Form Ft Qhc - Qualifying Holding Company Election - Ohio Department Of Taxation Page 3
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3FT QHC
Rev. 6/08
1. for purposes of computing the taxpayer’s proportionate share of the net book value of the pass-through entity’s as-
sets, the taxpayer must include the pass-through entity’s proportionate share of the other pass-through entity’s assets,
and
2. for purposes of computing the taxpayer’s proportionate share of the pass-through entity’s gross income, the taxpayer
must include the pass-through entity’s distributive share of the other pass-through entity’s gross income.
Note: Do not confuse a “qualifying holding company” with a “quiescent holding company.” Quiescent holding company
status does not apply to tax years 1999 and thereafter. Under prior case law (see Nationwide Corp. v. Schneider (1966),
7 Ohio St.2d 59) a taxpayer was a quiescent holding company if its business activities were not suffi cient to constitute
“doing business.” As a quiescent holding company, a taxpayer was not required to compute a net worth base “business
done” factor that in effect reduced a taxpayer’s net worth “Ohio ratio” to one half of its property ratio. (Under prior law
the net worth base “Ohio ratio” equaled one-half the sum of the “business done ratio” and the net worth “property ratio”).
House Bill 215, 122nd General Assembly, replaced the net worth base “Ohio ratio” with the net income base apportion-
ment ratio. The new law eliminates “quiescent holding company” status because, unlike the Ohio ratio, if the denominator
of any factor of the apportionment ratio is zero, the weight given to the other factors must be proportionately increased
so that the total weight given to the combined number of factors used is 100%.
Defi nitions
“Related member” means a person that with respect to the taxpayer is any of the following:
1. an individual stockholder, or a member of the stockholder’s family enumerated in Internal Revenue Code (I.R.C.) sec-
tion 318, if the stockholder and the members of the stockholder’s family own directly or indirectly in the aggregate at
least 50% of the value of the taxpayer’s outstanding stock;
2. a stockholder, or stockholder’s partnership, estate, trust or corporation, if the stockholder and the stockholder’s part-
nerships, estates, trusts and corporations own directly or indirectly, benefi cially, or constructively, in the aggregate, at
least 50% of the value of the taxpayer’s outstanding stock;
3. a corporation, or a party related to the corporation in a manner that would require I.R.C. section 318 attribution of stock
from the corporation to the party or from the party to the corporation, if the taxpayer owns directly or indirectly in the
aggregate at least 50% of the value of the corporation’s outstanding stock;
4. a “component member” as defi ned in I.R.C. section 1563(b); or
5. a person to whom or from whom there is attribution of stock ownership in accordance with I.R.C. section 1563(e) except
that “20%” shall be substituted for “5%” wherever “5%” appears in I.R.C. section 1563(e). See R.C. 5733.042(A)(6).
“Qualifying controlled group” means two or more corporations that meet the R.C. 5733.052(A) ownership and control
requirements to fi le a combined franchise tax report (whether or not the corporations actually fi le a combined report and
whether or not the corporations are subject to the franchise tax). See R.C. 5733.04(M).
“Qualifying amount” means the amount that when added to the taxpayer’s net worth (assets minus liabilities) and sub-
tracted from the taxpayer’s liabilities or when subtracted from the taxpayer’s net worth and added to the taxpayer’s liabilities
results in the taxpayer’s debt-to-equity ratio equaling the consolidated debt-to-equity ratio of the qualifying controlled group
of which the taxpayer is a member computed in accordance with generally accepted accounting principles on the last day
of the taxpayer’s taxable year ending before the fi rst day of the tax year. However, the qualifying amount that is added to
the taxpayer’s net worth and subtracted from the taxpayer’s liabilities may not exceed the amount of the taxpayer’s liabilities
owed to related members. Furthermore, the taxpayer’s net worth after adjustment by the qualifying amount may not exceed
the net book value of the corporation’s assets. See R.C. 5733.05(D).
“Pass-through entity” means an S corporation, or a partnership, limited liability company or any other person other than
an individual, trust or estate, if the partnership, limited liability company or other person is not classifi ed for federal income
tax purposes as an association taxed as a corporation. R.C. 5733.04(O).
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