2006 Ohio Revised Code - 718.01. Uniform rates; limitations without vote; prohibitions.

§ 718.01. Uniform rates; limitations without vote; prohibitions.
 

(A)  As used in this chapter: 

(1) "Adjusted federal taxable income" means a C corporation's federal taxable income before net operating losses and special deductions as determined under the Internal Revenue Code, adjusted as follows: 

(a) Deduct intangible income to the extent included in federal taxable income. The deduction shall be allowed regardless of whether the intangible income relates to assets used in a trade or business or assets held for the production of income. 

(b) Add an amount equal to five per cent of intangible income deducted under division (A)(1)(a) of this section, but excluding that portion of intangible income directly related to the sale, exchange, or other disposition of property described in section 1221 of the Internal Revenue Code; 

(c) Add any losses allowed as a deduction in the computation of federal taxable income if the losses directly relate to the sale, exchange, or other disposition of an asset described in section 1221 or 1231 of the Internal Revenue Code; 

(d) (i) Except as provided in division (A)(1)(d)(ii) of this section, deduct income and gain included in federal taxable income to the extent the income and gain directly relate to the sale, exchange, or other disposition of an asset described in section 1221 or 1231 of the Internal Revenue Code; 

(ii) Division (A)(1)(d)(i) of this section does not apply to the extent the income or gain is income or gain described in section 1245 or 1250 of the Internal Revenue Code. 

(e) Add taxes on or measured by net income allowed as a deduction in the computation of federal taxable income; 

(f) In the case of a real estate investment trust and regulated investment company, add all amounts with respect to dividends to, distributions to, or amounts set aside for or credited to the benefit of investors and allowed as a deduction in the computation of federal taxable income; 

(g) If the taxpayer is not a C corporation and is not an individual, the taxpayer shall compute adjusted federal taxable income as if the taxpayer were a C corporation, except: 

(i) Guaranteed payments and other similar amounts paid or accrued to a partner, former partner, member, or former member shall not be allowed as a deductible expense; and 

(ii) Amounts paid or accrued to a qualified self-employed retirement plan with respect to an owner or owner-employee of the taxpayer, amounts paid or accrued to or for health insurance for an owner or owner-employee, and amounts paid or accrued to or for life insurance for an owner or owner-employee shall not be allowed as a deduction. 

Nothing in division (A)(1) of this section shall be construed as allowing the taxpayer to add or deduct any amount more than once or shall be construed as allowing any taxpayer to deduct any amount paid to or accrued for purposes of federal self-employment tax. 

Nothing in this chapter shall be construed as limiting or removing the ability of any municipal corporation to administer, audit, and enforce the provisions of its municipal income tax. 

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

(3) "Schedule C" means internal revenue service schedule C filed by a taxpayer pursuant to the Internal Revenue Code. 

(4) "Form 2106" means internal revenue service form 2106 filed by a taxpayer pursuant to the Internal Revenue Code. 

(5) "Intangible income" means income of any of the following types: income yield, interest, capital gains, dividends, or other income arising from the ownership, sale, exchange, or other disposition of intangible property including, but not limited to, investments, deposits, money, or credits as those terms are defined in Chapter 5701. of the Revised Code, and patents, copyrights, trademarks, tradenames, investments in real estate investment trusts, investments in regulated investment companies, and appreciation on deferred compensation. "Intangible income" does not include prizes, awards, or other income associated with any lottery winnings or other similar games of chance. 

(6) "S corporation" means a corporation that has made an election under subchapter S of Chapter 1 of Subtitle A of the Internal Revenue Code for its taxable year. 

(7) For taxable years beginning on or after January 1, 2004, "net profit" for a taxpayer other than an individual means adjusted federal taxable income and "net profit" for a taxpayer who is an individual means the individual's profit, other than amounts described in division (F) of this section, required to be reported on schedule C, schedule E, or schedule F. 

(8) "Taxpayer" means a person subject to a tax on income levied by a municipal corporation. Except as provided in division (J) of this section, "taxpayer" does not include any person that is a disregarded entity or a qualifying subchapter S subsidiary for federal income tax purposes, but "taxpayer" includes any other person who owns the disregarded entity or qualifying subchapter S subsidiary. 

(9) "Taxable year" means the corresponding tax reporting period as prescribed for the taxpayer under the Internal Revenue Code. 

(10) "Tax administrator" means the individual charged with direct responsibility for administration of a tax on income levied by a municipal corporation and includes: 

(a) The central collection agency and the regional income tax agency and their successors in interest, and other entities organized to perform functions similar to those performed by the central collection agency and the regional income tax agency; 

(b) A municipal corporation acting as the agent of another municipal corporation; and 

(c) Persons retained by a municipal corporation to administer a tax levied by the municipal corporation, but only if the municipal corporation does not compensate the person in whole or in part on a contingency basis. 

