T Supreme Court of Ohio '

IN THE OHIO SUPREME COURT

On Appeal from the Ohio Board of Tax Appeals

OHIO APARTMENT ASSOCIATION, et a1.,

Appellants, CASE NO. 2009-0213

vs. Board of Tax Appeals RICHARD A. LEVIN, Case No. 2006-A-861 TAX COMMISSIONER OF OHIO

Appellee.

APPENDIX TO MERIT BRIEF OF APPELLEE/CROSS- RICHARD A. LEVIN TAX COMMISSIONER OF OHIO

T SUPREME COURT OF OHIO '

ATTORNEY GENERAL OF OHIO RICHARD CORDRAY

MARK I. WALLACH (0010948) LAWRENCE D. PRATT (0021870) (Counsel of Record) Assistant Attorney General JAMES F. LANG (0059668) Section Chief LAURA C. McBRIDE (0080059) (Counsel of Record) Calfee, Halter & Griswold LLP ALAN SCHWEPE 1400 KeyBank Center Assistant Attorney General 800 Superior Avenue Assistant Section Chief Cleveland, Ohio 44114-2688 Taxation Section Telephone: (216) 622-8200 30 East Broad Street, 25th Floor Fax: (216) 241-0816 Columbus, Ohio 43215-3428 [email protected] Telephone: (614) 466-5967 [email protected] Facsiniile: (614) 466-8226 [email protected] [email protected] [email protected]

ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE/ CROSS-APPELLANT INDEX

A. Tax Commissioner's Notice of Cross-Appeal ...... Appx. 1

B. R. C. 319.301 ...... Appx. 23

C. R. C. 323.152 ...... Appx. 26

D. R.C. 323.158 ...... APpx. 27

E. R.C. 5703.14 ...... Appx. 28

F. R.C. 5703.16 ...... Appx. 30

G. R.C. 5713.041 ...... Appx. 31

H. R.C. 5715.19 ...... Appx. 32

I. R.C. 5717.01 ...... Appx. 35

J. R.C. 5717.02 ...... Appx. 36

K. R.C. 5717.04 ...... Appx. 37

L. R.C. 5727.32 ...... Appx. 39

M. Former Versions ofR.C. 319.301 and R.C. 319.302 ...... Appx. 41

N. Summary of 1971 Enactments of 109th General Assembly, Am. Sub. H.B. 475 Section ...... Appx. 54

0. Summary of Enactments, August, 1979 - December, 1980, 113th General Assembly, Am. H.B. 1238 ...... Appx. 69

P. Am. Sub. H.B. 168, 125th General Assembly, Act Summary ...... Appx.104

Q. Final Analysis of the Legislative Service Commission, Am. Sub. H.B. 66, 126th General Assembly ...... Appx.117

R. Former Versions of Ohio Adm. Code 5705-3-06 ...... Appx.225

S. Former Versions of Ohio Adm. Code 5703-25-10 ...... Appx.251

T. Atlas Crankshaft Corp. v. Lindley (Aug. 15, 1978), BTA No. E-1816 ...... :...... Appx.271

U. Baxla v. Tracy (July 30, 1993), BTA No. 91-M-1242 ...... Appx.281 V. MCI v. Limbach (June 19, 1992), BTA No. 88-Z-1133, 88-Z-1134, 88-Z-1135, 88-Z-1136 ...... Appx.287

W. Roosevelt Properties Co. v. Kinney (Jan. 11, 1983), BTA No. 81-F- 666, 81-A-667 ...... Appx.292

X. Stone v. Limbach (June 30, 1988), BTANo. 85-C-931 ...... Appx.305

Y. Ferland Corp v. Bouchard, 1999 R.I. Super. LEXIS 49 ...... Appx.362 1N THE STJPREIVIE COURT OF OI3IP;9 F °-5 ?M 31: 5()

Appeal From the Board of Tax Appeals

OHIO APARTMENT^. . ASSOCIATION et al., Case No. 2009-0213 Appellants/Cross-Appellees,

V. . Appeal from BTA Case WILLIAM W. WILKINS [RICIIARD A. No. 2006-A-861 LEVIN], TAX COMMISSIONER OF OHIO,

Appellee/Cross-Appellant. ED ' FE^ ^•J.^t ` `^mfi\:v„r3 CLERK OF COURT SUPREME COURT OF OHIO

NOTICE OF CROSS-APPEAL OF TAX COMMISSIONER OF OIUO

MARK I. WALLACH (0010948) RICHARD CORDRAY (0038034) (Counsel of Record) Attorney General of Ohio JAMES F. LANG (0059668) LAWRENCE D. PRATT (0021870) LAURA C. McBRIDE (0080059) Assistant Attorney General Calfee, Halter & Griswold LLP Section Chief 1400 KeyBank Center (Counsel of Record) 800 Superior Avenue ALAN SCHWEPE (0012676) Cleveland, Ohio 44114-2688 Assistant Attorney General' Telephone: (216) 622-8200 Assistant Section Chief Fax: (216) 241-0816 Taxation Section [email protected] 30 East Broad Street, 25h Floor 11aneCalcalfee.com Columbus, Ohio 43215-3428 1mcbridea calfee.oom Telephone: (614) 466-5967 Facsitnile: (614)- 466-8226 Ipraft(a)aL.state.oh.us [email protected]

ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE/ CROSS-APPELLANT

Appx. 1 IN THE SUPREME COURT OF OHIO

Appeal from Board of Tax Appeals

01B0 APARTMENT ASSOCIATION et al., Case No. 2009-0213 Appellants/Cross-Appel lees,

V. BTA Case No. 2006-A-861 WILLIAlvI W. WILKINS [RICHARD A. LEVTN], TAX COMMISSIONER OF OHIO,

Appellee/Cross-Appellant.

NOTICE OF CROSS-APPEAI.OF TAX COMMISSIONER OF OHIO

Cross-Appellant, Richard A. Levin, hereby gives notice of his cross-appeal as of right to the Supreme Court of Ohio from the Decision and Order of the Ohio Board of Tax Appeals

(`BTA") dated December 30, 2008, BTA Case No. 2006-A-861, entered on the jonrnal of the proceedings on that same date, and interim Order dated November 9, 2007 entered on the joumal that same date in the same matter. This cross-appeal is ftled in accordance with R.C. 5717.04, and Section 3(A)(1), S.Ct. Prac. R. U. Trae copies of the Decision and Order of December 30,

2008, and interim Order of November 9,, 2007, from which this appeal is perfected, are attached hereto and incorporated herein by reference. This notice of cross-appeal is being .filed within ten

(10) days of the Appellant's notice of appeal having been filed, or within thirty days of the decision of December 30, 2008, whichever is later.

The Cross-Appellant Tax Commissioner asserts that the BTA, in its interim Order of

November 9, 2007 and in its December 30, 2008, Decision and Order, made the following errors:

Appx. 2 (1) The BTA erred, as a matter of fact and law, in exercising jurisdiction over the

Appellants' application filed pursuant to R.C. 5703.14(C), where the sole stated grounds

for the requested review of two administrative rules of the Tax Commissioner, Ohio

Admin. Code §§ 5703-25-18 and 5703-25-10, is that the rules are allegedly

unconstitutional, rather than an assertion that the administrative rules are in conflict with,

or exceed the scope of the enabling statute, R.C. 319.302, or that the Tax Commissioner

abused his discretion in the enactment of the administrative rules. Unreasonableness

under R.C. 5703.14(C) does not encompass the constitutionality of an administrative rule

that does not conflict with the enabling statute, or does not go beyond the statutory

provision that it embraces;

(2) The BTA eYred, as a matter vf fact and'law, in holding that the Appellants have standing

to bring this action pursuant to R.C. 5703.14(C) in that the Appellants have not

demonstrated any injury caused independently by the two aclministrative rules for which

they seek review rather than injury caused by the underlying enabling statute, R.C.

319.302;

(3) The BTA erred as a matter of law by not granting the Tax Commissioner's September 17,

2007, "Motion to Dismiss for Ripeness, or in the Altemative for a Summary Ruling in

Appellee's Favor."

Appx. 3 The Tax Commissioner asserts that with respect to these errors, the BTA's decisions referenced above are both unreasonable and nnlawful.

Respectfully submitted,

RICHARD CORDRAY Attorney General

WRENCE D. PRATT (0021 Assistant Attorney General Section Chief ALAN SCHWEPE (0012676) Assistant Attorney General Assistant Section Chief Taxation Section, 250' Floor 30 East Broad Street Columbus, Ohio 43215 Telephone: (614) 466-5967 Facsiznile: (614) 466-8226

CERTIFICA'i'E OF FILING

The foregoing Notice of Cross-Appeal of Tax Commissioner of Ohio has been filed with

the Board of Tax Appeals in accordance with R.C. § 5717.04, this 5°i day ofFebruary, 2009.

Appx. 4 CERTIFICATE OF SERVICE

I hereby oertify that a txue and accurate copy of the Notice of Cross- Appeal of Tax

Commissioner of Ohio and the Case Information Statement were sent by regalar U.S. mail on this 56' day of February, 2009 to: Mark I. Wallach, James F. Lang and Laura C. McBride, Calfee,

Halter & Griswold LLP, 1400 Key Bank Center, 800 Superior Avenue, Cleveland, Ohio 44114-

2688.

ce D. Pratt Assistant Attomey General

Appx. 5 OffiO BOARD OF TAX APPEALS

Ohio Apartment Association ) ) CASE-NO. 2006-A-861 and ) (RUC.E REVIEW) C'sreenwich Apartments, Ltd. ) ) DECISION AND ORDER and ) D & S Pmperties, ) ) Appellants, ) ) vs. ) ) William W. Wilkins, Tax Comniissioner ) o€Ohio, ) A.ppe3lee. )

APPEARANCES:

For the Appdlants - Calfee, Halter & Griswold LLP L.aura C. McBride ' 14001vIeDonald Investment Center 800 Superior Avenue Cleveland, Obi,o 44114

For the Appellee - Nancy H. Rogers Attomey General of Ohio Iawrance D. Pratt Alan P. Schwepe Assistant Attoraeys C'remeral 30 East Broad. Street, 25'h Floor Columbas, Ohio 43215

Entered }JEC 3 Q 2008

Ms. Margulies, Mr. Eberhart, and Mr. Danlap concur.

This cause and matter comes ori to be considered by the Board of Tax

Appeals pursuant to an application for rule review. By such application, this board has

Appx. 6 been asked to review Ohio Adm. Code 5703-25-18 and 5703-25-10 (only insofsr as and to the extent that it is the mechanism by which the commissioner would effect the

-changes set forth in Ohio Adm. Code 5703-25-18), pursuant to the powers vested in this board by 1LC. 5703.14. Such request for review arises out of what the appellants claim is the disparate treatment of different classes of real property owners resulting from the amendment of R.C. 319.302 in 2005 which precluded certain property owners flnm continuing to receive a 10% real praperty tax rollback.

The matter is considered by the Board of Tax Appeals upon the application for review, the evidence and testimony presented at a hearing before the board, and the briefs submitted by counsel.

At the ontset, we will review the pertinent rules and statutes under

consideralion in this matter. First, R.C. 5703.14 (C) sets forth the rule review process,

including this board's role, as follows:

"Applications for review of any m1e adopted and promulgated by the commissioner may be filed with the board by any person who has been or may be injured by the operatioA of the ru1e. The appeal may be taken at any time after the rule is filed with the seoretary of state, the director of the legisiative service commission, and, if applicable, the joint committee on agency rule review. Failure to file an appeal does not. preciude any person from seeking any other remedy against the application of the rale to the person. The applications shall set forkh, or have attached thereto and incorporated by reference, a true copy of the rule, and shali allege that the nde oomplained of is unreasonable and shall state the grounds upon which the allegation is based. Upon the filing of the application, the board shall notify the comruissioner of the filing of the application, fiz a time for hearing the application, notify the commissioner and the applicant of the time for the hearing, and afford both the oppportunity to be heard. The

Appx. 7 appellanT, the•tax commissioner, and any other interested persons that the board per.mits; may introduce evidence. The burden of proof to show that the rule is unreasonable shaTt be upon the appellant. After the hearing, the board -shall determine whether the rule - complained of is reasonable or unreasonable. _ A determina6on that the rule complained of is unreasonable shall require a majority vote of the three xnesnbers of the board, and the reasons for the deteamination shall be entered on the journal of the board."

Appetlants have requested our review of two rales. The relevant portions of the first, Ohio Ad.m. Code 5703-25-18, provide in pertinent part, as follows:

"(A) Real property that is not intended primarily for use in a business activity shall clu.alify for a partial exemption from real proper[y taxation putsuant to section 319.302 of the ltevised Code. For purposes of this partial exemption, `business activity' includes all uses of real property, except:

"(3) occupying or holding property improved with sin.gle- family, two-family, or three-family dwellings;

"(4) leasing property improved with single-fanuly, two- family, or tbree-family dweliings; and

"(5) holding vacant land that the county auditor determines- will be used for farnting or to develop single- faynily, two-family, or tbree-fanvly dwellittgs.

"(C) In determining whether real property is qualified for the partial exemption, each separate parcel of real property shall be classified according to its pt3ncipal and cnrrent use, and each vacant parcel of Iand shall be classifted in accordance with its location and its highest and best probable legal use. In the case where a single parcel has

Appx. 8 multiple uses the priucipal use shall be the use to which the greatest percentage of the value of the parcel is devoted.

"(D) In determining whether real properky is qualified for the paxtial exemption, the county auditor.shall be guided by the property record of taxable real property coded in accordance with the code groups provided for in paragraph (C) of rule 5703-25-10 of the Administrative Code." .

The relevant portions of the second rule, Ohio Adm. Code 5703-25-10, provide in pertinent part, as follows:

"(A) As required by section 5713.041 of the Revised Code, the county auditor shall classify each parcel of taxable real property in the county into one of the two following classif ications, which are:

"(1) Residential and agricultarai laud and improvements;

"(2) All other taxable land and improvements, including commercial, industrial, mineral and public utility land and iunprovements.

