Chapter 5703-29 Commercial Activity Tax

5703-29-01 Definition of foreign. [Rescinded].

Rescinded eff 7-13-06

5703-29-02 Application of common owners and joint ventures.

(A) Consolidated elected and combined taxpayer groups under sections 5751.011 and 5751.012 of the Revised Code are required to file as one taxpayer if persons in the group meet certain requirements. One of those requirements is that the persons have a specified portion of the value of their ownership interest owned and controlled by "common owners" included in the group. In addition to an ownership interest, the higher-tiered entity must have the ability through its voting rights to control the operations of the lower-tiered entities at each level of the vertical chain. There is a different "control test" for combined groups than for consolidated elected groups. For combined groups, the "control test" is that the higher-tiered entity must own more than fifty per cent of the lower-tiered entity at each level of the vertical chain and effectively, through its ownership, possess the voting rights to be able to control the lower-tiered entity. For consolidated elected groups, the "control test" is that the higher-tiered entity must own at least fifty per cent or at least eighty per cent of the lower-tiered entity at each level of the vertical chain and effectively, through its ownership, possess the voting rights to be able to control the lower-tiered entity. For purposes of this paragraph, "effectively" means that the entity has the ability to actually control the operations of the lower-tiered entity and is not required to be part of another combined or consolidated group.

(B)

(1) Subject to paragraphs (B)(2), (C), and (D) of this rule, if a person owns and controls, directly or constructively through related interests, more than fifty per cent of the value of the ownership interest of another person, the first person is a common owner of the second person, and those persons must be members of a combined taxpayer group unless they elect to be members of a consolidated elected taxpayer group. Consolidated elected taxpayers may choose the fifty percent or more ownership test or the eighty percent or more ownership test, and choose to either include or exclude all foreign entities. Common owners are not limited to business organizations but also include individuals, trusts, and estates. Further, "common owner" includes an entity that is not a "person" as that termed is defined in division (A) of section 5751.01 of the Revised Code. Not being a "person" will not prevent such an entity from making an election to be in a consolidated elected group, allowing the entity to exclude receipts between members. If a person has common ownership of persons who report as a consolidated elected taxpayer group as well as persons who are in a combined taxpayer group, the common owner is to register as part of both groups but must report its taxable gross receipts as part of the consolidated elected taxpayer group.

(2) A de minimis test applies in determining whether an individual, a trust, or an estate must be included as a common owner in a combined or consolidated elected taxpayer group. If the individual, trust, or estate has less than four thousand five hundred dollars in taxable gross receipts for the calendar year, the individual, trust, or estate will not be required to be registered as part of a combined or consolidated elected taxpayer group for that year. However, the individual, trust, or estate is still a common owner for all purposes of the commercial activity tax.

(C) There are general rules that are to be applied when determining the common ownership of any person. These are applicable to all persons defined in division (A) of section 5751.01 of the Revised Code.

(1) The determination of whether a person owns and controls another person constructively through related interests shall be made using a vertical ownership test, based on voting rights, pursuant to paragraph (D) of this rule. Attribution rules under the Internal Revenue Code, such as attribution between a husband and wife, do not apply. The vertical chain shall continue as long as the ownership test is satisfied, separately or in the aggregate, by any one or more members of the group.

(2) In the event a person or a group of persons believes that the uniqueness of its organizational structure justifies that "common ownership" exists despite the strict application of this rule, the person may file in writing with the tax commissioner a request for a finding that common ownership exists. Such request must be made prior to the end of the reporting period for which the request is to become effective. The person making this request has the burden of proof to show that common ownership exists and must provide the commissioner with detailed probative evidence in support of its position.

(3) If the ownership test is met for any part of the calendar quarter or calendar year, as applicable, the group must include the taxable gross receipts of that person for the portion of the tax period in which the ownership test was met. A person who no longer meets the ownership test of the group shall report taxable gross receipts only through the date it qualifies as a member of that group. The person shall report all taxable gross receipts during the remaining portion of the tax period either as a separate taxpayer, as a member of a combined taxpayer, or as a member of another consolidated elected group if it satisfies the requirements with respect to such group.

(4)

(a) When an election under section 5751.011 of the Revised Code is made, the election remains in place for at least eight calendar quarters. During that time the composition of the consolidated elected taxpayer group is only changed when a person falls within or without the elected ownership threshold. At the end of the eight calendar quarters, the consolidated elected group must notify the commissioner in writing if it does not wish to renew its election. In the absence of such notification, the election to consolidate automatically renews for another eight calendar quarters.

(b) A separate taxpayer or a combined taxpayer may make an election under section 5751.011 of the Revised Code at any time after it has registered. However, once the election is made, it remains in place for at least eight calendar quarters. Such election is effective prospectively unless a retroactive application has been requested by the taxpayer and approved by the tax commissioner.

(D)

(1) In the case of a corporation, the valuation is calculated with respect to only those classes of stock having voting rights. Interests held in a corporation are attributable to any shareholder in the corporation based on the percentage of total value of the voting equity interests in the corporation owned and controlled by that shareholder.

(2) In the cases of partnerships and entities with membership interests (e.g., a limited liability company) or beneficial interests (e.g., business trusts, or other unincorporated business interests), the value is calculated with respect to the fair market value of the voting interest in those entities.

(3) In the case of a limited partnership, only the value of general partnership interests will be considered.

(4)

(a) In the case of a trust to which section 677 of the Internal Revenue Code applies, commonly referred to as a "grantor trust," the grantor is the common owner of the trust described in that section.

(b) In the case of a trust to which section 678 of the Internal Revenue Code applies, the person, other than the trust, described in section 678 of the Internal Revenue Code is the common owner of the trust.

(c) In the case of a trust treated as a corporation for federal income tax purposes, including but not limited to real estate investment trusts and business trusts, the beneficiaries are treated as shareholders and the common ownership rules for corporations apply.

(d) In the case of any other trust, there is no common owner unless paragraph (C)(2) of this rule applies.

(5) In the case of two or more persons having an interest in an unincorporated business, including but not limited to rental property, where there is no formal partnership agreement between the persons, an implied partnership is deemed to exist. One implied partnership exists for all such commonly owned and controlled interests. The implied partnership is a separate entity for purposes of the commercial activity tax and the ownership interests are determined as follows:

(a) In the case where the owners file a federal income tax form 1065, paragraphs (D)(5)(b) and (D)(5)(c) do not apply and the ownership and control is based on the capital account contribution as reported at the end of the tax filing occurring in the previous calendar year.

(b) If, for some reason, the owners are not required to file a federal income tax form 1065, in the case of rental property, the common ownership is based on the deed to the property. If two persons are listed on the deed, the property is considered to be owned and controlled fifty per cent by each of those persons. The burden is on those persons to prove an alternate ownership structure.

(c) If paragraph (5)(b) does not apply, the common ownership of the implied partnership is based on the number of persons in the group. The burden is on those persons to prove an alternate ownership structure.

(E) If a person elects to consolidate with all others in which it has at least a fifty per cent ownership and control interest, that person must include all taxable gross receipts of a joint venture so owned and controlled unless there is another fifty per cent owner of the joint venture that makes the fifty per cent election to consolidate. In other words, if one fifty per cent owner of a joint venture makes an eighty per cent election to consolidate with others or decides to be part of a combined taxpayer group or be a single taxpayer, and the other fifty per cent owner makes the fifty per cent election, that other owner is required to include all the taxable gross receipts of the joint venture except for any receipts the joint venture has from that other owner. If both fifty per cent owners make the fifty per cent election, the taxable gross receipts of the joint venture, after subtracting any receipts between the owner and the joint venture, are split evenly between the two consolidated elected taxpayer groups. Each of the joint venture owners making the fifty per cent election are only allowed to exclude those receipts the joint venture entity has from that owner. In addition, each owner cannot exclude receipts the joint venture has from the other owner since the other owner is not in the same consolidated elected taxpayer group.

(F) For purposes of combined taxpayer groups, persons who do not have nexus with the state of Ohio may nevertheless be "common owners," but are not required to register for the commercial activity tax. Such combined taxpayer groups only need to include persons with substantial nexus with the state of Ohio, as defined in divisions (H) and (I) of section 5751.01 of the Revised Code.

(G) The commissioner shall publish and make available on the department of taxation's website, examples of the application of this rule.

Effective: 03/21/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.011 , 5751.012

5703-29-03 Sampling.

(A) As authorized pursuant to division (G) of section 5751.09 of the Revised Code, the Tax Commissioner hereby prescribes sampling methods for the commercial activity tax that the commissioner may use in lieu of a complete examination of records. The sampling methods include, but are not limited to, the following:

(1) Statistical sampling. Statistical methods of sampling are those procedures that utilize random selection and are capable of projecting population values with a known reliability; and

(2) Non-statistical sampling. Non-statistical sampling includes methods such as block sampling.

(B) The commissioner shall make a good faith effort to reach agreement with the taxpayer to select the most appropriate sampling methodology.

(1) The failure of the commissioner to reach an agreement with the taxpayer does not preclude the commissioner from sampling.

(2) In accordance with section 5751.12 of the Revised Code, a taxpayer that keeps records electronically is required to provide those records electronically to the Department of Taxation upon the commissioner's request.

Effective: 12/30/2005
R.C. 119.032 review dates: 12/30/2010
Promulgated Under: 5703.14
Statutory Authority: 5703.05 , 5751.09(G) , 5751.12
Rule Amplifies: 5751.09(G) , 5751.12

5703-29-04 Excluded Person - Consolidated Elected and Combined Taxpayer Groups.

(A) A consolidated elected taxpayer group is formed by an election pursuant to section 5751.011 of the Revised Code. To make the election, the group must register as such a taxpayer. Even if the group's total taxable receipts are below $150,000, with or without taking into account gross receipts excluded because they are from other members of the group, the group must still pay the flat (minimum) tax.of $150.

(B)

(1) A combined taxpayer group exists pursuant to the requirements of R.C. 5751.012 of the Revised Code. This group is not formed by an election. Accordingly, if the group's total taxable receipts are below $150,000, such group is not required to register or pay the flat (minimum) tax.

(2) Within 30 days of having taxable gross receipts of $150,000 or more, such combined taxpayer group must register for, and is subject to, the commercial activity tax.

Effective: 12/30/2005
R.C. 119.032 review dates: 12/30/2010
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.01 , 5751.011 , 5751.012

5703-29-05 Commercial activity tax taxpayers must file and pay electronically.

(A) Except as provided in paragraph (B) of this rule, each person required to file a commercial activity tax return shall file such return and remit payment of the tax liability as follows:

(1) The returns shall be filed electronically by using the Ohio business gateway as defined in section 718.051 of the Revised Code. Alternatively, a calendar year taxpayer may utilize the Ohio telefile system;

(2) The payment shall be made electronically by using the Ohio business gateway or the department's web site, or in the manner prescribed by rules adopted by the treasurer of state under section 113.061 of the Revised Code.

(B)

(1) Any person may apply to the tax commissioner to be excused from the requirement to file and pay electronically under paragraph (A) of this rule. If a form is prescribed by the commissioner for such purpose, which shall be posted on the department of taxation's web site, the person shall complete such form.

(2) The commissioner will notify the person in writing of the commissioner's decision. Unless an earlier date is specified in the notice, the excuse shall continue to apply until revoked in writing by the commissioner. The denial or revocation of an excuse under this paragraph is not a final determination of the commissioner and is not subject to further appeal.

(C)

(1) A taxpayer may file a return electronically for the first semi-annual period from July 1, 2005 to December 31, 2005 but is not required to file in such manner.

(2) A calendar year taxpayer is required to file and pay electronically for any return filed on or after January 1, 2014.

(D) Nothing in this rule affects any person's obligation to timely file all returns and timely pay all amounts required by Chapter 5751. of the Revised Code.

Effective: 12/02/2013
R.C. 119.032 review dates: 09/16/2013 and 12/02/2018
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.03 , 5751.031 , 5751.051 , 5751.07
Prior Effective Dates: 12/27/2005

5703-29-06 Transfers of Property Into the State.

(A) This rule provides the circumstances when a taxpayer/purchaser will be required to include the value of property that is transferred into this state within one year from the receipt of the property outside of this state pursuant to section 5751.013 of the Revised Code.

(B)

(1) Subject to paragraph (B)(2) of this rule, the value of property brought into this state within one year after it is received outside this state does not have to be included as a taxable gross receipt by the purchaser. However, upon audit, the tax commissioner may require the value of such property to be included as a taxable gross receipt if the commissioner finds that such transfer within one year was intended in whole or in part to avoid the commercial activity tax.

(2) The commissioner may identify and post on the department of taxation's website one or more descriptions of transfers that the commissioner deems are intended to avoid the commercial activity tax. If a transfer is one so described, the taxpayer must include the value of the property transferred as a gross receipt for that tax period in which the transfer is made. The property shall be valued at its fair market value at the time of transfer. The taxpayer may file a refund claim if the taxpayer believes that it can show that the acquisition and subsequent transfer was not intended in whole or in part to avoid the commercial activity tax.

(C) No penalty shall be imposed by the commissioner under paragraph (B)(1) of this rule. A penalty may be imposed by the commissioner under paragraph (B)(2) of this rule.

Effective: 12/27/2005
R.C. 119.032 review dates: 12/26/2010
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.013

5703-29-07 Qualified foreign trade zone area.

(A) Uncodified section 557.09.09 of Am. Sub. H.B. 66 of the 126th General Assembly provides that receipts from shipments into and shipments out of a qualified foreign trade zone area are excluded from gross receipts that are subject to the commercial activity tax. Pursuant to uncodified section 690.06 of Am. Sub. H.B. 530, the foreign trade zone area exclusion defined in uncodified section 557.09.09 will have no effect after December 31, 2006.

(B) The qualified foreign trade zone area must include a qualified intermodal facility. as defined in uncodified section 557.09.09(B). The exemption applies after the commencement of the construction of each of a rail, highway and air transportation components of the facility that are capable of receiving and shipping freight. Furthermore, the shipments must be to or from a warehouse or facility that is located within one mile of an international airport and that is located, in whole or in part, within a foreign trade zone as defined in division (A)(2) of section 5709.44 of the Revised Code.

(C) In order to determine whether gross receipts qualify for exclusion, a taxpayer must ascertain if the warehouse or facility into which or from which goods are shipped is located within one mile of the boundary of an international airport. The tax commissioner may post on the department of taxation's Internet website, if available, maps of those international airports that meet the qualifications of uncodified section 557.09.09. Any warehouse or facility that is shown on this map to be within one mile of the airport boundary and that is located, in whole or in part, within a foreign trade zone as defined in division (A)(2) of section 5709.44 of the Revised Code is deemed to meet the requirements of the exclusion. For any warehouse or facility that does not appear on this map to be within the one mile boundary, the taxpayer has the burden of proving that the warehouse or facility is within the one mile boundary.

Replaces: 5703-29-07

Effective: 07/13/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 557.09.09 of Am. Sub. H.B. 66 of 126th G.A.
Prior Effective Dates: 12/30/2005

5703-29-08 Request for member of a combined taxpayer group to file separately.

(A) This rule provides the procedure that a member of a combined taxpayer group under section 5751.012 of the Revised Code must follow to file as a separate taxpayer and not as part of the combined group.

(B)

(1) A member that is not the primary taxpayer of a combined taxpayer group, together with the primary taxpayer of the group, may contact the tax commissioner and request approval that the member be allowed to file separately from the group. For the member to file separately, the member and the primary taxpayer must agree to all of the following:

(a) The member will not claim any of the group's exclusion of one million dollars for calendar year taxpayers or two hundred fifty thousand dollars for calendar quarter taxpayers, and is not entitled to claim any exclusion of the member's taxable gross receipts on its own behalf.

(b) The member will file as a separate taxpayer and will be subject to the applicable tax rate on all of the member's taxable gross receipts without any exclusion. For example, for the semiannual period July 1, 2005 through December 31, 2005, if a member had thirty thousand dollars of taxable gross receipts, the tax would be eighteen dollars, the rate of six one-hundredths percent times the entire thirty thousand dollars of taxable gross receipts.

(c) The member is financially sound and currently able to pay the commercial activity tax and other obligations as determined by the commissioner.

(d) The member remains jointly and severally liable for the group's tax liability.