(11) "Person" includes individuals, firms, companies, business trusts, estates, trusts, partnerships, limited liability companies, associations, corporations, governmental entities, and any other entity. 

(12) "Schedule E" means internal revenue service schedule E filed by a taxpayer pursuant to the Internal Revenue Code. 

(13) "Schedule F" means internal revenue service schedule F filed by a taxpayer pursuant to the Internal Revenue Code. 

(B)  No municipal corporation shall tax income at other than a uniform rate. 

(C)  No municipal corporation shall levy a tax on income at a rate in excess of one per cent without having obtained the approval of the excess by a majority of the electors of the municipality voting on the question at a general, primary, or special election. The legislative authority of the municipal corporation shall file with the board of elections at least seventy-five days before the day of the election a copy of the ordinance together with a resolution specifying the date the election is to be held and directing the board of elections to conduct the election. The ballot shall be in the following form: "Shall the Ordinance providing for a ________ per cent levy on income for (Brief description of the purpose of the proposed levy) be passed? 
 
  
         For the Income Tax
         Against the Income Tax
"
 

In the event of an affirmative vote, the proceeds of the levy may be used only for the specified purpose. 

(D) (1)  Except as provided in division (E) or (F) of this section, no municipal corporation shall exempt from a tax on income compensation for personal services of individuals over eighteen years of age or the net profit from a business or profession. 

(2) (a) For taxable years beginning on or after January 1, 2004, no municipal corporation shall tax the net profit from a business or profession using any base other than the taxpayer's adjusted federal taxable income. 

(b) Division (D)(2)(a) of this section does not apply to any taxpayer required to file a return under section 5745.03 of the Revised Code or to the net profit from a sole proprietorship. 

(E)  The legislative authority of a municipal corporation may, by ordinance or resolution, exempt from withholding and from a tax on income the following: 

(1) Compensation arising from the sale, exchange, or other disposition of a stock option, the exercise of a stock option, or the sale, exchange, or other disposition of stock purchased under a stock option; or 

(2) Compensation attributable to a nonqualified deferred compensation plan or program described in section 3121(v)(2)(C) of the Internal Revenue Code. 

If an individual's taxable income includes income against which the taxpayer has taken a deduction for federal income tax purposes as reportable on the taxpayer's form 2106, and against which a like deduction has not been allowed by the municipal corporation, the municipal corporation shall deduct from the taxpayer's taxable income an amount equal to the deduction shown on such form allowable against such income, to the extent not otherwise so allowed as a deduction by the municipal corporation. 

In the case of a taxpayer who has a net profit from a business or profession that is operated as a sole proprietorship, no municipal corporation may tax or use as the base for determining the amount of the net profit that shall be considered as having a taxable situs in the municipal corporation, an amount other than the net profit required to be reported by the taxpayer on schedule C or F from such sole proprietorship for the taxable year. 

In the case of a taxpayer who has a net profit from rental activity required to be reported on schedule E, no municipal corporation may tax or use as the base for determining the amount of the net profit that shall be considered as having a taxable situs in the municipal corporation, an amount other than the net profit from rental activities required to be reported by the taxpayer on schedule E for the taxable year. 

(F)  A municipal corporation shall not tax any of the following: 

(1) The military pay or allowances of members of the armed forces of the United States and of members of their reserve components, including the Ohio national guard; 

(2) The income of religious, fraternal, charitable, scientific, literary, or educational institutions to the extent that such income is derived from tax-exempt real estate, tax-exempt tangible or intangible property, or tax-exempt activities; 

(3) Except as otherwise provided in division (G) of this section, intangible income; 

(4) Compensation paid under section 3501.28 or 3501.36 of the Revised Code to a person serving as a precinct election official, to the extent that such compensation does not exceed one thousand dollars annually. Such compensation in excess of one thousand dollars may be subjected to taxation by a municipal corporation. A municipal corporation shall not require the payer of such compensation to withhold any tax from that compensation. 

(5) Compensation paid to an employee of a transit authority, regional transit authority, or regional transit commission created under Chapter 306. of the Revised Code for operating a transit bus or other motor vehicle for the authority or commission in or through the municipal corporation, unless the bus or vehicle is operated on a regularly scheduled route, the operator is subject to such a tax by reason of residence or domicile in the municipal corporation, or the headquarters of the authority or commission is located within the municipal corporation; 

(6) The income of a public utility, when that public utility is subject to the tax levied under section 5727.24 or 5727.30 of the Revised Code, except a municipal corporation may tax the following, subject to Chapter 5745. of the Revised Code: 

(a) Beginning January 1, 2002, the income of an electric company or combined company; 

(b) Beginning January 1, 2004, the income of a telephone company. 

