As Reported by the House Financial Institutions, Real Estate and Securities Committee

128th General Assembly Regular Session 2009-2010

H. B. No. 188

Representatives Stautberg, Ujvagi 

Cosponsors: Representatives Hite, Combs, Jordan, Mecklenborg, Balderson, Fende, Sears, Zehringer, Adams, R., Garland, Dyer 

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A BILL

To amend section 5747.01 of the Revised Code to

1

exempt retirement pay related to service in the

2

Commissioned Corps of the National Oceanic and

3

Atmospheric Administration and the Commissioned

4

Corps of the Public Health Service.

5

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

Section 1. That section 5747.01 of the Revised Code be	6
amended to read as follows:	7

Sec. 5747.01.  Except as otherwise expressly provided or	8
clearly appearing from the context, any term used in this chapter	9
that is not otherwise defined in this section has the same meaning	10
as when used in a comparable context in the laws of the United	11
States relating to federal income taxes or if not used in a	12
comparable context in those laws, has the same meaning as in	13
section 5733.40 of the Revised Code. Any reference in this chapter	14
to the Internal Revenue Code includes other laws of the United	15
States relating to federal income taxes.	16

As used in this chapter:

17

(A) "Adjusted gross income" or "Ohio adjusted gross income"	18
means federal adjusted gross income, as defined and used in the	19
Internal Revenue Code, adjusted as provided in this section:	20

(1) Add interest or dividends on obligations or securities of	21
any state or of any political subdivision or authority of any	22
state, other than this state and its subdivisions and authorities.	23

(2) Add interest or dividends on obligations of any	24
authority, commission, instrumentality, territory, or possession	25
of the United States to the extent that the interest or dividends	26
are exempt from federal income taxes but not from state income	27
taxes.	28

(3) Deduct interest or dividends on obligations of the United	29
States and its territories and possessions or of any authority,	30
commission, or instrumentality of the United States to the extent	31
that the interest or dividends are included in federal adjusted	32
gross income but exempt from state income taxes under the laws of	33
the United States.	34

(4) Deduct disability and survivor's benefits to the extent	35
included in federal adjusted gross income.	36

(5) Deduct benefits under Title II of the Social Security Act	37
and tier 1 railroad retirement benefits to the extent included in	38
federal adjusted gross income under section 86 of the Internal	39
Revenue Code.	40

(6) In the case of a taxpayer who is a beneficiary of a trust	41
that makes an accumulation distribution as defined in section 665	42
of the Internal Revenue Code, add, for the beneficiary's taxable	43
years beginning before 2002, the portion, if any, of such	44
distribution that does not exceed the undistributed net income of	45
the trust for the three taxable years preceding the taxable year	46
in which the distribution is made to the extent that the portion	47
was not included in the trust's taxable income for any of the	48
trust's taxable years beginning in 2002 or thereafter.	49
"Undistributed net income of a trust" means the taxable income of	50
the trust increased by (a)(i) the additions to adjusted gross	51
income required under division (A) of this section and (ii) the	52
personal exemptions allowed to the trust pursuant to section	53
642(b) of the Internal Revenue Code, and decreased by (b)(i) the	54
deductions to adjusted gross income required under division (A) of	55
this section, (ii) the amount of federal income taxes attributable	56
to such income, and (iii) the amount of taxable income that has	57
been included in the adjusted gross income of a beneficiary by	58
reason of a prior accumulation distribution. Any undistributed net	59
income included in the adjusted gross income of a beneficiary	60
shall reduce the undistributed net income of the trust commencing	61
with the earliest years of the accumulation period.	62

(7) Deduct the amount of wages and salaries, if any, not	63
otherwise allowable as a deduction but that would have been	64
allowable as a deduction in computing federal adjusted gross	65
income for the taxable year, had the targeted jobs credit allowed	66
and determined under sections 38, 51, and 52 of the Internal	67
Revenue Code not been in effect.	68

(8) Deduct any interest or interest equivalent on public	69
obligations and purchase obligations to the extent that the	70
interest or interest equivalent is included in federal adjusted	71
gross income.	72

(9) Add any loss or deduct any gain resulting from the sale,	73
exchange, or other disposition of public obligations to the extent	74
that the loss has been deducted or the gain has been included in	75
computing federal adjusted gross income.	76

(10) Deduct or add amounts, as provided under section	77
5747.70 of the Revised Code, related to contributions to variable	78
college savings program accounts made or tuition units purchased	79
pursuant to Chapter 3334. of the Revised Code.	80

(11)(a) Deduct, to the extent not otherwise allowable as a	81
deduction or exclusion in computing federal or Ohio adjusted gross	82
income for the taxable year, the amount the taxpayer paid during	83
the taxable year for medical care insurance and qualified	84
long-term care insurance for the taxpayer, the taxpayer's spouse,	85
and dependents. No deduction for medical care insurance under	86
division (A)(11) of this section shall be allowed either to any	87
taxpayer who is eligible to participate in any subsidized health	88
plan maintained by any employer of the taxpayer or of the	89
taxpayer's spouse, or to any taxpayer who is entitled to, or on	90
application would be entitled to, benefits under part A of Title	91
XVIII of the "Social Security Act," 49 Stat. 620 (1935), 42 U.S.C.	92
301, as amended. For the purposes of division (A)(11)(a) of this	93
section, "subsidized health plan" means a health plan for which	94
the employer pays any portion of the plan's cost. The deduction	95
allowed under division (A)(11)(a) of this section shall be the net	96
of any related premium refunds, related premium reimbursements, or	97
related insurance premium dividends received during the taxable	98
year.	99

(b) Deduct, to the extent not otherwise deducted or excluded	100
in computing federal or Ohio adjusted gross income during the	101
taxable year, the amount the taxpayer paid during the taxable	102
year, not compensated for by any insurance or otherwise, for	103
medical care of the taxpayer, the taxpayer's spouse, and	104
dependents, to the extent the expenses exceed seven and one-half	105
per cent of the taxpayer's federal adjusted gross income.	106

