(A) Any term used in this chapter that is not otherwise defined in this chapter has the same meaning as when used in a comparable context in laws of the United States relating to federal income taxation or in R.C. Title LVII, unless a different meaning is clearly required. If a term used in this chapter that is not otherwise defined in this chapter is used in a comparable context in both the laws of the United States relating to federal income tax and in R.C. Title LVII and the use is not consistent, then the use of the term in the laws of the United States relating to federal income tax shall control over the use of the term in R.C. Title LVII.
(B) The singular shall include the plural, and the masculine shall include the feminine and the gender neutral.
(C) For the purpose of this chapter, the following definitions shall apply unless the context clearly indicates or requires a different meaning.
ADJUSTED FEDERAL TAXABLE INCOME.
(a) For a person required to file as a C corporation, or for a person that has elected to be taxed as a C corporation under division (e) of the definition for NET PROFIT means a C corporation’s federal taxable income before net operating losses and special deductions as determined under the Internal Revenue Code, adjusted as follows:
1. Deduct intangible income to the extent included in federal taxable income. The deduction shall be allowed regardless of whether the intangible income relates to assets used in a trade or business or assets held for the production of income;
2. Add an amount equal to 5% of intangible income deducted under division (a) above, but excluding that portion of intangible income directly related to the sale, exchange, or other disposition of property described in § 1221 of the Internal Revenue Code;
3. Add any losses allowed as a deduction in the computation of federal taxable income if the losses directly relate to the sale, exchange, or other disposition of an asset described in §§ 1221 or 1231 of the Internal Revenue Code;
4. a. Except as provided in division (a)4.b. below, deduct income and gain included in federal taxable income to the extent the income and gain directly relate to the sale, exchange, or other disposition of an asset described in §§ 1221 or 1231 of the Internal Revenue Code; and
b. Division (a)4.a. above does not apply to the extent the income or gain is income or gain described in §§ 1245 or 1250 of the Internal Revenue Code.
5. Add taxes on or measured by net income allowed as a deduction in the computation of federal taxable income;
6. In the case of a real estate investment trust or regulated investment company, add all amounts with respect to dividends to, distributions to, or amounts set aside for or credited to the benefit of investors and allowed as a deduction in the computation of federal taxable income;
7. Deduct, to the extent not otherwise deducted or excluded in computing federal taxable income, any income derived from a transfer agreement or from the enterprise transferred under that agreement under R.C. § 4313.02;
8. Deduct exempt income to the extent not otherwise deducted or excluded in computing adjusted federal taxable income;
9. Deduct any net profit of a pass-through entity owned directly or indirectly by the taxpayer and included in the taxpayer’s federal taxable income unless an affiliated group of corporations includes that net profit in the group’s federal taxable income in accordance with § 35.05(S)(3)(b);
10. Add any loss incurred by a pass-through entity owned directly or indirectly by the taxpayer and included in the taxpayer’s federal taxable income unless an affiliated group of corporations includes that loss in the group’s federal taxable income in accordance with § 35.05(S)(3)(b).
(b) If the taxpayer is not a C corporation, is not a disregarded entity that has made an election described in division (C)(48)(b) of this section, is not a publicly traded partnership that has made the election described in division (e) of the definition of NET PROFIT, and is not an individual, the taxpayer shall compute adjusted federal taxable income under this section as if the taxpayer were a C corporation, except guaranteed payments and other similar amounts paid or accrued to a partner, former partner, shareholder, former shareholder, member or former member shall not be allowed as a deductible expense unless such payments are in consideration for the use of capital and treated as payment of interest under § 469 of the Internal Revenue Code or United States treasury regulations. Amounts paid or accrued to a qualified self-employed retirement plan with respect to a partner, former partner, shareholder, former shareholder, member or former member of the taxpayer, amounts paid or accrued to or for health insurance for a partner, former partner, shareholder, former shareholder, member or former member, and amounts paid or accrued to or for life insurance for a partner, former partner, shareholder, former shareholder, member or former member shall not be allowed as a deduction.
(c) Nothing in this definition shall be construed as allowing the taxpayer to add or deduct any amount more than once or shall be construed as allowing any taxpayer to deduct any amount paid to or accrued for purposes of federal self-employment tax.
INCOME.
