Ohio Corporation Franchise Tax Report Instructions For Financial Institutions

to average on a more frequent basis. When averaging on a more

and the degree of risk in making a loan. Investigation is

frequent basis is required by the tax commissioner or elected by

located at the regular place of business which the taxpay-

the taxpayer, the same method of valuation must be used consis-

er’s employees are regularly connected with or working out

tently by the taxpayer with respect to property within and without

of, regardless of where the services of such employees were

Ohio, and the same method must be used on all subsequent re-

actually performed.

ports unless the taxpayer receives prior permission from the tax

• “Negotiation” is the procedure whereby employees of the

commissioner or the tax commissioner requires a different meth-

taxpayer and its customer determine the terms of the loan

od of determining value. The average value of rented property is

agreement such as the amount, duration, interest rate, fre-

determined by multiplying the gross rents payable during the tax-

quency of repayment, currency denomination, and security

able year by eight.

required. Negotiation is located at the regular place of busi-

ness to which the taxpayer’s employees are regularly con-

A motor vehicle is deemed to be used wholly in the state in which

nected or working from, regardless of where the services of

it is registered. All other transportation property is included in

such employees were actually performed.

the numerator of the property factor to the extent that the property

• “Approval” is the procedure whereby the taxpayer’s employ-

is used in Ohio. The extent that an aircraft is deemed to be used

ees or board of directors make the final determination wheth-

in Ohio and the amount of value that is to be included in the nu-

er to enter the loan agreement. Approval is located at the

merator of the property factor is determined by multiplying the

regular place of business to which the employees are reg-

average value of the aircraft by a fraction, the numerator of which

ularly connected or working from, regardless of where the

is the number of landings of the aircraft in Ohio and the denomi-

services of such employees were actually performed. If the

nator of which is the total number of landings of the aircraft every-

board of directors makes the final determination, such ac-

where. If the extent of use within Ohio of any transportation prop-

tivity is located at the taxpayer’s commercial domicile.

erty cannot be determined, then the property is deemed to be

• “Administration” is the process of managing the account.

used wholly in the state in which the property has its principal

Administration includes bookkeeping, collecting payments,

base of operations.

corresponding with the customer, reporting to management

regarding the status of the agreement, and proceeding

A credit card receivable or a loan, other than a loan to a subsid-

against the borrower or the security interest if the borrower

iary corporation at least 51 percent of whose common stock is

is in default. Administration is located at the regular place

owned by the taxpayer, is assigned to the taxpayer’s regular place

of business from which the taxpayer oversees these activ-

of business with which the credit card receivable or loan has a

ities.

preponderance of substantive contacts. A credit card receivable

or loan is located in Ohio if it is properly assigned to a regular

Absent any change of material fact, a loan (other than a loan or

place of business of the taxpayer within Ohio, and a credit card

advance to a subsidiary corporation at least 51 percent of whose

receivable or loan is located outside Ohio if it is properly assigned

common stock is owned by the taxpayer) that has been properly

to a regular place of business of the taxpayer outside Ohio.

assigned to a state shall remain assigned to that state for the

length of the original term of the loan. Thereafter, the loan may be

A credit card receivable or a loan is presumed to have been

properly assigned to another state if the loan has a preponder-

properly assigned if:

ance of substantive contacts to a regular place of business there.

• The taxpayer assigned the credit card receivable or loan to

a regular place of business and the assignment is consis-

The amount of a loan or advance to a subsidiary corporation at

tent with federal or state regulatory requirements;

least 51 percent of whose common stock is owned by the taxpay-

• The assignment is based upon substantive contacts of the

er to be included in the numerator of the property factor is deter-

credit card receivable or loan to such regular place of busi-

mined by multiplying the average value of the loan by a fraction

ness; and

the numerator of which is the net book value of the subsidiary’s

• The taxpayer uses the assignment for filing all state and

physical assets in Ohio and the denominator of which is the net

local tax returns for which an assignment of credit card re-

book value of the subsidiary’s physical assets everywhere. The

ceivables or loans is required.

fraction is determined as of the end of the subsidiary’s taxable

year that is included in the taxpayer’s taxable year. If the subsid-

In determining the state in which the preponderance of substan-

iary corporation owns at least 51 percent of the common stock of

tive contacts relating to a credit card receivable or a loan have

another corporation, the ratio must be calculated by including the

occurred, the facts and circumstances regarding the credit card

other corporation’s real property and tangible personal property.

receivable or loan at issue must be reviewed on a case-by-case

The calculation of the ratio applies with respect to all lower-tiered

basis with consideration given to such activities as solicitation

subsidiaries, provided that the immediate parent corporation of

(both active and passive), investigation, negotiation, approval, and

the subsidiary owns at least 51 percent of the common stock of

administration.

that subsidiary. As noted above, the average value of a loan is

• “Active solicitation” occurs when an employee of the tax-

computed by adding the outstanding principal balance of such

payer initiates the contact with the customer. Active solicita-

loan on the first day of the taxable year and the outstanding prin-

tion is located at the regular place of business which the

cipal balance of such loan on the last day of the taxable year and

employee is regularly connected with or working out of, re-

dividing the sum by two.

gardless of where the employee’s services were actually

performed.

Payroll Factor

• “Passive solicitation” occurs when the customer initiates the

contact with the taxpayer. If the customer’s initial contact

Line 22 – Compensation paid to employees. The payroll factor

was not at a regular place of business of the taxpayer, the

is a fraction, the numerator of which is the taxpayer’s total com-

regular place of business, if any, where the passive solicita-

pensation paid in Ohio during the taxable year, and the denomi-

tion occurred is determined by the facts in each case.

nator of which is the taxpayer’s total compensation paid every-

• “Investigation” is the procedure whereby the taxpayer’s em-

where during the taxable year. Compensation is paid in Ohio if

ployees determine the credit worthiness of the customer

any one of the following three tests, applied consecutively, is met:

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Ohio Corporation Franchise Tax Report Instructions For Financial Institutions - 2004 Page 15

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