Ohio Corporation Franchise Tax Report Instructions For Financial Institutions

5747.80, and 5747.98 as enacted by Amended Substitute Senate

are subject to the franchise tax). The franchise tax credit

Bill 180, effective April 9, 2003.

equals the lesser of the amounts described in (a) or (b),

below:

Note 4: The Department of Taxation maintains that the O.R.C.

(a) The amount of the dealer in intangibles tax paid by the

section 5733.33 second credit for purchases of new manufac-

dealer during the calendar year preceding the financial

turing machinery and equipment (the 7.5% - 13.5% Credit) does

institution’s tax year (reduced by any refund of such tax

not apply to a lessor that purchases new manufacturing ma-

received), or

chinery and equipment and leases that equipment to a man-

(b) The product of the amounts described in (i) to (iii), be-

ufacturer (other than a manufacturer that is a member of the les-

low:

sor’s qualifying controlled group – see the consolidated credit pro-

(i) The cost of the financial institution’s direct invest-

vision in O.R.C. section 5733.33(I)). In support of that position

ment in capital stock of the dealer in intangibles (ex-

the Department of Taxation relies upon the Board of Tax Appeals

clusive of goodwill and appreciation associated with

decision in the case of Duramed Pharmaceuticals, Inc. v. Zaino,

such investment) as of the last day of the financial

BTA No. 2002-V-164 (3-7-03).

institution’s taxable year ending immediately preced-

ing the franchise tax year for which the financial in-

In Duramed the Board of Tax Appeals held that Duramed could

stitution is claiming the credit.

claim the O.R.C. section 5733.33 manufacturer’s credit on manu-

(ii) The dealer in intangibles’ “percentage allocable to

facturing equipment that it leased from Ortho-McNeil Pharmaceu-

Ohio” ratio included in Exhibit B or C of dealers in

ticals in 1994 (prior to the qualifying purchase period) and pur-

intangibles tax form 980 for the calendar year im-

chased during the qualifying purchase period by exercising an

mediately preceding the franchise tax year for which

option in the lease agreement. Finding nothing in the record to

the financial institution is claiming the credit.

suggest that the lease was treated as a purchase for federal in-

(iii) The dealer in intangible tax rate for the calendar year

come tax purposes or under Generally Accepted Accounting Prin-

immediately preceding the franchise tax year for

ciples, the Board held that the existence of the lease does not

which the financial institution is claiming the credit.

operate to defeat the credit. The Board found that the definition of

“new” machinery is unambiguous and requires only that the orig-

3. Credit for Savings and Loan Association Fees (O.R.C.

inal use in Ohio begin with the taxpayer and such original use is

section 5733.063). Savings and loan associations are per-

not restricted or limited to the qualifying purchase period.

mitted a credit against the total tax due equal to the amount

of the annual assessment the association paid during the

Because the Board of Tax Appeals held that the original use in

taxable year to the Ohio Division of Savings and Loan As-

Ohio of equipment that Ortho-McNeil purchased and leased to

sociations under O.R.C. section 1155.13 less the amount

Duramed began with Duramed, the original use of the equipment

the association paid in supervisory fees during the taxable

in Ohio could not have begun with Ortho-McNeil, the original pur-

year to the Federal Savings and Loan Insurance Corpora-

chaser and lessor, and thus the equipment was not “new” as to

tion or in the case of a savings and loan association not

Ortho-McNeil. Accordingly, a lessor that purchases manufactur-

insured by the Federal Savings and Loan Insurance Corpo-

ing machinery and equipment and leases that equipment to a man-

ration, the amount it would have paid if insured thereby. To

ufacturer is not entitled to the credit on such equipment because,

qualify for this credit, the association must file with the fran-

as to the lessor, the manufacturing machinery and equipment is

chise report a document certified by the Superintendent of

not “new manufacturing machinery and equipment” as defined in

the Division of Savings and Loan Associations verifying the

O.R.C. section 5733.33(A)(2).

amount of state annual assessment fees and supervisory

fees paid by the association during the taxable year.

1. Credit for Taxes Paid by a Qualifying Pass-Through En-

tity (O.R.C. section 5733.061). Upon filing a corporation fran-

4. Job Training Credit (O.R.C. section 5733.42). This tempo-

chise tax report, a qualifying investor corporation in a qual-

rary credit applies to franchise taxpayers that incurred “eli-

ifying pass-through entity can claim a nonrefundable credit

gible training costs” and received a tax credit certificate

equal to the corporation’s proportionate share of the tax paid

from the Director of Job and Family Services with respect

by the qualifying pass-through entity. To claim this credit,

to an “eligible training program” for “eligible employees.”

the qualifying investor must attach to its franchise tax report

The Director will review job training credit applications and

a copy of the IRS form K-1 indicating the qualifying inves-

authorize credits to qualified applicants in the order in which

tor’s proportionate share of the amount of the pass-through

the applicants submit complete and accurate applications.

entity tax for which the qualifying investor seeks to claim a

The Director may not issue tax credit certificates in excess

credit. For an explanation of the tax on qualifying pass-

of $20 million dollars per calendar year;

through entities see the instructions for form IT 1140, Tax

Return for Pass-Through Entities and Trusts. This credit has

The credit also applies to individuals and to investors in

an unlimited carryforward period.

pass-through entities that incur eligible training costs and

received a tax credit certificate from the Director of Job and

2. Credit for dealer in intangibles tax paid by member of

Family Services with respect to an “eligible training program.”

qualifying controlled group (O.R.C. section 5733.45). If

Each investor in a pass-through entity on December 31 pri-

on January 1 of the franchise tax year a financial institution

or to the investor’s tax year may claim a proportionate share

is a member of a qualifying controlled group of which a dealer

of the pass-through entity’s credit.

in intangibles is also a member, the financial institution is

allowed a nonrefundable franchise tax credit. (A “qualifying

For tax year 2004 the amount of the credit equals one-half

controlled group” is defined in O.R.C. section 5733.04(M)

of the average of the eligible training costs paid or incurred

as two or more corporations that meet the O.R.C. section

by the taxpayer during calendar years 1999, 2000, and 2001.

5733.052(A) ownership and control requirements to file a

For tax year 2005 the amount of the credit equals one-half

combined report, whether or not the corporations actually

of the average of the eligible training costs paid or incurred

file a combined report and whether or not the corporations

by the taxpayer during calendar years 2002, 2003, and 2004.

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Ohio Corporation Franchise Tax Report Instructions For Financial Institutions - 2004 Page 19

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