(a) 1. For residents, all income, salaries, qualifying wages, commissions and other compensation from whatever source earned or received by the resident, including the resident’s distributive share of the net profit of pass-through entities owned directly or indirectly by the resident and any net profit of the resident, except as provided in division (e) of the definition of NET PROFIT;
2. For the purposes of division (a)1. of this definition:
a. Any net operating loss of the resident incurred in the taxable year and the resident’s distributive share of any net operating loss generated in the same taxable year and attributable to the resident’s ownership interest in a pass-through entity shall be allowed as a deduction, for that taxable year and the following five taxable years, against any other net profit of the resident or the resident’s distributive share of any net profit attributable to the resident’s ownership interest in a pass-through entity until fully utilized, subject to division (a)4. of this section; and
b. The resident’s distributive share of the net profit of each pass-through entity owned directly or indirectly by the resident shall be calculated without regard to any net operating loss that is carried forward by that entity from a prior taxable year and applied to reduce the entity’s net profit for the current taxable year.
3. Division (a)2. above does not apply with respect to any net profit or net operating loss attributable to an ownership interest in an S corporation unless shareholders’ shares of net profits from S corporations are subject to tax in the municipal corporation as provided in division(C)(12)(n) or division (e) of the definition of NET PROFIT in this section.
4. Any amount of a net operating loss used to reduce a taxpayer’s net profit for a taxable year shall reduce the amount of net operating loss that may be carried forward to any subsequent year for use by that taxpayer. In no event shall the cumulative deductions for all taxable years with respect to a taxpayer’s net operating loss exceed the original amount of that net operating loss available to that taxpayer.
(b) In the case of nonresidents, all income, salaries, qualifying wages, commissions and other compensation from whatever source earned or received by the nonresident for work done, services performed or rendered, or activities conducted in the municipal corporation, including any net profit of the nonresident, but excluding the nonresident’s distributive share of the net profit or loss of only pass-through entities owned directly or indirectly by the nonresident;
(c) For taxpayers that are not individuals, net profit of the taxpayer; and
(d) Lottery, sweepstakes, gambling and sports winnings, winnings from games of chance, and prizes and awards. If the taxpayer is a professional gambler for federal income tax purposes, the taxpayer may deduct related wagering losses and expenses to the extent authorized under the Internal Revenue Code and claimed against such winnings.
MUNICIPAL TAXABLE INCOME.
(a) For a person other than an individual, income apportioned or sitused to village under § 35.03, reduced by any pre-2017 net operating loss carryforward available to the person for village.
(b) 1. For an individual who is a resident of village, income reduced by exempt income to the extent otherwise included in income, then reduced as provided in division (c) below of this definition, and further reduced by any pre-2017 net operating loss carryforward available to the individual for the municipal corporation.
2. For an individual who is a nonresident of village, income reduced by exempt income to the extent otherwise included in income and then, as applicable, apportioned or sitused to the municipal corporation under § 35.03, then reduced as provided in division (b)1. above of this definition, and further reduced by any pre-2017 net operating loss carryforward available to the individual for village.
(c) In computing the municipal taxable income of a taxpayer who is an individual, the taxpayer may subtract, as provided in division (b)1. or (b)2. above, the amount of the individual’s employee business expenses reported on the individual’s form 2106 that the individual deducted for federal income tax purposes for the taxable year, subject to the limitation imposed by § 67 of the Internal Revenue Code. For the municipal corporation in which the taxpayer is a resident, the taxpayer may deduct all such expenses allowed for federal income tax purposes, but only to the extent the expenses do not relate to exempt income. For a municipal corporation in which the taxpayer is not a resident, the taxpayer may deduct such expenses only to the extent the expenses are related to the taxpayer’s performance of personal services in that nonresident municipal corporation and are not related to exempt income.
NET PROFIT.
(a) For a person who is an individual means the individual’s net profit required to be reported on schedule C, schedule E or schedule F reduced by any net operating loss carried forward. For the purposes of this definition, the net operating loss carried forward shall be calculated and deducted in the same manner as provided in division (c) below.
(b) NET PROFIT for a person other than an individual means adjusted federal taxable income reduced by any net operating loss incurred by the person in a taxable year beginning on or after January 1, 2017, subject to the limitations of division (c) of this definition.
(c) 1. The amount of such operating loss shall be deducted from net profit to the extent necessary to reduce municipal taxable income to zero, with any remaining unused portion of the net operating loss carried forward to not more than five consecutive taxable years following the taxable year in which the loss was incurred, but in no case for more years than necessary for the deduction to be fully utilized.