(2) The commissioner shall provide a copy of the commissioner's written denial or approval to both the member requesting to file separately and to the primary taxpayer of the combined group. If approved, the separate filing shall start at the beginning of the next tax period for the combined taxpayer, absent special approval to the contrary. The commissioner, upon request, may grant special approval for the separate filing to begin with the current tax period.

(3) The commissioner may prescribe a form to apply to file separately from the group as provided by this rule.

(C) The Tax Commissioner may revoke separate filing approval at any time.

R.C. 119.032 review dates: 12/30/2010

Promulgated Under: 5703.14

Statutory Authority: 5703.05

Rule Amplifies: 5751.012

5703-29-09 Option for quarterly taxpayers to make estimated payments.

(A) Division (C) of section 5751.05 of the Revised Code allows the tax commissioner to grant written approval for a calendar quarter taxpayer to use an alternative reporting schedule or estimate the amount of tax due for the calendar quarter if the taxpayer demonstrates the need for such deviation. In addition, this section also grants the commissioner the authority to adopt a rule to allow a group of taxpayers such deviation without prior written approval. Pursuant to this authority, the commissioner hereby grants authority for all calendar quarter taxpayers, and all taxpayers for the semiannual period for 2005, to make estimated payments of their tax if done pursuant to the procedures prescribed in the following paragraphs.

(B) A calendar quarter taxpayer is allowed to file its commercial activity tax return and make an estimated payment of tax due thereon within forty days after the end of the calendar quarter if all the procedures set forth in this rule are followed.

(1) A calendar quarter taxpayer electing to make an estimated payment shall do all of the following for this rule to apply:

(a) Check the "rule estimation" box on the return, report the appropriate estimate of taxable gross receipts, and pay the appropriate amount of estimated tax. Taxpayers seeking to use the "statutory estimation" provided for under division (A)(2) of section 5751.051 of the Revised Code shall check that box and shall not use this rule for any calendar quarter in that entire calendar year.

(b) Make an estimated payment of the tax using the tax rate in effect for the calendar quarter for which the estimated payment is being made. Any minimum annual tax amount that is owed is in addition to the estimated tax determined pursuant to this rule.

(c) On or before the due date of the return for the following calendar quarter, the taxpayer must reconcile its actual tax for the calendar quarter for which the estimate was made, using either a form prescribed by the commissioner for such purpose or the actual return. The taxpayer must calculate its actual tax using the tax rate in effect for that quarter for which the estimated payment is made, file its reconciliation report reconciling its actual tax with its estimated tax for that quarter, and, if applicable, pay any underpayment of the actual tax owed for that quarter. If the taxpayer's estimate results in an overpayment of tax, such overpayment will be applied to the next tax return/report. If, after applying the overpayment to such next tax return/report an overpayment remains, such remaining overpayment may be refunded or carried forward to the subsequent return/report filed by the taxpayer. A taxpayer making an election under this rule must file the return for the following calendar quarter. The return for that calendar quarter may again be estimated in accordance with this rule.

(d) In order for this rule to apply, both the estimated payment return/report and the reconciliation report/return, along with all applicable payments for those tax periods, must be made timely, and the taxpayer must not have any outstanding commercial activity tax liability.

(2) A taxpayer electing to make an estimated payment, as prescribed by paragraph (B)(1) of this rule, and subject to paragraph (B)(3)(a) and (b) of this rule, must estimate its taxable gross receipts as at least ninety-five percent of the taxable gross receipts from the previous quarter, after deducting the applicable exclusionary amount of two hundred fifty thousand dollars. However, in no event shall a taxpayer's estimated payment for a given calendar quarter be less than seventy percent of its actual tax liability for that calendar quarter. In the event a taxpayer's previous calendar quarter's taxable gross receipts exceed its current quarter's taxable gross receipts, such taxpayer's estimated tax liability for the quarter is only required to equal or exceed one-hundred percent of its tax liability for that period.

(3)

(a) For the first quarter of 2006, a taxpayer who elects to make an estimated return and payment must estimate its taxable gross receipts as at least forty-eight percent of the actual taxable gross receipts for the semiannual period of July 1, 2005 through December 31, 2005.

(b) For the first quarter returns due for 2007, 2009 and 2011, taxpayers who elect to make an estimated return and payment for these calendar quarters must make their estimate using at least one hundred percent of the actual taxable gross receipts from the previous calendar quarter.

(C) Notwithstanding paragraph (B) of this rule, for the semiannual period of July 1, 2005 through December 31, 2005, any taxpayer may elect to make an estimated payment by checking the "rule estimation" box on the semiannual report. Such taxpayer must estimate its tax due and pay this estimated amount at the time the taxpayer files the report. Any taxpayer who elects to estimate its tax due is then required to file a reconciliation report along with its first quarterly return for 2006 for calendar quarter taxpayers or with the annual fee for calendar year taxpayers, both of which are due by May 10, 2006. Such reconciliation must reflect the actual tax due for the semi-annual period and any additional tax due must be paid at this time. The taxpayer's estimated payment of the tax for this semi-annual period must be the greater of seventy-five dollars or six-tenths of one per cent times the difference between (1) at least eighty-five percent of the actual taxable gross receipts for the semiannual period and (2) the five hundred thousand dollars exclusionary amount.

(D) Any taxpayer who elects to estimate its tax using this rule shall not estimate its tax using the statutory estimation procedure contained in division (A)(2)(b) of section 5751.051 of the Revised Code for any calendar quarter in that entire calendar year.

(E) Interest and penalties will not be imposed on payments made pursuant to this rule provided the taxpayer fully complies with this rule. In other words, such payments will be considered to be made timely. A taxpayer who elects to estimate its tax under this rule agrees to have any overpayment automatically be applied to the taxpayer's next commercial activity tax report filed.

(F) Except as provided for in paragraph (C) of this rule, a calendar year taxpayer may not use this rule.

(G) For example, assume a taxpayer for the second calendar quarter of 2006 elects to make an estimated payment pursuant to this rule. For this example, the taxpayer's actual taxable gross receipts for the first calendar quarter after its applicable exclusion were $8,000,000. On August 9, 2006, the taxpayer files its second calendar quarter return and checks the "rule estimation" box. In making the estimated payment, the taxpayer calculates an estimated liability after its $250,000 exclusion of $7,644 [.00104 * ($7,600,000 - $250,000)]. In order to be covered by the safe harbor, the taxpayer makes an electronic payment of $7,644. Such taxpayer meets the 95% threshold required to avoid the imposition of interest and penalties when it reconciles its report at the beginning of the third calendar quarter.

When reconciling the second calendar quarter return by filing its third quarter return, the taxpayer determines its actual taxable gross receipts for the second quarter were $8,500,000. The taxpayer applies the effective tax rate for the second quarter to its actual taxable gross receipts, net of its $250,000 exclusion, resulting in a tax liability of $8,580 [.00104 * ($8,500,000 - $250,000)].

On November 9, 2006, the taxpayer will be required to electronically file its reconciliation report, reflecting an additional $936 tax due ($8,580 actual tax liability for the second calendar quarter, less the $7,644 estimated payment). At the same time, the taxpayer must timely file its third calendar quarter return/report and may elect to make an estimated payment for the third quarter (based on the taxpayer's second calendar quarter actual taxable gross receipts).

Effective: 03/13/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05 , 5751.05(C)
Rule Amplifies: 5751.05 , 5751.051

5703-29-10 Nonprofit organizations and contributions.

(A) Division (A) of section 5751.01 of the Revised Code defines "person" for purposes of the commercial activity tax. The definition excludes nonprofit organizations. This rule defines a "nonprofit organization."

(B) Solely for purposes of the commercial activity tax, "nonprofit organization" means an entity that meets both of the following requirements:

(1) The entity is organized other than for the pecuniary gain or profit of, and the entity's net earnings or any part of them are not distributable to, the entity's members, directors, officers, or other private persons, unless otherwise permitted by law. The payment of reasonable compensation for services rendered and the distribution of assets on dissolution as permitted by the laws under which the entity is organized is not pecuniary gain or profit or distribution of net earnings. If all of the entity's members are nonprofit organizations, distribution to its members does not deprive the entity of the status of a nonprofit organization.

(2) The entity is operating consistent with its organization.

(C) Nonprofit organizations include, by way of example, but are not limited to, those entities organized under the nonprofit provisions in Chapter 1702., 1707., 1711., 1713., 1715., 1716., 1717., 1719., 1721., 1724., 1725., 1727., 1729., or 1733. of the Revised Code or similar nonprofit provisions of other jurisdictions.

(1) Rural electric companies and telephone cooperatives are deemed to be nonprofit organizations under Chapter 1702. or 1729. of the Revised Code for purposes of the commercial activity tax.

(2) Organizations formed for the purpose of funding political campaigns are deemed to be nonprofit organizations for purposes of the commercial activity tax. These organizations include those authorized under federal law, and certain entities receiving contributions that are defined in Chapter 3517. of the Revised Code or under comparable laws of other states. These entities would include a campaign committee, a continuing association, a political action committee, a legislative campaign fund, and a political committee.

(3) A charitable lead trust is deemed to be a nonprofit organization during the lifetime of the grantor. Upon the death of the grantor, the charitable lead trust will no longer be deemed to be a nonprofit organization.

(4) A limited liability company ("LLC") meeting the requirements of paragraph (B) of this rule is deemed to be a nonprofit organization. For purposes of the commercial activity tax, a single member LLC is separate and distinct from its owner. Therefore, in order for it to be considered a nonprofit organization, it must meet the requirements of paragraph (B) of this rule separate and apart from its owner. For example, if a nonprofit organization is the owner of a single member LLC and that LLC does not meet the requirements of paragraph (B) of this rule, the LLC does not qualify as a nonprofit organization.

(D) Receipts of certain contributions and fees are excluded under divisions (F)(2)(f) and (F)(2)(j) of section 5751.01 of the Revised Code regardless of whether the person is a nonprofit organization. To exclude contributions under division (F)(2)(f) of section 5751.01 of the Revised Code, the contributions must be received by persons described in section 501(c), 501(d), or 401(a) of the "Internal Revenue Code of 1986," 100 Stat. 2085, 26 U.S.C. 1 , as amended. For example, certain pension plans may not qualify as nonprofit organizations. While the contributions and fees made to those pension plans would be exempt from the commercial activity tax, gross receipts from the business operations of those pension plans may be taxable gross receipts.

Effective: 06/15/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.01

5703-29-11 Commercial activity tax credit for unused franchise tax net operating losses.

(A) A qualifying taxpayer intending to claim the commercial activity tax credit for unused franchise tax net operating losses must file a report with the tax commissioner no later than June 30, 2006. The report shall be filed on a form prescribed by the commissioner for such purpose and shall include, but is not limited to, the following information:

(1) If the qualifying taxpayer was not a member of a combined franchise tax report for tax year 2005, such report shall include the following information:

(a) The taxpayer's name, address, federal employer identification number, Ohio charter or license number, Ohio commercial activity tax account number;

(b) The taxpayer's Ohio net operating loss carryforward that would have been available for use on the taxpayer's 2006 franchise tax report had the taxpayer not elected to claim this credit;

(c) A schedule detailing the computation of the Ohio net operating loss carryforward amount reflected in paragraph (b) above that includes the information set out in the instructions for the report; and

(d) The amortizable amount computed in accordance with section 5751.53 of the Revised Code.

(2) If the qualifying taxpayers filing the report were members of a combined franchise tax report for tax year 2005, then for each member of the 2005 combined franchise return for which an amortizable amount is computed, such report shall include the following information:

(a) The taxpayer's name;

(b) Ohio commercial activity tax account number;

(c) Ohio net operating loss carryforward that would have been available for use on the taxpayer's 2006 Ohio franchise return had the taxpayers not elected to claim this credit;

(d) A schedule detailing the computation of the Ohio net operating loss carryforward amount reflected in paragraph (A)(1)(c) that includes the information set out in the instructions for the report;

(e) The qualifying amount; and

(f) The amortizable amount computed in accordance with section 5751.53 of the Revised Code.

(3) Upon written request or upon audit, the commissioner may require a taxpayer to provide additional documentation to support the credit provided for under section 5751.53 of the Revised Code, including substantiation of any information supplied with the report required under paragraph (A) of this rule, that the deferred tax asset amounts were booked on the taxpayer's financial statements.

(B) Subject to audit by the commissioner, a taxpayer that files such report may claim ten per cent of the amortizable amount as a nonrefundable credit against the commercial activity tax in each of the calendar years 2010 through 2019. For each year in which the taxpayer claims the nonrefundable credit, the taxpayer may apply the credit against only one-half of its commercial activity tax liability remaining after the liability is first reduced by the nonrefundable credits that precede this credit in the order set out in section 5751.98 of the Revised Code. Any portion of the ten per cent amortizable amount not used in the year that it otherwise could have been claimed may be carried forward and claimed in the following year or years through 2029. Any portion of the nonrefundable credit not claimed by 2029 may be claimed as a refundable credit against the commercial activity tax in calendar year 2030, pursuant to divisions (B) and (C) of section 5751.53 of the Revised Code.

Effective: 06/15/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.53

5703-29-12 Temporary motor fuel exemptions from the commercial activity tax.

(A) Gross receipts received prior to July 1, 2007 from the sale of motor fuels are exempt from the commercial activity tax. For purposes of this rule, "motor fuel" means "motor fuel" as defined in section 5735.01 of the Revised Code that is also intended to be used on the public highways. This rule provides guidance to refineries, terminals, and motor fuel dealers as to the types of gross receipts that are taxable and exempt under the commercial activity tax. This rule provides a prima facie procedure that all refineries, terminals, and motor fuel dealers shall use to determine the types of taxable gross receipts that are temporarily exempt from the commercial activity tax. This burden may be rebutted based on the refinery, terminal, or motor fuel dealer showing evidence to the contrary.

(B) Some otherwise-exempt products sold by a refinery are used in a taxable manner, i.e., not intended to be used as motor fuel. The tax commissioner shall use the following percentages as indicative of the exempt amounts of taxable gross receipts for the corresponding products for commercial activity tax purposes.

(1) All octanes of gasoline, including gasoline blends: ninety-nine and eighty-nine hundredths per cent ( 99.89 %);

(2) Kerosene (number one fuel): eight and forty-eight one-hundredths per cent ( 8.48 %);

(3) Number two diesel fuel: ninety-six and sixty-four one-hundredths per cent ( 96.64 %); and

(4) Gasoline used as aviation fuel: eleven one-hundredths of one per cent ( 0.11 %).

(C) Gross receipts from the following products sold by a refinery are subject to the commercial activity tax:

(1) Liquefied petroleum gasoline (propane);

(2) Jet fuel;

(3) Heavy fuel oil (number six);

(4) Asphalt;

(5) Coke; and

(6) Any other product not intended to be used as a motor fuel on the public highways.

(D) Some otherwise-exempt products sold by a terminal to a motor fuel dealer licensed under Chapter 5735. of the Revised Code are used in a taxable manner, i.e., not intended to be used as motor fuel. The tax commissioner shall use the following percentages as indicative of the exempt amounts of taxable gross receipts for the corresponding products for commercial activity tax purposes.

(1) All octanes gasoline, including gasoline blends: ninety-nine and eighty-nine one-hundredths per cent ( 99.89 %);

(2) Kerosene (number one fuel): eight and forty-eight one-hundredths per cent ( 8.48 %); and

(3) Number two diesel fuel: ninety-six and sixty-four one-hundredths per cent ( 96.64 %).

(E) Gross receipts from the following products sold by a terminal are subject to the commercial activity tax:

(1) Liquefied petroleum gasoline (propane);

(2) Jet fuel;

(3) Heavy Fuel Oil (number six);

(4) Asphalt;

(5) Coke; and

(6) Any other product not intended to be used as a motor fuel on the public highways.

(F) Gross receipts from the following products sold by a motor fuel dealer licensed under Chapter 5735. of the Revised Code are exempt from the commercial activity tax:

(1) All octanes of gasoline, including gasoline blends sold for use as a motor fuel;

(2) Kerosene (number one fuel) sold for use or blended and sold for use as a motor fuel;

(3) Number two diesel fuel or diesel blends sold for use as a motor fuel; and

(4) Any other liquid product intended to be used as a motor fuel on the public highways.

