Ohio Code 5733.055 – Deducting expenses and costs paid to related member
(A) As used in this section:
Terms Used In Ohio Code 5733.055
- Another: when used to designate the owner of property which is the subject of an offense, includes not only natural persons but also every other owner of property. See Ohio Code 1.02
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
- Intangible property: Property that has no intrinsic value, but is merely the evidence of value such as stock certificates, bonds, and promissory notes.
- Internal Revenue Code: means the "Internal Revenue Code of 1986" 100 Stat. See Ohio Code 5733.04
- net income: means the taxpayer's taxable income before operating loss deduction and special deductions, as required to be reported for the taxpayer's taxable year under the Internal Revenue Code, subject to the following adjustments:
(1)(a) Deduct any net operating loss incurred in any taxable years ending in 1971 or thereafter, but exclusive of any net operating loss incurred in taxable years ending prior to January 1, 1971. See Ohio Code 5733.04
- net interest: means interest net of any expenses taken on the federal income tax return that would not have been allowed under section 265 of the Internal Revenue Code if the interest were exempt from federal income tax. See Ohio Code 5733.04
- state: means the state of Ohio. See Ohio Code 1.59
- Tax year: means the calendar year in and for which the tax imposed by section 5733. See Ohio Code 5733.04
- Taxpayer: means a corporation subject to the tax imposed by section 5733. See Ohio Code 5733.04
(1) “Ceiling amount” means the excess of the amount described in division (A)(1)(a) of this section over the amount described in division (A)(1)(b) of this section:
(a) The amount of income allocated and apportioned to this state in accordance with this chapter but without regard to and without application of the adjustments required by this section;
(b) The amount of income allocated and apportioned to this state in accordance with this chapter but without regard to and without application of the adjustments required by both this section and division (I)(13) of section 5733.04 of the Revised Code.
(2) “Income adjustment amount” means the sum of the amounts described in divisions (A)(2)(a) and (b) of this section:
(a) The related member’s net interest income actually allocated and apportioned to other states that impose a tax on or measured by income, in accordance with the other states’ allocation and apportionment rules;
(b) The related member’s net intangible income actually allocated and apportioned to other states that impose a tax on or measured by income, in accordance with the other states’ allocation and apportionment rules.
For purposes of division (A)(2) of this section, “other states” does not include those states under whose laws the taxpayer files or could have elected to file with the related member, or the related member files or could have elected to file with another related member, a combined income tax report or return, a consolidated income tax report or return, or any other report or return where such report or return is due because of the imposition of a tax measured on or by income and such report or return results in the elimination of the tax effects from transactions directly or indirectly between either the taxpayer and the related member or between the related member and another corporation if such other corporation, during a one-hundred-twenty-month period commencing three years prior to the beginning of the tax year, directly or indirectly paid, accrued, or incurred intangible expenses and costs or interest expenses and costs to an entity described in divisions (C)(1) to (5) of section 5733.042 of the Revised Code.
(3) “Intangible expenses and costs” has the same meaning as in division (A)(3) of section 5733.042 of the Revised Code.
(4) “Interest expenses and costs” has the same meaning as in division (A)(4) of section 5733.042 of the Revised Code.
(5) “Intangible income and revenue” are those amounts earned or received by a related member from a taxpayer for the taxpayer’s use of intangible property. Such amounts include, but are not limited to, royalty, patent, technical, and copyright fees, licensing fees, and other similar income and revenue.
(6) “Interest income and revenue” are those amounts earned or received by a related member from a taxpayer to the extent such amounts are allowed as deductions under section 163 of the Internal Revenue Code for purposes of determining the taxpayer’s taxable income under the Internal Revenue Code.
(7) “Net intangible income” means intangible income and revenue reduced by intangible expenses and costs paid or accrued directly or indirectly to a related member described in any of divisions (C)(1) to (7) of section 5747.042 of the Revised Code.
(8) “Net interest income” means interest income and revenue reduced by interest expenses and costs paid or accrued directly or indirectly to a related member described in any of divisions (C)(1) to (7) of section 5733.042 of the Revised Code.
(B) Except as set forth in division (C) of this section, a deduction from the corporation’s net income allocated and apportioned to this state shall be allowed in an amount equal to the income adjustment amount described in division (A)(2) of this section. However, in no case shall the deduction be greater than the ceiling amount described in division (A)(1) of this section.
(C) The deduction provided by division (B) of this section is available to the taxpayer only if the taxpayer establishes with clear and convincing evidence that the intangible expenses and costs and the interest expenses and costs paid, accrued, or incurred by the corporation to a related member did not have as a principal purpose the avoidance of any portion of the tax imposed by section 5733.06 of the Revised Code.