(c) For purposes of division (A)(11) of this section,	107
"medical care" has the meaning given in section 213 of the	108
Internal Revenue Code, subject to the special rules, limitations,	109
and exclusions set forth therein, and "qualified long-term care"	110
has the same meaning given in section 7702B(c) of the Internal	111
Revenue Code.	112

(12)(a) Deduct any amount included in federal adjusted gross	113
income solely because the amount represents a reimbursement or	114
refund of expenses that in any year the taxpayer had deducted as	115
an itemized deduction pursuant to section 63 of the Internal	116
Revenue Code and applicable United States department of the	117
treasury regulations. The deduction otherwise allowed under	118
division (A)(12)(a) of this section shall be reduced to the extent	119
the reimbursement is attributable to an amount the taxpayer	120
deducted under this section in any taxable year.	121

(b) Add any amount not otherwise included in Ohio adjusted	122
gross income for any taxable year to the extent that the amount is	123
attributable to the recovery during the taxable year of any amount	124
deducted or excluded in computing federal or Ohio adjusted gross	125
income in any taxable year.	126

(13) Deduct any portion of the deduction described in section	127
1341(a)(2) of the Internal Revenue Code, for repaying previously	128
reported income received under a claim of right, that meets both	129
of the following requirements:	130

(a) It is allowable for repayment of an item that was	131
included in the taxpayer's adjusted gross income for a prior	132
taxable year and did not qualify for a credit under division (A)	133
or (B) of section 5747.05 of the Revised Code for that year;	134

(b) It does not otherwise reduce the taxpayer's adjusted	135
gross income for the current or any other taxable year.	136

(14) Deduct an amount equal to the deposits made to, and net	137
investment earnings of, a medical savings account during the	138
taxable year, in accordance with section 3924.66 of the Revised	139
Code. The deduction allowed by division (A)(14) of this section	140
does not apply to medical savings account deposits and earnings	141
otherwise deducted or excluded for the current or any other	142
taxable year from the taxpayer's federal adjusted gross income.	143

(15)(a) Add an amount equal to the funds withdrawn from a	144
medical savings account during the taxable year, and the net	145
investment earnings on those funds, when the funds withdrawn were	146
used for any purpose other than to reimburse an account holder	147
for, or to pay, eligible medical expenses, in accordance with	148
section 3924.66 of the Revised Code;	149

(b) Add the amounts distributed from a medical savings	150
account under division (A)(2) of section 3924.68 of the Revised	151
Code during the taxable year.	152

(16) Add any amount claimed as a credit under section	153
5747.059 of the Revised Code to the extent that such amount	154
satisfies either of the following:	155

(a) The amount was deducted or excluded from the computation	156
of the taxpayer's federal adjusted gross income as required to be	157
reported for the taxpayer's taxable year under the Internal	158
Revenue Code;	159

(b) The amount resulted in a reduction of the taxpayer's	160
federal adjusted gross income as required to be reported for any	161
of the taxpayer's taxable years under the Internal Revenue Code.	162

(17) Deduct the amount contributed by the taxpayer to an	163
individual development account program established by a county	164
department of job and family services pursuant to sections 329.11	165
to 329.14 of the Revised Code for the purpose of matching funds	166
deposited by program participants. On request of the tax	167
commissioner, the taxpayer shall provide any information that, in	168
the tax commissioner's opinion, is necessary to establish the	169
amount deducted under division (A)(17) of this section.	170

(18) Beginning in taxable year 2001 but not for any taxable	171
year beginning after December 31, 2005, if the taxpayer is married	172
and files a joint return and the combined federal adjusted gross	173
income of the taxpayer and the taxpayer's spouse for the taxable	174
year does not exceed one hundred thousand dollars, or if the	175
taxpayer is single and has a federal adjusted gross income for the	176
taxable year not exceeding fifty thousand dollars, deduct amounts	177
paid during the taxable year for qualified tuition and fees paid	178
to an eligible institution for the taxpayer, the taxpayer's	179
spouse, or any dependent of the taxpayer, who is a resident of	180
this state and is enrolled in or attending a program that	181
culminates in a degree or diploma at an eligible institution. The	182
deduction may be claimed only to the extent that qualified tuition	183
and fees are not otherwise deducted or excluded for any taxable	184
year from federal or Ohio adjusted gross income. The deduction may	185
not be claimed for educational expenses for which the taxpayer	186
claims a credit under section 5747.27 of the Revised Code.	187

(19) Add any reimbursement received during the taxable year	188
of any amount the taxpayer deducted under division (A)(18) of this	189
section in any previous taxable year to the extent the amount is	190
not otherwise included in Ohio adjusted gross income.	191

(20)(a)(i) Add five-sixths of the amount of depreciation	192
expense allowed by subsection (k) of section 168 of the Internal	193
Revenue Code, including the taxpayer's proportionate or	194
distributive share of the amount of depreciation expense allowed	195
by that subsection to a pass-through entity in which the taxpayer	196
has a direct or indirect ownership interest.	197

(ii) Add five-sixths of the amount of qualifying section 179	198
depreciation expense, including a person's proportionate or	199
distributive share of the amount of qualifying section 179	200
depreciation expense allowed to any pass-through entity in which	201
the person has a direct or indirect ownership. For the purposes of	202
this division, "qualifying section 179 depreciation expense" means	203
the difference between (I) the amount of depreciation expense	204
directly or indirectly allowed to the taxpayer under section 179	205
of the Internal Revenue Code, and (II) the amount of depreciation	206
expense directly or indirectly allowed to the taxpayer under	207
section 179 of the Internal Revenue Code as that section existed	208
on December 31, 2002.	209

The tax commissioner, under procedures established by the	210
commissioner, may waive the add-backs related to a pass-through	211
entity if the taxpayer owns, directly or indirectly, less than	212
five per cent of the pass-through entity.	213

