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

A franchise tax taxable year may consist of an aggregation of more

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

than one federal taxable year and can exceed 12 months in length.

treated as a corporation for Ohio franchise tax purposes. Accordingly,

For example, a franchise tax taxable year may consist of two (or

such entities, unless otherwise exempt, must compute the tax and

more) federal taxable years and can exceed 12 months in length

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

in instances where the taxpayer changes its federal taxable year or

Taxation’s information release entitled: “IRS ‘Check-the-Box’ Entity

the taxpayer is acquired by another corporation and then changes

Selection Regulations” available on the department’s Web site.

its taxable year.

Disregarded entity. For purposes of Chapter 5733 of the Ohio

In addition, the law gives the tax commissioner authority to write

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

rules prescribing an appropriate period as the taxable year for the

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

following circumstances: (a) a corporation that has changed its

entity separate from its owner pursuant to 26 C.F.R. 301.7701-3. Any

taxable year for federal income tax purposes, (b) a corporation

entity that is treated as a “disregarded entity” for federal income tax

that as a result of a change of ownership has two or more short

purposes is also treated as a disregarded entity for Ohio franchise

federal taxable years and (c) a new taxpayer that would otherwise

tax purposes. See R.C. 5733.01(F). Accordingly, a single-member

not have a taxable year.

LLC treated as a division of the corporate member for federal income

The Department of Taxation has adopted the following rules

tax purposes is treated as a division of the corporate member for

regarding franchise taxpayers’ taxable years and change of

franchise tax purposes. The corporate owner-member is subject

accounting period:

to the franchise tax as if the LLC were a division of the corporation

for both federal income tax and franchise tax purposes. That is, for

• 5703-5-01 – Deﬁ nitions Applicable to Rules 5703-5-01 to 5703-

franchise tax purposes:

5-05 of the Administrative Code

• 5703-5-02 – Date as of Which the Value of a Taxpayer's Issued

• If the disregarded entity has nexus with Ohio, then the owner has

and Outstanding Shares of Stock is Determined

nexus with Ohio.

• 5703-5-03 – Dates on Which a Taxpayer's Taxable Year Begins

• An interest in a disregarded entity is treated as ownership of the

and Ends

assets and liabilities of the disregarded entity itself.

• 5703-5-04 – Changes of a Taxpayer's Annual Accounting Period

• A disregarded entity’s income, including gains or loss is included

in the owner’s R.C. Chapter 5733 net income.

Note: Effective for taxable years ending after Dec. 31, 2003, Rule

• Any sale or other disposition of an interest in a disregarded entity

5703-5-04 eliminates income proration for taxable years that exceed

is treated as a sale or other disposition of the disregarded entity’s

one year in length. (Because ﬁ nancial institutions are not subject to

underlying assets.

the net income base of the franchise tax, the elimination of income

• A disregarded entity’s property, payroll and sales are included in

proration has no effect on the tax paid by ﬁ nancial institutions.) In

the owner’s property, payroll and sales factor.

addition, the amended rule clariﬁ es that

if, as the result of a change

of ownership, a taxpayer has two short-period federal taxable years

6. Dissolution or Surrender of License

because of the taxpayer’s inclusion in one or more consolidated

Each corporation seeking dissolution of its charter or surrender of

federal income tax returns, and if the year-end of the taxpayer’s

its license to transact business in Ohio must submit to the Secretary

annual accounting period remains the same after the change of

of State a ﬁ ling fee along with various afﬁ davits or documents

ownership as it was before the change, then for purposes of this rule

evidencing that the corporation has paid or adequately guaranteed

there is not a change of the taxpayer’s annual accounting period.

various taxes and fees. For further information regarding the

requirements of dissolving a corporation’s charter or surrendering

Important features of these rules are as follows:

a corporation’s license to conduct business in Ohio, please contact

• Generally, a taxpayer's taxable year begins on the date

the ofﬁ ce of the Secretary of State, 180 East Broad Street, 16th

immediately following the end of the taxpayer's prior taxable year

Floor, Columbus, Ohio 43215 or call that ofﬁ ce at (614) 466-3910

and ends on the date immediately preceding the beginning of the

or toll free 1-877-767-3453. For speciﬁ c information regarding

taxpayer's annual accounting period that includes the ﬁ rst day of

obtaining a tax release from the Ohio Department of Taxation,

January of the tax year.

please contact the Ohio Department of Taxation, Dissolution Unit,

• If a taxpayer changes its annual accounting period, there is (i) no

P.O. Box 182382, Columbus, Ohio 43218-2382 or call (614) 995-

period that is not subject to tax, and (ii) no period that is subject

4422 or (888) 405-4039.

to tax in more than one tax year.

• A franchise tax “taxable year” under certain circumstances may

The mere termination of business activities or voluntary dissolution

be more than or less than one year in length.

does not exempt a corporation from the franchise tax. A corporation

that on Jan. 1 of the tax year holds a charter or license to transact

Except for taxpayers that have changed their accounting period and

business in Ohio is subject to the Ohio franchise tax for that tax year

taxpayers that have more than one federal taxable year ending in

even if prior to the beginning of the tax year it has ceased all business

calendar year 2012, taxpayers must determine the value of their

activities in Ohio and has applied for certiﬁ cates showing the payment

issued and outstanding shares of stock as follows:

or adequate guarantee of all required taxes. See R.C. 5733.17.

− For report year 2013 calendar year end taxpayers must use

the period ending December 31, 2012.

7. Accounting Period – Taxable Year

− For report year 2013 ﬁ scal year end taxpayers must use the

For franchise tax purposes a corporation’s taxable year is a

ﬁ scal period ending in 2012. However, taxpayers ﬁ ling their

period ending on the date immediately preceding the date of

ﬁ rst report must use the applicable period set out below.

commencement of the corporation’s annual accounting period

that includes the ﬁ rst day of January of the tax year. Generally, a

A. If a taxpayer incorporated in Ohio during 2012 and adopted

corporation’s taxable year for franchise tax purposes is the same

a ﬁ scal year ending in 2012, then the taxpayer’s taxable year

as the corporation’s taxable year for federal income tax purposes.

begins on the date of incorporation and ends on the last day

If a corporation’s taxable year is changed for federal income tax

of its ﬁ scal period ending in 2012.

purposes, the corporation’s franchise tax taxable year is changed

accordingly.

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Form Ft 1120fi - Ohio Corporation Franchise Tax Instructions For Financial Institutions - 2013 Page 4

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