"(B) Each separate patcel of real property with improvements shaIl be classified according to its principal and current use, and each vacant parcel of land shall be classified in accordance with its location and its highest and best probable legal use. In the case where a single parcel has multiple uses the principal use shall be the use to which the greatest percentage of the value of the parcel is devoted. The following definitions shall be used by the county auditor to detemiine the proper classifica.tion of each such parcel of real property_

"(4) `Conunercial -land and improvements' - The land and improvements to land which are owned or occupied for general commercial and ineome prodixcing purposes and where production of income is a factor to be considered in

Appx. 9 arriving at true value, including but not limited to, apartment houses ***.

"(5) 'Residential land and improvements' - The land and iznprovements to the iand,used and occupied by one, two, or three families."

The foregoing rule also requires that each property record be coded according to the

code groups listed within the rale, wh'ich include Code 401, Apartments, 4-19 rental

units; Code 402, Apartments, 20-39 rental units; Code 403, Apartments, 40 or more

rental units; Code 510, Single family dwelling, Code 520, Two fatxiily dwelling; and I Code 530,'1'hree fatnily dwelling. Also relevant to this discussion is R.C. 319302, wlv.oh, upon its

amendment in 2005, provided the following.

"(A)(1) Real property that is not intended primarily for use in a business activity shall qualify for a partial exemption from real property taxation. For purposes of this partial exemption, `business activity' includes all uses of real property, except farrni,ng; leasing property for farming; occupying or holding property improved with single-family, two-family, or three-family dwelfings; leasing property improved with single-family, two-fanuly, or three-famtly dwellings; or holding vacant land that the county auditor detemiines will be used for €anning or to develop single-family, two-family, or three-family dwellings. ***"

At the hearing before the board, Jay Scott, executive director for both the

Columbus and Ohio Apartment Associations, as well as David Fisher, general partner

of D&S Properties, owners of residential rental properties, testified on behalf of

appellants. Mr. Scott indicated that the Ohio Apartnnent Association, which is made

Appx. 10 i up of local apathnent associations from around the state, decided to be a party to the

instant rule review request because:

"[i]t's the loss of the 10 percent rollback that is - that was taken away from praperties #hat have more than four residential rental apartments or units on a property. Again, we are looking at that, -that there is no differentiation between a residential rental property - the scope may be different based on the size of the tiusiness entity that owns the residential rental property, but it is still residential rental properly, and so the loss of that, that 10 percent, it basically equated to a 10 percent tax increase. Those larger ren.tal properly owners are not able to pass along that tax increase to residential rental residents. The market will not bear that. And *** this is an argument or tlxis is a fact that the members wanted to fight." H.R at 22.

Mr. Fisher testified about'his business, which ineludes about`5011 units

ranging from single family homes to multiple unit buildings. H.R. at 51-56. He

indicated that his taxes are higher on the properfies with four or more units, and, as a

result, his profit margins got tighter, with rent levels decreasing and vacancy

increasing. Ti.R at 58-59.

At the outset, the appellee has raised a procedural issue which must be

addressed prior to beginning our rale review. Counsel for the appellee argues that

"[t]b.e appellants lack standing to challenge Ohio Adm. Code 5703-25-18 as any injury

is. caused by the enabling statute, R.C. 319.302, and not by the rule itself." Brief at 12.

We acknowledge that "`[a] prelinzinary inquiry in alllegal claims is the issue of

standing.' Cuyahoga Cty. Bd. of Commrs. v. Staae, 112 Ohio St.3d 59, 2006-Ohio-

6499, ***, ¶22. `It has been long and well. established that it is the duty of every judicial tribunal to decide actual controversies batween parties legitimately affected by

Appx. 11 specific facts and to render judgments which can be carried into effect." F'ordrea- v.

Tltomas (1970), 22 Ohio St.2d 13, 14 **x " State ex reL Ohio Gen. Assembly v.

.8runner, 114 Ohio St.3d. 386, 2007-Ohio-3780, at ¶15. However,. we find that appellee's position that the appellants lack standing because any injury that may have

. occurred was caused by operation of statu.te, and not by the rules, is merely an argument in semantics. The amendment of the statute in question and the enaotment of the rules thereafter in accordance therewith, as well as the overall implementation of all of them, have caused the 'Yttjury," if any. The statute and rules, in effeat, contain the same provisions and operate concurrently, and as such, both have caused the

"ffijury" of which appellants complain. Accordingly, we find that appellants have standing to br}ng their requestedrule review.

As we begin the review of the.rules in qaestion, we acknowledge that our duty in this matter is straightforward; if the appellants have carried their burden of proof, then we must fmd the nile(s) unreasonable. Contrary to appellants' statement in their post-hearing briei, this board cannot deolare the subject rales "unconstitutionaI:"

Brief at 2. While the Ohio Supreme Court has. authorized this board to aceept evidence on constitutional points, it has clearly stated that we have no jurisdiction to decide constitutional clainis. Cleveland Gear Co. v. Lirnbach (1988), 35 Ohio St.3d

229; MCI Telecommunications Corp. v. Limbach (1994), 68 Ohio St.3d 195, 198.

Thus, the only issue before this board is one of the reasonableness of the r¢les.

RC. 5705.14 requires the taxpayer to list the reasons the rules in question are unreasonable. Tn their application for review, the taxpayers state that "the

Appx. 12 Rules are unreasonable and unconstitutional for two independent reasons. They argue that "the Conunissioner has a clear constitutional duty to apply the Rollback to all rental properties, regardless of the number of units contained, because Article X[I,

Section 2 [sic] explicitly requires a uniform application of property tax to the full range of real properties, including rental properties, and because Article I, Section 2

[sic] xequires that the Rules' classification of rental properties be eliminated."

Application at 4. -

As we consider the rules under challenge, we widl review pti.or case law dealing with rules promulgated by #he Tax Commissioner. As we stated in Bttxla V.

Tracy (July 30,1993), $TA No. 1991-M-1242, unreported, at 8-10:

"In The Kroger Grocery & Baking Co. .v. Glander (1948), 149 Ohio St. 121, the Ohio Supreme Court oonsidered a rule promulgated by ihe Tax Commissioner under a direct grant of statutory authority. Therein the Court stated:

"`Sections 1464-3, 5546-5 and 5546-31, General Code, author3ze and direct the Tax Connnissioner to adopt for the adminishxtion of the Sales Tax Act such rules and regulations as he may deem necessary to carry out the provisions of the act. Such rnies and regulations are necessary because of #he infinite deiail essential in the consideration of an application and ihe interpretation of the law to concrete and specific circumstanaes and situations, the incorporation of which in the statute itself would be impracticable or impossible.'

"The Court cited the specific Tax Commissioner's nile in issue in that case, and, thereafter, set a standard for review of similar rules:

"`This rule, like those of other administrative agencies, issued pursuant to statutory aufhority, has the force and effect of law unless it is unreasonable or is in clear

Appx. 13 conflict with statutory enaotment governing in the same subyect ma.tter.'

"We have also reviewed prior decisions of tbis Board wherein rules promulgated by the Tax Commissioner have been considered under R.C. 5705.14(C). Rules have been found reasonable when they carry out the intent of the legislature, tltlas Cranikshaft Corp. v. Lindley (August 15, 1978), B.T.A. Case No. 3-1816, affirmed on other grounds, 58 Ohio St.2d 299; Roosevelt Propertte.s, et aL v. Kinney (January 11, 1983), B.T.A: Case No. 81-8-666, 667, unreported, affirmed, 12 Ohio St.3d 7. Rules have been found to be unreasonable when they have not been properly promulgated, or are in con#lict with legislative enactments.. Frilliam J. Stone, et at. v. Limbach (7nne 30, 1988), B.T.A. Case No. 85-C-931, unreporEed."

Having reviewed the prior law, we now turn to the xules in isstse. Tn order to detertmne whether the commissioner acte

"(C) The tax commissioner may adopt rules governing the administration of the partial exemption provided for by dxis section."

Puirstiant to the above-cited grant of authority, the. commissioner promulgated Ohio Adm. Code 5703-25-18 and amended 5703-25-10, although not

with regard to dwellings. t The General Assembly delegated to the Tax Commissioner

the power to promulgate rules which would assist in the administration of the partial

exemption set forth in R.C. 319.302. `Bearing in mind that `admiuistrative agency

` The appellants have acknowledged that their only reason for including Ohio Adm Code 5703-25-10 was insofar as and to the extent that it is the mechanism by which the commissioner would effeet the changes made to Ohio Adm. Code 5703-25-18.

Appx. 14 rules are an administrative means for fl►e accoxnplishment of a legislative end,' Carroll v. Aept of Admin. Services (1983), 10 Ohio App.3d 108," Baxla, supra, at 14, this board finds the rules in issue to be reasonable - they are administrative regulations,

°`promulgated to implement legislative poficy, not to create it.°° Baxda, supra, at 14. Tn this regard, we find Ohio Adtn. Code 5703-25-18 and 5703-25-10 do not conflict with the legislative direotive to the Tax Commissioner to promulgate rules relating to the a.dministration of the partial exemption as the rales specifically replicate the language of R.C. 319.302 and do not go beyond such statutory provisions inany manner.

Based on the foregoing, it is the deeision of the Board of Tax Appeals that Ohio Adm. Code 5703-25-18 and 5703-25-10 are rea.sonable on the basis that each simply provides administrative means by whioh the Tax Commissioner can implement statntory provisicns relaling to the parlial exemption provided for in R.C.

319.302.

I hereby certify the foregoing to be a trae and connplete copy of the aetion taken by the Board of Tax Appeals of the State of Obio and entemd upon its jounial this day, with respeot to ttxe captionedmatter.

Appx. 15 OHIO BOARD OF TAX APPRALS

Ohio Apaxtment Association ) ) CASE NO. 2006-A-861 and (ItULE REVIEW) Greenwich Apartments, Ltd. ORDER and (Denying AppeTtee's Motions) F & W Properkies,

Appellants,

Willianx W. Willflns, Tax Commissioner of Ohio,

App.ellee.

APPEARANCES:

For the Appellants Calfee, l•lalter & Giswold LI,P I.anra C. McBride 1400 McDonald Iwestmen.t Center 800 Superior Avenna Cleveland, Ohio 44114

For the A.ppellee Maro Daim Attomey Crenerai of Ohio Alan P. Schwepe Assistant Atiorney Ganeral 30 East Broad Strect, 25m Floor Columbus, Ohio 43215

Entered NO1( 9 2OV

Ms. Margulies, Mr. Eberhart, and Mr. Dunlap conour.

This cause and matter came on to be considered by the Board of Tax

Appeals upon a motion to dismiss the instant appeal for ripeness, or in the altemative,

Appx. 16 a motion for a summary ruiivg in the appellee's favor, ftied by the Tax Commissioner.

The matter was submitted to the Boand of Tax Appeals upon the motion and brief in support of said motion, a response to said motion filed by the appellant taxpayers, and a response thereto filed by the commuissioner.

SpeciScalty, the motion provides as follows:

"The Appellee, Richard A. Levin [Williatn W. Willdns), hereby moves the Board of Tax Appeals to dismiss the Appellants' Applioation for Review on the basis of ripeness. Appellee submits that, to the extent that any claim of unconstitntionality can fall withiu the scope of a review for 'reasonableness' under R.C. 5703.14, it is premature to req^nest this Board to review Ohio Adm. Code 5703-25-10 and Ohio Adm. Code 5703-25-18z for

' 71zat section, entitled "classifioation of real property and coding of rsaords,° provides in pertinent part that

"(A) As required by section 5713.041 of Ihe Revised Code, the county anditor shall classify eaoh parcel of tagable real property in the county into one ofthe two €ullowing classifications, which are:

"(1) Residential and agricultural land and improvements•

"(2) All other taxable land and improvements, including conunercial, indusQrial, mi.neraI and pubfic utffity land and iinprovements.

"(B) Each separate parcel of real property with iuiprovements shall be classified according to its principal and eun:ent use, and eaoh vacant parcel of land shall be classified in accordance with its location and its highest and best probable legal use. In the ease where a single parael has multiple uses the principal use shall be the use to wbich the greatest percentage of the value of the parcel is devoted. The following definitions shall be used by the coimty auditor to detenn.ine the proper classi8oation of each such parcel of real proparty:

"(4) `Comnnercial land and . improvementc' - The land and improvements to land which are owned or occupied for general commercial and income producing purposes and where production of inoome is a factor to be eonsidered in axriving at true value, including, but not limited to, apartment houses, hotels, motels, theaters, offioe buildings, vrarehouses, retail and wholesale stores,

Appx. 17 their alleged tmconstitutionality when they are based upon and tract (sic) the language of an underlying statute, R.C. 319.302(A)(1),3 which itself has not been ruled to be

bank buildings, commercial garages, commercial parldng lots, and shopping centers.

"(5)'Residential ]and pnd improvements' - The iand and improvements to the land used and oocupied by one, two, or three feaulies."

Z Tluat section, entitled "partial exemption ffom real property tax," provides in perti>xent pere fliat:

"(A) Real property that is not intended pr'unarily for use in a business aciivity shall yuaiiify for a partial exemption from real property taaation pursuapt to section 319.302 of the Revised Code. For purposes of this partial exemplion, "business adiviiy" includes all uses of real property, except:

11(1) $araring;

"(2) Leasing propaty for fsrniing;

"(3) Ooaupyrng or holding propatty iiuproved with single-family, two-family, or three-fanuly dwellings;

"(4) Leasing property improved with single-family, two-family, or three-family dweftgs; and

"(5) Holding vacant land 9at the county auditor detetmmes wili be used for farming or Uo develop sunglo-famfly, two-family, or tbree- family dwellings.

3 R.C. 319.302, entitled "partial tax exemption fcr real property not iutended pimazitly for use in business activity," provides in pertinent part tbat:

"(A)(1) Rsal properly that is not intended primsrily for use in a business activity shall quatify for, a partia] exeniption from real praperty tasation. FoF purposes of this partial exenaption, `business activity' includes all uses of real property, except fattning; leasing property fOr farming; ooaupyio.g or holding property improved with siugle-fanuly, two-fanuly, or three-fanvly dwellings; lessing property improved with single-famiIy, two-family, or three fanu7y dwellmgs; or holding vaaant land that the couaty auditor determines witl be used for farming or to develop single-faouly, two-family, or three-family dwellings. For pteposes of this padiai exemption, `farming' does not include land used for the commercial production of timber that is reeeiving the tax benefit under'sectFon 5713.23 or .

