Tax Rules: Final: 5703-3
5703-3-32 Dealer in intangibles tax definition of
"primarily".
(A)(1) Division (B)(1) of section 5725.01 of the Revised Code
defines “dealer in intangibles.” Paragraphs (B) through (D)
of this rule define “primarily” as used in section 5725.01 of
the Revised Code. In addition to the primarily requirement
defined in this rule, a person must meet all other legal
requirements in order to meet the definition of “dealer in
intangibles.”
(2) As used in this rule:
(a) “Affiliated group” means two or more persons related in
such a way that one person owns or controls the business
operation of another member of the group. In the case of
corporations with stock, one corporation owns or controls
another if it owns more than fifty per cent of the other
corporation’s common stock with voting rights.
(b) “Dealer activities” means lending money, or discounting,
buying, or selling bills of exchange, drafts, acceptances,
notes, mortgages, or other evidences of indebtedness, or
buying or selling bonds, stocks, or other investment
securities, whether on the person’s own account with a view
to profit, or as agent or broker for others, with a view to
profit or personal earnings. “Dealer activities” includes the
servicing of loans originated or purchased by or on behalf of
the person or another member of the person’s affiliated
group.
(c) “Gross income,” except as otherwise provided in this
rule, has the same meaning as in section 61 of the Internal
Revenue Code, as amended. In no event shall “gross income”
include the recovery of basis from the sale, exchange, or
other disposition of an asset.
(d) “Hedging transactions” means transactions engaged in for
the purpose of reducing exposure to risk from market
fluctuations in price or availability.
(B)(1) As used in division (B)(1) of section 5725.01 of the
Revised Code, and except as otherwise provided in this rule,
a person’s business consists primarily of dealer activities
if either paragraph (B)(1)(a) or (B)(1)(b) of this rule
applies:
(a) For a person that had an office or other place of
business in Ohio at the end of each of the three preceding
calendar years, such person’s gross income from one or more
dealer activities exceeds fifty per cent of the person’s
total gross income in at least two of the three preceding
calendar years; or
(b) For a person that had an office or other place of
business in Ohio at the end of the immediately preceding
calendar year but did not have an office or other place of
business in Ohio at the end of one or both of the other two
of the three preceding calendar years, such person’s gross
income from one or more dealer activities exceeds fifty per
cent of the person’s total gross income in the immediately
preceding calendar year.
(2) For purposes of paragraph (B)(1) of this rule, the
computation of the applicable percentages shall not include,
in the numerator or the denominator, any gross income from
hedging transactions.
(C)(1) A person whose business does not meet the percentage
test in paragraph (B) of this rule may show that such
person’s business nonetheless consists primarily of dealer
activities. Paragraph (C)(1) of this rule applies only if the
person files a written notice with the tax commissioner, in
person or by certified mail, of the person’s intent to apply
such paragraph to the tax year no later than the later of the
following:
(a) The due date, without extension, for filing the dealer in
intangibles tax return for that tax year;
(b) Sixty days from the date the person receives written
notice from the tax commissioner that it appears that the
person does not meet the percentage test in paragraph (B) of
this rule for that tax year.
(2) The tax commissioner may show that a person’s business
that meets the percentage test in paragraph (B) of this rule
nonetheless does not consist primarily of dealer activities.
Paragraph (C)(2) of this rule applies only if the tax
commissioner sends to the person a written notice, in person
or by certified mail, of the tax commissioner’s intent to
apply such paragraph no later than two years after the date
the person files a dealer in intangibles tax return for the
tax year to which the commissioner seeks to apply such
paragraph.
(3) Whoever seeks to apply paragraph (C) of this rule bears
the burden of showing, based on the totality of the
circumstances, that the person’s business consists primarily
of activities other than as shown by the percentage test in
paragraph (B) of this rule. Factors to consider in addition
to the person’s gross income from dealer activities include,
but are not limited to, the proportion of the person’s assets
related to dealer activities, the proportion of time the
person or the person’s employees spend engaging in dealer
activities, the proportion of costs incurred in performing
dealer activities, and substantial changes in the character
of the person’s business.
(D) As used in division (B)(1) of section 5725.01 of the
Revised Code, the determination of whether a person winding
up a dealer business conducted on the person’s own account
remains in business primarily for the purpose of realizing
upon the assets of the business is based on the totality of
the circumstances.
(E)(1) In accordance with division (A)(1) of section 5733.09
of the Revised Code, a corporation is exempt from the
corporation franchise tax for a tax year if it is a dealer in
intangibles for that tax year. The commissioner will waive
any penalty for late filing or payment of the corporation
franchise tax for a tax year if the corporation files all
delinquent corporation franchise tax reports, including
estimated reports, and pays all delinquent corporation
franchise taxes, including estimated taxes, together with any
applicable interest thereon, not later than sixty days after
it learns or should have learned that it did not qualify as a
dealer in intangibles for the tax year.
(2) In accordance with division (E)(4) of section 5751.01 of
the Revised Code, a person is exempt from the commercial
activity tax levied under Chapter 5751. of the Revised Code
for a tax period if it is a dealer in intangibles based on
one or more measurement periods that include that entire tax
period. The commissioner will waive any penalty for late
filing or payment of the commercial activity tax for a tax
period if the person files all delinquent commercial activity
tax returns, and pays all delinquent commercial activity
taxes, including estimated taxes, together with any
applicable interest thereon, not later than sixty days after
it learns or should have learned that it did not qualify as a
dealer in intangibles based on one or more measurement
periods included in whole or part in the tax period.
(3) The commissioner will waive any penalty for late filing
or payment of the dealer in intangibles tax for a tax period
if a person having in error filed a corporation franchise tax
report or commercial activity tax return files all delinquent
dealer in intangibles tax returns and pays all delinquent
dealer in intangibles taxes, together with any applicable
interest thereon, not later than sixty days after it learns
or should have learned that it qualified as a dealer in
intangibles for the tax year.
(F) This rule is not intended to address whether a person
meeting the definition of “dealer in intangibles” may be a
“dual capacity” enterprise in accordance with Gen. American
Transp. Corp. v. Limbach (1984), 15 Ohio St.3d 302.
Effective: 4-6-06
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5725.01(B)(1)
Prior effective dates: 12-28-05 (Emer.)