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ber adjustment from Schedule B-3 (Combined), line 21. Each

–

See O.R.C. section 5733.052(B) and The Tranzonic Compa-

Instructions

See Ohio Revised Code Section 5733.052

nies and Subs. v. Tracy, BTA Case No. 90-M-1443, Dec. 4

taxpayer must then compute its own Ohio allocable income,

1992. Taxpayers desiring to change their existing combina-

Ohio taxable income and net income base tax and its net

Elected Combination. A taxpayer that on January 1 of the tax

worth base tax. Each member of a combined group has its

tion must file Form FT COM, Request for Permission to File

year owns or controls either directly or indirectly more than

or to Amend a Combined Corporation Franchise Tax Report.

own Ohio net operating loss deduction because each mem-

50% of the voting stock of one or more taxpayer corporations

ber computes its own Ohio taxable income on its own fran-

may elect to combine net income with such other taxpayer

Required or Permitted Combination. If on January 1 of the

chise tax report, Form FT 1120. Each member of the combined

corporations. A “taxpayer” is a corporation subject to the fran-

group with a balance due must make payment with its fran-

tax year the more-than-50% ownership provision is met (see

chise tax. Taxpayers whose voting stock on January 1 of the

“Elected Combination” paragraph, above), the Tax Commis-

chise tax report. Each member with an overpayment will re-

tax year is more than 50% owned or controlled either directly

sioner may require or permit a taxpayer and another corpora-

ceive a refund or, if the corporation requests, a credit toward

or indirectly by another corporation or by related interests

tion to combine their net income (whether or not the other

the corporation’s estimated tax for the following year. The

may also elect to combine net income. That is, brother-sister

overpayment of one member cannot be netted against the

taxpayer corporations owned by an individual may elect to

corporation is a taxpayer and whether or not the other corpo-

balance due of any other member.

ration has income from sources within Ohio on a separate

combine, and brother-sister taxpayer corporations owned by

company basis). Generally, the Department will pursue com-

a parent corporation may elect to combine without inclusion

binations or expanded combinations only in those situations

Sharing the $0 to $50,000 Tax Bracket; Litter Tax Limita-

of the parent corporation. However, where less than all eli-

tion. Related Ohio taxpayer corporations that as of January 1

where the failure either to combine or to expand the combi-

gible taxpayer corporations elect to combine net income, the

of the report year meet the ownership or control requirements

nation will result in the filing of a corporation franchise tax

group must include with the combined report an explanation

report that does not properly reflect income and does not

to file as members of a combined report must share one $0

for the nonparticipation by such eligible taxpayer corpora-

properly reflect the tax liability imposed by O.R.C. section

to $50,000 taxable income bracket to which the 5.1% rate

tions. Net worth is not combined. That is, each member of a

5733.06. A timely conducted I.R.C. section 482-type study con-

applies. Such related taxpayers must share the $0 to $50,000

combined report must determine its net worth and net worth

taxable income bracket regardless of whether those related

forming with the requirements set forth in I.R.C. section 482

base tax on its separate franchise tax report.

taxpayer corporations actually file a combined report (see

and in the U.S. Treasury regulations issued under section

482 will avoid this Department seeking either a combination

O.R.C. section 5733.06(F)). Each taxpayer’s Ohio taxable in-

Ohio Income Requirement. Each taxpayer in an elected com-

or an expanded combination. See the Department’s June

come that exceeds the prorated amount is taxable at the higher

bination must have income, other than dividend income, from

franchise tax and litter tax rates. Related taxpayers must pro-

23, 2000 information release entitled, “I.R.C. Section 482

sources within Ohio (either positive income or negative in-

Study: Safe Harbor to Avoid Ohio Corporate Franchise Tax

rate the $0 to $50,000 bracket on form FT OTAS, Ohio Tax-

come [loss]). “Income from sources within Ohio” means in-

Report Required or Expanded Combinations.” Taxpayers re-

payer Affiliation Schedule. The proration, however made,

come that would be allocated or apportioned to Ohio if the

applies to both the franchise tax and the litter tax. In addition,

taxpayer were not included in a combined report. Those tax-

questing the Tax Commissioner’s permission to file a com-

Form FT 1120C contains limitation schedules to ensure that

payer groups that elected to combine in prior tax years must

bined report with corporations that are not taxpayers must file

Form FT COM. Nontaxpayer corporations included in a com-

neither of the two litter taxes exceeds $5,000 for the com-

amend their combinations to delete taxpayers that during the

bined report must compute income in the same manner as if

bined group.

taxable year did not have income, other than dividend income,

they were taxpayers.

from sources within Ohio.