(b) Nothing in division (A)(20) of this section shall be	214
construed to adjust or modify the adjusted basis of any asset.	215

(c) To the extent the add-back required under division	216
(A)(20)(a) of this section is attributable to property generating	217
nonbusiness income or loss allocated under section 5747.20 of the	218
Revised Code, the add-back shall be sitused to the same location	219
as the nonbusiness income or loss generated by the property for	220
the purpose of determining the credit under division (A) of	221
section 5747.05 of the Revised Code. Otherwise, the add-back shall	222
be apportioned, subject to one or more of the four alternative	223
methods of apportionment enumerated in section 5747.21 of the	224
Revised Code.	225

(d) For the purposes of division (A) of this section, net	226
operating loss carryback and carryforward shall not include	227
five-sixths of the allowance of any net operating loss deduction	228
carryback or carryforward to the taxable year to the extent such	229
loss resulted from depreciation allowed by section 168(k) of the	230
Internal Revenue Code and by the qualifying section 179	231
depreciation expense amount.	232

(21)(a) If the taxpayer was required to add an amount under	233
division (A)(20)(a) of this section for a taxable year, deduct	234
one-fifth of the amount so added for each of the five succeeding	235
taxable years.	236

(b) If the amount deducted under division (A)(21)(a) of this	237
section is attributable to an add-back allocated under division	238
(A)(20)(c) of this section, the amount deducted shall be sitused	239
to the same location. Otherwise, the add-back shall be apportioned	240
using the apportionment factors for the taxable year in which the	241
deduction is taken, subject to one or more of the four alternative	242
methods of apportionment enumerated in section 5747.21 of the	243
Revised Code.	244

(c) No deduction is available under division (A)(21)(a) of	245
this section with regard to any depreciation allowed by section	246
168(k) of the Internal Revenue Code and by the qualifying section	247
179 depreciation expense amount to the extent that such	248
depreciation resulted in or increased a federal net operating loss	249
carryback or carryforward to a taxable year to which division	250
(A)(20)(d) of this section does not apply.	251

(22) Deduct, to the extent not otherwise deducted or excluded	252
in computing federal or Ohio adjusted gross income for the taxable	253
year, the amount the taxpayer received during the taxable year as	254
reimbursement for life insurance premiums under section 5919.31 of	255
the Revised Code.	256

(23) Deduct, to the extent not otherwise deducted or excluded	257
in computing federal or Ohio adjusted gross income for the taxable	258
year, the amount the taxpayer received during the taxable year as	259
a death benefit paid by the adjutant general under section 5919.33	260
of the Revised Code.	261

(24) Deduct, to the extent included in federal adjusted gross	262
income and not otherwise allowable as a deduction or exclusion in	263
computing federal or Ohio adjusted gross income for the taxable	264
year, military pay and allowances received by the taxpayer during	265
the taxable year for active duty service in the United States	266
army, air force, navy, marine corps, or coast guard or reserve	267
components thereof or the national guard. The deduction may not be	268
claimed for military pay and allowances received by the taxpayer	269
while the taxpayer is stationed in this state.	270

(25) Deduct, to the extent not otherwise allowable as a	271
deduction or exclusion in computing federal or Ohio adjusted gross	272
income for the taxable year and not otherwise compensated for by	273
any other source, the amount of qualified organ donation expenses	274
incurred by the taxpayer during the taxable year, not to exceed	275
ten thousand dollars. A taxpayer may deduct qualified organ	276
donation expenses only once for all taxable years beginning with	277
taxable years beginning in 2007.	278

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

279

(a) "Human organ" means all or any portion of a human liver,	280
pancreas, kidney, intestine, or lung, and any portion of human	281
bone marrow.	282

(b) "Qualified organ donation expenses" means travel	283
expenses, lodging expenses, and wages and salary forgone by a	284
taxpayer in connection with the taxpayer's donation, while living,	285
of one or more of the taxpayer's human organs to another human	286
being.	287

(26) Deduct, to the extent not otherwise deducted or excluded	288
in computing federal or Ohio adjusted gross income for the taxable	289
year, amounts received by the taxpayer as retired military	290
personnel pay for service in the United States army, navy, air	291
force, coast guard, or marine corpsuniformed services or reserve	292
components thereof, or the national guard, or received by the	293
surviving spouse or former spouse of such a taxpayer under the	294
survivor benefit plan on account of such a taxpayer's death. If	295
the taxpayer receives income on account of retirement paid under	296
the federal civil service retirement system or federal employees	297
retirement system, or under any successor retirement program	298
enacted by the congress of the United States that is established	299
and maintained for retired employees of the United States	300
government, and such retirement income is based, in whole or in	301
part, on credit for the taxpayer's militaryuniformed service,	302
the deduction allowed under this division shall include only	303
that portion of such retirement income that is attributable to	304
the taxpayer's militaryuniformed service, to the extent that	305
portion of such retirement income is otherwise included in	306
federal adjusted gross income and is not otherwise deducted	307
under this section. Any amount deducted under division (A)(26)	308
of this section is not included in a taxpayer's adjusted gross	309
income for the purposes of section 5747.055 of the Revised Code.	310
No amount may be deducted under division (A)(26) of this section	311
on the basis of which a credit was claimed under section	312
5747.055 of the Revised Code.	313

(27) Deduct, to the extent not otherwise deducted or excluded	314
in computing federal or Ohio adjusted gross income for the taxable	315
year, the amount the taxpayer received during the taxable year	316
from the military injury relief fund created in section 5101.98 of	317
the Revised Code.	318

(B) "Business income" means income, including gain or loss,	319
arising from transactions, activities, and sources in the regular	320
course of a trade or business and includes income, gain, or loss	321
from real property, tangible property, and intangible property if	322
the acquisition, rental, management, and disposition of the	323
property constitute integral parts of the regular course of a	324
trade or business operation. "Business income" includes income,	325
including gain or loss, from a partial or complete liquidation of	326
a business, including, but not limited to, gain or loss from the	327
sale or other disposition of goodwill.	328