(G) Anything on which tax is imposed by retail motor fuel dealers intended for use as motor fuel is exempt, regardless of whether the consumer may file for a refund. Gross receipts from the following products sold by a motor fuel dealer licensed under Chapter 5735. of the Revised Code are subject to the commercial activity tax:

(1) Liquefied petroleum gasoline (propane);

(2) Jet fuel;

(3) Heavy fuel oil (number six);

(4) Fuel oil (number two);

(5) Kerosene sold for use off the highway;

(6) Asphalt;

(7) Coke; and

(8) Any other product not intended to be used as a motor fuel on the public highways.

(H) Anything on which tax has been imposed for use as motor fuel is exempt, regardless of whether the consumer may file for a refund. Gross receipts from the following products sold by a motor fuel retailer licensed under Chapter 5735. of the Revised Code are exempt from the commercial activity tax:

(1) All octanes of gasoline, including gasoline blends;

(2) Number two diesel fuel; and

(3) Any other product intended to be used as a motor fuel on the public highways.

Effective: 03/05/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: Section 557.09.06 of Am. Sub. H.B. 66 of 126th G.A

5703-29-13 Commercial activity tax definition of agent.

(A) An "agent" is defined in division (P) of section 5751.01 of the Revised Code to include a person authorized by another to act on its behalf to undertake a transaction for the other. In certain circumstances, portions of the amounts received by a person defined as an "agent" are excluded from the definition of "gross receipts" under division (F) of section 5751.01 of the Revised Code. The agent is only required to report as a "gross receipt" the portion of the amount received that it retains as a commission or fee rather than the entire amount.

(B)

(1) The supreme court of Ohio has held that an agency relationship "exists only when one party exercises the right of control over the actions of another, and those actions are directed toward the attainment of an objective which the former seeks." See Hanson v. Kynast (1986), 24 Ohio St.3d 171, 173, citing Baird v. Sickler (1982), 69 Ohio St.2d 652, 654, Councell v. Douglas (1955), 163 Ohio St. 292, and Bobik v. Indus. Comm. (1946), 146 Ohio St. 187, 191-192. Also see Memorial Park Golf Club, Inc. v. Lawrence, 2000 Ohio Tax LEXIS 471 (BTA No. 99-K-633). An agency relationship is defined as a "consensual fiduciary relationship between two persons where the agent has the power to bind the principal by his actions, and the principal has the right to control the actions of the agent." See Evans v. Ohio State Univ. (1996), 112 Ohio App.3d 724, 744, citing Funk v. Hancock (1985), 26 Ohio App. 3d 107, 110, in turn citing Haluka v. Baker (1941), 66 Ohio App. 308, 312. In a principal-agent relationship, the agent has the legal authority to act on behalf of the principal, and generally the principal is bound by and is liable for those actions. See N&G Construction, Inc. v. Lindley (1978), 56 Ohio St.2d 415, 418, citing Gulf Oil Corp. v. Kosydar (1975), 44 Ohio St.2d 208 (paragraph two of the syllabus) and Canton v. Imperial Bowling Lanes, Inc. (1968), 16 Ohio St.2d 47 (paragraph four of the syllabus). The party asserting the existence of an agency relationship bears the burden of proof in that regard. See Gardner Plumbing, Inc. v. Cottrill (1975), 44 Ohio St.2d 111, 115, citing Union Mutual Life Ins. Co. v. McMillen (1873), 24 Ohio St. 67. Also see Memorial Park Golf Club, Inc, supra. In determining whether an agency relationship exists, the rules of statutory construction applicable to exemptions from taxation must be followed. Ohio law in this regard is well-established; exemptions from taxation are strictly construed against the claim of exemption and in favor of the taxing authorities. See Natl. Tube Co. v. Glander (1952), 157 Ohio St. 407, 409; Beckwith & Assoc. v. Kosydar (1977), 49 Ohio St.2d 277, 279, and Canton Malleable Iron Co. v. Porterfield (1972), 30 Ohio St. 2d 163, 166. Also see Memorial Park Golf Club, Inc., supra. Thus, in determining whether an agency relationship exists, the facts must be determined under a strict, narrow reading of the definition. Absent proof of an agency relationship, the entire gross receipt must be reported by the person receiving the gross receipt for purposes of the commercial activity tax.

(2) The commissioner will look beyond the wording of the contract to the actual facts and circumstances of the situation to determine whether an agency relationship actually exists. See H.R. Options, Inc. v. Zaino (2004), 100 Ohio St.3d 373.

(C) Division (P) of section 5751.01 of the Revised Code defines "agent" to include certain individuals acting on behalf of another. Each of the following individuals is included in the list in that division and qualifies as an "agent" for purposes of this rule:

(1)

(a) In the case of a person enumerated in division (P)(1) of section 5751.01 of the Revised Code who receives a fee to sell financial instruments, only the fee received to perform this service shall be a gross receipt of the agent pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code.

(b) For example, an out-of-state dealer (i.e., a person without an office or other place of business in Ohio) orchestrates the sale of a bond on behalf of Franklin county, Ohio. The dealer contracts with the county to purchase bonds at a discount to sell them on the county's behalf. The cost of the bond is one thousand dollars; the dealer sells the bond to the client for one thousand fifty dollars. The dealer remits the full purchase price of one thousand dollars to Franklin county, Ohio and retains fifty dollars as an administrative fee. Even though the dealer actually received one thousand fifty dollars from the client, the dealer would be required to include only the client's fifty dollar fee in calculating the dealer's total taxable gross receipts for purposes of the commercial activity tax.

(2)

(a) In the case of a person enumerated in division (P)(2) of section 5751.01 of the Revised Code who retains a commission or fee from a transaction performed on behalf of another person, only the fee retained by the agent shall be a gross receipt of the agent pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code. For purposes of this paragraph and paragraph (B) of this rule, the agency relationship should be explicitly stated in a contract that is available to the tax commissioner to inspect. Absent such proof, it will be presumed that no agency relationship exists and the person claiming the agency relationship will include the total amount received in its gross receipts.

(b) For example, a general contractor enters into a lump sum contract with a property owner for the general contractor to construct an office building. The general contractor agrees to provide specified services for a fixed price of five hundred thousand dollars, and the general contractor bears all risk involved in completing the project in a cost-effective manner. The general contractor may perform the necessary services itself, or it may bid out some or all of the work to subcontractors. Because the general contractor is not required to act in the owner's best interests with respect to cost issues, and because the general contractor does not have to disclose cost details with the owner, the general contractor does not qualify as an agent for purposes of the agency exclusion. For this reason, the entire contract price is includable in the general contractor's gross receipts.

(c) Alternatively, for example, a general contractor enters into a costs-plus contract with a property owner for the general contractor to construct an office building. Under the terms of the contract, the owner agrees to pay the general contractor for work completed by the subcontractors at cost plus a five per cent fee. The general contractor is required to act in the owner's best interests with respect to cost issues. The general contractor, when bidding out the work to subcontractors, has an agreement in writing with the subcontractors that states that the general contractor is acting as the owner's agent and not as an agent of the subcontractor. The general contractor acts as a conduit with regard to any payments made to the subcontractors, in that the general contractor remits monies received from the owner to the subcontractors, provided that certain conditions are met. Accordingly, the general contractor may exclude the money that the general contractor receives from the owner to pay the subcontractors from its gross receipts. However, the five per cent fee retained by the general contractor would be included in its calculation of gross receipts for purposes of the commercial activity tax.

(3)

(a) In the case of a person enumerated in division (P)(3) of section 5751.01 of the Revised Code who issues licenses and permits under section 1533.13 of the Revised Code, only the portion of a fee retained by the issuer shall be included in the gross receipts of the agent pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code.

(b) For example, an independent agent at a bait and tackle shop is authorized under section 1533.13 of the Revised Code to issue hunting and fishing licenses to Hocking county residents. The agent collects a fee of twenty-five dollars for issuing a license and later remits this amount to the chief of the wildlife division of the Ohio department of natural resources. The independent agent will not be subject to the commercial activity tax. If, however, the agent retained a five dollar fee for administering the license, this amount would be included in the agent's calculation of its gross receipts for purposes of the commercial activity tax.

(4)

(a) In the case of a lottery sales agent enumerated in division (P)(4) of section 5751.01 of the Revised Code who holds a valid license issued under section 3770.05 of the Revised Code, only the portion of the fee retained by the lottery sales agent shall be included in the gross receipts of the agent pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code.

(b) For example, a convenience store clerk is licensed under section 3770.05 of the Revised Code to sell lottery tickets as part of its store operations. As part of an agreement with the director of the state lottery commission, the convenience store may retain one per cent of the gross receipts received from the sale of lottery tickets as an administrative fee. The convenience store clerk sells a ticket to a customer for two dollars and remits one dollar and ninety-eight cents (or ninety-nine per cent) to the director of the state lottery commission. The convenience store will include the two cent (or one per cent) administrative fee it retains in its gross receipts, in addition to its other receipts from store operations to the extent required by Chapter 5751. of the Revised Code.

(5)

(a) In the case of a person enumerated in division (P)(5) of section 5751.01 of the Revised Code who acts as an agent of the division of liquor control under section 4301.17 of the Revised Code, only the portion of the fee retained by the agent shall be included in the gross receipts of the agent pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code.

(b) For example, the owner of a state liquor agency in Sandusky, Ohio is a statutory agent of the division of liquor control and is granted the authority to sell spirituous liquor to its customers. In the contract and as compensation for this relationship, the division agrees that the agent may keep five per cent of its annual sales of these beverages as its commission. The state liquor agency sells five hundred thousand dollars worth of spirituous liquor in one year and remits a payment of four hundred seventy-five thousand dollars to the division of liquor control. The market owner is only required to include the remaining twenty-five thousand dollars (or five per cent of the market owner's total sales of spirituous liquor) in calculating its gross receipts with regard to the agent relationship. The provisions of division (P)(5) of section 5751.01 of the Revised Code only apply to state liquor stores or agencies and do not apply to local markets selling beer, wine, or other types of alcoholic beverages.

(D)

(1) In the case of a restaurant or other establishment that collects gratuity on behalf of another, the portion of the amount received that is considered "tips" or "gratuity" is not included in the establishment's gross receipts pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code. This portion of the gross receipts may be a gross receipt of the person ultimately receiving the tip if the other requisite requirements under section 5751.01 of the Revised Code are met.

(2) For example, a restaurant in Columbus, Ohio employs a server to assist in serving its customers. The restaurant collects a total of one thousand two hundred dollars, including a twenty per cent gratuity of two hundred dollars. The restaurant only passes one hundred eighty dollars of the gratuity on to the server and retains the remaining twenty dollars. The restaurant is considered an agent for the one hundred eighty dollar portion of the gratuity that it passes on to the server. The twenty dollar portion retained is a gross receipt of the restaurant. (The server does not have any gross receipts for the one hundred eighty dollar portion of the gratuity it receives from the restaurant, as such amount is considered compensation and is specifically excluded under division (F)(2)(g) of section 5751.01 of the Revised Code.)

(E)

(1) In the case of a person who advances fees on behalf of a client, the person may exclude the reimbursement of these fees from the person's gross receipts when the reimbursement is received from the client.

(2) For example, an individual retains an attorney to represent the individual in a personal injury suit against a company. The attorney advances a filing fee to the court in order to allow the client to file a complaint against the company. In addition to the attorney's hourly rate, the attorney charges the client the filing fee, as well as copying charges for copies made and telephone charges for calls made all on the client's behalf. When calculating the attorney's commercial activity tax liability, the attorney may exclude the court fees that were advanced on the client's behalf from the attorney's gross receipts pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code but may not exclude the copying fees or the telephone charges for calls made on the client's case.

(F)

(1) In the case of a property owner who charges common area maintenance fees to its tenants or another third party or bases the fees on the square footage contained within a particular portion of the building, an agency relationship does not typically exist. Therefore, when the property owner collects these fees, they are considered gross receipts for purposes of the commercial activity tax. These fees reimburse the property owner for expenses to the property owner and expenses may not be deducted from the taxpayer's gross receipts.

(2) For example, a property owner leases a commercial building to a tenant for one thousand dollars and charges the lessee an additional one hundred dollars per month for common area maintenance, including snow plowing, landscaping, trash removal, and heating and cooling services. The property owner collects one thousand dollars in rent and one hundred dollars for the tenant's common area maintenance fee. The property owner is required to report the entire one thousand one hundred dollars as a gross receipt for purposes of the commercial activity tax.

Effective: 04/24/2008
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.01
Prior Effective Dates: 10/5/06

5703-29-14 Commercial activity tax definition of cash discounts.

(A)

(1) For purposes of the commercial activity tax, "cash discounts" (i.e., reductions in gross revenue) are deducted from a taxpayer's "gross receipts" pursuant to division (F)(4)(a) of section 5751.01 of the Revised Code.

(2) For purposes of this rule, "cash discounts" include the following, provided they are only based on making timely payments or volume purchases:

(a) "X per cent, y-day" discounts, where the purchaser may take a percentage cash discount on the invoice price if payment is made within a specified period of time of the invoice date; otherwise the entire invoice price is due by the net date;

(b) Incentive-based rebates received by a purchaser, but not the purchaser's customer; and

(c) Discounts allowed and taken by a purchaser, but not the purchaser's customer.

(B)

(1) For example, an Ohio retailer purchases its products from the manufacturer and receives an invoice with a two-ten, net-thirty cash discount option. If the retailer pays the invoice within ten days of the invoice date, the retailer may deduct from its payment to the manufacturer two per cent of the invoice price. In such case, the manufacturer would be entitled to a deduction for such amount for such reduction in the invoice and could report the ninety-eight per cent of the invoiced price that it received from the retailer as a gross receipt. While technically a deduction, the manufacturer may either choose to report ninety-eight per cent or, if the purchase occurs outside of the current period, may take a deduction from its taxable gross receipts from a previous period. If the retailer fails to pay the invoice within ten days, the entire invoice amount is due within thirty days of the invoice date and the manufacturer would report the one hundred per cent of the invoiced price that it received from the retailer as taxable gross receipts.

(2)

(a) As another example, for promotional purposes and in order to boost its sales, a car manufacturer announces that it will provide an incentive-based rebate of one thousand dollars per "Model A" car to all dealers that sell at least one hundred "Model A" cars in a given quarter. A car dealer located in Columbus, Ohio sells two hundred "Model A" cars in the first quarter of 2006. In accordance with its incentive program, the manufacturer sends the dealer a check for two hundred thousand dollars. The two hundred thousand dollar incentive-based rebate does not have to be included in the dealer's gross receipts for purposes of the commercial activity tax and the manufacturer can reduce its gross receipts by such amount as a deduction.

(b) In contrast, assume a manufacturer provides an incentive-based rebate to the car dealer's customers and that the customer, whether required to or not, signs the rebate over to the car dealer. This incentive-based rebate may not be deducted by the manufacturer or the car dealer as a cash discount, as such rebate was paid to the purchaser's customer and not to the purchaser.

(3)

(a) As another example, a hardware store accepts a manufacturer's coupon for a one dollar discount of two boxes of "X Brand" nails. The hardware store remits the coupon to "X Brand" Manufacturer and "X Brand" Manufacturer reimburses the hardware store the one dollar discount taken, plus the eight-cent handling fee. When the hardware store receives the one dollar and eight cent rebate from the manufacturer, it must include that amount in its gross receipts for purposes of the commercial activity tax. "X Brand" Manufacturer may not claim any reduction (i.e., deduction) from its gross receipts for such reimbursement because the reimbursement goes to the retailer that accepted a coupon from its customer and not a reimbursement directly to the retailer. It is also not a reimbursement to the purchaser based on timely payment or volume purchases.

(b) Assume, however, that the Ohio hardware store advertises a one dollar discount on two boxes of "X Brand" nails, and provides a store coupon for a one dollar discount on purchase of the two boxes of "X Brand" nails. The store is not reimbursed by "X Brand" Manufacturer for any such coupons tendered. When the customer purchases the nails and is given a one dollar discount, the hardware store is not required to include that one dollar in its calculation of gross receipts for purposes of the commercial activity tax.

(4) As another example, for services rendered, assume a discount store receives a monthly shelving allowance/fee from certain manufacturers for displaying the manufacturer's products in a prime location in the discount store. The discount store is required to include this allowance/fee in its calculation of gross receipts for purposes of the commercial activity tax. In addition, the manufacturer may not deduct such allowance/fee from its calculation of gross receipts for purposes of the commercial activity tax.