2. No person shall use the deduction allowed by this division (c) of this definition to offset qualifying wages.
3. a. For taxable years beginning in 2018, 2019, 2020, 2021 or 2022, a person may not deduct more than 50% of the amount of the deduction otherwise allowed by this division (c) of this definition.
b. For taxable years beginning in 2023 or thereafter, a person may deduct the full amount allowed by division (c) above without regard to the limitation of division (c)3.a. above.
4. Any pre-2017 net operating loss carryforward deduction that is available may be utilized before a taxpayer may deduct any amount pursuant to this division (c) of this definition.
5. Nothing in division (c)3.a. of this definition precludes a person from carrying forward, for use with respect to any return filed for a taxable year beginning after 2018, any amount of net operating loss that was not fully utilized by operation of division (c)3.a. of this definition. To the extent that an amount of net operating loss that was not fully utilized in one or more taxable years by operation of division (a)8. of the definition of ADJUSTED FEDERAL TAXABLE INCOME is carried forward for use with respect to a return filed for a taxable year beginning in 2019, 2020, 2021 or 2022, the limitation described in division (c)3.(a) above shall apply to the amount carried forward.
(d) For the purposes of this chapter, and notwithstanding division (b) above, NET PROFIT of a disregarded entity shall not be taxable as against that disregarded entity, but shall instead be included in the net profit of the owner of the disregarded entity.
(e) A publicly traded partnership that is treated as a partnership for federal income tax purposes, and that is subject to tax on its net profits by village, may elect to be treated as a C corporation for village, and shall not be treated as the net profit or income of any owner of the partnership. The election shall be made on the annual return for village. The village will treat the publicly traded partnership as a C corporation if the election is so made.
PUBLICLY TRADED PARTNERSHIP. Any partnership, an interest in which is regularly traded on an established securities market. A PUBLICLY TRADED PARTNERSHIP may have any number of partners.
QUALIFYING WAGES. Wages, as defined in § 3121(a) of the Internal Revenue Code, without regard to any wage limitations, adjusted as follows:
(a) Deduct the following amounts:
1. Any amount included in wages if the amount constitutes compensation attributable to a plan or program described in § 125 of the Internal Revenue Code;
2. Any amount included in wages if the amount constitutes payment on account of a disability related to sickness or an accident paid by a party unrelated to the employer, agent of an employer or other payer; and
3. Any amount included in wages that is exempt income.
(b) Add the following amounts:
1. Any amount not included in wages solely because the employee was employed by the employer before April 1, 1986;
2. Any amount not included in wages because the amount arises from the sale, exchange or other disposition of a stock option, the exercise of a stock option, or the sale, exchange or other disposition of stock purchased under a stock option and the municipal corporation has not, by resolution or ordinance, exempted the amount from withholding and tax adopted before January 1, 2016. This division (b)2. of this definition applies only to those amounts constituting ordinary income;
3. Any amount not included in wages if the amount is an amount described in §§ 401(k), 403(b) or 457 of the Internal Revenue Code. This division (b)3. of this definition applies only to employee contributions and employee deferrals;
4. Any amount that is supplemental unemployment compensation benefits described in § 3402(o)(2) of the Internal Revenue Code and not included in wages;
5. Any amount received that is treated as self-employment income for federal tax purposes in accordance with § 1402(a)(8) of the Internal Revenue Code; and
6. Any amount not included in wages if all of the following apply:
a. For the taxable year the amount is employee compensation that is earned outside the United States and that either is included in the taxpayer’s gross income for federal income tax purposes or would have been included in the taxpayer’s gross income for such purposes if the taxpayer did not elect to exclude the income under § 911 of the Internal Revenue Code; and
b. For no preceding taxable year did the amount constitute wages as defined in § 3121(a) of the Internal Revenue Code;
(c) For no succeeding taxable year will the amount constitute wages; and
(d) For any taxable year the amount has not otherwise been added to wages pursuant to either division (b) of this definition or R.C. § 718.03, as that section existed before the effective date of H.B. 5 of the 130th General Assembly, March 23, 2015 and H.B. 49 of the 132nd General Assembly, June 29, 2017.
TAX ADMINISTRATOR. The individual charged with direct responsibility for administration of an income tax levied by village in accordance with this chapter. TAX ADMINISTRATOR does not include the State Tax Commissioner.
TAX COMMISSIONER. The Tax Commissioner appointed under R.C. § 121.03.
(Ord. 2017-13, passed 12-5-2017)