How does the phase-out affect the nonrefundable credit for taxes paid by a qualifying pass-through entity?
Beginning with the 2006 report year, franchise taxpayers subject to the phase-out multiplied their franchise tax after nonrefundable credits (other than the nonrefundable credit for tax paid by a qualifying pass-through entity) by the phase-out factor. The nonrefundable credit for taxes paid by a qualifying pass-through entity was not subject to the phase-out factor. Rather than applying the phase-out factor to this credit, the new law phased out the tax that a pass-through entity paid on its Ohio income passing through to qualifying investors that were subject to the franchise tax phase-out. See table below.
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Pass-Through Entity’s
Taxable Year Ending in:
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Pass-Through Entity’s Tax Rate on its Ohio Income Passing Through to Qualifying Investors Subject to the Franchise Tax Phase-Out
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2005
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6.8% (80% x 8.5%)
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2006
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5.1% (60% x 8.5%)
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2007
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3.4% (40% x 8.5%)
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2008
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1.7% (20% x 8.5%)
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2009 and thereafter
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0% (0% x 8.5%)
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