(5) As another example, a fast food franchise receives a flat fee or a variable fee based on the number of products sold (e.g., hamburgers sold) for providing local advertising. The franchise may not exclude this type of fee from its calculation of gross receipts because such reimbursement is for an expense and is not based on making timely payments or on volume purchases.

Effective: 08/11/2006
R.C. 119.032 review dates: 08/11/2011
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.01(F)(4)(a)

5703-29-15 Highway transportation services - bright-line presence and situsing.

(A) Pursuant to division (I) of section 5751.01 of the Revised Code, a person is deemed to have "bright-line presence" in this state for purposes of the commercial activity tax if the person meets one of the five tests listed in that section, one being that the person has property in this state with an aggregate value of at least fifty thousand dollars at any time during the calendar year. This rule is to address the application of the property test to highway transportation services.

(B) For purposes of paragraph (A) of this rule, a person providing highway transportation services will be presumed to have at least fifty thousand dollars of property in the aggregate during the calendar year if the person has property of such value in this state for more than thirteen days, which need not be consecutive.

(C) For purposes of paragraph (B) of this rule, "day" means a calendar day or any portion thereof. Multiple trips during the same day do not constitute more than one day.

(D)

(1) Persons providing highway transportation services must situs gross receipts from such services pursuant to division (G) of section 5751.033 of the Revised Code in proportion to the miles traveled by the carrier during the tax period within the state compared with the miles traveled by the carrier during the tax period everywhere. Even if a person has bright-line presence, however, that person must also have at least one hundred fifty thousand dollars in taxable gross receipts in order to be a taxpayer for purposes of the commercial activity tax. That threshold applies to a person who would otherwise be a separate taxpayer or to a group of persons who would otherwise be members of a combined taxpayer group, but does not apply to members of a consolidated elected taxpayer group. Please see Ohio Adm. Rules 5703-29-02 and 5703-29-04forfurtherclarification on this issue.

(2) For example, assume a widget manufacturer located in Kansas contacts ABC Trucking Company (ABC), a Kansas transportation company, to arrange the transportation of one hundred thousand dollars worth of the manufacturer's widgets to XYZ Retailer (XYZ), located in Pennsylvania. The total trip is nine hundred miles, of which two hundred fifteen miles are traveled in Ohio, and ABC charges the manufacturer ten thousand dollars. ABC loads the widgets onto its trucks in Kansas and drives them through this state to XYZ's Pennsylvania location. ABC's truck is worth eighty thousand dollars, and this is the only trip ABC makes through this state during the calendar year. ABC would not be deemed to have bright-line presence for purposes of the commercial activity tax because ABC is not in this state for more than thirteen days during a calendar year. If, however, ABC contracted with the widget manufacturer to make bi-weekly trips to XYZ in Pennsylvania for purposes of transporting the widgets, and ABC drove through this state each trip, ABC would be deemed to have bright-line presence in this state for purposes of the commercial activity tax. It is important to remember, however, that ABC would not be considered a taxpayer subject to the commercial activity tax until ABC has at least one hundred fifty thousand dollars in taxable gross receipts (those gross receipts sitused to this state) during the calendar year. If ABC is a combined taxpayer, the entire group must add its taxable gross receipts together to determine if the group reaches the one hundred fifty thousand dollar threshold amount. (Please note that if ABC was a member of a consolidated elected taxpayer group, the one hundred fifty thousand dollar threshold would not apply.) In this example, assuming ABC meets the bright-line standard, ABC's ten thousand dollars of gross receipts would be sitused to this state based on the proportion of miles driven within this state compared with miles driven everywhere.

Effective: 08/11/2006
R.C. 119.032 review dates: 08/11/2011
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.01(I)

5703-29-16 Qualified distribution center.

(A) Pursuant to division (F)(2)(z) of section 5751.01 of the Revised Code, "gross receipts" excludes "qualifying distribution center receipts." That division defines "qualifying distribution center receipts" and other terms used in that definition. While all the requirements of division (F)(2)(z) of section 5751.01 of the Revised Code must be met, it essentially provides that certain receipts of a supplier from qualified property delivered to a qualified distribution center are excluded from that supplier's calculation of gross receipts for purposes of the commercial activity tax. The extent of this exclusion is based on the Ohio delivery percentage as determined by the qualified distribution center, and such percentage applies to all suppliers shipping to that location regardless of the percentage of that supplier's actual property that will be shipped outside the state.

(B) In order to meet the requirements to be a qualified distribution center, a warehouse or other similar facility, in addition to meeting all other requirements specified in division (F)(2)(z) of section 5751.01 of the Revised Code, must meet both of the following requirements for the qualifying period:

(1) The operator of the warehouse or similar facility and members of the operator's consolidated elected taxpayer group as described in section 5751.011 of the Revised Code must have had at least five hundred million dollars in cumulative costs from qualified property delivered to the distribution center by its suppliers during the qualifying period. Such costs only include costs of qualified property, which is tangible personal property delivered to a distribution center that is shipped there solely for further shipping by the distribution center to another location either within or without this state. Only the cost of the qualified property, less any deductions (e.g., cash discounts) is considered for purposes of this calculation. Any costs or reimbursements for providing a service to the seller, such as management consulting services, are excluded from the calculation. Further, only purchases made by members of the same consolidated elected taxpayer group and received at the distribution center are included in the calculation of the five hundred million dollars. All purchases from members of the same consolidated elected taxpayer group must be excluded from the calculation and cannot be included in the five hundred million dollar threshold.

(a) For example, corporation A is the operator of a distribution center. Corporation A, corporation B, and corporation Z purchase qualified property that is shipped to the distribution center by independent, third-party suppliers during the qualifying period. Corporation A and corporation B are part of the same consolidated elected taxpayer group; corporation Z is not part of corporation A's consolidated elected taxpayer group. The purchases of qualified property made by corporation A and corporation B that are shipped to the distribution center are aggregated in the calculation of the five hundred million dollar threshold. However, purchases made by corporation Z are not included in that calculation because corporation Z is not part of corporation A's consolidated elected taxpayer group.

(b) In contrast, assume the same facts as in the previous example. The intercompany sales between corporation A and corporation B or between or among any other members of the operator's consolidated elected taxpayer group are not aggregated with other purchases from outside suppliers to meet the five hundred million dollar threshold.

(2) The operator of such facility must have had more than fifty per cent of the cost of the qualified property shipped to a situs outside this state under the provisions of division (E) of section 5751.033 of the Revised Code during the qualifying period. Any qualified property shipped from a qualified distribution center to a destination within this state is received in this state, even if the qualified property is subsequently shipped outside this state.

(C) If the warehouse or similar facility meets both requirements, the operator of such location must make an application to the tax commissioner and provide its Ohio delivery percentage. The Ohio delivery percentage equals the percentage of the cost of qualified property that is shipped to purchasers located within this state. The computation shall be carried out to four decimal places (e.g., 44.56 per cent). If the calculation results in more than four decimal places, the percentage shall be rounded up whenever the fifth decimal place is greater than four. "Purchasers" of this property may be either members of the same consolidated elected taxpayer group or non-members of the group. The cost basis used for calculating the Ohio delivery percentage must be consistently applied in both the numerator and denominator and must be supported by the taxpayer's records as they existed during the qualifying period.

(D) On the operator's application, the calculations provided to establish compliance with the requirements identified in this paragraph and paragraph (B) of this rule must be certified by a certified public accountant in a format approved by the commissioner. Such certification must be attached to the operator's application. With the application, the operator must provide both: (1) the cost of the qualified property shipped to the distribution center by suppliers during the qualifying period; and (2) the Ohio delivery percentage cost attributable to each location, which is the proportion of the cost of the qualified property shipped to locations in this state compared with the cost of qualified property shipped everywhere. Only those suppliers that actually sell to such qualified distribution center qualify for the partial exclusion from their gross receipts.

(E) In the event an agency relationship exists such that a broker, for example, works with a supplier to sell to a distribution center, only the principal (the supplier) is entitled to take the partial exclusion from its gross receipts pursuant to division (F)(2)(z) of section 5751.01 of the Revised Code. The broker may be entitled to exclude the portion of the gross receipts it passes on to the principal/supplier as an agent under division (F)(2)(l) of section 5751.01 of the Revised Code. However, the person receiving the commission or fee could not apply the Ohio delivery percentage to its commission or fee in order to further reduce its commercial activity tax liability because such person is providing a service and the amount retained is not attributable to qualified property.

Effective: 09/01/2006
R.C. 119.032 review dates: 09/01/2011
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.01(F)(2)(z)

5703-29-17 Situsing of certain services for purposes of the commercial activity tax.

(A) In general, gross receipts from services are sitused to Ohio in the proportion that the purchaser's benefit in Ohio with respect to what was purchased bears to the purchaser's benefit everywhere with respect to what was purchased. Except as otherwise set forth in this rule, the physical location where the purchaser ultimately uses or receives the benefit of what was purchased is paramount in determining the proportion of the benefit received in Ohio. The tax commissioner will not require taxpayers to upgrade their systems in order to comply with the general provisions of this rule as long as the taxpayer makes a good faith effort to situs receipts from services in a reasonable, consistent, and uniform method that is supported by the taxpayer's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(B)

(1) For purposes of this proposed rule, "a purchaser only located in Ohio" for an individual means a resident of Ohio having no business locations outside Ohio. "A purchaser only located in Ohio" for any other entity means that both of the following apply:

(a) The entity's headquarters/commercial domicile (which may be different from the state of incorporation or state of organization) is in Ohio; and

(b) The entity has no physical locations outside Ohio.

(2)

(a) For those enumerated services that allow for the situsing of gross receipts using a reasonable, consistent, and uniform method supportable by the service provider's business records, the primary focus must be on the location where the purchaser ultimately uses or receives the benefit.

(b) In the event the commissioner disagrees with a taxpayer's reasonable, consistent, and uniform method of situsing its gross receipts, a penalty will not be imposed if the situsing was found to be made in good faith. While different methods may be used for different types of services, the same method must be consistently used for all types of similar services.

(C) The following is a list of various services and the situsing method to be used for commercial activity tax purposes. This list is not meant to be comprehensive, but provides guidance on how to source each service listed. If a service is not specifically listed in this rule, the situsing provisions for a similar service may provide guidance. Situations which arise that do not match the examples provided may need to be handled on a case by case basis. The department of taxation reserves the right to review and adjust any apportionment of gross receipts made by a taxpayer.

(1) Accounting services

(a) If accounting services are performed for a purchaser only located in Ohio, one hundred percent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, a Kentucky sole proprietor with only one retail store in Kentucky engages the services of an Ohio accountant to prepare its financial statements. The gross receipts from this service are sitused to Kentucky.

(b) If accounting services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are of benefit to specific operations located in Ohio.

For example, a national retailer hires an Ohio accounting firm to address an inventory problem that exists at its Ohio stores. The gross receipts from this service are sitused to Ohio

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, accounting services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual and such individual has no business locations outside of Ohio, at the individual's residence. The term "principal place of business" for those other than individuals refers to the location where the business unit being provided the service primarily maintains its operations. In determining the "principal place of business" of a purchaser, the following measures, if known, shall be considered in sequential order:

(i) The branch, division, or other unit where the client primarily receives the benefit of the accounting service;

For example, the New York division of a large, multi-national corporation with operations in Ohio pays an Ohio accountant accounting fees associated with the division's product liability suit. Receipts from this service are sitused to New York, because the accounting services were primarily received by the New York division.

(ii) The primary location of the management operations of the purchaser's business unit; and

For example, an accounting firm provides valuation services for the sale of one product line of a large, multi-state manufacturer. The product line being sold has locations in several states, but the management of the product line is located in Ohio. The gross receipts would be sitused to Ohio since the first default, i.e., the location where the purchaser primarily receives the services, would not be applicable, and the business unit's management operations are in Ohio.

(iii) The billing address, acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

For example, an accounting firm provides valuation services for the sale of one product line of a large, multi-state manufacturer. The product line being sold has locations in several states, with management of the product line located in most of the locations. The billing address may be used to situs the gross receipts as long as the address is associated with an operation of the manufacturer.

(d) If accounting services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(2) Advertising services

This provision only applies to those providing advertising services and not those actually receiving advertising revenue for allowing an advertisement to be placed in a newspaper, magazine, radio, television or similar media.

(a) If advertising services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

(b) If advertising services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, advertising services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the advertising service;

(ii) The primary location of the management operations of the purchaser's business unit; and

(iii) The purchaser's (client's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If advertising services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(3) Agents/managers of athletes/entertainers

(a) If an agent/manager represents an athlete in negotiating a contract to play for an Ohio-based team, or for an individual to appear at an Ohio-based sporting event, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the negotiations occur.

For example, an agent negotiates a contract for an athlete (regardless of athlete's residence) to play on a sports team in Cincinnati, Ohio. One hundred per cent of the agent's fee is a taxable gross receipt.

As another example, an agent negotiates a contract for an athlete who resides in Ohio, but will play for a team based outside Ohio. None of the agent's fee is sitused to Ohio.

(b) If an agent/manager represents an entertainer in negotiating a contract to perform at an Ohio-based event, one hundred per cent of the gross receipts related to that event are sitused to Ohio regardless of where the negotiations occur.

For example, an agent books a performer for a three-day concert in Marietta, Ohio. The agent's fee for that work is one hundred per cent sitused to Ohio.

(c) If an agent/manager represents an entertainer in negotiating a contract to perform at an Ohio location and locations outside of Ohio, the gross receipts are sitused to Ohio based on the number of known Ohio events compared to all known events.

For example, an agent books ten performances, two of which are at Ohio locations and eight of which are at non-Ohio locations. The agent's fee is twenty per cent sitused to Ohio.

(d) If the agent's/manager's services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(e) If an agent/manager represents an athlete or entertainer in negotiating a contract to endorse some thing or some one in Ohio, the gross receipts are sitused to Ohio based on the number of known Ohio events compared to all known events. If no event locations are known, the gross receipts are sitused to where the athlete or entertainer resides.

For example, an agent receives a fee for a national endorsement for a golfer who is contracted to appear at a total of twenty known events, two of which are known to be in Ohio events. The agent's fee is ten per cent sitused to Ohio.

(4) Agency -- Other

(a) If agency services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, a Kentucky sole proprietor with only one retail store in Kentucky engages the services of an Ohio agent to facilitate the purchase of merchandise from an Ohio manufacturer. The gross receipts from this service are sitused to Kentucky.

(b) If agency services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are of benefit to specific operations located in Ohio.

For example, a national retailer hires an Ohio agency to develop an advertising campaign targeting its Ohio stores. The gross receipts from this service are sitused to Ohio.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, agency services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the "principal place of business" of a purchaser, the following measures, if known, shall be considered in sequential order:

(i) The branch, division, or other unit where the purchaser (customer) primarily receives the benefit of the agency service;

For example, the New York division of a large, multi-national corporation with operations in Ohio pays an Ohio agent fees associated with the division's life insurance policy. Receipts from this service are sitused to New York, because the agency services were primarily received by the New York division.

(ii) The primary location of the management operations of the purchaser's business unit; and

For example, an advertising agency works with a multi-state manufacturer to develop an advertising campaign for its customers. The company has locations in several states, but the management of the company is located in Ohio. The gross receipts would be sitused to Ohio since the first default, i.e., the location where the purchaser primarily receives the services would not be applicable, and the business unit's management operations are in Ohio.

(iii) The purchaser's (customer's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

For example, an advertising agency provides magazine advertising services for one product line of a large, multi-state manufacturer. The product line being sold is located in several states, and the management of the product line is located in most of the locations. The billing address may be used to situs the gross receipts as long as the address is associated with an operation of the manufacturer.

(d) If agency services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(5) Appraisal services

(a) If the appraised property is located wholly in Ohio (regardless of where the purchaser is located), one hundred per cent of the gross receipts are sitused to Ohio.

For example, a local appraisal firm values three Ohio business properties and no properties outside of Ohio. The gross receipts from the appraisal services are sitused one hundred per cent to Ohio.

(b) If the appraised property is within and without Ohio, the gross receipts are sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided. As a default, the value of the appraised property in Ohio compared to the total value of the appraised property everywhere will be accepted.