Appx. 18 unconstitutional. Tf►e latter is, of course, an issue over which this tribunal clearly has no jurisdiction, nor has it been raised in the instant action. Tn fact, the Appellants have failed to follow Qae directive of the Franklin County Court of Appeals in State ex. rel. Ohio Apt. flss& v WiTkins, 2006 Ohio 6783, to have ihe constitutionality of R.C. 3.19.302(A)(1), Ohio, Adtn. Code 5703-25-10 and Ohio Acfna. Code 5703-25-18 detertniared ia a deciaratory judgment action in the court of

'First; the commissioner clainis that "[u]ntil R.C. 319.302(A)(1) is ruled unconstitutional, this action pursuant to R,C. 5703.14(C) is not ripe for adjudication:"

Motion at 3. However, we find such contention is not supported by the provisions of

R.C. 5703.14(C). The Tax ComtnissioneX, either through a general power provided in

R.C. 5703.05(M), or more specific legislative grants, has the .pocver to promulgate rules for the administration of the tax laws. The Board of Tax Appeals, through R.C.

5703.14, b.as the power to review rules pronnnlgated by the Tax Commissioner.

Specifically, that section provides in pertinent part that:

"Applications for review of any rule adopted and promulgated by the commissioner may be filed with the board [of Tax Appeals] by any person who has been or

.5713.31 of the Revised Code aad all impmvements connected with such commercial producCiori of tnnber. -

{t.jlkff

"(C) The tax coautri.ssioner may adopt rules goveming the administration of the paztial exemption provided for by this section"

Appx. 19 may be injured by the operatioa of the rule. The appeal may be taken at any time after the mle is fli ed with the secretary of state, the director of the legislative service commission, and . if applicable, the joint committee on agency rule review. Failure to file an appeal does 'not preclude any pexson from seeking any other remedy against the application of the rule to the person."

As this board stated in Baxla v. Tracy (July 30, 1993), BTA No. 1991-

M-1242, "[t]he General Assembly has given wide latitude to a taxpayer who wishes to challenge a rule promulgated by the Tax Commissioner. R.C. 5703.14(C) permits any taxpayer who has been or may be affected by such a rule the ability to challenge the reasonableness of that rule. The legislature allows a taxpayer to challenge a rale as a

separate appeal, or within an appeal of an underlying assessment if the rule appears to

be in issue." Id. at 6. Thus, based upon the foregoing, we do not agree that there must

be a prerequisite fmding that an underlying statute is unconstitutional before an appeal

to this board for review of rales related to that underlying statute can be considered

Further, the commissioner claims that "as a matter of law, Ohio Adm.

Code 5703-25-10 and 57-25-18 [sic] must be detetmined to be `reasonable' under R.C.

*** 5703.14(C)." Motion at 4. The conclusion sought by the commissioner is

premature, as the appellants are entitled to provide evidence and testimony to this

board in support of their position that the rules in question are "onreasonable." In this

regard, we find our prior decision in Roosevelt Properties Co. v. Kinney (Jan. 11,

1983), BTA Nos. 1981-F-666, 1981-A 667, unreported, af1'mned (1984), 42 Ohio

St.3d 7 to be instmctive. Contrary to the commissioner's suggestion, we believe that

Appx.20 our holding in Roosevelt demonstrates this board's ability to review the reasonableness of a rule, without determining its constitutionality or that of the statqte which•it purports to amplify. The Supreme Court, on appeal in Roosevelt, confwned that: "`[a]

regalarly enaoted statute of 'Ohio is presumed to be constitutionai and is therefore

entitled to the benefit of every presnmpfion in favor of its constitutionality. This court

has held enactments of the General Assembly to be constitutional unless such

enactments are clearly unconstitutional beyond a reasonable doubt.y State, ex red.

Dickman, v.. Defenbacher (1955), 164 Obio St 142, 147 [57 0.0. 134]. Accord Bd. of

Edn. v.. Walter (1979), 58 Ohio St 2d 368, 376 [12 0.0.3d 327]. This principle

applies equally to adrninistrative regulations. Facif c States Box & Basket Co. v. Wieite

(1935), 296 U.S. 176. Cf. Sttite, ex rel. Shafer v: Ohio Turnpike Comm. (1953), 159

Ohio St. 581, 590 [50 0.0. 465], wherein it was recogaized that administrative

regnlations are presumed reasonable, both factaally and Iegally, and the burden rests

on the party challenging the rule to introduce evidence to tbs contrary." Id. at 13.

Appellants are attempting to exeraise their statutory right to challenge'the rules in

question heiein, and we believe the statute requires that they be afforded the

op.portnnity to do so.

Finally, the conmnssioner argues that appellants have £aa7ed "to follow

the directive of the Franklin County Court of Appeals to fAe a declaratory judgment

action seeking a declaratioil that R.C. 319.302(A)(1), Oliio Adm. Code 5703-25-10

and Ohio Adm. Code 5703-25-18 are unconstitutional." Motion at 7. Regardless of any

"directivee'- set forth in the court of appeals' decision in State ex red. Ohio Apt. t4ssn. v.

Appx. 21 Wilkins, 2006-Ohio-6783, we note that the ability of the appellants to file a rule review

appeal with this board was never addressed therain. Further, we find nothing in the

court's discussion that could be constr¢ed to preclude a rule review appeal with this

board.

Thus, based upon the foregoing, the commissioner's motions must be

and hereby are, denied. During the pendency of the instant motions, the parties

infomtall.y requested, and were graztted, a stay of the scheduling order previously

issued herein on July 27, 2007 (see Ohio ttpartment.4ssociatlon, et al. v. Wilkins (Int.

Order, July 27, 2007), BTA No. 2006-A-861, unreported). Therefore, the parties are i hereby directed to provide this board with a new scheduling agreement within fourteen

days of the issuance of the instant order.

I hereby certify the foregoing to be a nue and complete copy of the action taken by the Board of Tax Appeals of the State of dbio and - entered upon its journal this day, with respect to the capfioned matter.

Appx.22 § 319.301. Calculation of tax reduction percentage for carryover property in each class

(A) This section does not apply to any of the following: (1) Taxes levied at whatever rate is required to produce a specified amount of tax money, including a tax levied under section 5705.199 [5705.19.91 or 5705.211 [5705.21.1] of the Revised Code, or an amount to pay debt charges; (2) Taxes levied within the one per cent limitation imposed by Section 2 ofArticdeXll, Ohio Constitution; (3) Taxes provided for by the charter of a municipal corporation. (B) As used in this section: ( 1) "Real property" includes real property owned by a railroad. (2) "Carryover property" means all real property on the current year's tax list except: (a) Land and improvements that were not taxed by the district in both the preceding year and the current year; (b) Land and improvements that were not in the same class in both the preceding year and the current year. (3) "Effective tax rate" means with respect to each class of property: (a) The sum of the total taxes that would have been charged and payable for current expenses against real property.in that class if each of the district's taxes were reduced for the current year under division (D)(1) of this section without regard to the application of division (E)(3) of this section'divided by (b) The taxable value of all real property in that class. (4) "Taxes charged and payable" means the taxes charged and payable prior to any reduction required by section 319.302 [319.30.2] of the Revised Code. (C) The tax commissioner shall make the determinations required by this section each year, without regard to whether a taxing district has territory in a county to which section 5715.24 ofthe Revised Code applies for that year. Separate determinations shall be made for each of the two classes established pursuant to section 5713.041 [5713.04.11 of the Revised Code. (D) With respect to each tax authorized to be levied by each taxing district, the tax commissioner, annually, shall do both of the following: (1) Detemilne by what percentage, if any, the sums levied by such tax against the carryover property in each class would have to be reduced for the tax to levy the same number of dollars against such property in that class in the current year as were charged against such property by such tax in the preceding year subsequent to the reduction made under this section but before the reduction made under section 319.302 [319.30.2] of the Revised Code. In the case of a tax levied for the first time that is not a renewal of an existing tax, the commissioner shall determine by what percentage the sums that would otherwise be levied by such tax against carryover property in each class would have to be reduced to equal the amount that would have been levied if the full rate thereof had been imposed against the total taxable value of such property in the preceding tax year. A tax or portion of a tax that is designated a replacement levyunder section 5705.192 [5705.19.2] of the Revised Code is not a renewal of an existing tax for purposes of this division. (2) Certify each percentage determined in division (D)(1) of this section, as adjusted under division (E) of this section, and the class of property to which that percentage applies to the auditor of each county in which the district has territory. The auditor, after complying with section 319.30 of the Revised Code, shall reduce the sum to be levied by such tax against each parcel of real property in the district by the percentage so certified for its class. Certification shall be made by the fhst day of September except in the case of a tax levied for the first time, in which case certification shall be made within fifteen days of the date the county auditor submits the information necessary to make the required determination.

Appx. 23 (E) (1) As used in division (E)(2) of this section, "pre-1982 joint vocational taxes" means, with respect to a class of property, the difference between the following amounts: (a) The taxes charged and payable in tax year 1981 against the property in that class for the current expenses of the joint vocational school district of which the school district is a part after making all reductions under this section; (b) The following percentage of the taxable value of all real property in that class: (i) In 1987, five one-hundredths of one per cent; (ii) In 1988, one-tenth of one per cent; (iii) In 1989, fifteen one-hundredths of one per cent; (iv) In 1990 and each subsequent year, two-tenths of one per cent. If the amount in division (E)(1)(b) of this section exceeds the amount in division (E)(1)(a) of this section, the pre-1982 joint vocational taxes shall be zero. As used in divisions (E)(2) and (3) of this section, "taxes charged and payable" has the same meaning as in division (B)(4) of this section and excludes any tax charged and payable in 1985 or thereafter under sections 5705.194 [5705.19.4] to 5705.197 [5705.19.7J or section 5705.199 [5705.19.9] or 5705.213 [5705.21.31 of the Revised Code. (2) If in the case of a school district other than a joint vocational or cooperative education school district any percentage required to be used in division (D)(2) of this section for either class of property could cause the total taxes charged and payable for current expenses to be less than two per cent of the taxable value of all real property in that class that is subject to taxation by the district, the commissioner shall determine what percentages would cause the district's total taxes charged and payable for current expenses against that class, after all reductions that would otherwise be made under this section, to equal, when combined with the pre-1982 joint vocational taxes against that class, the lesser of the following: (a) The sum of the rates at which those taxes are authorized to be levied; (b) Two per cent of the taxable value of the property in that class. The auditor shall use such percentages in making the reduction required by this section for that class. (3) (a) If in the case of a joint vocational school district any percentage required to be used in division (D)(2) of this section for either class of property could cause the total taxes charged and payable for current expenses for that class to be less than the designated amount, the commissioner shall determine what percentages would cause the district's total taxes charged and payable for current expenses for that class, after all reductions that would otherwise be made under this section, to equal the designated amount. The auditor shall use such percentages in maldng the reductions required by this section for that class. (b) As used in division (E)(3)(a) of this section, the designated amount shall equal the taxable value of all real property in the class that is subject to taxation by the district times the lesser of the following: (i) Two-tenths of one per cent; (ii) The districYs effective rate plus the following percentage for the year indicated:

WHEN COMPUTING ADD THE THE TAXES FOLLOWING CHARGED FOR PERCENTAGE 1987 0.025% 1988 0.05% 1989 0.075% 1990 0.1% 1991 0.125"/0 1992 0.15% 1993 0.175% 1994 and thereafter 0.2%

Appx. 24 (F) No reduction shall be made under this section in the rate at which any tax is levied. (G) The commissioner may order a county auditor to fnrnish any information the commissioner needs to make the determinations required under division (D) or (E) of this section, and the auditor shall supply the information in the form and by the date specified in the order. If the auditor fails to comply with an order issued under this division, except for good cause as detemnined by the commissioner, the commissioner shall withhold from such county or taxing district therein fifty per cent of state revenues to local govemments pursuant to section 5747.50 ofthe Revised Code or shall direct the department of education to withhold therefrom fifty per cent of state revenues to school districts pursuant to Chapter 3317, of the Revised Code. The commissioner shall withhold the distnbution of such revenues until the county auditor has complied with this division, and the department shall withhold the distribution of such revenues until the commissioner has notified the department that the county auditor has complied with this division. (H) If the commissioner is unable to certify a tax reduction factor for either class of property in a taxing district located in more than one county by the last day of November because information required under division (G) of this section is unavailable, the commissioner may compute and certify an estimated tax reduction factor for that district for that class. The estimated factor shall be based upon an estimate of the unavailable information. Upon receipt of the actual information for a taxing district that received an estimated tax reduction factor, the commissioner shall compute the actual tax reduction factor and use that factor to compute the taxes that should have been charged and payable against each parcel of property for the year for which the estimated reduction factor was used. The amount by which the estimated factor resulted in an overpayment or underpayment in taxes on any parcel shall be added to or subtracted from the amount due on that parcel in the ensuing tax year. A percentage or a tax reduction factor determined or computed by the commissioner under this section shall be used solely for the purpose of reducing the sums to be levied by the tax to which it applies for the year for which it was determined or computed. It shall not be used in making any tax computations for any ensuing tax year. (I) In maldng the determinations under division (D)(1) of this section, the tax commissioner shall take account of changes in the taxable value of carry-over property resulting from complaints filed under section 5715.19 ofthe Revised Code for determinations made for the tax year in which such changes are reported to the commissioner. Such changes shall be reported to the commissioner on the first abstract of real property filed with the conunissioner under section 5715.23 ofthe Revised Code following the date on which the complaint is finally determined by the board of revision or by a court or other authority with jurisdiction on appeal. The tax commissioner shall account for such changes in making the determinations only for the tax year in which the change in valuation is reported. Such a valuation change shall not be used to recompute the percentages determined under division (D)(1) of this section for any prior tax year.