(C) "Nonbusiness income" means all income other than business	329
income and may include, but is not limited to, compensation, rents	330
and royalties from real or tangible personal property, capital	331
gains, interest, dividends and distributions, patent or copyright	332
royalties, or lottery winnings, prizes, and awards.	333

(D) "Compensation" means any form of remuneration paid to an	334
employee for personal services.	335

(E) "Fiduciary" means a guardian, trustee, executor,	336
administrator, receiver, conservator, or any other person acting	337
in any fiduciary capacity for any individual, trust, or estate.	338

(F) "Fiscal year" means an accounting period of twelve months	339
ending on the last day of any month other than December.	340

(G) "Individual" means any natural person.

341

(H) "Internal Revenue Code" means the "Internal Revenue Code	342
of 1986," 100 Stat. 2085, 26 U.S.C.A. 1, as amended.	343

(I) "Resident" means any of the following, provided that	344
division (I)(3) of this section applies only to taxable years of a	345
trust beginning in 2002 or thereafter:	346

(1) An individual who is domiciled in this state, subject to	347
section 5747.24 of the Revised Code;	348

(2) The estate of a decedent who at the time of death was	349
domiciled in this state. The domicile tests of section 5747.24 of	350
the Revised Code are not controlling for purposes of division	351
(I)(2) of this section.	352

(3) A trust that, in whole or part, resides in this state. If	353
only part of a trust resides in this state, the trust is a	354
resident only with respect to that part.	355

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

356

(a) A trust resides in this state for the trust's current	357
taxable year to the extent, as described in division (I)(3)(d) of	358
this section, that the trust consists directly or indirectly, in	359
whole or in part, of assets, net of any related liabilities, that	360
were transferred, or caused to be transferred, directly or	361
indirectly, to the trust by any of the following:	362

(i) A person, a court, or a governmental entity or	363
instrumentality on account of the death of a decedent, but only if	364
the trust is described in division (I)(3)(e)(i) or (ii) of this	365
section;	366

(ii) A person who was domiciled in this state for the	367
purposes of this chapter when the person directly or indirectly	368
transferred assets to an irrevocable trust, but only if at least	369
one of the trust's qualifying beneficiaries is domiciled in this	370
state for the purposes of this chapter during all or some portion	371
of the trust's current taxable year;	372

(iii) A person who was domiciled in this state for the	373
purposes of this chapter when the trust document or instrument or	374
part of the trust document or instrument became irrevocable, but	375
only if at least one of the trust's qualifying beneficiaries is a	376
resident domiciled in this state for the purposes of this chapter	377
during all or some portion of the trust's current taxable year. If	378
a trust document or instrument became irrevocable upon the death	379
of a person who at the time of death was domiciled in this state	380
for purposes of this chapter, that person is a person described in	381
division (I)(3)(a)(iii) of this section.	382

(b) A trust is irrevocable to the extent that the transferor	383
is not considered to be the owner of the net assets of the trust	384
under sections 671 to 678 of the Internal Revenue Code.	385

(c) With respect to a trust other than a charitable lead	386
trust, "qualifying beneficiary" has the same meaning as "potential	387
current beneficiary" as defined in section 1361(e)(2) of the	388
Internal Revenue Code, and with respect to a charitable lead trust	389
"qualifying beneficiary" is any current, future, or contingent	390
beneficiary, but with respect to any trust "qualifying	391
beneficiary" excludes a person or a governmental entity or	392
instrumentality to any of which a contribution would qualify for	393
the charitable deduction under section 170 of the Internal Revenue	394
Code.	395

(d) For the purposes of division (I)(3)(a) of this section,	396
the extent to which a trust consists directly or indirectly, in	397
whole or in part, of assets, net of any related liabilities, that	398
were transferred directly or indirectly, in whole or part, to the	399
trust by any of the sources enumerated in that division shall be	400
ascertained by multiplying the fair market value of the trust's	401
assets, net of related liabilities, by the qualifying ratio, which	402
shall be computed as follows:	403

(i) The first time the trust receives assets, the numerator	404
of the qualifying ratio is the fair market value of those assets	405
at that time, net of any related liabilities, from sources	406
enumerated in division (I)(3)(a) of this section. The denominator	407
of the qualifying ratio is the fair market value of all the	408
trust's assets at that time, net of any related liabilities.	409

(ii) Each subsequent time the trust receives assets, a	410
revised qualifying ratio shall be computed. The numerator of the	411
revised qualifying ratio is the sum of (1) the fair market value	412
of the trust's assets immediately prior to the subsequent	413
transfer, net of any related liabilities, multiplied by the	414
qualifying ratio last computed without regard to the subsequent	415
transfer, and (2) the fair market value of the subsequently	416
transferred assets at the time transferred, net of any related	417
liabilities, from sources enumerated in division (I)(3)(a) of this	418
section. The denominator of the revised qualifying ratio is the	419
fair market value of all the trust's assets immediately after the	420
subsequent transfer, net of any related liabilities.	421

(iii) Whether a transfer to the trust is by or from any of	422
the sources enumerated in division (I)(3)(a) of this section shall	423
be ascertained without regard to the domicile of the trust's	424
beneficiaries.	425

(e) For the purposes of division (I)(3)(a)(i) of this	426
section:	427

(i) A trust is described in division (I)(3)(e)(i) of this	428
section if the trust is a testamentary trust and the testator of	429
that testamentary trust was domiciled in this state at the time of	430
the testator's death for purposes of the taxes levied under	431
Chapter 5731. of the Revised Code.	432