For example, if forty per cent of the valuation is for Ohio properties and sixty per cent is for non-Ohio properties, only forty per cent of the gross receipts received for that service are sitused to Ohio.

(6) Architecture services (including drafting services)

(a) If architectural services are performed for a purchaser and the property being designed is to be located wholly in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, architectural services are performed for a property to be built in Youngstown, Ohio; one hundred per cent of the gross receipts for that service are sitused to Ohio.

(b) If architectural services are performed for property that will be located within and without Ohio, the gross receipts are sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided. As a default, the number of properties anticipated to be built in Ohio compared to everywhere will be accepted. If the services are not for standardized buildings, square footage may be used as a method of apportionment unless it creates a distortion.

For example, architectural services are performed for ten properties, three of which are in Ohio and seven of which are at non-Ohio locations. The architect's fee is thirty per cent sitused to Ohio.

(7) Athletes (including owners of animals used in sporting events)

(a) If an athlete receives remuneration for participating in or obtaining prize monies from an Ohio based event, one hundred per cent of the gross receipts are sitused to Ohio. Remuneration includes, but is not limited to, money, fair market value of property, or fair market value of services.

For example, an owner receives ten thousand dollars for a horse that shows (places third) at a race conducted in Ohio. That receipt is one hundred per cent sitused to Ohio.

(b) If an athlete is paid for appearing at an Ohio-based event, one hundred per cent of the gross receipts are sitused to Ohio.

For example, a person is paid to attend a home and garden show in Ohio, one hundred per cent of that gross receipt is sitused to Ohio.

(c) If an athlete is paid for endorsing a thing or a person in Ohio, the gross receipts are sitused to Ohio based on the number of known Ohio events compared to all known events. If no event locations are known, the gross receipts are sitused where the athlete resides. In dealing with national endorsements, in general, four and one-tenth per cent will be accepted in accordance with Ohio's population.

For example, a basketball player receives a fee from a soft drink company and is contracted to appear at a total of eighty known events, forty of which are in Ohio. The basketball player's fee is fifty per cent sitused to Ohio.

(d) If the athlete's services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(8) Barbershop/beauty salon/spa services

If barbershop, beauty salon, or spa services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

For example, a resident of Indiana receives a hair cut in Dayton, Ohio. One hundred per cent of that service is sitused to Ohio.

(9) Cable/satellite services

(a) Gross receipts from cable/satellite services are sitused to Ohio, in general, if the purchaser's (subscriber's) place of primary use is in Ohio, regardless of where the cable and satellite services originate. In general, the purchaser's (subscriber's) billing address will be accepted as the primary use location unless the seller of the service knows the purchaser (subscriber) is using the service in multiple locations.

For example, a satellite radio service has one million dollars in gross receipts from addresses billed to Ohio customers. The one million dollars in receipts are one hundred per cent sitused to Ohio.

(b) If the cable/satellite service provider knows that the purchaser (subscriber) is using the service in multiple locations inside and outside Ohio, the gross receipts are sitused to Ohio based on the number of properties in Ohio where the purchaser (subscriber) receives these cable/satellite services compared to everywhere.

(c) If cable/satellite services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(d) Gross receipts from providing billing and other ancillary services for cable/satellite service providers shall be sitused to Ohio based on the location of the purchaser's (cable/satellite service provider's) customers. If not known, the location(s) of the purchaser may be used.

(10) Call center services

(a) Gross receipts from providing call center services on a fixed cost basis shall be sitused based on the location of the purchaser. Gross receipts from providing call center services on a variable (or per call) cost basis shall be sitused to Ohio based on the location of the purchaser's customers. In determining the location of the purchaser and/or the purchaser's customers, the following, if known, apply in sequential order:

(i) The location (e.g. home, branch, division, or other business unit) where the purchaser and/or purchaser's customer primarily receives the benefit of the service;

(ii) The primary location of the management operations of the purchaser's and/or purchaser's customers business units; and

(iii) The purchaser's and/or purchaser's customers' billing address is acceptable if provided in good faith. To determine the purchaser's and/or purchaser's customer's billing address, a provider of call center services may rely on the area code and/or zip code of the purchaser and/or purchaser's customer.

(b) If call center services relate to various operations both within and within Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(11) Child care (day care or education) services

If child care services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

For example, a West Virginia resident obtains day care services in Gallipolis, Ohio. One hundred per cent of the gross receipts are sitused to Ohio.

(12) Collection Agency Services (including Repossession Services)

(a) If collection services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, a Pennsylvania repossession agency that receives one hundred per cent of its gross receipts from an automobile finance company whose business location is in Ohio, will situs all of its gross receipts to Ohio.

(b) If collection services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, collection services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the client primarily receives the benefit of the collection service;

(ii) The primary location of the management operations of the client's business unit; and

(iii) The client's billing address is acceptable if provided in good faith. The billing address must be the site where the client has some actual operations, and not just a post office box.

(d) If collection services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(13) Computer programming services

(a) If computer programming services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio, regardless of where the service provider is located.

(b) If computer programming services are performed for a purchaser that will use the computer programming within and without Ohio, the gross receipts are sitused to Ohio if either of the following apply:

(i) The services performed are related to a purchaser's specific operations located in Ohio; or

(ii) The services are performed that do not relate to a purchaser's specific operation. The services are sitused to Ohio based on the purchaser's number of users in Ohio compared with the number of users everywhere.

(c) If computer programming services relate to various locations both within and without Ohio, the gross receipts may be sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(14) Construction contractors

(a) If construction contracting services are performed for a purchaser and the property being constructed is located wholly in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, if construction contracting services are performed for property to be built in Youngstown, Ohio, one hundred per cent of the gross receipts for that service is sitused to Ohio.

(b) If construction contracting services are performed for property that will be located within and without Ohio and there is no separation of costs per location, the gross receipts are sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided. As a default, the number of properties anticipated to be built in Ohio compared to everywhere will be accepted. If the services are not for standardized buildings, square footage may be used as a method of apportionment unless it creates a distortion.

For example, construction contracting services are performed for ten properties, three of which are in Ohio and seven of which are at non-Ohio locations. The contractor's fee is thirty per cent sitused to Ohio.

(15) Contract manufacturing services

(a) For purposes of this rule, contract manufacturing includes a person who provides manufacturing services on a piece of property that the contract manufacturer does not own. Contract manufacturing should be sitused the same as the sale or delivery of tangible personal property under division (E) of section 5751.033 of the Revised Code.

(b) If the purchaser does not provide the location outside of this state (i.e. a minimum of city and state) where the product is to be shipped, the gross receipts in this situation are sitused to the location where the contract manufacturing is performed.

For example, a New York company ships metal tools both inside and outside Ohio. Gross receipts from contract manufacturing performed on tools shipped inside Ohio are sitused to Ohio as a taxable gross receipt. Gross receipts from contract manufacturing performed on tools shipped outside of Ohio are not Ohio taxable gross receipts.

As another example, a New York contract manufacturer makes an item that a seller located in Pennsylvania purchases from the contract manufacturer to sell to an Ohio customer. Upon completion of the contract manufacturing, the Pennsylvania seller instructs the contract manufacturer to ship the product directly to its customer in Ohio. Both the New York contract manufacturer's gross receipts and the Pennsylvania seller's gross receipts are sitused to Ohio and, accordingly, are Ohio taxable gross receipts.

(16) Data processing services

(a) If data processing services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, an Indiana vendor provides data processing services for a business that is located only in Ohio. The gross receipts received from that Ohio business are sitused to Ohio.

(b) If data processing services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

For example, an Indiana vendor converts the sales invoices of an Ohio business into an electronic format. The Ohio business has a manufacturing plant in Indiana and has its sales operation in Ohio. The gross receipts received from that Ohio business are sitused to Ohio.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, data processing services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the data processing service;

(ii) The primary location of the management operations of the purchaser's business unit; and

(iii) The purchaser's (client's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If data processing services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(17) Directors' fees

Fees received by a director of a corporation for the performance of his/her duties are sitused to the headquarters of the corporation. Remuneration includes, but is not limited to, money, stock, fair market value of property, or fair market value of services.

(18) Electricity (including electric transmission and distribution services)

Electricity (including electric transmission and distribution services) must be sitused according to section 5733.059 of the Revised Code.

(19) Employment services

Employment services are sitused to Ohio if the employee is assigned to a post of duty (i.e., where employee primarily works) located in Ohio.

For example, if an employment services company based in Kentucky provides employment services for a company with a post of duty in Cincinnati, Ohio, the gross receipts are one hundred per cent sitused to Ohio.

(20) Engineering services

(a) If engineering services are performed for a purchaser and the property is located wholly in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, engineering services are performed for a property to be built in Youngstown, Ohio; one hundred per cent of the gross receipts for that service are sitused to Ohio.

(b) If engineering services are performed for property that is located within and without Ohio, the gross receipts are sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided. As a default, the number of properties located in Ohio compared to everywhere will be accepted.

For example, engineering services are performed for ten properties, three of which are in Ohio and seven of which are at non-Ohio locations. The engineer's fee is thirty per cent sitused to Ohio.

(21) Entertainer services

(a) If an entertainer receives remuneration for participating at an Ohio based event, one hundred per cent of the gross receipts are sitused to Ohio. Remuneration includes, but is not limited to, money, fair market value of property, or fair market value of services.

(b) If an entertainer receives an appearance fee for appearing at an Ohio based event, one hundred per cent of the gross receipts are sitused to Ohio.

(c) If an entertainer is paid for endorsing a thing or a person in Ohio, the gross receipts are sitused to Ohio based on the number of known Ohio events compared to all known events. If no event locations are known, the gross receipts are sitused where the athlete resides. In dealing with national endorsements, in general, four and one-tenth per cent ( 4.1 %) will be accepted in accordance with Ohio's population.

For example, an entertainer receives national advertisement for participating in an event. Four and one-tenth per cent of the gross receipts from the endorsement are sitused to Ohio based on Ohio's census population in 2006.

(d) If the entertainer's services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(22) Entertainment/amusement services

(a) If the entertainment services being purchased are to be performed wholly in Ohio, one hundred per cent of the gross receipts are sitused to Ohio, regardless of where the services are purchased.

(b) If the entertainment services being purchased are to be performed within and without Ohio and originate and terminate from a location in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the purchaser makes the purchase of the services.

For example, an evening riverboat cruise leaves from Cincinnati, Ohio and returns to Cincinnati, Ohio. One hundred per cent of the gross receipts are sitused to Ohio.

(c) In the case of gross receipts from the selling of admission passes that can be used at locations within and without Ohio, gross receipts are sitused to Ohio if the admission is to be primarily used at locations in Ohio.

For example, if an admission pass can be used at several locations inside and outside Ohio, the presumption is that the receipt is an Ohio taxable gross receipt if the purchaser will primarily use the pass at an Ohio location. In general, the primary use of the admission pass is the closest facility to the purchaser's location at time of purchase.

(d) If entertainment services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(23) Exterminating services

(a) If exterminating services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

(b) If exterminating services are performed outside of Ohio, one hundred per cent of the gross receipts are sitused outside of Ohio.

(c) If exterminating services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time of the performance of the service or within a reasonable time thereafter.

(24) Facilities management services (including landscaping services)

(a) If the facility being managed is located wholly in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

(b) If the fee is not per location and the service is provided in Ohio and outside Ohio, the gross receipts are sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(c) As a default, the number of properties located in Ohio compared to everywhere will be accepted. If the services are not for standardized buildings, square footage may be used as a method of apportionment unless it creates a distortion.

(25) Financial planning services

(a) If financial planning services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, financial planning services are performed for an individual living in Youngstown, Ohio. One hundred per cent of the gross receipts for that service are sitused to Ohio.

(b) If financial planning services are performed for a business that is located within and without Ohio, the gross receipts are sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter. As a default, the number of locations in Ohio compared to everywhere will be accepted.

For example, financial planning services are performed for a business having ten locations, three of which are in Ohio and seven of which are outside of Ohio. The financial planner's fee is thirty per cent sitused to Ohio.

(26) Funeral services

(a) Funeral services includes, but is not limited to, making arrangements for viewings, embalming, burying, interring, cremating, arranging transportation of the deceased, and all other services associated with providing funeral services.

(b) If all of the funeral services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

(c) In general, if portions of the funeral services are performed within and without Ohio, gross receipts from the funeral services are sitused to Ohio if the burial or cremation takes place in Ohio.

(27) Gambling services

Winnings received from a wager placed at an Ohio location are sitused to Ohio.

For example, a Kentucky resident places a wager at an Ohio horse racing simulcast facility for a race outside of Ohio and that person wins one hundred sixty thousand dollars. The winnings are gross receipts sitused to Ohio.

(28) Healthcare provider services

If healthcare services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio. If a healthcare service is provided partly in this state and outside this state, a reasonable allocation for the services performed in Ohio must be made.

For example, a German resident comes to have a surgery performed at a hospital in Ohio. One hundred per cent of that gross receipt is an Ohio taxable gross receipt.

(29) Independent writers/artists services

(a) If the writer/artist delivers the item to the purchaser in tangible or electronic format, the gross receipts are sitused to Ohio if the purchaser receives the item in Ohio.

(b) If the writer/artist does not know the location of the purchaser receiving the item, then gross receipts are sitused to Ohio if the purchaser's address to which the writer/artist sends the invoice is located in Ohio.

(c) If the writer's/artist's services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(30) Internet/web hosting services

(a) If Internet or web hosting services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the web host is located.

(b) If Internet or web hosting services are performed for a purchaser only located outside Ohio, one hundred per cent of the gross receipts are sitused outside Ohio regardless of where the web host is located.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, Internet or web hosting services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the Internet or web hosting service;

(ii) The primary location of the management operations of the purchaser's business unit; and

(iii) The purchaser's (client's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If Internet or web hosting services are performed for a purchaser located both within and without Ohio, the gross receipts are sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(31) Investigation services

(a) If investigation services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

(b) If investigation services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

(c) If investigation services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(32) Legal services

(a) If legal services are performed that relate to Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, an attorney drafts a will in Ohio for a client residing in Kentucky. The gross receipts from the will are sitused to Kentucky since the services relate to a Kentucky estate. Similarly, if an attorney drafts a will in Kentucky for a client who resides in Ohio, the gross receipts from this service will be sitused to Ohio since the services relate to an Ohio estate.

As another example, a company located solely in Michigan sends its treasurer to Ohio for a meeting. The treasurer is involved in an accident on a highway in Ohio, and the company hires an Ohio law firm to represent the treasurer and the company in a proceeding in federal district court in Ohio. The gross receipts from this service will be sitused to Ohio since the services relate to an Ohio tort.

As another example, an attorney prepares a corporation's (client's) case at the Ohio board of tax appeals. As part of the preparation, the attorney travels to the corporation's (client's) Tennessee location to interview the client's employees. The gross receipts received by the attorney for all services, including those services related to interviewing the client's employees in Tennessee, are sitused to Ohio.

(b) Except as provided in paragraph (C)(32)(a) of this rule, if legal services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, an attorney drafts a contract in Ohio for a purchaser (client) residing in Kentucky to settle the client's dispute with the federal government over an employment contract. The gross receipts are sitused to Kentucky. If the client resided in Ohio, the receipts would be sitused to Ohio even if the contract was drafted in Kentucky.

As another example, an attorney makes an appearance in the federal sixth circuit court of appeals in Cincinnati, Ohio for a client located solely in Tennessee concerning the client's federal income taxes. Receipts from this service are sitused to Tennessee.

(c) If legal services are performed for a purchaser with operations in both Ohio and in another state or jurisdiction, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

For example, an international retailer with stores in Ohio hires an Ohio law firm with New York-licensed attorneys to address a New York workers compensation claim. The gross receipts from this service are sitused to New York. If the retailer hires a New York law firm with Ohio-licensed attorneys to address an Ohio workers compensation claim, the gross receipts from this service are sitused to Ohio.

(d) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, legal services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the legal service;

For example, the Ohio division of a large, multi-national company incorporated in New York pays an attorney legal fees associated with the division's product liability suit. Receipts from this service can be sitused to Ohio, because the legal services were primarily received by the Ohio division.

(ii) The primary location of the management operations of the purchaser's business unit;

For example, a large, multi-national Ohio corporation hires an attorney to defend its federal income tax return. Because the service benefits the entire corporation, rather than a specific division or business location, receipts from this service can be sitused to Ohio based on its management's operations.