Credits Separately Determined and Used. Each taxpayer in

the combined group must separately determine and use all

Interest and Penalty; Estimated Payments; Completing the

Timely Election; Changing the Election. Taxpayers that elect

Form. To avoid penalty and interest, each member of a com-

credits except for the 7.5%-13.5% manufacturer’s credit. Thus,

to combine must do so in a timely filed report. A report is

bined franchise tax report must: (1) separately and timely file

the credits of one taxpayer in the combined group may not be

timely if it is filed within the time prescribed by O.R.C. section

used to reduce the tax liability of any other member of the

the Declaration of Estimated Tax (form FT 1120E) and the

5733.02 as extended under O.R.C. section 5733.13. A com-

combined group.

request(s) for extension (forms FT 1120ER and FT 1120EX)

bination is timely elected under O.R.C. section 5733.052(B)

and (2) pay the estimated tax due by the dates stated in gen-

if any member of the combination has complied with all of the

eral instructions 10A and 10B. Two or more corporations fil-

Note: For new manufacturing machinery and equipment pur-

franchise tax report deadlines even if other members have

ing in combination must complete Form FT 1120C,

chased after December 31, 2000 a “qualifying controlled

not so complied. Thus, a taxpayer that fails to pay its esti-

group,” as defined in O.R.C. section 5733.04(M), is required

Corporation Franchise Tax (Combined Report). Combined

mated tax by the required dates and fails to separately file its

Report Schedules B, B-3, C (Everywhere) and D must be

to compute the 7.5%-13.5% manufacturer’s credit on a con-

request(s) for extension by the required dates may neverthe-

completed in columnar form showing the line item figures for

solidated basis, and for new manufacturing machinery and

less file in combination with other corporations after the due

each individual corporation and the combined totals of each

equipment purchased before January 1, 2001 a qualifying

date of the taxpayer’s report if another corporation in the com-

controlled group can elect to compute the 7.5%-13.5%

line item after the elimination of intercorporate transac-

bined group has timely paid its estimated tax, has timely filed

tions between corporations in the combined group. Sched-

manufacturer’s credit on a consolidated basis.

its request(s) for extension, and has timely filed its franchise

ule B-3 (Combined) must be completed in accordance with

tax report in combination with the taxpayer. See Roxane Labo-

Electronic Funds Transfer. For purposes of determining

ratories, Inc. v. Tracy (1996), 75 Ohio St. 3d 125. However,

the instructions below (see May 6, 1992 Franchise Tax Infor-

whether members of a combined group are required to pay

each member of a combined report that fails to comply with

mation Release “Schedule B-3 (Combined) Related Entity

and Related Member Adjustments for Corporations Included

by electronic fund transfer (EFT), group members must add

the filing and payment deadlines is subject to the applicable

in a Combined Franchise Tax Report”). After completing the

together their tax liabilities after reduction for nonrefundable

penalty and interest charges. An election to combine may not

combined report, each taxpayer must enter on its own sepa-

credits for the second preceding tax year. If the combined

be changed by such taxpayers either in amended reports or

group’s aggregate tax liability after reduction for nonrefund-

rate franchise tax report, Form FT 1120, the following: (1) the

reports for future years without the written consent of the Tax

able credits for the second preceding tax year exceeded

taxpayer’s apportioned income from Schedule B (Combined),

Commissioner. The addition of a new member to a previ-

line 7, and (2) the taxpayer’s related entity and related mem-

$50,000, then for the current year each member must remit

ously elected combination is a change in the combined group.

its payments by EFT.

Instructions For Schedule B-3 (Combined) - Related Entity And Related Member Adjustments Page 2

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