(ii) A trust is described in division (I)(3)(e)(ii) of this	433
section if the transfer is a qualifying transfer described in any	434
of divisions (I)(3)(f)(i) to (vi) of this section, the trust is an	435
irrevocable inter vivos trust, and at least one of the trust's	436
qualifying beneficiaries is domiciled in this state for purposes	437
of this chapter during all or some portion of the trust's current	438
taxable year.	439

(f) For the purposes of division (I)(3)(e)(ii) of this	440
section, a "qualifying transfer" is a transfer of assets, net of	441
any related liabilities, directly or indirectly to a trust, if the	442
transfer is described in any of the following:	443

(i) The transfer is made to a trust, created by the decedent	444
before the decedent's death and while the decedent was domiciled	445
in this state for the purposes of this chapter, and, prior to the	446
death of the decedent, the trust became irrevocable while the	447
decedent was domiciled in this state for the purposes of this	448
chapter.	449

(ii) The transfer is made to a trust to which the decedent,	450
prior to the decedent's death, had directly or indirectly	451
transferred assets, net of any related liabilities, while the	452
decedent was domiciled in this state for the purposes of this	453
chapter, and prior to the death of the decedent the trust became	454
irrevocable while the decedent was domiciled in this state for the	455
purposes of this chapter.	456

(iii) The transfer is made on account of a contractual	457
relationship existing directly or indirectly between the	458
transferor and either the decedent or the estate of the decedent	459
at any time prior to the date of the decedent's death, and the	460
decedent was domiciled in this state at the time of death for	461
purposes of the taxes levied under Chapter 5731. of the Revised	462
Code.	463

(iv) The transfer is made to a trust on account of a	464
contractual relationship existing directly or indirectly between	465
the transferor and another person who at the time of the	466
decedent's death was domiciled in this state for purposes of this	467
chapter.	468

(v) The transfer is made to a trust on account of the will of	469
a testator.	470

(vi) The transfer is made to a trust created by or caused to	471
be created by a court, and the trust was directly or indirectly	472
created in connection with or as a result of the death of an	473
individual who, for purposes of the taxes levied under Chapter	474
5731. of the Revised Code, was domiciled in this state at the time	475
of the individual's death.	476

(g) The tax commissioner may adopt rules to ascertain the	477
part of a trust residing in this state.	478

(J) "Nonresident" means an individual or estate that is not a	479
resident. An individual who is a resident for only part of a	480
taxable year is a nonresident for the remainder of that taxable	481
year.	482

(K) "Pass-through entity" has the same meaning as in section	483
5733.04 of the Revised Code.	484

(L) "Return" means the notifications and reports required to	485
be filed pursuant to this chapter for the purpose of reporting the	486
tax due and includes declarations of estimated tax when so	487
required.	488

(M) "Taxable year" means the calendar year or the taxpayer's	489
fiscal year ending during the calendar year, or fractional part	490
thereof, upon which the adjusted gross income is calculated	491
pursuant to this chapter.	492

(N) "Taxpayer" means any person subject to the tax imposed by	493
section 5747.02 of the Revised Code or any pass-through entity	494
that makes the election under division (D) of section 5747.08 of	495
the Revised Code.	496

(O) "Dependents" means dependents as defined in the Internal	497
Revenue Code and as claimed in the taxpayer's federal income tax	498
return for the taxable year or which the taxpayer would have been	499
permitted to claim had the taxpayer filed a federal income tax	500
return.	501

(P) "Principal county of employment" means, in the case of a	502
nonresident, the county within the state in which a taxpayer	503
performs services for an employer or, if those services are	504
performed in more than one county, the county in which the major	505
portion of the services are performed.	506

(Q) As used in sections 5747.50 to 5747.55 of the Revised	507
Code:	508

(1) "Subdivision" means any county, municipal corporation,	509
park district, or township.	510

(2) "Essential local government purposes" includes all	511
functions that any subdivision is required by general law to	512
exercise, including like functions that are exercised under a	513
charter adopted pursuant to the Ohio Constitution.	514

(R) "Overpayment" means any amount already paid that exceeds	515
the figure determined to be the correct amount of the tax.	516

(S) "Taxable income" or "Ohio taxable income" applies only to	517
estates and trusts, and means federal taxable income, as defined	518
and used in the Internal Revenue Code, adjusted as follows:	519

(1) Add interest or dividends, net of ordinary, necessary,	520
and reasonable expenses not deducted in computing federal taxable	521
income, on obligations or securities of any state or of any	522
political subdivision or authority of any state, other than this	523
state and its subdivisions and authorities, but only to the extent	524
that such net amount is not otherwise includible in Ohio taxable	525
income and is described in either division (S)(1)(a) or (b) of	526
this section:	527

(a) The net amount is not attributable to the S portion of an	528
electing small business trust and has not been distributed to	529
beneficiaries for the taxable year;	530

(b) The net amount is attributable to the S portion of an	531
electing small business trust for the taxable year.	532

(2) Add interest or dividends, net of ordinary, necessary,	533
and reasonable expenses not deducted in computing federal taxable	534
income, on obligations of any authority, commission,	535
instrumentality, territory, or possession of the United States to	536
the extent that the interest or dividends are exempt from federal	537
income taxes but not from state income taxes, but only to the	538
extent that such net amount is not otherwise includible in Ohio	539
taxable income and is described in either division (S)(1)(a) or	540
(b) of this section;	541

(3) Add the amount of personal exemption allowed to the	542
estate pursuant to section 642(b) of the Internal Revenue Code;	543

(4) Deduct interest or dividends, net of related expenses	544
deducted in computing federal taxable income, on obligations of	545
the United States and its territories and possessions or of any	546
authority, commission, or instrumentality of the United States to	547
the extent that the interest or dividends are exempt from state	548
taxes under the laws of the United States, but only to the extent	549
that such amount is included in federal taxable income and is	550
described in either division (S)(1)(a) or (b) of this section;	551

