Instructions For Ohio Form Ft 1120fi - Ohio Corporation Franchise Tax Report

2. Entities Generally Not Subject to Franchise Tax

3. Other exceptions to the franchise tax phase-out.

A. Financial Institutions That Are S Corporations

In addition to ﬁ nancial institutions, the franchise tax phase-out

If a ﬁ nancial institution is an S corporation, it generally is not

and CAT phase-in do not apply to the following entities:

subject to the franchise tax. However, if the S corporation

(i) ﬁ nancial holding companies,

ﬁ nancial institution was a C corporation during any portion

(ii) bank holding companies,

of a taxable year ending in 2011, the S corporation is subject

(iii) savings and loan holding companies,

to the franchise tax for tax year 2012 and must ﬁ le an Ohio

(iv) corporations directly or indirectly owned by one or more

corporation franchise tax report (Ohio form FT 1120FI). See

corporations described in (i) through (iii) when such subsidiary

First National Bank of Lebanon v Zaino, B.T.A. Case No. 2003

corporations are engaged in activities permissible for a ﬁ nancial

M-627, March 19, 2004 and Sanders Health & Fitness Inc. v.

holding company,

Limbach, B.T.A. Case No. 88-E-559, June 21, 1991.

(v) corporations directly or indirectly owned by one or more

ﬁ nancial institutions that pay the franchise tax charged by R.C.

Although an S corporation ﬁ nancial institution is generally

5733.06(D) when such subsidiary corporations are engaged in

not subject to the franchise tax, the S corporation may be

activities permissible for a ﬁ nancial holding company and such

subject to the tax on pass-through entities. An S corporation

corporations are not already described in (iv) above.

that has nexus with Ohio is subject to the tax on pass-through

(vi) corporations directly or indirectly owned by one or more

entities if one or more shareholders of the S corporation are

insurance companies when such subsidiary corporations are

nonresidents for any portion of the S corporation’s taxable

engaged in insurance-type activities, and

year and the S corporation does not ﬁ le a composite Ohio

(vii) “securitization” companies described in R.C. 5751.01(E)(10).

income tax return on behalf of the nonresident shareholders.

See R.C. 5733.01(G) and 5751.01(E).

For a further explanation of the tax on pass-through entities

see the instructions for Ohio form IT 1140, Tax Return for

4. Nexus

Pass-Through Entities.

Unless an exemption applies, a ﬁ nancial institution that has nexus

in or with Ohio under the Constitution of the United States is subject

B. Qualiﬁ ed Subchapter S Subsidiaries

to the franchise tax. A corporate investor in a pass-through entity

A financial institution that is a “qualified Subchapter S

that does business in Ohio or otherwise has nexus in or with Ohio

subsidiary” (QSSS) is exempt from the franchise tax that is

under the Constitution of the United States is itself doing business

based on the taxable year for which the parent S corporation

in Ohio and has nexus with Ohio. Accordingly, a ﬁ nancial institution

makes the election under Internal Revenue Code (I.R.C.)

organized in a state other than Ohio is subject to the franchise tax

section 1361(b)(3)(B)(ii). A QSSS is exempt because its

even if the corporation’s only connection with Ohio is as (i) a partner

separate legal existence is ignored for purposes of the

or limited partner in a partnership having nexus with Ohio or (ii) a

franchise tax.

member of a limited liability company (LLC) having nexus with Ohio.

C. Corporations in Bankruptcy

A pass-through entity is an S corporation, partnership, limited

A corporation in bankruptcy proceedings under Chapter 7 of

liability company or any other person, other than an individual,

the U. S. Bankruptcy Code is not liable for the franchise tax for

trust or estate, if the partnership, LLC or other person is not

that portion of the tax year during which the corporate franchise

classiﬁ ed for federal income tax purposes as an association taxed

is impaired because of the Chapter 7 bankruptcy proceedings.

as a corporation. See (1) R.C. 5733.04(O), (2) the Department

However, a corporation in Chapter 7 bankruptcy is not exempt

of Taxation’s September 2001 information release describing

from the minimum fee.

the standards the Department of Taxation will apply to determine

whether an out-of-state corporation is subject to the franchise

A corporation in reorganization proceedings under Chapter 11

tax, and (3) the department’s March 15, 2001 information release

of the U.S. Bankruptcy Code is not exempt from the franchise

entitled “Corporation Franchise Tax Nexus for Nonresident Limited

tax because a corporation in reorganization is not equivalent

Partners Following the UCOM Decision.” The Ohio Revised Code

to a corporation which has been adjudicated bankrupt or for

and the information releases are available on the Department of

which a receiver has been appointed. See Vought Industries,

Taxation’s Web site.

Inc. v. Tracy (1995), 72 Ohio St.3d 261.

5. Entity Classiﬁ cation

D. Corporations Exempt Under Federal Law

An entity not organized as a corporation but for federal income tax

Certain corporations are exempt from state tax because Con-

purposes treated as a corporation is also treated as a corporation

gress has expressly granted them immunity as a “federally

for Ohio franchise tax purposes. Furthermore, an equity interest in

chartered instrumentality.” For example, federal land bank

an entity not organized as a corporation, but for federal income tax

associations are exempt from state taxes under U.S. Code

purposes treated as a corporation, is treated as an ownership of

Section 2098, Title 12. Certain other corporations are exempt

stock in a corporation. Thus, if a business trust, partnership or LLC

because the United States Constitution’s Supremacy Clause

is treated as a corporation for federal income tax purposes, it also

grants implied immunity to private corporations that actually

will be treated as a corporation for Ohio franchise tax purposes.

stand in the federal government’s shoes and are so closely

Accordingly, such entities, unless otherwise exempt, must compute

connected to the government that the two cannot realistically

the tax and ﬁ le a franchise tax report. See R.C. 5733.01 and the

be viewed as separate entities, at least insofar as the activity

Department of Taxation’s information release entitled: “IRS ‘Check-

being taxed is concerned. An Agricultural Credit Association

the-Box’ Entity Selection Regulations” available on the department’s

(ACA) is not immune from state taxation as a “federally char-

Web site.

tered instrumentality” because (i) Congress has not expressly

granted immunity to ACAs and (ii) the Supremacy Clause of the

Disregarded entity. For purposes of Chapter 5733 of the Ohio

United States Constitution does not grant implied immunity to

Revised Code, the term “disregarded entity” means an entity that for

ACAs. See Farm Credit Serv. of Mid-America v. Zaino (2001),

its taxable year is by default, or has elected to be, disregarded as an

91 Ohio St.3d 564.

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Instructions For Ohio Form Ft 1120fi - Ohio Corporation Franchise Tax Report - 2012 Page 4

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