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CAT 2007-02 - Commercial Activity Tax: Pre-Income Tax Trusts,
Explained with Revocation Procedures - Issued February 2007;
Revised March 2007
This is version 2 of this release, which contains a draft
rule to explain the registration and filing responsibilities
of pre-income tax trusts for purposes of the commercial
activity tax (CAT). The main amendment to this release is to
address pre-income tax trusts with less than $4,500 in
taxable gross receipts where the trust is considered a common
owner of either a combined taxpayer group or a consolidated
elected taxpayer group. Please direct any questions regarding
this release to the CAT Division of ODT at 1-888-722-8829.
Reason for rule. The Tax Commissioner is promulgating this
rule to explain the registration and filing responsibilities
of pre-income tax trusts for commercial activity tax
purposes.
Proposed Rule 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: (i) the document creating the
trust was executed prior to January 1, 1972; (ii) the trust
became irrevocable upon creation; and (iii) 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 fifteenth day of the fourth month following the
end of the tax period in which the revocation is made (i.e.,
April 15 for calendar year taxpayers, unless extended by a
weekend or legal holiday). For example, for taxable year
2006, written notice of the revocation must be received by
April 17, 2007 in order for the revocation to apply to the
entire taxable year of 2006. Such revocation is irrevocable
and shall apply to the full taxable year for which the
revocation is timely made.
(2) Any trust revoking its election must file all applicable
personal income tax returns for taxable years 2005 and 2006
(due to be filed in 2006 and 2007) and make all corresponding
payments by April 17, 2007 in order to avoid the imposition
of penalties. For all future tax periods, 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) Any trust revoking an election may receive a letter
acknowledging the revocation. Such letter is not to signify
that the trust qualifies as 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 Ohio 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 register for the
commercial activity tax and file all applicable returns,
regardless of its taxable gross receipts.