As used in division (F)(6) of this section, "combined company," "electric company," and "telephone company" have the same meanings as in section 5727.01 of the Revised Code. 

(7) On and after January 1, 2003, items excluded from federal gross income pursuant to section 107 of the Internal Revenue Code; 

(8) On and after January 1, 2001, compensation paid to a nonresident individual to the extent prohibited under section 718.011 of the Revised Code; 

(9) (a) Except as provided in division (F)(9)(b) and (c) of this section, an S corporation shareholder's distributive share of net profits of the S corporation, other than any part of the distributive share of net profits that represents wages as defined in section 3121(a) of the Internal Revenue Code or net earnings from self-employment as defined in section 1402(a) of the Internal Revenue Code. 

(b) If, pursuant to division (H) of former section 718.01 of the Revised Code as it existed before March 11, 2004, a majority of the electors of a municipal corporation voted in favor of the question at an election held on November 4, 2003, the municipal corporation may continue after 2002 to tax an S corporation shareholder's distributive share of net profits of an S corporation. 

(c) If, on December 6, 2002, a municipal corporation was imposing, assessing, and collecting a tax on an S corporation shareholder's distributive share of net profits of the S corporation to the extent the distributive share would be allocated or apportioned to this state under divisions (B)(1) and (2) of section 5733.05 of the Revised Code if the S corporation were a corporation subject to taxes imposed under Chapter 5733. of the Revised Code, the municipal corporation may continue to impose the tax on such distributive shares to the extent such shares would be so allocated or apportioned to this state only until December 31, 2004, unless a majority of the electors of the municipal corporation voting on the question of continuing to tax such shares after that date vote in favor of that question at an election held November 2, 2004. If a majority of those electors vote in favor of the question, the municipal corporation may continue after December 31, 2004, to impose the tax on such distributive shares only to the extent such shares would be so allocated or apportioned to this state. 

(d) For the purposes of division (D) of section 718.14 of the Revised Code, a municipal corporation shall be deemed to have elected to tax S corporation shareholders' distributive shares of net profits of the S corporation in the hands of the shareholders if a majority of the electors of a municipal corporation vote in favor of a question at an election held under division (F)(9)(b) or (c) of this section. The municipal corporation shall specify by ordinance or rule that the tax applies to the distributive share of a shareholder of an S corporation in the hands of the shareholder of the S corporation. 

(10) Employee compensation that is not "qualifying wages" as defined in section 718.03 of the Revised Code. 

(G)  Any municipal corporation that taxes any type of intangible income on March 29, 1988, pursuant to Section 3 of Amended Substitute Senate Bill No. 238 of the 116th general assembly, may continue to tax that type of income after 1988 if a majority of the electors of the municipal corporation voting on the question of whether to permit the taxation of that type of intangible income after 1988 vote in favor thereof at an election held on November 8, 1988. 

(H)  Nothing in this section or section 718.02 of the Revised Code shall authorize the levy of any tax on income that a municipal corporation is not authorized to levy under existing laws or shall require a municipal corporation to allow a deduction from taxable income for losses incurred from a sole proprietorship or partnership. 

(I) (1)  Nothing in this chapter prohibits a municipal corporation from allowing, by resolution or ordinance, a net operating loss carryforward. 

(2) Nothing in this chapter requires a municipal corporation to allow a net operating loss carryforward. 

(J) (1)  A single member limited liability company that is a disregarded entity for federal tax purposes may elect to be a separate taxpayer from its single member in all Ohio municipal corporations in which it either filed as a separate taxpayer or did not file for its taxable year ending in 2003, if all of the following conditions are met: 

(a) The limited liability company's single member is also a limited liability company; 

(b) The limited liability company and its single member were formed and doing business in one or more Ohio municipal corporations for at least five years before January 1, 2004; 

(c) Not later than December 31, 2004, the limited liability company and its single member each make an election to be treated as a separate taxpayer under division (J) of this section; 

(d) The limited liability company was not formed for the purpose of evading or reducing Ohio municipal corporation income tax liability of the limited liability company or its single member; 

(e) The Ohio municipal corporation that is the primary place of business of the sole member of the limited liability company consents to the election. 