HISTORY: 134 v H 475 (Eff 12-20-71); 135 v S 247 (Eff 7-17-73); 136 v H 920 (Eff 10-11-76); 137 v S 221 (Eff 11-23-77); 137 v H 1285 (Eff 6-30-78); 138 v H 810 (Eff 2-28-80); 138 v H 1238 (Eff 12-19-80); 139 v H 201 (Eff 12-31-82); 139 v S 530 (Eff 6-25-82); 140 v H 260 (Eff 9-27-83); 140 v H 291 (Eff 7-1-83); 140 v H 37 (Eff 6-22-84); 141 v H 201 (Eff 1-1-86); 141 v H 222 (Eff 2-13-86); 142 v H 171 (Eff 7-1-87); 142 v H 231 (Eff 10-5-87); 142 v H 708 (Eff 4-19-88); 143 v S 218 (Eff 4-17-90); 143 v S 257 (Eff 9-26-90); 144 v S 195 (Eff 4-16-93); 146 v H 117. Eff 9-29-95; 151 v H 530, § 101.01, eff 6-30-06; 152 v H 562, § 101.01, eff. 9-23-08.

Appx. 25 § 323.152. Computation of reduction in taxable value

In addition to the reduction in taxes required under section 319.302 [319.30.21 of the Revised Code, taxes shall be reduced as provided in divisions (A) and (B) of this section.

(A) (1) Division (A) of this section applies to any of the following:

(a) A person who is permanently and totally disabled;

(b) A person who is sixty-five years of age or older;

(c) A person who is the surviving spouse of a deceased person who was permanently and totally disabled or sixty-five years of age or older and who applied and qualified for a reduction in taxes under this division in the year of death, provided the surviving spouse is at least fifty-nine but not sixty-five or more years of age on the date the deceased spouse dies.

(2) Real property taxes on a homestead owned and occupied, or a homestead in a housing cooperative occupied, by a person to whom division (A) of this section applies shall be reduced for each year for which an application for the reduction has been approved. The reduction shall equal the greater of the reduction granted for the tax year preceding the first tax year to which this section applies pursuant to Section 803.06 of Am. Sub. H.B. 119 of the 127th general assembly, if the taxpayer received a reduction for that preceding tax year, or the product of the following:

(a) Twenty-five thousand dollars of the true value of the property in money;

(b) The assessment percentage established by the tax commissioner under division (B) of section 5715.01 of the Revised Code not to exceed thirty-five per cent;

(c) The effective tax rate used to calculate the taxes charged against the property for the current year, where "effective tax rate" is defined as in section 323.08 of the Revised Code;

(d) The quantity equal to one minus the sum of the percentage reductions in taxes received by the property for the cutrent tax year under section 319.302 [319.30.21 of the Revised Code and division (B) of section 323.152 f323.15.21 of the Revised Code.

Appx. 26 § 323.158. Partial tax exemption on homesteads in counties with major league teams

(A) As used in this section, "qualifying county" means a county to which both of the following apply: (1) At least one major league professional athletic team plays its home schedule in the county for the season beginning in 1996; (2) The majority of the electors of the county, voting at an election held in 1996, approved a referendum on a resolution of the board of county commissioners levying a sales and use tax under sections 5739.026 [5739.02.6] and 5741.023 [5 741.02.3] of the Revised Code. (B) On or before December 31, 1996, the board of county commissioners of a qualifying county may adopt a resolution under this section. The resolution shall grant a partial real property tax exemption to each homestead in the county that also receives the tax reduction under division (B) of section 323.152 [323.15.21 of the Revised Code. The partial exemption shall take the form of the reduction by a specified percentage each year of the real property taxes on the homestead. The resolution shall specify the percentage, which may be any amount. The board may include in the resolution a condition that the partial exemption will apply only upon the receipt by the county of additional revenue from a source specified in the resolution_ The resolution shall specify the tax year in which the partial exemption first applies, which may be the tax year in which the resolution takes effect as long as the resolution takes effect before the county auditor certifies the tax duplicate of real and public utility property for that tax year to the county treasurer. Upon adopting the resolution, the board shall certify copies of it to the county auditor and the tax commissioner. (C) After complying with sections 319.301 [319.30.1], 319.302 [319.30.2], and 323.152 [323.15.2] of the Revised Code, the county auditor shall reduce the remaining sum to be levied against a homestead by the percentage called for in the resolution adopted under division (B) of this section. The auditor shall certify>the amount of taxes remaining after the reduction to the county treasurer for collection as the real property taxes charged and payable on the homestead. (D) For each tax year, the county auditor shall certify to the board of county commissioners the total amount by which real property taxes were reduced under this section. At the time of each semi-annual settlement of real property taxes between the county auditor and county treasurer, the board of county commissioners shall pay to the auditor one- half of that total amount. Upon receipt of the payment, the county auditor shall distribute it among the various taxing districts in the county as if it had been levied, collected, and settled as real property taxes. The board of county commissioners shall make the payment from the county general fund or from any other county revenue that may be used for that purpose. In maldng the payment, the board may use revenue from taxes levied by the county to provide additional general revenue under sections 5739.021 [5739.02.1] and 5741.021 [5741.02.1] of the Revised Code or to provide additional revenue for the county general fund under sections 5739.026 [5739.02.6] and 5741.023 [5741.02.3] of the Re- vised Code. (E) The partial exemption under this section shall not directly or indirectly affect the determination of the principal amount of notes that may be issued in anticipation of a tax levy or the amount of securities that may be issued for any permanent improvements authorized in conjunction with a tax levy. (F) At any time, the board of county commissioners may adopt a resolution amending or repealing the partial exemption granted under this section. Upon adopting a resolution amending or repealing the partial exemption, the board shall certify copies of it to the county auditor and the tax commissioner. The resolution shall specify the tax year in which the amendment or repeal first applies, which may be the tax year in which the resolution takes effect as long as the resolution takes effect before the county auditor certifies the tax duplicate of real and public utility property for that tax year to the county treasurer. (G) If a person files a late application for a tax reduction under division (B) of section 323.152 [323.15.2] of the Revised Code for the preceding year, and is granted the reduction, the person also shall receive the reduction under this section for the preceding year. The county auditor shall credit the amount of the reduction against the person's current year taxes, and shall include the amount of the reduction in the amount certified to the board of county commissioners under division (D) of this section.

HISTORY: 146 v H 462. Eff 9-3-96.

Appx. 27 § 5703.14. Rules of department and of board; filing; amendments; right to review; hearing

(A) Any rule adopted by the board of tax appeals and any nrle of the department of taxation adopted by the tax commissioner shall be effective on the tenth day after the day on which the rule in final form and in compliance with division (B) of this section is filed by the board or the commissioner as follows: (1) The rule shall be filed in electronic form with both the secretary of state and the director of the legislative service commission; (2) The rule shall be filed in electronic form with the joint committee on agency rule review. Division (A)(2) of this section does not apply to any rule to which division (H) of section 119.03 of the Revised Code does not apply. If all filings are not completed on the same day, the rule shall be effective on the tenth day after the day on which the latest filing is completed. If the board or the commissioner in adopting a rule designates an effective date that is later than the effective date provided for by this division, the rule if filed as required by this division shall become effective on the later date designated by the board or commissioner. (B) The board and commissioner shall file the rule in compliance with the following standards and procedures: (1) The rule shall be numbered in accordance with the numbering system devised by the director for the Ohio administmtive code. (2) The rule shall be prepared and submitted in compliance with the rules of the legislative service conunission. (3) The rule shall clearly state the date on which it is to be effective and the date on which it will expire, if known. (4) Each rale that amends or rescinds another rule shall clearly refer to the rule that is amended or rescinded. Each amendment shall fully restate the rule as amended. If the director of the legislative service commission or the director's designee gives the board or commissioner notice pursuant to section 103.05 of the Revised Code that a rule filed by the board or commissioner is not in compliance with the rules of the legislative service commission, the board or commissioner shall within thirty days after receipt of the notice conform the rule to the rules of the legislative service commission as directed in the notice. All rules of the department and board filed pursuant to division (A)(1) of this section shall be recorded by the secretary of state and the director under the name of the department or board and shall be numbered in accordance with the numbering system devised by the director. The secretary of state and the director shall preserve the rules in an accessible manner. Each such rule shall be a public record open to public inspection and may be transmitted to any law pub- lishing company that wishes to reproduce it. Each such rule shall also be made available to interested parties upon request directed to the department. (C) Applications for review of any rule adopted and promulgated by the commissioner may be filed with the board by any person who has been or may be injured by the operation of the rule. The appeal may be taken at any time after the rule is filed with the secretary of the* state, the director of the legislative service commission, and, if applicable, the joint conunittee on agency rule review. Failure to file an appeal does not preclude any person from seeking any other remedy against the application of the rule to the person. The applications shall set forth, or have attached thereto and incorporated by reference, a true copy of the rule, and shall allege that the rule complained of is unreasonable and shall state the grounds upon which the allegation is based. Upon the filing of the application, the board shall notify the commissioner of the filing of the application, fix a time for hearing the application, notify the commissioner and the applicant of the time for the hearing, and afford both an opportunity to be heard. The appellant, the tax commissioner, and any other interested persons that the board permits, may introduce evidence. The burden of proof to show that the rule is unreasonable shall be upon the appellant. After the hearing, the board shall determine whether the rule complained of is reasonable or unreasonable. A determination that the rale complained of is unreasonable shall require a majority vote of the three members of the board, and the reasons for the determination shall be entered on the journal of the board. Upon determining that the rule complained of is unreasonable, the board shall frle copies of its determination as follows:

Appx.28 (1) The determination shall be filed in electronic form with both the secretary of state and the director of ihe legislative service commission, who shall note the date of their receipt of the certified copies conspicuously in their files of the rules of the department; (2) The determination shall be filed in electronic form with the joint committee on agency rule review. Division (C)(2) of this section does not apply to any rule to which division (H) of section 119.03 of the Revised Code does not apply. On the tenth day after the determination has been received by the secretary of state, the director, and, if applicable, the joint committee, the rule referred to in the determination shall cease to be in effect. If all filings of the determination are not completed on the same day, the rule shall remain in effect until the tenth day after the day on which the latest filing is completed. This section does not apply to licenses issued under sections 5735.02, 5739.17, and 5743.15 of the Revised Code, which shall be governed by sections 119.01 to 119.13 of the Revised Code. The board is not required to hear an application for the review of any rule where the grounds of the allegation that the rule is unreasonable have been previously contained in an application for review and have been previously heard and passed upon by the board. (D) As used in this section, "substantive revision" has the same meaning as in division (J) of section 119.01 of the Revised Code.

HISTORY: GC § 14644; 118 v 344, § 5; 120v358(385), § 2; Bureau of Code Revision, 10-1-53; 136 v H 920 (Eff 10-11-76); 137 v H 25 (Eff 11-4-77); 138 v H 65'9 (Eff 9-24-79); 139 v H 694 (Eff 11-15-81); 140 v H 244 (Eff 7-4-84); 143 v H 1 1 1 (Eff 7-1-89); 148 v S 3(Eff 1-1-2001, § 5); 148 v S 3(Eff 7-1-2000, § 7); 148 v S 11, § 3 (Eff4-1-2001); 148 v S 11, § 6. Eff 4-1-2002.

Appx. 29 § 5703.16. Rules and regulations

The deparhnent of taxation shall adopt reasonable rules and regulations to govern its proceedings andYo regulate the manner of all valuations of real or personal property, apportionments, investigations, inspections, and hearings not specifically provided for.

HISTORY: GC § 1465-10; 102 v 224, § 12; Bureau of Code Revision. Eff 10-1-53.

Appx.30 § 5713.041. Classification of property for purposes of tax reduction

Each separate parcel of real property shall be classified by the county auditor according to its principal, current use. Vacant lots and tracts of land upon which there are no structures or improvements shall be classified in accordance with their location and their highest and best probable legal use. In the case of lands containing or producing minerals, the minerals or any rights to the minerals that are listed and taxed separately from such lands shall be separately classified if the lands are also used for agricultural purposes, whether or not the fee of the soil and the right to the minerals are owned by and assessed for taxation against the same person. For purposes of this section, lands and improvements thereon used for residential or agricultural purposes shall be classified as residential/agricultural real property, and all other lands and improvements thereon and minerals or rights to minerals shall be classified as nonresiden- tiaVagricultural real property. Each year the auditor shall reclassify each parcel of real property whose principal, current use has changed from the preceding year to a use appropriate to classification in the other class. The classification required by this section is solely for the purpose of making the reductions in taxes required by section 319.301 [319.30.11 of the Revised Code, and this section shall not apply for purposes of classifying real property for any other purpose authorized or required by law or by rule of the tax commissioner.

The commissioner shall adopt rules governlqg the classification of property under this section, and no property shall be so classified except in accordance with such rules.

HISTORY: 138 v H 1238 (Eff 12-19-80); 140 v H 260. Eff 9-27-83.