(5) Deduct the amount of wages and salaries, if any, not	552
otherwise allowable as a deduction but that would have been	553
allowable as a deduction in computing federal taxable income for	554
the taxable year, had the targeted jobs credit allowed under	555
sections 38, 51, and 52 of the Internal Revenue Code not been in	556
effect, but only to the extent such amount relates either to	557
income included in federal taxable income for the taxable year or	558
to income of the S portion of an electing small business trust for	559
the taxable year;	560

(6) Deduct any interest or interest equivalent, net of	561
related expenses deducted in computing federal taxable income, on	562
public obligations and purchase obligations, but only to the	563
extent that such net amount relates either to income included in	564
federal taxable income for the taxable year or to income of the S	565
portion of an electing small business trust for the taxable year;	566

(7) Add any loss or deduct any gain resulting from sale,	567
exchange, or other disposition of public obligations to the extent	568
that such loss has been deducted or such gain has been included in	569
computing either federal taxable income or income of the S portion	570
of an electing small business trust for the taxable year;	571

(8) Except in the case of the final return of an estate, add	572
any amount deducted by the taxpayer on both its Ohio estate tax	573
return pursuant to section 5731.14 of the Revised Code, and on its	574
federal income tax return in determining federal taxable income;	575

(9)(a) Deduct any amount included in federal taxable income	576
solely because the amount represents a reimbursement or refund of	577
expenses that in a previous year the decedent had deducted as an	578
itemized deduction pursuant to section 63 of the Internal Revenue	579
Code and applicable treasury regulations. The deduction otherwise	580
allowed under division (S)(9)(a) of this section shall be reduced	581
to the extent the reimbursement is attributable to an amount the	582
taxpayer or decedent deducted under this section in any taxable	583
year.	584

(b) Add any amount not otherwise included in Ohio taxable	585
income for any taxable year to the extent that the amount is	586
attributable to the recovery during the taxable year of any amount	587
deducted or excluded in computing federal or Ohio taxable income	588
in any taxable year, but only to the extent such amount has not	589
been distributed to beneficiaries for the taxable year.	590

(10) Deduct any portion of the deduction described in section	591
1341(a)(2) of the Internal Revenue Code, for repaying previously	592
reported income received under a claim of right, that meets both	593
of the following requirements:	594

(a) It is allowable for repayment of an item that was	595
included in the taxpayer's taxable income or the decedent's	596
adjusted gross income for a prior taxable year and did not qualify	597
for a credit under division (A) or (B) of section 5747.05 of the	598
Revised Code for that year.	599

(b) It does not otherwise reduce the taxpayer's taxable	600
income or the decedent's adjusted gross income for the current or	601
any other taxable year.	602

(11) Add any amount claimed as a credit under section	603
5747.059 of the Revised Code to the extent that the amount	604
satisfies either of the following:	605

(a) The amount was deducted or excluded from the computation	606
of the taxpayer's federal taxable income as required to be	607
reported for the taxpayer's taxable year under the Internal	608
Revenue Code;	609

(b) The amount resulted in a reduction in the taxpayer's	610
federal taxable income as required to be reported for any of the	611
taxpayer's taxable years under the Internal Revenue Code.	612

(12) Deduct any amount, net of related expenses deducted in	613
computing federal taxable income, that a trust is required to	614
report as farm income on its federal income tax return, but only	615
if the assets of the trust include at least ten acres of land	616
satisfying the definition of "land devoted exclusively to	617
agricultural use" under section 5713.30 of the Revised Code,	618
regardless of whether the land is valued for tax purposes as such	619
land under sections 5713.30 to 5713.38 of the Revised Code. If the	620
trust is a pass-through entity investor, section 5747.231 of the	621
Revised Code applies in ascertaining if the trust is eligible to	622
claim the deduction provided by division (S)(12) of this section	623
in connection with the pass-through entity's farm income.	624

Except for farm income attributable to the S portion of an	625
electing small business trust, the deduction provided by division	626
(S)(12) of this section is allowed only to the extent that the	627
trust has not distributed such farm income. Division (S)(12) of	628
this section applies only to taxable years of a trust beginning in	629
2002 or thereafter.	630

(13) Add the net amount of income described in section 641(c)	631
of the Internal Revenue Code to the extent that amount is not	632
included in federal taxable income.	633

(14) Add or deduct the amount the taxpayer would be required	634
to add or deduct under division (A)(20) or (21) of this section if	635
the taxpayer's Ohio taxable income were computed in the same	636
manner as an individual's Ohio adjusted gross income is computed	637
under this section. In the case of a trust, division (S)(14) of	638
this section applies only to any of the trust's taxable years	639
beginning in 2002 or thereafter.	640

(T) "School district income" and "school district income tax"	641
have the same meanings as in section 5748.01 of the Revised Code.	642

(U) As used in divisions (A)(8), (A)(9), (S)(6), and (S)(7)	643
of this section, "public obligations," "purchase obligations," and	644
"interest or interest equivalent" have the same meanings as in	645
section 5709.76 of the Revised Code.	646

(V) "Limited liability company" means any limited liability	647
company formed under Chapter 1705. of the Revised Code or under	648
the laws of any other state.	649

(W) "Pass-through entity investor" means any person who,	650
during any portion of a taxable year of a pass-through entity, is	651
a partner, member, shareholder, or equity investor in that	652
pass-through entity.	653

(X) "Banking day" has the same meaning as in section 1304.01	654
of the Revised Code.	655

(Y) "Month" means a calendar month.