(2) For purposes of division (J)(1)(e) of this section, a municipal corporation is the primary place of business of a limited liability company if, for the limited liability company's taxable year ending in 2003, its income tax liability is greater in that municipal corporation than in any other municipal corporation in Ohio, and that tax liability to that municipal corporation for its taxable year ending in 2003 is at least four hundred thousand dollars. 
 

HISTORY: 127 v 91 (Eff 9-17-57); 129 v 582 (Eff 1-10-61); 132 v S 500 (Eff 6-5-68); 135 v S 44 (Eff 9-11-73); 135 v H 916 (Eff 9-13-74); 136 v H 1 (Eff 6-13-75); 138 v H 1062 (Eff 3-23-81); 139 v H 65 (Eff 2-11-82); 141 v S 238 (Eff 5-23-86); 142 v S 386 (Eff 3-29-88); 146 v H 555 (Eff 3-6-96); 147 v H 215 (Eff 9-29-97); 147 v S 130 (Eff 9-18-97); 147 v H 770 (Eff 9-16-98); 148 v S 3 (Eff 7-6-99); 148 v H 283 (Eff 9-29-99); 148 v H 477 (Eff 7-26-2000); 148 v H 483 (Eff 1-1-2002); 148 v S 287, § 9 (Eff 12-21-2000); 149 v S 180. Eff 4-9-2003; 150 v H 95, § 1, eff. 6-26-03; 150 v H 127, § 1, eff. 3-11-04; 150 v H 362, § 1, eff. 12-30-04.
 

The effective date is set by section 6 of H.B. 362 (150 v  - ). 

The provisions of § 156, H.B. 95 (150 v  - ), read as follows: 

SECTION 156. (A) The amendment, repeal and reenactment, or enactment by this act of sections 718.01, 718.02, 718.03, 718.05, 718.051, and 718.121 of the Revised Code apply to taxable years beginning on or after January 1, 2004. 

The provisions of § 173, H.B. 95 (150 v  - ), read as follows: 

SECTION 173. The amendment by this act to division (H) of section 718.01 and to section 178.14 of the Revised Code apply to taxable years beginning on or after January 1, 2003. 

The effective date is set by section 183 of H.B. 95 (150 v  - ). 

The provisions of § 9 of SB 287 (148 v  - ) read as follows: 

SECTION 9. That sections 718.01, 718.011, 718.02, and 718.08 of the Revised Code as amended or enacted by Sub. H.B. 483 of the 123rd General Assembly shall take effect on the effective date of this section. 

This section is intended to accelerate the effective date of sections 718.01, 718.011, 718.02, and 718.08 of the Revised Code from January 1, 2002, to the earliest time permitted by law upon the enactment of this act. The effective date of those sections was delayed unintentionally to correspond with delayed effective dates contained in Sub. S.B. 3 of the 123rd General Assembly (January 1, 2002), but the delay inadvertently postpones the effect of other amendments and enactments made by Sub. H.B. 477 of the 123rd General Assembly. 

The provisions of § 5 of SB 287 (148 v  - ), amending § 174 of HB 283 (148 v  - ), read as follows: 

SECTION 5. That Section 174 of Am. Sub. H.B. 283 of the 123rd General Assembly be amended to read as follows: 

"Sec. 174. Sections 122.15, 122.152, 129.55, 129.63, 129.73, 718.01, 1555.12, 5528.36, 5703.052, 5703.053, 5727.01, 5727.30, 5727.31, 5727.311, 5727.32, 5727.38, 5727.42, 5727.48, 5727.50, 5727.60, and 5733.16 of the Revised Code, as amended by Am. Sub. H.B. 283 of the 123rd General Assembly, first apply to the excise tax year beginning May 1, 2000. Sections 5727.24, 5727.25, 5727.26, 5727.27, 5727.28, and 5727.29 of the Revised Code, as enacted by Am. Sub. H.B. 283 of the 123rd General Assembly, first apply to gross receipts derived from taxable activities that occur after April 30, 2000. Natural gas companies and combined electric and gas companies must file an annual statement pursuant to section 5727.31 of the Revised Code on or before August 1, 2000, and the Tax Commissioner shall issue an assessment pursuant to section 5727.38 of the Revised Code on or before the first Monday in November for the period ending April 30, 2000. Such companies shall have made and shall make payments of the excise tax on gross receipts imposed by section 5727.30 of the Revised Code on or before October 15, 1999, March 1, 2000, and June 1, 2000, in accordance with section 5727.31 of the Revised Code. Division (D) of section 5727.42 of the Revised Code does not apply to the portion of any assessment issued by the Tax Commissioner for the period ending April 30, 2000, that reflects the excise tax owed on those gross receipts from operating as a natural gas company that would have been subject to the tax under section 5727.24 of the Revised Code, as enacted by Am. Sub. H.B. 283 of the 123rd General Assembly." 