Appx. 31 § 5715.19. Complaints; tender of tax; detetmination of common level of assessment

(A) As used in this section, "member" has the same meaning as in section 1705.01 ofthe Revised Code. (1) Subject to division (A)(2) of this section, a complaint against any of the following determinations for the cutrent tax year shall be filed with the county auditor on or before the thirty-first day of March of the ensuing tax year or the date of closing of the collection for the first half of real and public utility property taxes for the current tax year, whichever is later: (a) Any classification made under section 5713.041 [5713.04.1] of the Revised Code; (b) Any detennination made under section 5713.32 or 5713.35 of the Revised Code; (c) Any recoupment charge levied under section 5713.35 of the Revised Code; (d) The determination of the total valuation or assessment of any parcel that appears on the tax list, except parcels assessed by the tax commissioner pursuant to section 5727.06 of the Revised Code; (e) The determination of the total valuation of any parcel that appears on the agricultural land tax list, except parcels assessed by the tax commissioner pursuant to section 5727.06 ofthe Revised Code; (f) Any determination made under division (A) of section 319.302 [319.30.2] of the Revised Code. Any person owning taxable real property in the county or in a taxing district with territory in the county; such a person's spouse; an individual who is retained by such a person and who holds a designation from a professional assessment organization, such as the institute for professionals in taxation, the national council of property taxation, or the intemational association of assessing officers; a public accountant who holds a permit under section 4701.10 ofthe Revised Code, a general or residential real estate appraiser licensed or certified under Chapter 4763. of the Revised Code, or a real estate broker licensed under Chapter 4735. of the Revised Code, who is retained by such a person; if the person is a fum, company, association, partnership, limited liability company, or corporation, an officer, a salaried employee, a partner, or a member of that person; if the person is a trust, a tmstee of the trust; the board of county commissioners; the prosecuting attotney or treasurer of the county; the board of township trustees of any township with territory within the county; the board of education of any school district with any territory in the county; or the mayor or legislative authority of any municipal corporation with any territory in the county may file such a complaint regarding any such determination affecting any real property in the county, except that a person owning taxable real property in another county may file such a complaint only with regard to any such determination affecting real property in the county that is located in the same taxing district as that person's real property is located. The county auditor shall present to the county board of revision all complaints filed with the auditor. (2) As used in division (A)(2) of this section, "interim period" means, for each county, the tax year to which section 5715.24 of the Revised Code applies and each subsequent tax year until the tax year in which that section applies again. No person, board, or officer shall file a complaint against the valuation or assessment of any parcel that appears on the tax list if it filed a complaint against the valuation or assessment of that parcel for any prior tax year in the same interim period, unless the person, board, or officer alleges that the valuation or assessment should be changed due to one or more of the following circumstances that occurred after the tax lien date for the tax year for which the prior complaint was filed and that the circumstances were not taken into consideration with respect to the prior complaint: (a) The property was sold in an arm's length transaction, as described in section 5713.03 ofthe Revtsed Code; (b) The property lost value due to some casualty; (c) Substantial improvement was added to the property; (d) An increase or decrease of at least fifteen per cent in the property's occupancy has had a substantial economic impact on the property. (3) If a county board of revision, the board of tax appeals, or any court dismisses a complaint filed under this section or section 5715.13 of the Revised Code for the reason that the act of filing the complaint was the unauthorized practice of law or the person filing the complaint was engaged in the unauthorized practice of law, the party affected by

Appx.32 a decrease in valuation or the party's agent, or the person owning taxable real property in the county or in a taxing district with territory in the county, may refile the complaint, notwithstanding division (AX2) of this section. (B) Within thirty days after the last date such complaints may be filed, the auditor shall give notice of each complaint in which the stated amount of overvaluation, undervaluation, discriminatory valuation, illegal valuation, or incorrect detennination is at least seventeen thousand five hundred dollars to each property owner whose property is the subject of the complaint, if the complaint was not filed by the owner or the owner's spouse, and to each board of education whose school district may be affected by the complaint. Within thirty days after receiving such notice, a board of education; a property owner; the owner's spouse; an individual who is retained by such an owner and who holds a designation from a professional assessment organization, such as the institute for professionals in taxation, the national council of property taxation, or the intemational association of assessing officers; a public accountant who holds a permit under section 4701.10 ofthe Revised Code, a general or residential real estate appraiser licensed or certified under Chapter 4763. of the Revised Code, or a real estate broker licensed under Chapter 4735. of the Revised Code, who is retained by such a person; or, if the property owner is a firm, company, associadon, partnership, limited liability company, corporation, or trust, an officer, a salaried employee, a partner, a member, or trustee of that property owner, may file a complaint in support of or objecting to the amount of alleged overvaluation, undervaluation, discriminatory valuation, illegal valuation, or incorrect determination stated in a previously filed complaint or objecting to the current valuation. Upon the filing of a complaint under this division, the board of education or the property owner shall be made a party to the action. (C) Each board of revision shall notify any complainant and also the property owner, if the property owner's address is known, when a complaint is filed by one other than the property owner, by certified mail, not less than ten days prior to the hearing, of the time and place the same will be heard. The board of revision shall hear and render its decision on a complaint within ninety days after the filing thereof with the board, except that if a complaint is filed within thirty days after receiving notice from the auditor as provided in division (B) of this section, the board sball hear and render its decision within ninety days after such filing. (D) The determination of any such complaint shall relate back to the date when the lien for taxes or recoupment charges for the current year attached or the date as of which liability for such year was determined. Liability for taxes and recoupment charges for such year and each succeeding year until the complaint is fmally determined and for any penalty and interest for nonpayment thereof within the time required by law shall be based upon the determination, valuation, or assessment as finally determined. Each complaint shall state the amount of overvaluation, undervaluation, discriminatory valuation, illegal valuation, or incorrect classification or detemtination upon which the complaint is based. The treasurer shall accept any amount tendered as taxes or recoupment charge upon property concerning which a complaint is then pending, computed upon the claimed valuation as set forth in the complaint. If a complaint filed under this section for the current year is not determined by the board within the time prescribed for such determination, the complaint and any proceedings in relation thereto shall be continued by the board as a valid complaint for any ensuing year until such complaint is fmally determined by the board or upon any appeal from a decision of the board. In such case, the original complaint shall continue in effect without further filing by the original taxpayer, the original taxpayer's assignee, or any other person or entity authorized to file a complaint under this section. (E) If a taxpayer files a complaint as to the classification, valuation, assessment, or any determination affecting the taxpayer's own property and tenders less than the full amount of taxes or recoupment charges as finally determined, an interest charge shall accrue as follows: (1) If the amount finally determined is less than the amount billed but more than the amount tendered, the taxpayer shall pay interest at the rate per annum prescribed by section 5703.47 ofthe Revised Code, computed from the date that the taxes were due on the difference between the amount finally determined and the amount tendered. This interest charge shall be in lieu of any penalty or interest charge under section 323.121 [323.12.1] of the Revised Code unless the taxpayer failed to file a complaint and tender an amount as taxes or recoupment charges witbin the time required by this section, in which case section 323.121 [323.12.11 of the Revised Code applies. (2) If the amount of taxes finally determined is equal to or greater than the amount billed and more than the amount tendered, the taxpayer shall pay interest at the rate prescribed by section 5703.47 ofthe Revised Code from the date the taxes were due on the difference between the amount finally determined and the amount tendered, such interest to be in lieu of any interest charge but in addition to any penalty prescnbed by section 323.121 [323.12.1] of the Revised Code.

Appx. 33 (F) Upon request of a complainant, the tax commissioner shall determine the common level of assessment of real property in the county for the year stated in the request that is not valued under section 5713.31 of the Revised Code, which common level of assessment shall be expressed as a percentage of true value and the common level of assessment of lands valued under such section, which common level of assessment shall also be expressed as a percentage of the current agricultural use value of such lands. Such detennination shall be made on the basis of the most recent available sales ratio studies of the commissioner and such other factual data as the commissioner deems pertinent. (G) A complainant shall provide to the board of revision all information or evidence within the complainant's knowledge or possession that affects the real property that is the subject of the complaint. A complainant who fails to provide such information or evidence is precluded from introducing it on appeal to the board of tax appeals or the court of common pleas, except that the board of tax appeals or court may admit and consider the evidence if the complainant shows good cause for the complainant's failure to provide the information or evidence to the board of revision. (H) In case of the pendency of any proceeding in court based upon an alleged excessive, discriminatory, or illegal valuation or incorrect classification or determination, the taxpayer may tender to the treasurer an amount as taxes upon property computed upon the claimed valuation as set forth in the complaint to the court. The treasurer may accept the tender. If the tender is not accepted, no penalty shall be assessed because of the nonpayment of the full taxes assessed. HISTORY: GC § 5609; 107 v 29; 108 v FtI, 557; 114 v 714(767), § 3; 116 v 393; 117 v 314; 118 v 148; Bureau of Code Revision, 10-1-53; 127 v 65; 127 v 410 (Eff 11-4-59); 129 v 582(959) (Eff 1-10-61); 131 v 1337 (Eff 11-5-65); 134 v H 931 (Eff 3-7-72); 134 v S 428 (Eff 12-23-71); 135 v S 423 (Eff 7-26-74); 136 v H 920 (Eff 10-11-76); 137 v H 1(Eff 8- 26-77); 137 v H 648 (Eff 5-23-78); 138 v H 736 (Eff 10-16-80); 138 v H 1238 (Eff 12-19-80); 139 v S 6 (Eff 8-27-81); 139 v H 379 (Eff 12-1-82); 140 v H 260 (Eff 9-27-83); 140 v H 379 (Eff 7-2-84); 142 v H 603 (Eff 6-24-88); 147 v H 694 (Eff 3-30-99); 149 v H 390. Eff 3-4-2002; 151 v H 294, § 1, eff. 9-28-06.

Appx. 34 § 5717.01. Appeal from county board of revision to board of tax appeals; procedure; hearing

An appeal from a decision of a county board of revision may be taken to the board of tax appeals within thirty days after notice of the decision of the county board of revision is mailed as provided in division (A) ofsection 5715.20 of the Revised Code. Such an appeal may be taken by the county auditor, the tax commissioner, or any board, legislative authority, public official, or taxpayer authorized by section 5715.19 of the Revised Code to file complaints against valuations or assessments with the auditor. Such appeal shall be taken by the filing of a notice of appeal, in person or by certified mail, express mail, or authorized delivery service, with the board of tax appeals and with the county board of revision. If notice of appeal is filed by certified mail, express mail, or authorized delivery service as provided in section 5703.056 [5703.05.6] of the Revised Code, the date of the United States postmark placed on the sender's receipt by the postal service or the date of receipt recorded by the authorized delivery service shall be treated as the date of filing. Upon receipt of such notice of appeal such county board of revision shall by certified mail no6fy all persons thereof who were parties to the proceeding before such county board of revision, and shall file proof of such notice with the board of tax appeals. The county board of revision shall thereupon certify to the board of tax appeals a transcript of the record of the proceedings of the county board of revision pertaining to the original complaint, and all evidence offered in connection therewith. Such appeal may be heard by the board of tax appeals at its offices in Columbus or in the county where the property is listed for taxation, or the board of tax appeals may cause its examiners to conduct such hearing and to report to it their findings for affirmation or rejection.

The board of tax appeals inay order the appeal to be heard on the record andlhe evidence certified to it by the county board of revision, or it may order the hearing of additional evidence, and it may make such investigation conceming the appeal as it deems proper.

HISTORY: GC § 5610; 107 v 29(44); 108 v PtI, 560; 114 v 714(768), § 3; 116 v 383; 118 v 344, § 15; Bureau of Code Revision, 10-1-53; 136 v H 920 (Eff 10-11-76); 139 v S 6 (Eff 8-27-81); 140 v H 260 (Eff 9-27-83); 148 v H 612 (Eff 9-29-2000); 149 v H 675. Eff 3-14-2003.

Appx. 35 § 5717.02. Appeals from final determinations; procedure; hearing

Except as otherwise provided by law, appeals from final determinations by the tax commissioner of any preliminary, amended, or final tax assessments, reassessments, valuations, determinations, findings, computations, or orders made by the commissioner may be taken to the board of tax appeals by the taxpayer, by the person to whom notice of the tax assessment, reassessment, valuation, determination, finding, computation, or order by the commissioner is required by law to be given, by the director of budget and management if the revenues affected by such decision would accrue primarily to the state treasury, or by the county auditors of the counties to the undivided general tax funds of which the revenues affected by such decision would primarily accrue. Appeals from the redetermination by the director of development under division (B) of section 5709.64 or division (A) of section 5709.66 of the Revised Code may be taken to the board of tax appeals by the enterprise to which notice of the redetermination is required by law to be given. Appeals from a decision of the tax commissioner concerning an application for a property tax exemption may be taken to the board of tax appeals by a school district that filed a statement concerning such application under division (C) ofsection 5715.27 of the Revised Code. Appeals from a redetermination by the director ofjob and family services under section 5733.42 ofthe Revised Code may be taken by the person to which the notice of the redetermination is required by law to be given under that section.

Such appeals shall be taken by the filing of a notice of appeal with the board, and with the tax commissioner if the tax commissioner's action is the subject of the appeal, with the director of development if that director's. action. is the subject of the appeal, or with the director ofjob and family services if that director's action is the subject of the appeal. The notibe of appeal shall be filed within sixty days after service of the notice of the tax assessment, reassessment, valuation, determination, finding, computation, or order by the commissioner or redetermination by the director has been given as provided in section 5703.37, 5709.64, 5709.66, or 5733.42 of the Revised Code. The notice of such appeal may be filed in person or by certified mail, express mail, or authorized delivery service. If the notice of such appeal is filed by certified mail, express mail, or authorized delivery service as provided in section 5703.056 [5703.05.61 of the Revised Code, the date of the United States postmark placed on the sender's receipt by the postal service or the date of receipt recorded by the authorized delivery service shall be treated as the date of filing. The notice of appeal shall have attached thereto and incorporated therein by reference a true copy of the notice sent by the commissioner or director to the taxpayer, enterprise, or other person of the fmal determination or redetermination complained of, and shall also specify the errors therein complained of, but failure to attach a copy of such notice and incorporate it by reference in the notice of appeal does not invalidate the appeal.

Upon the filing of a notice of appeal, the tax commissioner or the director, as appropriate, shall certify to the board a transcript of the record of the proceedings before the commissioner or director, together with all evidence considered by the commissioner or director in connection therewith. Such appeals or applications may be heard by the board at its office in Columbus or in the county where the appellant resides, or it may cause its examiners to conduct such hearings and to report to it their findings for affirmation or rejection. The board may order the appeal to be heard upon the record and the evidence certified to it by the commissioner or director, but upon the application of any interested party the board shall order the hearing of additional evidence, and it may make such investigation concerning the appeal as it considers proper.

HISTORY: GC § 5611; 106 v 246(260), § 54; 118 v 344; 119 v 34(48); Bureau of Code Revision, 10-1-53; 135 v S 174 (Eff 12-4-73); 136 v H 920 (Eff 10-11-76); 137 v H 634 (Eff 8-15-77); 139 v H 351 (Eff 3-17-82); 140 v H 260 (Eff 9-27-83); 141 v S 124 (Eff 9-25-85); 141 v H 321 (Eff 10-17-85); 145 v S 19 (Eff 7-22- 94); 148 v H 612 (Eff 9-29-2000); 148 v S 287 (Eff 12-21-2000); 149 v S 200. Eff 9-6-2002.

Appx.36 § 5717.04. Appeal from decision ofboard of tax appeals to supreme court; parties who may appeal; certification

The proceeding to obtain a reversal, vacation, or modification of a decision of the board of tax appeals shall be by appeal to the supreme court or the court of appeals for the county in which the property taxed is situate or in which the taxpayer resides. If the taxpayer is a corporation, then the proceeding to obtain such reversal, vacation, or modification shall be by appeal to the supreme court or to the court of appeals for the county in which the property taxed is situate, or the county of residence of the agent for service of process, tax notices, or demands, or the county in which the corporation has its principal place of business. In all other instances, the proceeding to obtain such reversal, vacation, or modification shall be by appeal to the court of appeals for Franklin county.

