendment by this act of section 5747.01	1107
of the Revised Code applies to taxable years beginning on or after	1108
the effective date of this act.	1109

Section 4.  Section 1551.20 of the Revised Code is presented	1110
in this act as a composite of the section as amended by Am. Sub.	1111
H.B. 632, Sub. S.B. 269, and Sub. S.B. 271 of the 120th General	1112
Assembly. The General Assembly, applying the principle stated in	1113
division (B) of section 1.52 of the Revised Code that amendments	1114
are to be harmonized if reasonably capable of simultaneous	1115
operation, finds that the composite is the resulting version of	1116
the section in effect prior to the effective date of the section	1117
as presented in this act.	1118