(iii) The purchaser's (client's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(e) If legal services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(33) Linen/uniform supply/dry cleaning services

If linen/uniform supply/dry cleaning services are delivered to or picked up at a location in Ohio, one hundred per cent of the gross receipts are sitused to Ohio. If the property is delivered to or picked up at a location outside of Ohio, one hundred per cent of the gross receipts are sitused outside Ohio.

(34) Magazines/newspapers

Subscription and advertising gross receipts are to be sitused to Ohio based upon the proportion of the purchaser's (publication's) circulation located in Ohio over the total of the purchaser's (publication's) circulation located everywhere.

(35) Management consulting services

(a) If management consulting services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

(b) If management consulting services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

(c) At the election of the management consulting service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, such services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the management consulting service;

(ii) The primary location of the management operations of the purchaser's business unit; and

(iii) The purchaser's billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If management consulting services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(36) Market research services

(a) If market research services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

(b) If market research services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, market research services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the market research service;

(ii) The primary location of the management operations of the purchaser's business unit; and

(iii) The purchaser's billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If market research services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(37) Membership fees

(a) If the membership fees being paid are for the right to participate in events at a specific location or specific locations only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio, regardless of where the fees are paid.

For example, a golf course in Cincinnati, Ohio receives membership dues from an individual who resides in Kentucky. Since the membership to that Cincinnati course allows the Kentucky individual to golf at that resort, the gross receipts shall be sitused to Ohio, even though the individual resides outside of Ohio.

(b) In the case of gross receipts from the selling of admission passes that can be used at locations within and without Ohio, gross receipts are sitused to Ohio if the admission is to be primarily used at locations in Ohio.

For example, if an admission pass can be used at several locations inside and outside Ohio, the presumption is that the receipt is an Ohio taxable gross receipt if the purchaser will primarily use the pass at an Ohio location. In general, the primary use of the admission pass is the closest facility to the purchaser's location at time of purchase.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, membership fees may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the "principal place of business" of a purchaser, the following measures, if known, shall be considered in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily uses the membership for which the fee was paid;

(ii) The purchaser's (client's) primary location of the management operations of the purchaser's (client's) business unit; and

(iii) The purchaser's (client's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If the membership fees relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the fees were paid or within a reasonable time thereafter.

(38) Money order/wire transfer services

If money order/wire transfer services are delivered to or picked up at a location in Ohio, one hundred per cent of the fee for such services are sitused to Ohio, regardless of where the money order/wire transfer service originates.

(39) Moving/Storage Services

(a) If the moving service destination is to a location in Ohio, one hundred per cent of the gross receipts are sitused to Ohio. Fees for incidental storage during a moving service are not sitused to Ohio if both of the following apply:

(i) The storage does not occur in Ohio; and

(ii) The storage fee is separately billed from the moving service.

(b) Fees for packing and/or unpacking services shall be sitused based upon where such services are provided.

(c) Fees for storage services shall be sitused to Ohio to the extent the storage took place in Ohio.

(d) If moving, packing or unpacking, or storage services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(40) Payroll services

(a) If payroll services are performed for a purchaser with its employees only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio, regardless of where the services are performed.

(b) If payroll services are performed for a purchaser with employees within and without Ohio and the payroll services are provided for more than one state including Ohio, the gross receipts are sitused to Ohio based on the purchaser's number of employees (covered by the services) located in Ohio to the number of employees everywhere.

(41) Promoters of arts/sports/similar event services

(a) If a promoter promotes an Ohio-based event, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the promoting services are performed.

(b) If a promoter promotes an event that will be held within and without Ohio, the gross receipts are sitused to Ohio based on the number of known events in Ohio compared to all known events. If no event locations are known, the gross receipts are sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(42) Radio/television broadcasting/internet advertising services

Broadcasting and Internet advertising gross receipts (including receipts from commercials and pay-per-click advertisements) are to be sitused to Ohio based upon the proportion of the television or radio station's audience or Internet provider's subscribers located in Ohio over the total of the television or radio station's audience or Internet provider's subscribers located everywhere.

(43) Real estate broker services

If real estate sold by a real estate broker is located in Ohio, the gross receipts earned by the real estate broker are sitused to Ohio, regardless of where the broker's services were performed. See division (F)(3) of section 5751.01 of the Revised Code to see which gross receipts of a real estate broker can be excluded.

(44) Repair/maintenance/installation services

(a) If the property to be repaired, maintained, or installed is dropped off and picked up at the service provider's location in Ohio, the gross receipts are sitused to Ohio.

(b) If the property is shipped to the service provider's location in Ohio from outside of Ohio but is then picked up at the location in Ohio, the gross receipts are sitused to Ohio.

(c) If the property is dropped off or shipped to the service provider's location in Ohio and then shipped outside of Ohio, the gross receipts are sitused outside of Ohio.

(45) Security services

(a) If security services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

(b) If security services are performed outside of Ohio, one hundred per cent of the gross receipts are sitused outside of Ohio.

(c) If security services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time of the performance of the service or within a reasonable time thereafter.

(46) Tax preparation services

(a) If tax preparation services are performed for a purchaser only located in Ohio, one hundred percent of the gross receipts are sitused to Ohio regardless of where the services are performed.

For example, the gross receipts from the preparation in Kentucky of a federal income tax return for a client residing in Ohio will are sitused to Ohio. Similarly, the gross receipts from the preparation in Ohio of a federal income tax return for a client residing in Kentucky will be sitused to Kentucky.

(b) If tax preparation services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, tax preparation services may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the tax preparation service; the branch, division, or other unit where the purchaser (client) primarily receives the benefit of the tax preparation service;

(ii) The primary location of the management operations of the purchaser's business unit; and

(iii) The purchaser's (client's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If tax preparation services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(47) Technical assistance services

(a) If technical assistance services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of where the services are performed.

(b) If technical assistance services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to specific operations located in Ohio.

(c) At the election of the service provider, and as long as it is applied in a reasonable, consistent, and uniform manner, technical assistance fees may be sitused according to the purchaser's "principal place of business" or, if the purchaser is an individual not engaged in a business, at the individual's residence. The term "principal place of business" refers to the location where the business unit being provided the service primarily maintains its operations. In determining the location of the purchaser's principal place of business, the following, if known, apply in sequential order:

(i) The branch, division, or other unit where the purchaser (client) primarily receives the benefit of the technical assistance service;

(ii) The primary location of the management operations of the purchaser's business unit; and

(iii) The purchaser's (client's) billing address is acceptable if provided in good faith. The billing address must be the site where the purchaser has some actual operations, and not just a post office box.

(d) If technical assistance services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time the service was provided or within a reasonable time thereafter.

(48) Telecommunications services (including ancillary telecommunications services)

(a) Except as provided in paragraphs (C)(48)(b) to (C)(48)(g) of this rule, gross receipts from the sale of telecommunications service or mobile telecommunications service shall be sitused to Ohio if the customer's place of primary use of the service is in this state. In general, the customer's "place of primary use" means the street address representing where the customer's use of the telecommunications service primarily occurs, which must be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications service, such address is the place of primary use only if it is within the licensed service area of the customer's home service provider.

(b) Gross receipts from the sale of telecommunications service sold on an individual call-by-call basis shall be sitused to Ohio if either of the following applies:

(i) The call both originates and terminates in this state;

(ii) The call either originates or terminates in this state and the service address also is located in this state.

(c) Gross receipts from the sale of post-paid telecommunications service shall be sitused to Ohio if the origination point of the telecommunication signal, as first identified by the service provider's telecommunication system, or as identified by information received by the seller from its service provider where the system used to transport such signals is not that of the seller, is located in this state.

(d) Gross receipts from the sale of prepaid telecommunications service or prepaid mobile telecommunications service shall be sitused to Ohio if the purchaser obtains the prepaid card or similar means of conveyance at a location in Ohio. Gross receipts from recharging a prepaid telecommunications service or mobile telecommunications service shall be sitused to Ohio if the purchaser's billing information indicates an Ohio location.

(e) Gross receipts from the sale of private communication services shall be sitused to Ohio as follows:

(i) One hundred per cent of the gross receipts from the sale of each channel termination point within this state;

(ii) One hundred per cent of the gross receipts from the sale of the total channel mileage between each termination point within this state;

(iii) The gross receipts from the sale of service segments for a channel between two customer channel termination points, one of which is located in this state and the other outside this state, and which segments are separately charged, shall be sitused fifty per cent to Ohio and fifty per cent to the other state or jurisdiction in which the customer channel termination points are located; or

(iv) The gross receipts from the sale of service for segments of a channel located in this state and in more than one other states or equivalent jurisdictions, and which segments are not separately billed, shall be sitused to Ohio based on the percentage determined by dividing the number of customer channel termination points in the state or equivalent jurisdiction by the total number of customer channel termination points.

(f) Gross receipts from the sale of billing services and ancillary services for telecommunications service shall be sitused to Ohio based on the location of the purchaser's customers. If not known, the location(s) of the purchaser may be used.

(g) Gross receipts from the sale of access fees, such as the carrier access charge paid by an interexchange carrier to connect to a local exchange network in Ohio, shall be sitused to Ohio as follows:

(i) Gross receipts from access fees attributable to intrastate telecommunications service that both originates and terminates in Ohio are sitused one hundred per cent to Ohio.

(ii) Gross receipts from access fees attributable to interstate telecommunications service are sourced fifty per cent to Ohio if the interstate call either originates or terminates in Ohio.

(iii) Gross receipts from interstate end user access line charges, such as the surcharge approved by the federal communications commission and levied pursuant to the Code of Federal Regulations, Title 47, Part 69, shall also be sourced one hundred per cent to Ohio if the customer's service address is in Ohio.

(h) All terms in this section are as defined in divisions (AA) and (VV) of section 5739.01 of the Revised Code.

(49) Testing laboratories

(a) If testing services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

(b) If testing services are performed outside of Ohio, one hundred per cent of the gross receipts are sitused outside of Ohio.

(c) If testing services relate to various locations both within and without Ohio, the gross receipts may be sitused to Ohio using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time of the performance of the service or within a reasonable time thereafter.

(50) Towing services

If the towing services originate from a location in Ohio, one hundred per cent of the gross receipts are sitused to Ohio regardless of the destination.

For example, a Pennsylvania resident's car breaks down in Ohio and is towed back to Pennsylvania. The receipts for the towing services are sitused to Ohio, since the towing service originated in Ohio.

(51) Transportation services/brokers /logistics

(a) Gross receipts from transportation services are sitused to Ohio based on division (G) of section 5751.033 of the Revised Code. The provisions of paragraph (C)(51)(a) of this rule only apply to providers of transportation services. Sellers of tangible personal property itemizing transportations charges must situs such charges in the same manner as the tangible personal property.

(b)

(i) For purposes of this rule, "broker" means a person who, for compensation, arranges or offers to arrange the transportation of property by an authorized motor carrier; and "brokerage" or "brokerage services" means the arranging of transportation or the physical movement of a motor vehicle or of property. If consulting services are provided for logistics, please refer to management consulting services in paragraph (C)(35) of this rule.

(ii) Gross receipts received by a broker not providing any transportation services for the tangible personal property in question but arranging solely for the provision of transportation services shall be sitused to the location where the property is shipped.

(c) Logistics includes all the processes required to go from raw materials to end customer delivery, including purchasing, inventory management, warehousing, shipping, and customer returns, but does not include transportation or brokerage services.

(i) If the logistics services relate to shipping operations, the gross receipts shall be sitused based on the location where the product is shipped.

(ii) If the logistics services relate to inventory management and/or warehousing operations, the gross receipts shall be sitused based on the location of the inventory and/or warehouse.

(iii) If the logistics services relate to purchasing operations, the gross receipts shall be sitused to the location where the purchaser benefits from such service. In determining the location of the purchaser, the following, if known, apply in sequential order:

(a) The branch, division, or other unit where the purchaser primarily receives the benefit of the service;

(b) The primary location of the management operations of the purchaser's business unit; and

(c) The purchaser's billing address is acceptable if provided in good faith.

(d) For purposes of paragraph (C)(51)(c) of this rule, gross receipts from logistics services that relate to multiple types of logistics operations may be sitused using any reasonable, consistent, and uniform method of apportionment that is supported by the service provider's business records as they existed at the time of the performance of the service or within a reasonable time thereafter.

For example, a Wisconsin branch of a multi-national manufacturer contracts with an Ohio logistics company to both provide for improvements in its inventory management and for providing the shipment of its goods to the purchaser's customers. The logistic company's gross receipts are sitused in two different ways: the portion relating to inventory management is sitused according to the logistic services situsing provisions, in this case to the Wisconsin branch location; and the portion relating to the transportation services is sitused based on the company's miles traveled within Ohio to its miles traveled everywhere.

(52) Travel arrangement services

(a) If travel arrangement services are performed for a purchaser only located in Ohio, one hundred per cent of the gross receipts are sitused to Ohio, regardless of where the services are performed or the location of the travel destination.

(b) If travel arrangement services are performed for a purchaser with operations within and without Ohio, the gross receipts are sitused to Ohio if the services performed are related to a specific employee whose post of duty is in Ohio.

For example, a multi-national corporation has employees both within and without Ohio. The corporation uses one travel agent to arrange the travel plans for all of its nationwide employees. If the services are performed for an employee located in Ohio, the gross receipts from that service will be sitused to this state.

(53) Veterinarian services

If veterinarian services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

(54) Waste management services

If waste management services are performed in Ohio, one hundred per cent of the gross receipts are sitused to Ohio.

For example, a waste hauler in New York ships refuse to an Ohio landfill. The gross receipts received by the Ohio landfill are sitused to Ohio, because the benefit of the purchaser (i.e. the waste hauler) is having the refuse delivered to this state.

Effective: 12/21/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.033

5703-29-18 Records retention requirements.

(A) Pursuant to the authority granted under section 5751.12 of the Revised Code, the tax commissioner hereby promulgates a rule that establishes a record retention policy for purposes of the commercial activity tax. Under that section, the commissioner may identify certain records that are necessary for a person to maintain in order to show whether, and the extent to which, that person is subject to the tax imposed by Chapter 5751. of the Revised Code.

(B) For purposes of determining gross receipts under division (F) of section 5751.01 of the Revised Code, all persons subject to the tax imposed under section 5751.02 of the Revised Code shall keep and maintain primary and supporting records including but not limited to the following: sales journals, financial statements, charts of accounts, cash journals, annual reports, general ledgers, income statements and tax returns, and invoices. In addition, all persons must maintain organizational structures that reflect ownership and control percentages as they exist in each filing period.

(C)

(1) With regard to records concerning net operating loss credits available under section 5751.53 of the Revised Code, persons must retain records relating to such credit until June 30, 2010. Since companies may generate net operating losses long before being able to claim a deduction for the loss, records relating to the calculation of the corporation franchise tax reports for all years between the year the Ohio net operating loss was generated and each year in which the loss is being applied against Ohio taxable income must be maintained until June 30, 2010. Further, the statute of limitations does not prohibit either the commissioner or the taxpayer from adjusting the net operating loss carried forward from a tax year closed to assessment to a year still open to assessment or refund. See Consumer Direct v. Limbach (1991), 62 Ohio St. 3d 180.

(2) For example, company A generated a net operating loss in Ohio corporate franchise tax year 1989 (taxable year ending in 1988). Because of previous losses and correlating loss carryforward amounts, company A does not begin to claim the loss generated in the taxable year ending in 1988 until Ohio corporate franchise tax year 2005 (taxable year ending in 2004). For purposes of claiming any credit for commercial activity tax purposes, company A is required to retain all records relating to the calculation of the credit, including all Ohio corporate franchise tax returns for the tax years 1989 through 2005 until June 30, 2010.

(D) All persons making purchases must maintain the purchase records and make them available to the commissioner for inspection in accordance with the provisions in section 5751.12 of the Revised Code. Such records must be maintained for at least four years from the later of the filing of or the due date of the return covering the period in which the purchases were made.

(E) For purposes of divisions (E) and (I) of section 5751.033 of the Revised Code, any invoices or documents relating to the situsing of receipts from the sale of tangible personal property or from the sale of services must be maintained for at least four years from the later of the filing of or the due date of the return covering the period in which the sales were made.