Appeals from decisions of the board determining appeals from decisions of county boards of revision may be instituted by any of the persons who were parties to the appeal before the board of tax appeals, by the person in whose name the property involved in the appeal is listed or sought to be listed, if such person was not a party to the appeal before the board of tax appeals, or by the county auditor of the county in which the property involved in the appeal is located.

Appeals from decisions of the board of tax appeals determining appeals from final detercninations by the tax commissioner of any preliminary, amended, or fmal tax assessments, reassessments, valuations, determinations, findings, computations, or orders made by the commissioner may be instituted by any of the persons who were parties to the appeal or application before the board, by the person in whose name the property is listed or sought to be listed, if the decision appealed from determines the valuation or liability of property for taxation and if any such person was not a party to the appeal or application before the board, by the taxpayer or any other person to whom the decision of the board appealed from was by law required to be certified, by the director of budget and management, if the revenue affected by the decision of the board appealed from would accrue primarily to the state treasury, by the county auditor of the county to the undivided general tax fnnds of which the revenues affected by the decision of the board appealed from would primarily accrue, or by the tax commissioner.

Appeals from decisions of the board upon all other appeals or applications filed with and detemiined by the board may be instituted by any of the persons who were parties to such appeal or application before the board, by any persons to whom the decision of the board appealed from was by law required to be certified, or by any other person to whom the board certified the decision appealed from, as authorized by section 5717.03 ofthe Revised Code.

Such appeals shall be taken within thirty days after the date of the entry of the decision of the board on the journal of its proceedings, as provided by such section, by the filing by appellant of a notice of appeal with the court to which the appeal is taken and the board. If a timely notice of appeal is filed by a party, any other party may file a notice of appeal within ten days of the date on which the first notice of appeal was filed or within the time otherwise prescribed in this section, whichever is later. A notice of appeal shall set forth the decision of the board appealed from and the errors therein complained of. Proof of the filing of such notice with the board shall be filed with the court to which the appeal is being taken. The court in which notice of appeal is first filed shall have exclusive jurisdiction of the appeal.

In all such appeals the tax commissioner or all persons to whom the decision of the board appealed from is required by such section to be certified, other than the appellant, shall be made appellees. Unless waived, notice of the appeal shall be served upon all appellees by certified mail. The prosecuting attomey shall represent the county auditor in any such appeal in which the auditor is a party.

The board, upon written demand filed by an appellant, shall within thirty days after the filing of such demand file with the court to which the appeal is being taken a certified transcript of the record of the proceedings of the board pertaining to the decision complained of and the evidence considered by the board in making such decision.

If upon hearing and consideration of such record and evidence the court decides that the decision of the board appealed from is reasonable and lawful it shall affirm the same, but if the court decides that such decision of the board is unreasonable or unlawfal, the court shall reverse and vacate the decision or modify it and enter fmal judgment in accordance with such modification.

Appx. 37 The clerk of the court shall cettify the judgment of the court to the board, which shall certify such judgment to such public officials or take such other action in connection therewith as is required to give effect to the decision. The "taxpayer" includes any person required to return any property for taxation.

Any party to the appeal shall have the right to appeal from the judgment of the court of appeals on questions of law, as in other cases.

HISTORY: GC § 5611-2; 107 v 550; 116 v 104(123), § 2; 118 v 344(355); 119 v 34(49); Bureau of Code Revision, 10-1-53; 125 v 250 (Eff 10-2-53); 135 v S 174 (Eff 12-4-73); 137 v H 634 (Eff 8-15-77); 140 v H 260 (Eff 9-27-83); 142 v H 231. Eff 10-5-87.

Appx. 38 § 5727.32. Contents of statement and reports

(A) For the purpose of the tax imposed by section 5727.30 of the Revised Code, the statement required by section 5727.31 ofthe Revised Code shall contain: (1) The name of the company; (2) The nature of the company, whether a person, association, or corporation, and under the laws of what state or country organized; (3) The location of its principal office; (4) The name and post-office address of the president, secretary, auditor, treasurer, and superintendent or general manager; (5) The name and post-office address of the chief officer or managing agent of the company in this state; (6) The amount of the excise taxes paid or to be paid with the reports made during the current calendar year as provided by section 5727.31 ofthe Revised Code; (7) In the case of telegraph companies: (a) The gross receipts from all sources, whether messages, telephone tolls, rentals, or otherwise, for business done within this state, including all sums earned or charged, whether actually received or not, for the year ending on the thirtieth day of June, and the company's proportion of gross receipts for business done by it within this state in connection with other companies, fums, corporations, persons, or associations, but excluding all of the following: (i) All of the receipts derived wholly from interstate business or business done for or with the federal government; (ii) The receipts of amounts billed on behalf of other entities; (b) The total gross receipts for such period from business done within this state. (8) In the case of all public utilities subject to the tax imposed by section 5727.30 ofthe Revised Code, except telegraph companies: (a) The gross receipts of the company, actually received, from all sources for business done within this state for the year next preceding the first day of May, including the company's proportion of gross receipts for business done by it within this state in connection with other companies, firms, corporations, persons, or associations, but excluding both of the following: (i) Receipts from interstate business or business done for the federal govemment; (ii) Receipts from sales to another public utility for resale, provided such other publlc utility is subject to the tax levied by section 5727.24 or 5727.30 ofthe Revised Code; (iii) Receipts of a combined company derived from operating as a natural gas company that is subject to the tax imposed by section 5727.24 of the Revised Code. (b) The total gross receipts of the company, for the year next preceding the first day of May, in this state from business done within the state. (B) The reports required by section 5727.31 ofthe Revised Code shall contain: (1) The name and principal mailing address of the company; (2) The total amount of the gross receipts excise taxes charged or levied as based upon its last preceding annual statement filed prior to the fnst day of January of the year in which such report is filed; (3) The amount of the excise taxes due with the report as provided by section 5727.31 ofthe Revised Code.

HISTORY:

Appx.39 GC §§ 5471-5474; 102v224, §§ 82, 83, 85; 106 v 571; 106 v PtI, 141; 113 v 625; 115 v PtII, 321; Bureau of Code Revision, 10-1-53; 125 v 903(1051) (Eff 10-1-53); 129 v 1505 (Eff 10-11-61); 130 v 1322 (Eff 7-17-63); 138 v H 145 (Eff 12-31-79); 142 v H 171 (Eff 7-1-87); 142 v H 721 (Eff 9-14-88); 143 v S 156 (Eff 12-31-89); 144 v H 298 (Eff 7-26-9i); 144 v H 276 (Eff 10-11-91); 144 v H 904 (Eff 12-22-92); 146 v H 476 (Eff 9-17-96); 148 v H 283 (Eff 9-29-99); 148 v S 3(Eff 10-5-99); 148 v H 640. Eff 6-15- 2000; 150 v H 95, § 1, e$: 12-31-04.

Appx. 40 i

AN ACT

To sections 133.03, 321.24, 3301.07, 3301.17, 3311.28, 3313.48, 3313.481, 3313.482, 3313.531, 3317.01, 3317.02, 3317.03, 3317.04; 3317.05, 3317.051, 3317.06, 3317.10, 3317.11, 3317.13, 3817.16, 3319.16, 3321.04, 3327.01, 3327.06, 3333.10, 3375.70, 3375.81, 4301.43, 4501.07, 5139.271, 5703.052, 5705.11, 5707.03, 5709.25, 5711.22, 5715.30, 5725.19, 5725.24, 5733.01, 5733.02, 5733.03, 5733.04, 5733.05, 5733.06, 5733.09, 5733.10, 5733.12, 5733.13, 5733.14, 5733.15, 5733.16, 5733.17, 5733.18, 5733.99, 5739.02, 5739.21, 5743.021J743 and 6111.37; - 323.131, 323.151 to 323.157, inclusivb, 323.99, 3313.484, 3317.011, 3317.062, 3319.161, 5705.412, 5705.51, 5733.021, 5733.031, 5733.051, 5733.052, 5733.28, 5733.29, 5733.30, 5747.01 to 5747.23, inclusive, 5747.50 to 5747.55, inclusive, 5747.99, 5749.01 to 5749.04, inclusive, .5749.06 to 5749.16, inclusive, 5749.99, and new sections 3317.15, 5733.07, 5733.11, and 573326; and to sections 319.41, 3311.214, 3317.15, 5733.07, 5733.08, 5733.11, 5733.19, 5733.26, 5739.20, 5739.22, 5739.23, 5739.231, 5739.232, 5739.24, and 5739.25 of the Revised Code to

1485 Appx. 41 strengthen the structure, programming and financing of local government and edueation, to provide revenue for the state general rev,?, nue fund, and to make General Appropri- ations for the biennium beginning July 1, 1971 and ending June 80, 1973.

Be it enaeted by the General Assembly of the State of Ohio:

SEcriox 1. That sections 133.03, 321.24, 3301.07, 3301.17, 3311.28, 3313.48, 3313.481, 3313.482, 3313.531, 3317.01, 3817.02, 3317.03, 3317.04, 3317.05, 3317.051, 3317.06, 3317.10, 3317.11, 3317.13, 3317.16, 3319.16, 3321.04, 3327.01, 3327.06, 3333.10, 3375.70, 3375.81, 4301.43, 4501.07, 5139271, 5703.052, 5705.11, 5707.03, 5709.25, 5711.22, 5715.30, 5725.19, 5725.24, 5733.01, 5733.02, 5733.03, 5733.04, 5733.05, 5733.06, 5733.09, 5733.10, 5733.12, 5733.13, 5733.14, 5733.15, 5733.16, 5733.17, 5733.18, 5733.99, 5739.02, 5739.21, 5743.02, 5743.32, and 6111.37 be amended and sections 319.301, 323.131, 323.151, 323.152, 323.153, 323.154, 323.155, 323.156, 323.157, 323.99, 3313.484, 3317.011, 3317.062, 3319.161, 5705.412, 5705.51, 5733.021, 5733.031, 5733.061, 5733.052, 5733.28, 5733.29, 5733.30, 5747.01, 5747.02, 5747.03, 5747.04, 5747.05, 5747.06, 5747.07, 5747.08, 5747.09, 5747.10, 5747.11, 5747.12, 5747.13, 5747.14, 5747.15, 5747.16, 5747.17, 5747.18, 5747.19, 5747.20, 5747.21, 5747.22, 574723, 5747.50, 5747.51, 5747.52, 5747.53, 5747.54, 5747.55, 5747.99, 5749.01, 5749.02, 5749.03, 5749.04, 5749.06, 5749:07, 5749.08, 5749.09, 5749.10,. 5749.11, 5749.12, 5749.13, 5749.14, 5749.15, 5749.16, 5749.99, and new sections 3317.15, 5733.07, 5733.11, and 5733.26 of the Re- vised Code be enacted to read as follows: Sec. 133.03. The net indebtedness created or ineurred by a v municipal corporation without a vote of the electors shall never exceed (tbree and ene-ha1€] FOUR per cent of the total value of aIl property in such municipal corporation as listed and assessed for taxation, except in the case of charter cities where the charter provides for the levying of taxes outside the ten-mill limitation without a vote of the electors then said net indebtedness created or incurred without a vote of the electors shall not exceed five AND ONE-IiALF per cent of said total value. The net indebtedness created or incurred by a municipal corporation shall never exceed ten AND ONE T3ALF per cent of the total value of all property in such munieipal corporation as listed. and assessed for taxation. In ascertaining the 19mitations prescn'bed by this section, the bonds excepted in section 133.02 of the Revised Code, and the following bonds and the amounts held in any sinldng fund and other indebtedness retirement fund for their retirement shall not be considered:

Appx-42 (H) Voted bonds issued for the purposes of urban redevelopment to the extent that such bonds do not exceed two per cent of the total value of.all property in such niunicipal corporation as listed and assessed for taxation; (I) All bonds issued prior to January 1, 1922, and not included in divisions (A) to (H), inclusive, of this section, bonds and J notes issued to meet deficiencies in operating revenues, scrip, and federal aid bonds which have been exempted from debt limitations by the generat assembly authorizing such indebtedness, -and bonds issued prior to August 11, 1927, under sections 747.01 to 747.11, 1 inclusive, of the Revised Code, and which at the time of issuance were not required by law to fall within the pereentage limitations as provided in former sections 3941 and 3948 of the Ohio General I Code; (J) Revenue bonds issued by municipal corporations pursuant to sections 761.01 to 761.14, inclusive, of the Revised Code; (K) Bonds.issued by municipal corporations pursuant to sec- I tions 725.01 to 72511, inclusive, of the Revised Code. I

TAXES FOLLOR'ING SUCfi REDUCTION SHALL BE THE REAL AND PUBLIC UTILITY PROPERTY TAXES CHARGED AND PAYABLE AGAINST SUCH REAL PROPERTY FOR THE SUCCEEDING CALENDAR YEAR. SUCH REDUCTION SHAI.L NOT DIRECTLY OR INDIRECTLY AFFECT THE DETERMI- NATION OF THE PRINCIPAL AMOUNT OF NOTES THAT. MAY BE TSSUED IN ANTICIPATION OF ANY TAX LEVIES OR THE I AMOUNT OF BONDS OR NOTES FOR ANY PLANNED I14I- PROVEMENTS. IF AFTER APPLICATION OF SECTIONS 5705.31 AND 5705.32 OF THE REVISED CODE AND OTHER APPLICABLE PROVISIONS OF LAW, INCLUDING DIYISION (F) OF SECTIOI`T 321.24 OF THE REVISED CODE, THERE WOULD BE INSUFFICIENT FUNDS FOR PAYMENT OF DEBT CHARGES ON BONDS OR NOTES PAYABLE FROM TAXES. REDUCED BY THIS SECTION, THE REDUCTION OF TAXES PROVIDED FOR IN THIS SECTION SHALL BE ADJUSTED TO THE EXTENT NECESSARY TO PROVIDE FUNDS FROM SUCH TA%ES: See. 321.24. (A) On or before the fifteenth day of February, in each year, the county treasurer shall settle with the county auditor for all taxes and assessments that he has collected on the general duplicate of real and public utility property at the time of malung the settlement. (B) On or bAore the thirtieth day of June, in each year, the

14RR

Appx.43 (

of local government fund moneys shall be paid or distributed under such Chapter, and all such payments and distributions shall be made as provided by Chapter 5747. of the Revised Code.

