Frequently Asked Questions

The Ohio Department of Taxation has compiled a list of frequently asked questions covering many different categories.

To view the questions, click on the "Select Category" bar and then click on the category you are interested in. A list of questions will appear pertaining to that category. Then click on the question you are inquiring about and the answer will appear.

How can an indirect investor, who is otherwise exempt from Ohio income tax avoid the undue tax paid/withheld by an operating pass-through entity?

 

The Operating PTE should utilize either R.C. 5733.402 or 5747.401.

R.C. 5747.401 allows the Operating PTE to withhold on behalf of its “deemed investors,” at their applicable rate, if the Intermediate PTE is an “investment pass-through entity.” Therefore the Operating PTE, would not withhold at the normal rate of 8.5% for its direct investor, but instead could “look through” its direct investor and withhold at the applicable rate.  If the indirect investor is an exempt entity, no withholding is required.

Alternatively, R.C. 5733.402 allows the Operating PTE to not withhold if the Intermediate PTE agrees to file and withhold, as appropriate, on behalf of its investors. Thus, the withholding obligation on the income is transferred from the Operating PTE to the Intermediate PTE.  The Intermediate PTE would then file and withhold for its direct investors at the appropriate rate(s).  This provision does not apply where the Intermediate entity (“investing entity”) is an "investment pass-through entity".

The indirect investor should provide a statement, acknowledging that it is an indirect exempt investor, along with documentation in support of this status.  The indirect investor should include an organization chart showing its ownership chain and Ohio IT K-1s showing the flow of ownership and income from the Intermediate and/or the Operating PTE in the notification to the exempt investor.

 

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