(F) This rule also applies to all records discussed in information releases and/or administrative rules relating to the commercial activity tax. Pursuant to section 5751.12 of the Revised Code, all records must be maintained for a period of four years from the later of the filing of or the due date of the return covering the period to which the records relate unless the commissioner either consents in writing to their earlier destruction or, by written order, extends the time period required for retention.

Effective: 12/28/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.01 , 5751.02 , 5751.033 , 5751.12 , 5751.53

5703-29-19 Changes in ownership.

(A) Consolidated elections, generally.

(1) For purposes of the commercial activity tax, a group of two or more persons may elect under section 5751.011 of the Revised Code to be in a consolidated elected taxpayer group that includes all persons that are at least fifty per cent owned and controlled or at least eighty per cent owned and controlled by common owners. The group also may elect to include or exclude all non-United States entities that otherwise meet the requirements to be in the group.

(2) The percentage chosen by the members of a consolidated elected taxpayer group applies to all persons meeting the requisite common ownership requirements. For example, person A, a corporation, elects to consolidate at eighty per cent with its wholly owned subsidiary, B. Person B owns two of its own subsidiaries (C and D) at sixty per cent. Because A, the common owner, elected to consolidate at eighty per cent with B, entities C and D are not included in the consolidated elected taxpayer group of their common owners (A and B). Instead, C and D are part of a combined taxpayer group that is commonly owned by A and B. In addition, C and D may not make a separate election to consolidate at fifty per cent in order to exclude their receipts. Since A and B are members of both taxpayer groups, A's and B's taxable gross receipts are reported with the consolidated elected taxpayer group.

(B) Change of ownership and control.

(1) Any time the ownership structure changes such that a common owner no longer owns and controls a person by the requisite percentage chosen, that person shall be removed from the group. The group shall notify the commissioner of this change at the time it files its next return or in writing prior to the due date of that return. Taxpayers wishing to notify the commissioner of such change prior to filing the next return may obtain a form on the department of taxation's web site. As applicable, the person no longer meeting the requirements shall register for the commercial activity tax as a stand-alone taxpayer or be added as a member of another group.

(2) It is important to note that a change in the ownership structure may impact the tax liability of a taxpayer group. For example, assume that a calendar year taxpayer acquires a person at some point during the tax period that has taxable gross receipts in excess of one million dollars. Since the calendar year taxpayer previously had only a minimum tax liability, by acquiring an additional person, the calendar year taxpayer's tax liability will surpass its previous liability. If the calendar year taxpayer does not timely notify the commissioner of this change, there will be an underpayment, which is subject to statutory interest and may be subject to penalties. Therefore, when it is reasonably certain that a calendar year taxpayer will have taxable gross receipts in excess of one million dollars during the calendar year, that taxpayer shall switch to a quarterly taxpayer. In this situation, it is advised that the taxpayer notify the commissioner of the acquisition and/or change in filing frequency within a reasonable period of time. A form to make such notice may be obtained on the department of taxation's website.

(C) Acquiring a member.

(1) If a consolidated elected taxpayer group acquires a person, such person will be included in the consolidated elected taxpayer group if that person meets the requisite ownership and control threshold requirements. It is important to note that if the group elected to consolidate at eighty per cent and the new person is owned and controlled by less than eighty per cent but more than fifty per cent, that person would become part of a combined taxpayer group along with any other potential members having less than eighty per cent but more than fifty per cent common ownership. For example, A elects to consolidate at eighty per cent with B, its wholly-owned subsidiary. A later acquires C at sixty per cent. Since A made an eighty per cent election, C is not included in the group; instead, C will be in a combined taxpayer group with its common owner, A.

(2) The rules in paragraph (C)(1) of this rule apply to a consolidated elected taxpayer group that acquires either a combined taxpayer group or another consolidated elected taxpayer group. In such case, the ownership threshold of the acquiring group controls. For example, consolidated elected taxpayer group A elects to consolidate at fifty per cent. Group A later acquires consolidated elected taxpayer group B, which, at the time of registration, elected to consolidate at eighty per cent. Since two separate consolidated elected taxpayer groups cannot coexist under a single common owner, A's fifty per cent threshold controls and group B is included in its entirety. In contrast, if A had elected to consolidate at eighty per cent and became B's common owner at sixty per cent, B would be required to file as a combined taxpayer group with A as the common owner.

(3) Alternatively, if a combined taxpayer group acquires a pre-existing consolidated elected taxpayer group, the common ownership of the acquiring group, i.e. the combined taxpayer group, controls. For example, group A did not elect to consolidate; instead, A owned and controlled enough of its lower-tiered persons such that A filed as a combined taxpayer group. When group A acquires group B, a consolidated elected taxpayer group, the new taxpayer is a combined taxpayer group in accordance with A's status. Please note that as a combined taxpayer group, such group may elect to consolidate at any time pursuant to division (D) of section 5751.011 of the Revised Code.

(D) Canceling an election to consolidate.

Pursuant to division (A)(3)(b) of section 5751.011 of the Revised Code, a taxpayer group must notify the commissioner if it elects to cancel its election to consolidate before the final day in the eighth calendar quarter after the election is made, not the due date of the return filed for the period including that quarter. For taxpayers that elected to consolidate during the semi-annual period from July 1, 2005 through December 31, 2005, the commissioner must be notified in writing that the group wishes to cancel its election by June 30, 2007, not August 9, 2007 (the due date of that return). The cancellation will be effective beginning the first day of the quarter following the eighth quarter after the election is made. A form to notify the commissioner of the desire to cancel an election may be obtained on the department of taxation's website.

Effective: 12/28/2006
R.C. 119.032 review dates: 12/28/2011
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.011 , 5751.012

5703-29-20 Situsing receipts from periodic payments for mobile property.

(A)

(1) Gross receipts from the sale or other exchange of tangible personal property are sitused based on the location where the purchaser receives the property in accordance with division (E) of section 5751.033 of the Revised Code. When dealing with receipts from mobile property upon which lease payments are made, the location to situs such receipts may be unclear and paragraphs (B) and (C) of this rule shall be used in those situations.

(2) As used in this rule, the term "lease payments" also includes rental payments or other similar periodic payments.

(B) As a general rule, when lease payments are made regarding a piece of mobile property, such receipts shall be sitused based on the following:

(1) In the case of airplanes or other aircraft, receipts from the lease shall be sitused to the location where the aircraft is primarily hangared.

(2)

(a) In the case of motor vehicles used in business for the transportation of passengers or property in interstate commerce and railcars, receipts from the lease shall be sitused in accordance with division (G) of section 5751.033 of the Revised Code if that information is known. If such information is not known, receipts shall be sitused in accordance with paragraph (B)(2)(b) of this rule.

(b) In the case of all other motor vehicles, receipts from the lease shall be sitused based on the primary property location for the period in which the charges are incurred.

(3) In the case of all other lease payments, including those for construction equipment, receipts from the initial lease payment shall be sitused to the location where the lessee takes possession of the property. Receipts from all subsequent lease payments shall be sitused to the primary property location for the period in which the charges are incurred.

(C)

(1) In the event a taxpayer believes that a strict application of the standards set forth in this rule do not fairly represent the operations of the taxpayer, receipts may be sitused to this state using any reasonable, consistent, and uniform method of apportionment that is supported by the lessor's business records as they existed at the time the lease payments were made. In the event the tax commissioner disagrees with a taxpayer's reasonable, consistent, and uniform method of situsing its gross receipts, the commissioner will not impose a penalty if the situsing was found to be made in good faith. While different methods may be used for different types of leases, the same method must be consistently used for all types of similar leases.

(2) A taxpayer may file in writing with the commissioner a request to use an alternative means of situsing gross receipts from the sale or other exchange of mobile property that is reasonable, consistent, and uniform under paragraph (C)(1) of this rule. Such request must be made prior to the end of the reporting period for which the request is to become effective.

(D) For purposes of this rule, "primary property location" means an address for tangible personal property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of that address does not constitute bad faith.

Effective: 12/28/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5751.033

5703-29-21 Pre-income tax trusts, explained with revocation procedures.

(A) Subject to paragraph (D) of this rule, each pre-income tax trust making a qualifying pre-income tax trust election pursuant to division (FF)(3) of section 5747.01 of the Revised Code must register for the commercial activity tax imposed under section 5751.02 of the Revised Code by April 17, 2007. In addition, all such trusts must file tax returns for tax years 2006 and 2007 and pay at least a minimum tax of one hundred fifty dollars for each year, regardless of the trust's taxable gross receipts. This is required pursuant to the last sentence of division (E)(11) of section 5751.01 of the Revised Code that states in pertinent part "If the pre-income tax trust has made a qualifying pre-income tax trust election under division (FF)(3) of section 5747.01 of the Revised Code, then the trust * * * shall not be [an] excluded [person] for purposes of the tax imposed under section 5751.02 of the Revised Code."

(B) A "pre-income tax trust" is a trust that meets all of the following requirements under division (FF)(4) of section 5747.01 of the Revised Code: (1) the document creating the trust was executed prior to January 1, 1972; (2) the trust became irrevocable upon creation; and (3) the grantor was domiciled in Ohio when the trust was created.

(C) A "qualified pre-income tax trust" is a "pre-income tax trust", as that term is defined in division (FF)(4) of section 5747.01 of the Revised Code and paragraph (B) of this rule, that made an election pursuant to division (FF)(3) of section 5747.01 of the Revised Code prior to April 17, 2006. The deadline of April 15, 2006 specified in division (FF)(3) of section 5747.01 of the Revised Code was extended to coincide with section 1.14 of the Revised Code that addresses due dates of certain documents filed with the state that fall on a weekend or legal holiday.

(D)

(1) If the trustee of a qualified pre-income tax trust wishes to revoke the trust's election, the trustee must do so prior to the due date for the minimum tax for the current calendar year as provided for in division (A)(5) of section 5751.051 of the Revised Code. Such revocation is irrevocable and shall apply to the full taxable year for which the revocation is timely made.

(2) The trustee of a trust revoking its election must file a personal income tax return for the trust for taxable year 2006 (due to be filed in 2007) and make all corresponding payments by April 17, 2007 in order to avoid the imposition of penalties. For all future tax periods, a trustee of a trust revoking its election must file all applicable personal income tax returns and make all corresponding payments by the fifteenth day of the fourth month following the end of the tax period, unless extended by a weekend or legal holiday.

(3) The trustee of a trust revoking an election may receive a letter acknowledging the revocation. Such letter does not signify that the trust meets the definition of a pre-income tax trust for purposes of the commercial activity tax. Therefore, even though a trust revoked its election, it may remain subject to both the personal income tax and the commercial activity tax if it is later found not to be a pre-income tax trust.

(E) If a qualified pre-income tax trust would otherwise be the common owner of either a combined taxpayer group or a consolidated elected taxpayer group, and the trust has less than four thousand five hundred dollars in taxable gross receipts, such trust is not required to register for the commercial activity tax pursuant to paragraph (B)(2) of rule 5703-29-02 of the Administrative Code. However, in the case of a qualified pre-income tax trust that is not a common owner of either a combined taxpayer group or a consolidated elected taxpayer group, such trust must be registered for the commercial activity tax and must file all applicable returns, regardless of its taxable gross receipts.

Effective: 01/14/2008
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5747.01 , 5747.01(FF)(4) , 5751.02
Prior Effective Dates: 5/10/07

5703-29-22 Explanation of the commercial activity tax credits.

(A)

(1) For purposes of the commercial activity tax, the law provides for five different credits taxpayers may apply against their tax liability: (a) a nonrefundable jobs retention credit; (b) a nonrefundable credit for qualified research expenses; (c) a nonrefundable credit for a borrower's qualified research and development loan payments; (d) a credit for unused franchise tax net operating loss deductions, which operates as both a nonrefundable credit or a refundable credit, depending on the year in which the taxpayer claims the credit; and (e) a refundable jobs creation credit. The jobs retention credit, the credit for qualified research expenses, the credit for a borrower's qualified research and development loan payments, and the jobs creation credit are all available under the corporation franchise tax through tax year 2008 (the taxpayer's taxable year ending in 2007). Those credits are available under the commercial activity tax starting January 1, 2008; however, a taxpayer may not apply those credits against the taxpayer's commercial activity tax liability until the tax period July 1, 2008 to September 30, 2008 on the commercial activity tax return due November 9, 2008. (Please note that because November 9, 2008 falls on a non-business day, pursuant to section 1.14 of the Revised Code, the return due date is extended to November 11, 2008. Any reference to such date in this rule will be extended to the same date.) A taxpayer may not begin using the credit for unused net operating losses until tax year 2010. In any event, a taxpayer may not claim as a credit against the commercial activity tax any credit amount that such taxpayer previously claimed as a credit and received the benefit of such credit against the corporation franchise tax or individual income tax or, if applicable, any credit amount that a pass-through entity passed through to its owners to the extent the owners received the benefit of such credit. In addition, in no event may a taxpayer claim a nonrefundable credit against its commercial activity tax annual minimum tax liability. There is no statutory provision to allow a taxpayer to claim against the commercial activity tax any portion of its unused one-seventh manufacturers' credit/grant pursuant to sections 5733.33 , 5747.31 , and 122.171 of the Revised Code.

(2) In the event a taxpayer is entitled to claim more than one nonrefundable credit against its commercial activity tax liability, section 5751.98 of the Revised Code dictates the order in which such taxpayer must claim each credit. The order is particularly important if, in the year the taxpayer generates the nonrefundable credits, the taxpayer is unable to use some portion of the total credit available (because the total credit amount exceeds the tax due before credits). Generally, a taxpayer may carry forward to future years any nonrefundable credits not used in the year generated; however, the carryforward period is often limited and varies from credit to credit. After the carryforward period for a particular credit expires, any credit amount that remains unused is lost. The unused amount of a particular credit carried forward to a later year must be used after any lower numbered credit listed in section 5751.98 of the Revised Code but prior to the same credit generated in the later year and prior to any higher numbered credit listed in that section. The chart below reflects for each credit the code section that authorizes the credit, the carryforward period that relates to the credit, and the first year that taxpayers may use the credit against the commercial activity tax. The credits are listed in the table in the order in which they must be claimed.

See Table at

http://www.registerofohio.state.oh.us/pdfs/5703/0/29/5703-29-22_FF_N_RU_20080519_0811.pdf

(3)

(a) In the event a taxpayer claims any credit against the commercial activity tax, the taxpayer must complete a schedule promulgated by the tax commissioner for such purpose. The schedule shall include identifying information that links the primary/reporting entity to the member claiming the credit, including the primary/reporting entity's name and address, commercial activity tax account number, and federal identification number, as well as the name(s) and account number(s) of those entities claiming the credit, if applicable. On the schedule, the taxpayer must indicate the amount of each credit the taxpayer claims for that period.

(b) It is important to note that according to division (G)(2)(c) of section 5733.01 of the Revised Code, the corporation franchise tax phase-out factor does not apply in computing the amount of unused (nonrefundable) corporation franchise tax credit carried forward to subsequent year(s). That is, in computing the corporation franchise tax credit carried forward to a subsequent year, the credit is utilized against the corporation franchise tax to the extent the credit applies against the tax before multiplying the credit by the phase-out factor.

(B)

(1)

(a) Pursuant to division (B) of section 5751.50 of the Revised Code, the nonrefundable jobs retention tax credit is available under section 122.171 of the Revised Code to certain eligible businesses that propose capital investment projects that will retain jobs in Ohio. An eligible business may make an application to the tax credit authority to be considered for a nonrefundable jobs retention tax credit.

(b) Subject to the restrictions in paragraph (A)(1) of this rule, the credit granted under section 122.171 of the Revised Code may be applied against the corporation franchise tax, personal income tax, or commercial activity tax for a period of up to fifteen years, depending on the terms of the agreement with the tax credit authority. A taxpayer may carry forward any unused credit for not more than three years after the year in which the credit is granted.

(2)

(a) For those taxpayers that are subject to the phase-out of the corporation franchise tax and the phase-in of the commercial activity tax, the last corporation franchise tax report for which the jobs retention tax credit applies is the 2008 tax year (the taxable year ending in 2007). Jobs retention tax credit agreements entered into prior to 2008 that first apply to the corporation franchise tax automatically apply to the commercial activity tax for the remaining years of the agreement without further action on the part of the taxpayer or the director of development.