CHARLES F. KURFESS, Speaker of the House of Representatives.

JOHN W. BROWN, President of the Senate.

Passed December 10, 1971. Approved December 20, 1971, with the exception of the items disapproved as specified in the attached message and indicated herein.

JOHN J. GILLIGAN, Goverreor.

The sectional numbers herein are in conformity with the Revised Code. Sections 3 to 52 herein require no code seational number. OHIO LEGISLATIVE SERVICE COMMISSION DAVID A. JOHNSTON, Director.

Filed in the office of the Secretary of State at Columbus, Ohio, on the 20th day of December, A.D. 1971. TED W. BROWN, Secretary/ of State. PSle No. 188. Effective December 20, 1971.

Appx.44 GENERAL LAWS of the ONE HUNDRED THIRTEENTH GENERAL ASSEMBLY Conckided

Appx.45 AN ACT

To amend sections 319.30, 319.301, 321.24, 323.08, 323.131, 323.152, 323.154, 323.155, 709.19, 3311.21, 3317.02, 3354.12, 5705.61, 5715.19, and 5715.30, to further amend, effective January 1, 1984, section 323.131, and to enact sections 319.302 and 5713.041 of the Revised Code to provide for the computation of tax reduction factors by class of property beginning with tax year 1980, and to declare an emergency.

Be it enacted by the General Assembly of the State of Ohio: SECTION 1. That sections 319.30, 319.301, 321.24, 323.08, 323.131, 323.152, 323.154, 323.155, 709.19, 3311.21, 3317.02, 3354.12, 5705.61, 5715.19, and 5715.30 be amended and sections 319.302 and 5713.041 of the Revised Code be enacted to read as follows: r Sec. 319.30. (A) After receiving from the auditor of state and from other officers and authorities empowered to determine the rates or amounts of taxes to be levied for the various purposes authorized by law, statements of the rates and sums to be levied for the current year, the county auditor shall proceed to determine the sums to be levied upon each tract and lot of real property, adding the taxes of any previous year that have been omitted, and upon the amount of public utility property listed on the general tax list and duplicate in the county, in the name of each public utility, which shall be assessed equally on all property subject to such taxes, and entered in one or more columns, in such manner and form as the commissioner of tax equalization prescribes. (B) If a taxing authority or unit has not certified the nec- ssary levies to the county auditor by the time prescribed by 3ection 5705.34 of the Revised Code and an appeal of an action of the budget commission with respect to the tax rate of that

Appx. 46 Am. H. B. No. 1238 4926 authority or unit has been initiated under section 5705.341 or 5705.37 of the Revised Code but a final determination has not been made, the county auditor, in order to avoid a delay in the preparation of the tax list and duplicate, may proceed under division (A) of this section, using in lieu of the rate of tax to be levied for such authority or unit -for any levy that has not been so certified, the estimated rate certified to the taxing authority or unit under section 5705.34 of the Revised Code. If as a result of the appeal the tax rate certified to the county auditor is not the same as the estimated rate u`sed to determine the sums to be levied, the auditor shall proceed in the manner prescribed by this section and eeetie3t SECTIONS 319.301 AND 319.302 of the Revised Code to determine the correct amount of taxes to be levied, charged, and payable for the year. If the correct amount of taxes charged and payable after the determination is f complete.is greater than or less than the taxes charged and payable as shown on the tax list and duplicate, a clerical error shall be deemed to have occurred in the preparation of the tax list and duplicate, and the auditor shall proceed in the manner prescribed by section 319.35 of the Revised Code. Sec. 319.301. (A) THIS SECTION DOES NOT APPLY TO ANY OF THE FOLLOWING: (1) TAXES LEVIED AT WHATEVER RATE IS REQUIRED TO PRODUCE A SPECIFIED AMOUNT OF TAX MONEY OR AN AMOUNT TO PAY DEBT CHARGES; (2) TAXES LEVIED WITHIN THE ONE PER CENT LIM- ITATION IMPOSED BY SECTION 2 OF ARTICLE XII OF THE OHIO CONSTITUTION; ,. (3) TAXES PROVIDED FOR BY THE CHARTER OF A MUNICIPAL CORPORATION. (B) As used in this section "Pea : (1) "REAL property" includes real property owned by a public utility :L W (2) "CARRYOVER PROPERTY" MEANS ALL REAL PROPERTY ON THE CURRENT YEAR'S TAX LIST EXCEPT: (a) LAND AND IMPROVEMENTS THAT WERE NOT TAXED BY THE DISTRICT IN BOTH THE PRECEDING YEAR AND THE CURRENT YEAR; (b) LAND AND IMPROVEMENTS THAT WERE NOT IN THE SAME CLASS IN BOTH THE PRECEDING YEAR AND THE CURRENT YEAR. (C) THE COMMISSIONER OF TAX EQUALIZATION SHALL MAKE THE DETERMINATIONS REQUIRED BY THIS SECTION EACH YEAR, WITHOUT REGARD TO WHETHER A TAXING DISTRICT HAS TERRITORY IN A COUNTY TO WHICH SECTION 5715.24 OF THE REVISED

Appx.47 Am. H. B. No. 1238 4927

CODE APPLIES FOR THAT YEAR. SEPARATE DETERMI- NATIONS SHALL BE MADE FOR EACH OF THE TWO CLASSES ESTABLISHED PURSUANT TO SECTION 5713.041 OF THE REVISED CODE. (D) With respect to each tax authorized to be levied by each taxing district,

peratien; the commissioner of tax equalization, annually, shall DO BOTH OF THE FOLLOWING: (1) DeSera3iiie THE COMMISSIONER SHALL DETER- MINE by what per centt IF ANYt the sums levied by such tax against reaI THE CARRYOVER property IN EACH CLASS would have to be reduced for the tax to levy the same number of dollars AGAINST SUCH PROPERTY IN THAT CLASS in the current year as were charged against allpealSUCH property iiR thp distrik by such tax in the preceding year subsequent to the reduction made under this division SECTION but before the reduction made under division section 319.302 OF THE REVISED CODE. In the case of a tax levied for the first time an4 that is not a renewal of an existing tax, the commissioner shall determine by what per cent the sums that would otherwise be levied by such tax, against real CARRYOVER property IN EACH CLASS would have to be reduced to equal the amount that would be HAVE BEEN levied if the full rate thereof ivere HAD BEEN imposed against the total taxable value of re4 SUCH property ixthe disiri tin the preceding tax year ; plus the teta}

A tax or portion of a tax that is designated a replacement levy under section 3311.21 of the Revised Code is not a renewal of an existing tax for purposes of this division. (2) ^--`•.o THE COMMISSIONER SHALL CERTIFY EACH per cent determined in division W (D)(1) of this section AND THE CLASS OF PROPERTY TO WHICH IT APPLIES to the auditor of each county in which the district has territory; and the auditor, after complying with section 319.30 of the Revised Code, shall reduce the sum to be levied by such tax against each parcel of real property in the district by the per cent so certified FOR ITS CLASS. Certification shall be made by the first day of September except in the case of a tax levied for the first time, in which case certification shall be made within fifteen days of the date the county auditor submits the information pecessary to make the required diftni4wtion. Am. IL B. No. 123a Ar 4928

(4 (EXI) As used in this division, "joint vocational taxea" tet means the taxes charged and payable for the current expenseK thc of the joint vocational school district of which the school district af€ is a part, after making all reductions under dMaien (A4(g) of this me section and prior to the reduction required by ' b4M section 319.302 OF THE REVISED CODE. tii03 (2) If = in the case of a school district j other than a joint eLh vocational school district -,Che ANY per cent required to be used tie, in division W (D)(2) of this section FOR EITHER CLASS OF PIFa PROPERTY could cause the total taxes charged and payable for fmol current expenses prior to the reduction required by divisierr{IIF vid4 e€Llais section 319.302 OF THE REVISED CODE to be less than two per cent of the taxable 'value of all real property IN THAT CLASS THAT IS subject to taxation by the district, the auditor the shall so notify the commissiorier, and the commissioner shall determine what percentages would cause the district's total furr. taxes charged and payable for current expenses AGAINST reqt THAT CLASS; after all reductions THAT WOULD OTHER- audi WISE BE made under diwiaiee (A)(S) e€ this sectionL to equal. spec when combined with the joint vocational taxes AGAINST THAT orde CLASS, two per cent of eue#rTHE taxable value OF THE PROF', min4 ERTY IN THAT CLASS prior to the reduction required by dWi- audi eiett (B) ef " section 319.302 OF THE REVISED CODE. The ther auditor shail use such percentages in making the reduction re• purs quired by divisiee (A) E3) of this sectioa FOR THAT CLASS. CodF such coun ( tion I trict berb sectic tax r estim able i taxin; the a and u charg year amou ment addei celin S 319.31

Agpx.49

,_4 Am. H. B. No. 1238 4929

(6) (F) No reduction shall be made under this section in the rate at which any tax is levied. (B^ (G) The commissioner may order a county auditor to furnish any information he needs to make the determinations required under division W (D) OR (E) of this section, and the auditor shall supply the information in the form and by the date specified in the order. If the auditor fails to comply with an order issued under this division, except for good cause as determined by the commissioner, the commissioner shall direct the auditor of state to withhold from such county or taxing district therein, fifty per cent of state revenues to local governments pursuant to section 5747.50 or Chapter 3317. of the Revised Code. The auditor of state shall withhold the distribution of such revenues until the commissioner has notified him that the county auditor has complied with this division. ($} (H) If the commissioner is unable to certify a tax reduction factor for EITHER CLASS OF PROPERTY IN a taxing district located in more than one county by the last day of Novem- ber because information required under division fB) (G) of this section is unavailable, he may compute and certify an estimated tax reduction factor for that district FOR THAT CLASS. The estimated factor shall be based upon an estimate of the unavailable information. Upon receipt of the actual information for a taxing district that received an estimated tax reduction factor, the commissioner shall compute the actual tax reduction factor and use that factor to compute the taxes that should have been charged and payable against each parcel of property for the year for which the estimated reduction factor was used. The amount by which the estimated factor resulted in an overpayment or underpayment in taxes ON ANY PARCEL shall be added to or subtracted from the amount due on eaeh THAT parcel in the ensuing tax year. Sec. 319.302. AFTER COMPLYING WITH SECTION 319.301 OF THE REVISED CODE, THE COUNTY AUDITOR Appx. 50 Am. H. B. No. 1238

SHALL REDUCE THE REMAINING SUMS TO BE LEVIED th AGAINST EACH PARCEL OF REAL PROPERTY LISTED ON pr THE GENERAL TAX LIST AND DUPLICATE OF RE"AL AND pe PUBLIC UTILITY PROPERTY FOR THE CURRENT TAX cel YEAR BY TEN PER CENT. EXCEPT AS OTHERWISE PRO- ma VIDED IN SECTION 323.152 OF THE REVISED CODE, THE AMOUNT OF THE TAXES REMAINING AFTER SUCH ex REDUCTION SHALL BE THE REAL AND PUBLIC UTILITY da PROPERTY TAXES CHARGED AND PAYABLE ON SUCH mi PROPERTY AND SHALL BE THE AMOUNTS CERTIFIED ex TO THE COUNTY TREASURER FOR COLLECTION. UPON au RECEIPT OF THE TAX DUPLICATE, THE TREASURER co; SHALL CERTIFY TO THE AUDITOR OF STATE THE TOTAL cei AM.OUNT BY WHICH SUCH TAXES WERE REDUCED UNDER. THIS SECTION, AS SHOWN ON THE DUPLICATE. ta; SUCH REDUCTION SHALL NOT DIRECTLY OR trt INDIRECTLY AFFECT THE DETERMINATION OF THE wi PRINCIPAL AMOUNT OF NOTES THAT MAY BE ISSUED an IN ANTICIPATION OF ANY TAX LEVIES OR THE AMOUNT an OF BONDS OR NOTES FOR ANY P1.ANNED IMPROVE- su MENTS. IF AFTER APPLICATION OF SECTIONS 5705.31 ws AND 6705.32 OF THE REVISED CODE AND OTHER APPLI• trE CABLE PROVISIONS OF LAW, INCLUDING DIVISION (F) by OF SECTION 321.24 OF THE REVISED CODE, THERE se4 WOULD BE INSUFFICIENT FUNDS FOR PAYMENT c)F be DEBT CHARGES ON BONDS OR NOTES PAYABLE FROM fui TAXES REDUCED BY THIS SECTION, THE REDUCTION err OF TAXES PROVIDED FOR IN THIS SECTION SHALL l31£ an ADJUSTED TO THE EXTEI4T NECESSARY TO PROVIIIE au FUNDS FROM SUCH TAXES. th, Sea 321.24. (A) On or before the fifteenth day of Febru• co+ ary, in each year, the county treasurer shall settle with th« thf county auditor for all taxes and assessments that he has cai- le-A lected on the general duplicate of real and public utility prttp- erty at the time of making the settlement. du (B) On or before the thirtieth day of June, in each yeprr coi the treasurer shall settle with the auditor for all advance pay, as, ments of general personal and classified property taxes that ita pa has received at the time of making the settlement. se( (C) On or before the tenth day of August, in each year, Lti0 pa treasurer shall settle with the auditor for all taxes and as®mws• su ments that he has collected on the general duplicates of raal an and public utility property at the time of making such rmttW lal ment, not included in the preceding February settlement. sh (D) On or before the thirty-first day of October. in ench TI year, the treasurer shall settle with the auditor for all taxgs thq

Appx. 51 Sub. H. B. No. 1268 4961 through appropriate rule-making procedures or recommendations for permanent legislation, appropriate measures to prevent a recurrence of the need for the temporary law in this bill, and, further, to report to the General Assembly in the course of the 1982-1983 biennial budget hearings before the Senatr Finance Committee and the House of Representatives Commit- tee on Finance-Appropriations with their recommendations. SEccrION 2. This act is hereby repealed effective April 15, 1981, unless reenacted by the General Assembly. SEcriON 3. This act is hereby declared to be an eniergency measure necessary for the immediate preservation of the public peace, health, and safety. The reason for such necessity lies in the fact that the Director of Transportation will be better able to effectively operate the Department of Transportation by acti- vating needed highway maintenance projects with transferred employees during the winter months. Therefore, this act shall go into immediate effect.

epregdWtatives.