The provisions of § 174 of HB 283 (148 v  - ), as amended by § 66 of HB 640 (148 v  - ), read as follows: 

SECTION 174. Sections 122.15, 122.152, 129.55, 129.63, 129.73, 718.01, 1555.12, 5528.36, 5703.052, 5703.053, 5727.48, 5727.50, and 5733.16 of the Revised Code, as amended by Am. Sub. H.B. 283 of the 123rd General Assembly, first apply to the excise tax year beginning May 1, 2000. Natural gas companies and combined companies must file an annual statement pursuant to section 5727.31 of the Revised Code on or before August 1, 2000, and the Tax Commissioner shall issue an assessment pursuant to section 5727.38 of the Revised Code on or before November 6, 2000, for the period ending April 30, 2000. Such companies shall have made and shall make payments of the excise tax on gross receipts imposed by section 5727.30 of the Revised Code on or before October 15, 1999, March 1, 2000, and June 1, 2000, in accordance with section 5727.31 of the Revised Code. For tax year 2000, the Tax Commissioner shall issue two separate assessments under section 5727.38 of the Revised Code with respect to each combined company. The first assessment shall reflect only the taxable gross receipts of a combined company from operating as a natural gas company subject to the tax levied by section 5727.24 of the Revised Code, as amended by this act. The second assessment shall reflect all the other taxable gross receipts of the combined company. A combined company's estimated payments that are due on or before October 15, 2000, March 1, 2001, and June 1, 2001 under division (B) of section 5727.31 of the Revised Code shall be based solely on this second assessment. Section 5727.42 of the Revised Code does not apply to the portion of any assessment issued by the Tax Commissioner for the period ending April 30, 2000, that reflects the excise tax owed on those gross receipts from operating as a natural gas company that would have been subject to the tax under section 5727.24 of the Revised Code, as amended by Am. Sub. H.B. 283 of the 123rd General Assembly. 

A natural gas company that had a tax liability of less than $325,000 for the tax assessed by the Tax Commissioner on or before November 1, 1999, is not required to make any tax payments under section 5727.42 of the Revised Code for the tax assessed by the Tax Commissioner on or before November 6, 2000, and that company shall remit the tax imposed by section 5727.24 of the Revised Code for the period of May 1, 2000, to December 31, 2000, under division (B) of section 5727.25 of the Revised Code. 

The provisions of § 4 of HB 477 (148 v  - ) read as follows: 

SECTION 4. Section 718.01 of the Revised Code is presented in this act as a composite of the section as amended by both Am. Sub. S.B. 3 and Am. Sub. H.B. 283 of the 123rd General Assembly, with the new language of neither of the acts shown in capital letters. This is in recognition of the principle stated in division (B) of section 1.52 of the Revised Code that such amendments are to be harmonized where not substantively irreconcilable and constitutes a legislative finding that such is the resulting version in effect prior to the effective date of this act. 

 

Effect of Amendments

150 v H 362, effective December 30, 2004, in (A)(8), added the exception to the beginning of the second sentence; in (F)(9)(b), substituted "March 11, 2004" for "the effective date of the amendment of that section by H.B. 127 of the 125th General Assembly"; and added (J). 

H.B. 127, Acts 2003, effective March 11, 2004, added (F)(9)(b) through (d); deleted (H) and redesignated the remaining subsections accordingly; in (F)(9)(a), substituted "(F)(9)(b) and (c)" for "(H)"; and deleted "to the extent such distributive share would not be allocated or apportioned to this state under division (B)(1) and (2) of section 5733.05 of the Revised Code if the S corporation were a corporation subject to the taxes imposed under Chapter 5733. of the Revised Code" from the end of (F)(9)(a). 

H.B. 95, Acts 2003, effective June 26, 2003, inserted present (A)(1) and redesignated the remaining subdivisions accordingly; in present (A)(5), inserted "capital gains" and added "and patents, copyrights ... deferred compensation" and the last sentence to the end; added (A)(7) through (13); deleted "with respect to that income that it may tax" following "corporation" in (B); substituted "(E) or (F)" for "(D)(2) or (F)(9)" in (D)(1); rewrote (D)(2) and (E); in the introductory paragraph of (F)(6), deleted "starting January 1, 2002, the income of an electric company or combined company, as defined in section 5727.01 of the Revised Code, may be taxed by" preceding "a municipal corporation", and inserted "may tax the following"; added (F)(6)(a) and (b); added (F)(10); deleted the former last sentence from (H); added (J); and made minor stylistic changes. 


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