656

(Z) "Quarter" means the first three months, the second three	657
months, the third three months, or the last three months of the	658
taxpayer's taxable year.	659

(AA)(1) "Eligible institution" means a state university or	660
state institution of higher education as defined in section	661
3345.011 of the Revised Code, or a private, nonprofit college,	662
university, or other post-secondary institution located in this	663
state that possesses a certificate of authorization issued by the	664
Ohio board of regents pursuant to Chapter 1713. of the Revised	665
Code or a certificate of registration issued by the state board of	666
career colleges and schools under Chapter 3332. of the Revised	667
Code.	668

(2) "Qualified tuition and fees" means tuition and fees	669
imposed by an eligible institution as a condition of enrollment or	670
attendance, not exceeding two thousand five hundred dollars in	671
each of the individual's first two years of post-secondary	672
education. If the individual is a part-time student, "qualified	673
tuition and fees" includes tuition and fees paid for the academic	674
equivalent of the first two years of post-secondary education	675
during a maximum of five taxable years, not exceeding a total of	676
five thousand dollars. "Qualified tuition and fees" does not	677
include:	678

(a) Expenses for any course or activity involving sports,	679
games, or hobbies unless the course or activity is part of the	680
individual's degree or diploma program;	681

(b) The cost of books, room and board, student activity fees,	682
athletic fees, insurance expenses, or other expenses unrelated to	683
the individual's academic course of instruction;	684

(c) Tuition, fees, or other expenses paid or reimbursed	685
through an employer, scholarship, grant in aid, or other	686
educational benefit program.	687

(BB)(1) "Modified business income" means the business income	688
included in a trust's Ohio taxable income after such taxable	689
income is first reduced by the qualifying trust amount, if any.	690

(2) "Qualifying trust amount" of a trust means capital gains	691
and losses from the sale, exchange, or other disposition of equity	692
or ownership interests in, or debt obligations of, a qualifying	693
investee to the extent included in the trust's Ohio taxable	694
income, but only if the following requirements are satisfied:	695

(a) The book value of the qualifying investee's physical	696
assets in this state and everywhere, as of the last day of the	697
qualifying investee's fiscal or calendar year ending immediately	698
prior to the date on which the trust recognizes the gain or loss,	699
is available to the trust.	700

(b) The requirements of section 5747.011 of the Revised Code	701
are satisfied for the trust's taxable year in which the trust	702
recognizes the gain or loss.	703

Any gain or loss that is not a qualifying trust amount is	704
modified business income, qualifying investment income, or	705
modified nonbusiness income, as the case may be.	706

(3) "Modified nonbusiness income" means a trust's Ohio	707
taxable income other than modified business income, other than the	708
qualifying trust amount, and other than qualifying investment	709
income, as defined in section 5747.012 of the Revised Code, to the	710
extent such qualifying investment income is not otherwise part of	711
modified business income.	712

(4) "Modified Ohio taxable income" applies only to trusts,	713
and means the sum of the amounts described in divisions (BB)(4)(a)	714
to (c) of this section:	715

(a) The fraction, calculated under section 5747.013, and	716
applying section 5747.231 of the Revised Code, multiplied by the	717
sum of the following amounts:	718

(i) The trust's modified business income;

719

(ii) The trust's qualifying investment income, as defined in	720
section 5747.012 of the Revised Code, but only to the extent the	721
qualifying investment income does not otherwise constitute	722
modified business income and does not otherwise constitute a	723
qualifying trust amount.	724

(b) The qualifying trust amount multiplied by a fraction, the	725
numerator of which is the sum of the book value of the qualifying	726
investee's physical assets in this state on the last day of the	727
qualifying investee's fiscal or calendar year ending immediately	728
prior to the day on which the trust recognizes the qualifying	729
trust amount, and the denominator of which is the sum of the book	730
value of the qualifying investee's total physical assets	731
everywhere on the last day of the qualifying investee's fiscal or	732
calendar year ending immediately prior to the day on which the	733
trust recognizes the qualifying trust amount. If, for a taxable	734
year, the trust recognizes a qualifying trust amount with respect	735
to more than one qualifying investee, the amount described in	736
division (BB)(4)(b) of this section shall equal the sum of the	737
products so computed for each such qualifying investee.	738

(c)(i) With respect to a trust or portion of a trust that is	739
a resident as ascertained in accordance with division (I)(3)(d) of	740
this section, its modified nonbusiness income.	741

(ii) With respect to a trust or portion of a trust that is	742
not a resident as ascertained in accordance with division	743
(I)(3)(d) of this section, the amount of its modified nonbusiness	744
income satisfying the descriptions in divisions (B)(2) to (5) of	745
section 5747.20 of the Revised Code, except as otherwise provided	746
in division (BB)(4)(c)(ii) of this section. With respect to a	747
trust or portion of a trust that is not a resident as ascertained	748
in accordance with division (I)(3)(d) of this section, the trust's	749
portion of modified nonbusiness income recognized from the sale,	750
exchange, or other disposition of a debt interest in or equity	751
interest in a section 5747.212 entity, as defined in section	752
5747.212 of the Revised Code, without regard to division (A) of	753
that section, shall not be allocated to this state in accordance	754
with section 5747.20 of the Revised Code but shall be apportioned	755
to this state in accordance with division (B) of section 5747.212	756
of the Revised Code without regard to division (A) of that	757
section.	758

If the allocation and apportionment of a trust's income under	759
divisions (BB)(4)(a) and (c) of this section do not fairly	760
represent the modified Ohio taxable income of the trust in this	761
state, the alternative methods described in division (C) of	762
section 5747.21 of the Revised Code may be applied in the manner	763
and to the same extent provided in that section.	764

(5)(a) Except as set forth in division (BB)(5)(b) of this	765
section, "qualifying investee" means a person in which a trust has	766
an equity or ownership interest, or a person or unit of government	767
the debt obligations of either of which are owned by a trust. For	768
the purposes of division (BB)(2)(a) of this section and for the	769
purpose of computing the fraction described in division (BB)(4)(b)	770
of this section, all of the following apply:	771

(i) If the qualifying investee is a member of a qualifying	772
controlled group on the last day of the qualifying investee's	773
fiscal or calendar year ending immediately prior to the date on	774
which the trust recognizes the gain or loss, then "qualifying	775
investee" includes all persons in the qualifying controlled group	776
on such last day.	777

