Information Release

CF 1994-01 - Recently-Enacted Legislation Revises the Requirements for Corporations Paying Corporate Franchise Tax by Electronic Funds Transfer (EFT) - July 31, 1994

Substitute House Bill 715, 120th General Assembly (effective July 22, 1994) revises the requirements for certain Ohio franchise taxpayers that are required to electronically pay large amounts of Ohio franchise tax for post-1994 franchise tax years.¹ Set forth below is a summary of (i) the Ohio franchise tax provisions of the law as amended and (ii) the Treasurer of State's responsibilities regarding EFT.

Summary of Ohio Franchise Tax EFT Provisions Amended by Substitute H. B. 715

For franchise tax years 1995 and 1996 the amendments raise the thresholds that require payment by EFT. In addition, the new law changes the "lookback" test. The new thresholds and the new lookback test are set forth below:

• For tax year 1995 a taxpayer must submit all Ohio franchise tax payments by EFT if the taxpayer's total franchise tax liability after reduction for nonrefundable credits exceeded $100,000 for the 1993 tax year. ORC section 5733.022(A).
• For tax year 1996 a taxpayer must submit all Ohio franchise tax payments by EFT if the taxpayer's total franchise tax liability after reduction for nonrefundable credits exceeded $75,000 for the 1994 tax year. ORC section 5733.022(A).   
• For tax years 1997 and thereafter a taxpayer must submit all Ohio franchise tax payments by EFT if the taxpayer's total franchise tax liability after reduction for nonrefundable credits exceeded $50,000 for the second preceding tax year. ORC section 5733.022(A).

Summary of Ohio Franchise Tax EFT Provisions Not Amended by Substitute H. B. 715

• Corporations which are members of a combined franchise tax report must aggregate their tax liabilities after reduction for nonrefundable credits for the second preceding tax year (regardless of whether the members were included in a combined report for that earlier year). If the aggregate tax liability after reduction for all nonrefundable credits for that second preceding tax year exceeds the applicable dollar threshold (discussed above), then each member is required to use EFT for submitting its payments for the current tax year. This provision applies both to taxpayers who elect to combine and to taxpayers who are required by or permitted by the Tax Commissioner to combine. ORC section 5733.022(C).
       Any franchise taxpayer required to remit payments by EFT must do so in the manner prescribed by rules adopted by the Treasurer of State. ORC sections 5733.02 and 5733.022(B).
     The Tax Commissioner must maintain an updated list of those franchise taxpayers required to remit taxes by EFT and must provide that list to the Treasurer of State. ORC section 5733.022(A).
     Franchise tax payments submitted by EFT are considered to be made when the payment is received by the Treasurer of State or credited to an account designated by the Treasurer of State for the receipt of such payments. ORC section 5733.30.
     A franchise taxpayer may request from the Treasurer of State that it be excused from its requirement to submit tax payments by EFT. The Treasurer of State may grant that request for good cause. The Treasurer must notify both the franchise taxpayer and the Tax Commissioner of its decision with respect to the taxpayer's request. ORC section 5733.022(D).
     The Tax Commissioner must notify each franchise taxpayer required to submit taxes by EFT of its obligation to do so. Nevertheless, a taxpayer not so notified is not excused from its obligation to remit taxes by EFT. ORC section 5733.022(A).
     The EFT method can not be used for payments of assessed amounts.
    
• EFT Penalty
    
  • In addition to all other applicable penalties, the Tax Commissioner may assess a penalty for failure to remit payments by EFT if (i) the taxpayer was required to remit payment by EFT but remitted the payment by another means, and (ii) the Treasurer of State determines that the taxpayer's failure to remit the payment by EFT was not due to reasonable cause. ORC section 5733.022(E).
        The Tax Commissioner may not assess EFT penalty on any franchise tax payment made before the date the Tax Commissioner notified the taxpayer of its obligation to remit tax payments by EFT. After such notification the Tax Commissioner may not assess penalty on the first two payments made by some means other than EFT. Subsequent tax payments remitted by a means other than EFT are subject to penalty (if the Treasurer determines that the failure to remit by EFT was not due to reasonable cause). ORC section 5733.022(E).
       The Ohio franchise tax EFT penalty is 5% of the payment required to be paid by EFT, but may not exceed $5,000. ORC section 5733.022(E).
       The Tax Commissioner may abate all or a portion of the assessed EFT penalty and may adopt rules governing such abatement. ORC section 5733.022(E).
      
  • The Ohio franchise tax EFT penalties are to be considered as revenue arising from the tax imposed by ORC Chapter 5733. ORC section 5733.022(E).

Summary of Treasurer of State's Responsibilities (ORC section 113.061)²

• The Treasurer of State may adopt rules to facilitate payment by EFT. The rules may:
    
  • establish the mode, content, and format of EFT payments;
       coordinate EFT payment with the filing of the associated tax return;³ and
      
  • govern the remittance of taxes by persons excused from their requirement to submit tax payments by EFT.
     
  The Treasurer of State, not the Tax Commissioner, is responsible for resolving any problems involving EFT transmissions.
     The Treasurer of State may acknowledge receipt of an EFT payment, if requested to do so. The Treasurer of State may charge the taxpayer a fee for acknowledging an EFT payment.
    
• If a taxpayer is required to remit taxes by EFT and fails to do so, the Treasurer of State must determine whether that failure was due to reasonable cause. If the Treasurer determines that such failure was not due to reasonable cause, the Treasurer must notify the Tax Commissioner and provide the Tax Commissioner with the information used in making that determination. The Tax Commissioner may then assess the taxpayer a penalty for failure to submit payments by EFT.

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Tax Information Releases are not "Opinions of the Tax Commissioner" within the meaning of ORC section 5703.53. Nevertheless, the above discussion does reflect the Income Tax Audit Division's interpretation of the law.

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For more information about the EFT payment program, call the Treasurer of State's office at the numbers listed below:

614-466-8063

Ohio Relay Service for the hearing impaired TDD/TTY users:1-800-750-0750.For more information about franchise tax requirements, call the Ohio Department of Taxation at any of the numbers listed below:

1-800-282-1780 (Ohio only)
614-846-6712 (Columbus, Ohio area and out-of-state)
Ohio Relay Service for the hearing impaired TDD/TTY users: 1-800-750-0750.

¹The new legislation did not change the requirement for the 1994 franchise tax year.  For the 1994 franchise tax year a taxpayer must submit all Ohio franchise tax payments by EFT if the taxpayer's total franchise tax liability after reduction for nonrefundable credits exceeded $100,000 for either tax year 1992 or tax year 1993.  ORC section 5733.022(A).

²Not amended by Substitute H.B. 715.

³Even if the taxpayer must use the EFT method to remit estimated franchise tax payments, the taxpayer is not relieved from filing the related paper documents (Forms FT-1120E, FT-1120ER, and FT-1120EX).