Information Release

PIT 2001-03 - Pass-Through Entity Tax: Certain Estimated Tax Payments Due September 16, 2002 — July 3, 2002

Disregarded entity limited liability companies ("LLC’s") and qualified subchapter S subsidiaries now subject to the Ohio’s pass-through entity tax as a result of the recent enactment of Ohio Revised Code section 5733.40(S) contained in Amended Substitute Senate Bill 261, 124th General Assembly ("Budget Corrective Bill") need not make any estimated quarterly pass-through entity tax payments before September 16, 2002.

This September 16, 2002 due date generally affects disregarded entity "LLC’s" and qualified subchapter S subsidiaries with a taxable year beginning in the period between January 1 and May l, 2002. Any and all estimated pass-through entity quarterly payments for single member LLC’s and qualified subchapter S subsidiaries that otherwise would have been due prior to September 16, 2002 are now not due until September 16, 2002.

Amended Substitute Senate Bill 261, passed during the 124th General Assembly and effective immediately, now requires that disregarded entity LLC’s and qualified subchapter S subsidiaries having nexus with Ohio must pay the pass-through entity tax on their income. The law first applies to disregarded entity LLC’s and qualified subchapter S subsidiaries with any taxable year ending after June 4, 2002.

The various exemptions applying to other pass-through entities also apply to disregarded entity LLC’s and qualified subchapter S subsidiaries. For example, a disregarded entity LLC owned by a corporation is not subject to the pass-through entity tax if the corporate owner/member is either an Ohio corporation franchise taxpayer or a corporation exempt from the Ohio corporation franchise tax under ORC section 5733.09. See the last sentence of the third paragraph of ORC section 5733.41.

Similarly, a qualified subchapter S subsidiary is not subject to the pass-through entity tax if the S corporation owner/shareholder irrevocably acknowledges that the S corporation has nexus with Ohio and makes a good faith and reasonable effort to comply with Ohio’s pass-through entity tax. See ORC section 5733.402.

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Relevant law: Ohio Revised Code ("ORC") sections 5733.40(I), 5733.40(S), 5733.402, 5733.41, and 5747.43.

If you have any questions regarding this matter, please call 614-438-5317 (Ohio Relay Services for the Hearing or Speech Impaired: 1-800-750-0750), or access the Department’s web site (http://www.tax.ohio.gov/) and e-mail your questions to us.