(ii) If the qualifying investee, or if the qualifying	778
investee and any members of the qualifying controlled group of	779
which the qualifying investee is a member on the last day of the	780
qualifying investee's fiscal or calendar year ending immediately	781
prior to the date on which the trust recognizes the gain or loss,	782
separately or cumulatively own, directly or indirectly, on the	783
last day of the qualifying investee's fiscal or calendar year	784
ending immediately prior to the date on which the trust recognizes	785
the qualifying trust amount, more than fifty per cent of the	786
equity of a pass-through entity, then the qualifying investee and	787
the other members are deemed to own the proportionate share of the	788
pass-through entity's physical assets which the pass-through	789
entity directly or indirectly owns on the last day of the	790
pass-through entity's calendar or fiscal year ending within or	791
with the last day of the qualifying investee's fiscal or calendar	792
year ending immediately prior to the date on which the trust	793
recognizes the qualifying trust amount.	794

(iii) For the purposes of division (BB)(5)(a)(iii) of this	795
section, "upper level pass-through entity" means a pass-through	796
entity directly or indirectly owning any equity of another	797
pass-through entity, and "lower level pass-through entity" means	798
that other pass-through entity.	799

An upper level pass-through entity, whether or not it is also	800
a qualifying investee, is deemed to own, on the last day of the	801
upper level pass-through entity's calendar or fiscal year, the	802
proportionate share of the lower level pass-through entity's	803
physical assets that the lower level pass-through entity directly	804
or indirectly owns on the last day of the lower level pass-through	805
entity's calendar or fiscal year ending within or with the last	806
day of the upper level pass-through entity's fiscal or calendar	807
year. If the upper level pass-through entity directly and	808
indirectly owns less than fifty per cent of the equity of the	809
lower level pass-through entity on each day of the upper level	810
pass-through entity's calendar or fiscal year in which or with	811
which ends the calendar or fiscal year of the lower level	812
pass-through entity and if, based upon clear and convincing	813
evidence, complete information about the location and cost of the	814
physical assets of the lower pass-through entity is not available	815
to the upper level pass-through entity, then solely for purposes	816
of ascertaining if a gain or loss constitutes a qualifying trust	817
amount, the upper level pass-through entity shall be deemed as	818
owning no equity of the lower level pass-through entity for each	819
day during the upper level pass-through entity's calendar or	820
fiscal year in which or with which ends the lower level	821
pass-through entity's calendar or fiscal year. Nothing in division	822
(BB)(5)(a)(iii) of this section shall be construed to provide for	823
any deduction or exclusion in computing any trust's Ohio taxable	824
income.	825

(b) With respect to a trust that is not a resident for the	826
taxable year and with respect to a part of a trust that is not a	827
resident for the taxable year, "qualifying investee" for that	828
taxable year does not include a C corporation if both of the	829
following apply:	830

(i) During the taxable year the trust or part of the trust	831
recognizes a gain or loss from the sale, exchange, or other	832
disposition of equity or ownership interests in, or debt	833
obligations of, the C corporation.	834

(ii) Such gain or loss constitutes nonbusiness income.

835

(6) "Available" means information is such that a person is	836
able to learn of the information by the due date plus extensions,	837
if any, for filing the return for the taxable year in which the	838
trust recognizes the gain or loss.	839

(CC) "Qualifying controlled group" has the same meaning as in	840
section 5733.04 of the Revised Code.	841

(DD) "Related member" has the same meaning as in section	842
5733.042 of the Revised Code.	843

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

844

(a) "Qualifying person" means any person other than a	845
qualifying corporation.	846

(b) "Qualifying corporation" means any person classified for	847
federal income tax purposes as an association taxable as a	848
corporation, except either of the following:	849

(i) A corporation that has made an election under subchapter	850
S, chapter one, subtitle A, of the Internal Revenue Code for its	851
taxable year ending within, or on the last day of, the investor's	852
taxable year;	853

(ii) A subsidiary that is wholly owned by any corporation	854
that has made an election under subchapter S, chapter one,	855
subtitle A of the Internal Revenue Code for its taxable year	856
ending within, or on the last day of, the investor's taxable year.	857

(2) For the purposes of this chapter, unless expressly stated	858
otherwise, no qualifying person indirectly owns any asset directly	859
or indirectly owned by any qualifying corporation.	860

(FF) For purposes of this chapter and Chapter 5751. of the	861
Revised Code:	862

(1) "Trust" does not include a qualified pre-income tax	863
trust.	864

(2) A "qualified pre-income tax trust" is any pre-income tax	865
trust that makes a qualifying pre-income tax trust election as	866
described in division (FF)(3) of this section.	867

(3) A "qualifying pre-income tax trust election" is an	868
election by a pre-income tax trust to subject to the tax imposed	869
by section 5751.02 of the Revised Code the pre-income tax trust	870
and all pass-through entities of which the trust owns or	871
controls, directly, indirectly, or constructively through related	872
interests, five per cent or more of the ownership or equity	873
interests. The trustee shall notify the tax commissioner in	874
writing of the election on or before April 15, 2006. The	875
election, if timely made, shall be effective on and after January	876
1, 2006, and shall apply for all tax periods and tax years until	877
revoked by the trustee of the trust.	878

(4) A "pre-income tax trust" is a trust that satisfies all of	879
the following requirements:	880

(a) The document or instrument creating the trust was	881
executed by the grantor before January 1, 1972;	882

(b) The trust became irrevocable upon the creation of the	883
trust; and	884

(c) The grantor was domiciled in this state at the time the	885
trust was created.	886

(GG) "Uniformed services" has the same meaning as in 10	887
U.S.C. 101.	888

Section 2. That existing section 5747.01 of the Revised Code	889
is hereby repealed.	890

Section 3. That the amendment by this act of section 5747.01	891
of the Revised Code applies to taxable years ending on or after	892
the effective date of this act.	893