(b) A taxpayer that otherwise meets the requirements to claim the jobs retention tax credit must obtain a certificate from the director of development before the taxpayer may claim the credit. A taxpayer claiming a nonrefundable jobs retention tax credit may not begin accumulating the credit toward the taxpayer's commercial activity tax liability until January 1, 2008, and may not apply that credit against its commercial activity tax liability until the period July 1, 2008 to September 30, 2008 on the commercial activity tax return due November 9, 2008.

(c) In administering the jobs retention tax credit, the department of taxation will follow the policy established by the department of development in a letter to jobs creation tax credit recipients on December 29, 2006. Pursuant to that letter, the credit referenced in any certificate issued before May 31, 2008 must be claimed against the taxpayer's corporation franchise tax liability, and the credit referenced in any certificate issued after May 31, 2008 must be claimed against the taxpayer's commercial activity tax liability regardless of the withholding period on which the credit is based. Alternatively, recipients that are pass-through entities may elect to pass through the credit to such entity's owners. Of course, recipients that make that election may not claim as a credit against their commercial activity tax liability any portion of the credit passed through to a pass-through entity's owners.

(d) For commercial activity tax purposes, a taxpayer operating on a fiscal year basis that has a credit for any portion of calendar year 2007, which credit the taxpayer cannot claim against its corporation franchise tax liability, may claim the credit for that short period against the taxpayer's commercial activity tax liability.

(e) As an example of paragraph (B)(2) of this rule, assume that in year 2000, an April 30 year-end corporation franchise taxpayer enters into an agreement with the director of development for a credit for a period of fifteen years. According to the agreement, the first taxable year for which the taxpayer can claim the credit is the taxable year beginning May 1, 2000 and ending April 30, 2001, which corresponds with the taxpayer's corporation franchise tax report year 2002. When the taxpayer entered into the agreement, the last taxable year for which the taxpayer could have claimed the credit under the corporation franchise tax was the taxable year ending April 30, 2015, which corresponds with corporation franchise tax report year 2016. Because the commercial activity tax is computed and reported on a calendar year basis, the taxpayer is concerned with its credit for the short period May 1, 2007 to December 31, 2007.

(i) If on July 30, 2008, the director of development issues the taxpayer a tax credit certificate for the short period May 1, 2007 to December 31, 2007 then pursuant to the policy established by the department of development's December 29, 2006 letter, the taxpayer must claim the credit for that short period on its commercial activity tax return due November 9, 2008 to the extent of the taxpayer's liability for that quarter. Any unused credit is carried forward to the taxpayer's next quarterly return and is applied against the taxpayer's corresponding commercial activity tax liability. Beginning in calendar year 2008, the taxpayer is required to compute the credit on a calendar year basis, regardless of its fiscal year-end. Accordingly, the director of development will issue a certificate for the period January 1, 2008 to December 31, 2008 to the taxpayer, and the taxpayer will claim the credit on its return for the period during which the taxpayer receives the certificate.

(ii) If, instead of issuing the certificate in paragraph (B)(2)(e)(i) of this rule, on April 25, 2008, the director of development issues the taxpayer a certificate for the short period May 1, 2007 to December 31, 2007, such taxpayer would be required to apply that credit against its 2008 corporation franchise tax report (based on taxable year 2007).

(3)

(a) In accordance with division (H) of section 122.171 of the Revised Code, a taxpayer claiming a credit under section 122.171 of the Revised Code must submit to the commissioner with the taxpayer's tax return for the tax period in which the taxpayer receives the certificate a copy of the certificate and the completed schedules as referenced in paragraph (A)(3) of this rule. For purposes of the commercial activity tax, some taxpayers are required to file tax returns and to remit tax due on a quarterly basis electronically in accordance with section 5751.07 of the Revised Code, division (C) of section 5751.05 of the Revised Code, and rule 5703-29-05 of the Ohio Administrative Code. Electronic filers must send a copy of the certificate along with completed schedules to the following address: Ohio Department of Taxation, Commercial Activity Tax Division - CAT Credits, P.O. Box 530, Columbus, Ohio 43216-0530.Ifthetaxpayer fails to provide a copy of the certificate and schedules with its return or, if filing electronically, a copy to the commissioner, the taxpayer must supply a copy of the certificate within sixty days of the commissioner's request.

(b) For example, a taxpayer accrues a credit under section 122.171 of the Revised Code for the period January 1, 2009 to December 31, 2009. The taxpayer applies for a certificate with the director of development and receives the certificate June 15, 2010. The taxpayer may apply the credit against its commercial activity tax liability for the period April 1, 2010 to June 30, 2010 on its return due August 9, 2010. In the event the taxpayer does not fully utilize its entire credit, the taxpayer may carry forward any unused portion to apply against its future commercial activity tax liability for a period of up to three years. The taxpayer must provide the commissioner with a copy of its certificate at the time it files its initial return. If the taxpayer does not supply a copy of the certificate at that time, the taxpayer must supply a copy of the certificate within sixty days after the commissioner requests such copy.

(C)

(1) Pursuant to section 5751.51 of the Revised Code, the nonrefundable credit for qualified research expenses is available to taxpayers to apply against their commercial activity tax liability for purposes of conducting in-house research and contract research. The term "qualified research expenses" is defined in section 41 of the Internal Revenue Code. For purposes of this paragraph, "Internal Revenue Code" has the same meaning as in division (K) of section 5751.01 of the Revised Code.

(2) A taxpayer may begin accumulating a credit for qualified research expenses toward its commercial activity tax liability in tax year (calendar year) 2008. In addition, a taxpayer may begin applying its unused corporation franchise tax credit for qualified research expenses against its commercial activity tax liability on the commercial activity tax return due November 9, 2008 to the extent the taxpayer could not have applied the credit against the corporation franchise tax. Regardless of a taxpayer's commercial activity tax filing frequency, a taxpayer must compute the credit for qualified research expenses based on expenses incurred during the calendar year (not the taxpayer's federal taxable year or the taxpayer's Ohio corporation franchise taxable year). Thus, a taxpayer must claim the credit for qualified research expenses on its annual return due in February of each year. Any portion of the nonrefundable credit that remains unused after the taxpayer applies the credit against its commercial activity tax liability for that period may be carried forward to the subsequent return for no more than seven years.

(3)

(a) Fiscal year corporation franchise taxpayers claiming a credit under section 5751.51 of the Revised Code need not compute the credit for the short period beginning on the day following the end of its taxable year ending in 2007 and ending December 31, 2007 because the credit does not apply for that period. For calendar years 2008 and thereafter, eligible taxpayers may calculate the available nonrefundable credit by multiplying seven per cent by the difference between the taxpayer's research and development expenses incurred in Ohio during the calendar year and the taxpayer's average annual research and development expenses incurred in Ohio during the three preceding calendar years.

(b) For example, a March 31 fiscal year-end taxpayer's 2008 corporation franchise tax report (based on taxable year ending March 31, 2007) reflects excess research and development expense credits. The taxpayer may begin applying those unused credits against its commercial activity tax liability beginning with the period July 1, 2008 on a return due November 9, 2008. The taxpayer is not required to compute a credit for the period April 1, 2007 to December 31, 2007 because the taxpayer cannot claim a credit for research and development expenses incurred in that period. For calendar years beginning in 2008 and thereafter, the taxpayer will use the formula prescribed in paragraph (C)(3)(a) of this rule to determine its available credit.

(D)

(1) Pursuant to section 5751.52 of the Revised Code, the nonrefundable credit for research and development loan payments is available to taxpayers for application against their commercial activity tax liability for purposes of paying allowable costs of eligible research and development projects. The terms "borrower" and "qualified research and development loan payments" are defined in section 166.21 of the Revised Code. A taxpayer may make an application to the director of development for consideration for this credit, and, if approved, the director of development will issue a certificate.

(2) A taxpayer may begin accumulating a credit for research and development loan payments toward its commercial activity tax liability in tax year 2008, and may begin applying that credit against its commercial activity tax liability for the period July 1, 2008 to September 30, 2008 on the return due November 9, 2008. Furthermore, a taxpayer may begin applying its unused corporation franchise tax credit for research and development loan payments toward the taxpayer's commercial activity tax liability on the commercial activity tax return due November 9, 2008. Any portion of the credit that remains unused after the taxpayer applies the credit against its 2008 corporation franchise tax liability may be applied toward the taxpayer's commercial activity tax until the credit is used in its entirety.

(3) In accordance with division (B) of section 5751.52 of the Revised Code and division (D) of section 166.21 of the Revised Code, before a taxpayer may claim a credit for research and development loan payments, the taxpayer must obtain a certificate from the director of development. The taxpayer must submit to the commissioner with the taxpayer's tax return for the tax period in which the taxpayer receives the certificate a copy of the certificate and the completed schedules as referenced in paragraph (A)(3) of this rule. For purposes of the commercial activity tax, some taxpayers are required to file tax returns and to remit tax due on a quarterly basis electronically in accordance with section 5751.07 of the Revised Code, division (C) of section 5751.05 of the Revised Code, and rule 5703-29-05 of the Ohio Administrative Code. Electronic filers must send a copy of the certificate along with completed schedules to the following address:"Ohio Department of Taxation, Commercial Activity Tax Division - CAT Credits, P.O. Box 530, Columbus, Ohio 43216-0530." If the taxpayer fails to provide a copy of the certificate and schedules with its return or, if filing electronically, a copy to the commissioner, the taxpayer must supply a copy of the certificate within sixty days of the commissioner's request.

(E)

(1) Pursuant to section 5751.53 of the Revised Code, the credit for unused corporation franchise tax net operating loss deductions is available to qualifying taxpayers for application against their commercial activity tax liability to the extent provided by that section and rule 5703-29-11 of the Ohio Administrative Code. In order to be eligible for a credit for unused net operating loss deductions, a qualifying taxpayer must have filed with the commissioner a report by June 30, 2006 that set forth the amortizable amount available. The term"qualifying taxpayer" is defined in division (A)(4) of section 5751.53 of the Revised Code.

(2) In accordance with divisions (B) and (C) of section 5751.53 of the Revised Code, a qualifying taxpayer may not begin claiming the credit for unused corporation franchise tax net operating losses until calendar year 2010.

(a) In accordance with division (B) of section 5751.53 of the Revised Code, the credit is at first nonrefundable and phases-in by increments of ten per cent per year over the first nine years of the credit. In calendar year 2019, a taxpayer may begin claiming one hundred per cent of any remaining, previously unclaimed amortizable amount as a nonrefundable credit against its commercial activity tax liability. From 2019 through 2029, a taxpayer may continue to claim one hundred per cent of the remaining and outstanding amortizable amount as a nonrefundable credit. In no event may the taxpayer's cumulative credit exceed one hundred per cent of its amortizable amount. In addition, a taxpayer may not apply the nonrefundable credit to reduce its outstanding tax liability (after applying the other credits that precede this credit in the order listed in section 5751.98 of the Revised Code) by more than one-half.

(b) In accordance with division (C)(1) of section 5751.53 of the Revised Code, the taxpayer may claim a refundable credit for its remaining and outstanding amortizable amount in calendar year 2030. In no event may the taxpayer claim a refundable credit for any portion of the amortizable amount the taxpayer previously claimed as a nonrefundable credit. In addition, a taxpayer may not claim a refundable credit if the claimant was not subject to the commercial activity tax during any portion of calendar year 2030.

(F)

(1) Pursuant to division (A) of section 5751.50 of the Revised Code, the refundable jobs creation tax credit is available to taxpayers and is granted by the tax credit authority under section 122.17 of the Revised Code. A taxpayer that proposes a project to create new jobs in the state of Ohio may apply to the tax credit authority for a tax credit and if the project is approved, the taxpayer and the tax credit authority may enter into an agreement for a term specified by the agreement and in conjunction with division (C) of that section. The jobs creation tax credit is computed by multiplying the amount of Ohio income tax withheld from compensation paid to "new employees" by the percentage stated in the agreement. The term "new employees" is defined in division (A)(2) of section 122.17 of the Revised Code. For corporation franchise tax purposes, the credit is computed based on withholding during the taxpayer's taxable year; for commercial activity tax purposes, the credit is computed based on withholding during the "tax period". The term "tax period" is defined in division (M) of section 5751.01 to mean a calendar year or calendar quarter.

(2)

(a) For those taxpayers that are subject to the phase-out of the corporation franchise tax and the phase-in of the commercial activity tax, the last corporation franchise tax report for which the jobs creation tax credit applies is the 2008 tax year (the taxable year ending in 2007). Jobs creation tax credit agreements entered into prior to 2008 that first apply to the corporation franchise tax automatically apply to the commercial activity tax for the remaining years of the agreement without further action on the part of the taxpayer or the director of development.

(b) A taxpayer that otherwise meets the requirements to claim the jobs creation tax credit must obtain a certificate from the director of development before the taxpayer may claim the credit. A taxpayer claiming a refundable jobs creation tax credit may not begin accumulating the credit under the commercial activity tax until January 1, 2008, and may not apply that credit against its commercial activity tax liability until the period July 1, 2008 to September 30, 2008 on the commercial activity tax return due November 9, 2008.

(c) In administering the jobs creation tax credit, the department of taxation will follow the policy established by the department of development in a letter to jobs creation tax credit recipients on December 29, 2006. Pursuant to that letter, the credit referenced in any certificate issued on or before May 31, 2008 must be claimed against the taxpayer's corporation franchise tax liability and the credit referenced in any certificate issued after May 31, 2008 must be claimed against the taxpayer's commercial activity tax liability regardless of the withholding period on which the credit is based. Alternatively, recipients that are pass-through entities may elect to pass the credit through to such entity's owners. Of course, recipients that make that election may not claim as a credit against their commercial activity tax liability any portion of the credit passed through to a pass-through entity's owners.

(3)

(a) In accordance with division (H) of section 122.17 of the Revised Code, a taxpayer claiming a credit under section 122.17 of the Revised Code must submit to the commissioner with the taxpayer's tax return for the tax period in which the taxpayer receives the certificate a copy of the certificate and the completed schedules as referenced in paragraph (A)(3) of this rule. For purposes of the commercial activity tax, some taxpayers are required to file tax returns and to remit tax due on a quarterly basis electronically in accordance with division (C) of section 5751.05 of the Revised Code and rule 5703-29-05 of the Ohio Administrative Code. Electronic filers must send a copy of the certificate along with completed schedules to the following address: Ohio Department of Taxation, Commercial Activity Tax Division - CAT Credits, P.O. Box 530, Columbus, Ohio 43216-0530.If the taxpayer fails to supply a copy of the certificate from the director of development with its return, or, if filing electronically, a copy to the commissioner, the taxpayer must supply a copy of the certificate within sixty days after the commissioner requests such copy.

(b) For example, assume that in year 2000, an April 30 year-end taxpayer entered into a jobs creation tax credit agreement with the tax credit authority for a period of fifteen years. According to the agreement, the first taxable year for which the taxpayer can claim the credit is the taxable year beginning May 1, 2000 and ending April 30, 2001, which corresponds with the taxpayer's corporation franchise tax report year 2002. When the taxpayer entered into the agreement, the last taxable year for which the taxpayer could have claimed the credit under the corporation franchise tax was the taxable year ending April 30, 2015, which corresponds with corporation franchise tax report year 2016. However, because of the law change that phases-out the corporation franchise tax and phases-in the commercial activity tax, the 2008 corporation franchise tax report is the last report for claiming the jobs creation tax credit against the corporation franchise tax. Further, assume that on July 30, 2008, the tax credit authority issued a separate tax certificate for the transition period that begins May 1, 2007 and ends on December 31, 2007. Because the certificate was issued after May 31, 2008, the taxpayer must apply the credit for that short period against the taxpayer's 2008 commercial activity tax liability. The taxpayer provided to the commissioner a copy of the certificate along with a completed schedule on November 9, 2008. At the same time, the taxpayer filed its third quarter return electronically. The taxpayer applied the credit amount against its third quarter liability and received a refund of the outstanding balance. Beginning in calendar year 2008, the taxpayer is required to compute the total amount of available credit on a calendar year basis, regardless of its fiscal year-end.

Effective: 05/29/2008
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 122.17 , 122.171 , 5751.50 , 5751.51 , 5751.52 , 5751.53 , 5751.98