Ohio Admin. Code 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 to
consolidate based on a
the fifty per
cent or more ownership test or the
an eighty per cent 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
is a
common ownership
owner 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
in writing by the taxpayer and approved by the
tax commissioner in accordance with paragraph (C)(5) of
this rule .
(5)
The tax commissioner may approve a request for a
retroactive election to file as a consolidated elected taxpayer group under
section 5751.011 of the Revised Code if the taxpayer made a registration error
or made the request through the voluntary disclosure program.
(a)
Registration
error. With respect to the tax periods affected by the election, the taxpayer's
original commercial activity tax returns reflect that the taxpayer filed as a
consolidated elected taxpayer group and reported the taxable gross receipts of
all members required to be included in the group in accordance with section
5751.011 of the Revised Code, but the taxpayer failed to make a proper election
on a form prescribed by the commissioner for the purpose of making the
election. The taxpayer's commercial activity tax returns as originally filed,
from the date the taxpayer requests the election be effective up to and
including the most recent tax period for which a return is due, must
demonstrate that the taxpayer excluded intermember receipts and filed as a
consolidated elected taxpayer group such that the application of a retroactive
election will have no impact on the taxpayer's tax liability as shown on its
originally filed returns. To the extent the taxpayer included on its initial
registration any entities that were not incorporated or formed under the laws
of a state or of the United States and, subject to the same limitations as
described in this paragraph, the taxpayer may include additional similar
entities. A request for a retroactive election to file as a consolidated
elected taxpayer group will be denied for a taxpayer that was not registered
for the commercial activity tax prior to contact from the department of
taxation through a commercial activity tax audit, compliance, or criminal
investigation program.
(b)
Voluntary disclosure program. The taxpayer requests
retroactive consolidation through the commercial activity tax voluntary
disclosure program and qualifies for the program. A taxpayer qualifies for the
commercial activity tax voluntary disclosure program if the taxpayer enters
into and executes the commercial activity tax voluntary disclosure agreement
prior to any contact from the department of taxation through any commercial
activity tax audit, compliance, or criminal investigation
program.
(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 of the unincorporated
business . 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) of this rule
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 (D)(5)(b) of this rule 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, pursuant to
paragraph (A) of this rule, a person elects to consolidate with all
others in which it has at least a fifty per
cent common 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
For example , if
one
a fifty
per cent owner of a joint venture, A, 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, B, makes the fifty per cent election,
that other owner
B
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
B . If both fifty per cent
owners
A and B make the fifty per cent
election, the taxable gross receipts of the joint venture, after subtracting
any receipts between
the joint venture received from its
the owner
owners
and the joint venture, are split
evenly between the two consolidated elected taxpayer groups.
However,
Each
each of the joint
venture owners making the
a fifty per cent election are only
allowed
able
to exclude those receipts each received from the
joint venture entity has from that owner
and should refrain from dividing or apportioning such
receipts from the joint venture with the other 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
a combined taxpayer groups
group ,
persons
a
person who do
does not have nexus with the state of Ohio may
nevertheless be a "common
owners
owner ,"
but are
is not
required to register
include its taxable gross receipts on the group's
return for purposes of calculating the
group's 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 and those persons' taxable gross
receipts .
(G) The
commissioner shall
may publish and make available on the department of
taxation's website, examples of the application of this rule.
Notes
Promulgated Under: 119
Statutory Authority: 5703.05
Rule Amplifies: 5751.011, 5751.012
Prior Effective Dates: 03/21/2006
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