President of the Senate.

Appx. 52 This act is not of a general and permanent nature and does not require a code section number.

Filed in the office of the Secretaiy of State at Columbus, Ohio, on the,^22nd_ dayof _ Decembez.. , A. D. 19 8

File No. 419 Effective Date December 19, 1980 OHIO LEGISLATIVE SERVICE COMMIf i David A. Johnston, Director Columbus, Ohio December, 1971

SUMMARY OF / 1971 ENACTMENTS ould result in loss of revenue for a taxing fied, the property of the applicant is to be Istrict when reducing millage following an in- placed on the exempt list for 1971 and all taxes irease in valuation resulting from a reassess- and penalties are to be abated for each year inent or an order of the Board of Tax Appeals. the Board finds the property is used exclusively (Effective October 27, 1971) for public worship. If the Board finds the property is not used for public worship, it must PURPOSE deny the application. To insure that no political subdivision loses tax revenue due to operation of the rounding of AM. H. B. 439 fractional tax rates law following reductions in Reps. Fry - Pease - Heintzelman; Sens. Den- tax rates after increases in property tax valu- nis - Weisenborn - Gillmor - Novak. Provides ittions. a credit against the Ohio use tax for saies taxes paid to another jurisdiction on purchases CONTENT AND OPERATION of tangible personal property. (Effective De- The act declares that the law governing cember 10, 1971) rounding of fractional tax rates does not apply if, after reassessment or an order of the Board PURPOSE of Tax Appeals, a tax rate is computed which To eliminate the situation where persons when applied to the tax base would yield less purchasing tangible personal property and pay- revenue to a subdivision than it received in the ing sales tax in another state are also sub}ected preceding year. to the full amount of the Ohio use tax on the same item.

AM. H. B. 314 CONTENT AND OPERATION Reps. Hale - Manning - J. Thompson - C. Jones - Roberto - Christiansen - Mussey - The act provides as credit against the Ohio Heintzehnan - Baumann - Swanbeck - L. use tax an amount equal to the amount of sales Hughes - I. Thompson; Sens. Dennis - Novak - tax paid another jurisdiction. It provides that Guyer - Jackson - Poda - Calabrese. Permits if the amount of the tax paid to the other juris- a house of public worship to apply, no later diction is less than the Ohio use tax liability, than December 31, 1972, to the Board of Tax including the county use tax, the purchaser is Appeals for exemption of its property from liable to Ohio only for the difference; and if a taxation and abatement of all delinquent taxes net liability occurs in a county using the per- and penalties. (Effective Mareh 21, 1972) missive use tax, that the liability be allocated between the state and county in proportion to PURPOSE their respective rates. To extend the period during which a house of public worship may apply for property tax AM. SUB. exemption. Rep. Kerns uest). (Effecttve Decem- ber 20, 1971, except Chapters 5747. and 5749. CONTENT AND OPERATION and section 4301.43 which are effective January 1, 1972.) The act permits houses of public worship which would have qualified for property tax I. TAXATION exemption but did not comply with certain n filing requirements prior to January 1, 1969, Imposes a graduated state income tax with to file for such exemption with the Board of rates of 1/Q to 31/Q% on the adjusted gross in- Tax Appeals on or before. December 31, 1972. come of nonresidents in Ohio and of Ohio resi- It authorizes the Board to determine if the dents after allowing an exemption of $500 per applicant qualifies for the exemption. If quali- dependent up to a maximum of $3,000 per

183 I Appx. 55 m More than $10,000 but $70' plus 2% of the not more than $15,000 amount in eiccess of $10,000

^^?i.&;€ 7i®lai•••-*P' s xi.:` More than $15,000 but $175 plus 2'fz% of the not more than $20,000 amount in excess of $15,000

More than $20,000 but $300 plus 3% of the increases the not more than $40,000 amount in excess of --- intangible tax on financial institutions and $20,000 dealers in intangibles by one mill and provides More than $40,000 $900 plus 3%% of the amount in excess of for the payment of the extra mill into the state $40,000 General Revenue Fund; gradually reduces the ` Due to an error in the Conference Com- rate of assessment of tangible personal prop- mittee report this figure was printed as $70 erty currently assessed at 50% of true value to rather than the intended $75. 45% and personal property assessed at 70%n to 50%; ^ ' tetr^sai^^:^s Credit is allowed for taxes paid to other states and their subdivisions on income subject to the Ohio tax. The Tax Commissioner is permitted to enter agreements with other states for the reciprocal exemption of income from taxation. Adjusted gross income is defined as it is in ; increases the rate of the excise tax on the Internal Revenue Code. omestic insurance companies from 2 nrills to 3 mills; imposes an excise tax on the severance In order to arrive at adjusted gross income of certain natural resources; increases the as defined under the Internal Revenue Code of cigarette tax by 50 per pack and excludes ciga- 1954, gross income must first be determined, rettes from the sales tax; provides for the then certain deductions taken from it to arrive distribution of the income from all revenue at adjusted gross income. sources inciuding provisions which earmark portions of the proceeds of the income tax; Once gross income is determined, adjusted and makes other changes in the tax laws. gross income is found by taking certain deductions.

Personal income tax Collection and administration. All payments, reports, and returns required to be made by Base and rate. The act levies a graduated individual taxpayers are to be made to the state income tax, beginning on January 1, 1972, Tax Commissioner. Payments, reports, and re- on all income earned in Ohio by nonresidents turns required to be made by employers are and upon every Ohio resident's federal adjusted also to be filed with the Commissioner. The gross income after allowing taxpayers an ex- tax does not pre-empt taxes on income by emption of $500 for himself, his spouse, and municipalities. each dependent up to a maximum of $3,000 per return. The tax is imposed upon the balance Every employer is required to deduct and of the adjusted gross income remaining as withhold the estimated amount of tax due from follows: each of his employees, with a number of exceptions similar to those for the federal income Adiusted gross income Tax tax. Each taxpayer is required to make an less exemptions annual return by April 15 of each year unless the Tax Commissioner grants an extension and $5,000 or less % % include with the return payment for the More than $5,000 but $25 plus 1% of the amount of tax due that has not been withheld, not more than $10,000 , amount in excess of $5,000 or he may request a refund.

134 Appx. 56 A taxpayer is required to file a quarterly county for homestead tax relief, and reimburse- declaration of estimated tax due for the year ment to the county for general property tax if the amount payable as estimated tax can relief. be expected to be more than $50. The Tax Commissioner may make assessments against any taxpayer for tax liability or any deficiency found to be due. The taxpayer homestead ezemp iono r may appeal his assessment provided he pays meowners 65 and over; and a reduction in the the amount assessed before the appeal. percentage at which tangible personal property Treatment of estates, partnerships, and is assessed. trusts. For purposes of the income tax, t Real and public utility property tax reduc- estate of a decedent is considered to be an n. dividual, but the estate is taxed on its fede "taxable income" rather than "adjusted gross income" as are other individuals. The business income of partnerships and trusts is first allocated to this state on the owever, if there wou basis of a three factor formula which includes unds after a property tax re- property, payroll, and sales. In the case of a duction to pay debt charges on bonds and notes partnership, the allocated partnership income, payable from such taxes, the amount of the tax reduction is to be adjusted to the extent both business and nonbusiness, is then allocated necessary to provide sufficient funds to pay to the partners in proportion to their right to the debt charges. share in the partnership's income and then taxed as regular income for each partner. The same procedure is followed with respect to trusts, except that only that portion of the trust which is actually distributed to a trust beneficiary is subject to income taxation. Disposition of revenues. All income tax proceeds must be deposited in the state GRF except: (1) $4,000,000 per month to be credited to the Local Government Fund. Of this amount an additional $666,667 per month or $8 million per year is to be distributed under the existing Homestead exemption for the elderly. Per- local government fund distribution formula and sons 65 years of age and older who own and $333,333 per month or $4 million per year to occupy a homestead are entitled to an annual cities which imposed income taxes. Cities re- reduction in the taxes on their homesteads. ceive shares proportionate to their respective The act includes a scale for tax reductions re- share of total city income tax collections. lated to adjusted gross income, old age and survivors' benefits or other retirement pay- The Local Government Fund would cease to ments or benefits not included in adjusted gross receive the $3 million per month from sales income, railroad retirement benefits, and in- tax collections. terest on government bonds, and the taxable (2) The amount required by Section 9 of value of the homestead. No reduction is granted Artiole XII of the Constitution must be re- if income exceeds $8,000. The act states that turned to the county of origin "adjusted" to the reduction does not apply to special assess- reflect the payments made under the school ments. foundation program, reimbursement to the Applicants for the exemption must file ap-

135 Appx.57 plication in the form of an afridavit with their tax. The new franchise tax requii •, county auditor between the first Monday in corporation doing business in the sl.de,., .. January and the first Monday in June. The ing or using property in the state. h-i j,i ri act includes procedures for processing and ap- or nonprofit, to report annually to Ih w t i peal of determinations of exemptions. urer of State the facts and figures wvv.m to detennine the franchise tax toyrt.h On or before the second Monday of July, the county auditor is to total the amount of taxes the amount of the fee calculated to be dtw 1, payable to the 1)reasurer of StatA, Ir^, levied for the preceding calendar year which amount paid for the tax year on a dodumil were reduced by the homestead exemption and of estimated tax. All reports must I.:, certify that amount to the Auditor of State. warded to the Tax Commissioner. 1'r^ . imt Within 90 days after he receives the cer- exempted corporations continue to ho .,^oftt tificatioh of the amount due a county, the and financial institutions and deah^r, „ t,) Auditor of State is to pay the amount of the tangibles are added to the exempl +mt. ro homestead exemption to the county's Un- divided General Tax Fund from the state Gen- If a corporation does not file its ali,tn,.l port in the month of January, it i^ h i;t eral Revenue Fund. Upon receipt of the money, the county treasurer, after he and the county to file a declaration of estimated fa^ ii, for the tax year and thereby is ablo t•, auditor take their settlement fees, distribute one-third of the tax at the time of Illinu, the amount to the subdivisions whose revenues were reduced due to the reduction in taxable two-thirds by the last day of Manrh If Tax Commissioner grants an, extcu;: un. value. The Auditor of State is to pay an amount third of the tax is paid at the timi• equal to 2% of the reduction in taxes to the -r t10 the January declaration of estimated tu^, county's General Fund for the county audi- third on or before the end of March, n„d tor's and treasurer's administrative costs. This reniaining one-third on or before t.h,• Innl amount is paid from the state General Revenue Fund. of May. Willfully and knowingly making a false af- The act makes the value of the i^mmmJ fidavit to obtain a homestead exemption is outstanding shares of stock of the corl-t-tn made a crime punishable by a $500 fine, 30 the measure of franchise tax IiabilHs '1 days in jail, or both. Conviction also disquali- base value is either the present net vv- .ri h fies the person from a homestead exemption for (with certain modifications) or Lhe iir^t three years. income base. The tax charged the -orta,rit is the greater of (1) the sum of d'. iii The homestead exemption is qualified to the first $25,000 of net income and N' ; , extent that if there are insuflicient funds after excess above $25,000 of the net im•muo 6 the allowance of the specified tax reduction to or (2) five mills times the net worth Lnei+ pay debt charges on bonds and notes not pro- franchise tax does not pre-empt ciirlpo'a!n vided for by levies in excess of the ten mill come taxes by municipalities. limitation, the amount of the homestead exemption is to be adjusted to the extent neces- The proposed net income base iq di+lernt sary to provide sufficient funds to pay the debt by apportioning the corporation's I,ot.al n}t charges from levies within the ten mill limita- come to Ohio on the basis of a t.hrop tion. formula comparing total corporaUi I,nl payroll, and sales to Ohio property, pnyiv,ll, I Tangible personal property tax reduction. sales. The act sets tangible personal property taxes for inventories at gradually reduced rates of Exclusion from net worth of thi+ o^Itluo assessment until calendar year 1976. utilities owned by a public utility huhliag os pany is extended to furancial Instll.til.a,b Corporate franchise tax insurance company holding companirK.. Base, measure, and rate of new franchise The act reduces the base agairrMt whirh (40 ;;.

136

4 Il rate is applied for insurance and finan- Receipts from the tax are earmarked for i.titution holding companies, equal to the meeting "the environmental management needs shares of insurance companies and of the state" and are credited to the state GRF I institutions doing business in Ohio to be used for the "furtherance of environ- are held by the holding company, and mental protection activities of the state." Each only if the holding company holds (1) severer is required to obtain a $50 license from r more of the shares of an insurance the Tax Commissioner in order to sever any ny or (2) 25% or more of a financial natural resource. ution's stock. Ohio manufactured mixed beverage tax. The !m.inistration and enforcement. All re- act sets thn rate of tax on mixed beverages and payments required are to be made manufactured in Ohio at 80¢ per wine gallon. ,he Treasurer of State who would forward rts received to the Tax Commissioner. The Other Changes inmissioner decides the questions of refunds Municipal debt limitations. The act in- taxes illegally or erroneously paid or as- creases municipal debt limitations by 3/2%a. nned and is permitted to assess a corporation amount of tax the Commissioner deter- Constitutional debt limitation. The act in- nes to be due if the corporation fails to file cludes language designed to permit a subdivi- required report or pay the tax due. Such a sion or other taxing unit to levy taxes required =.ttet^rmination is subject to a hearing before to pay the debt charges of "unvoted general ;he Commissioner and an appeal to the Board obligation bonds, notes or certificates of in- of Tax Appeals and courts. The Commissioner's debtedness" issued or to be issued by a sub- assessment is final unless the corporatian ap- division in anticipation of payment fram peals and makes payment of the amount as- sources other than taxation based on the value sessed. Any unpaid amounts of franchise tax of the thing taxed up to 1% of the true value due bear interest at 6% per year. • in money of the taxable property in the subdivision. Other Taxes Intangibles taxes on dealers in intangibles Federal flood control act funds. The act re- and financial institutions. The act increases quires county auditors of counties which have the tax on state situs intangible personal prop- received compensation from the federal gov- erty on dealers in intangibles and on financial ernment under the Flood Control Act of 1954 institutions by one mill, and earmarks the one for lands removed from the county tax list mill increase for the state's General Revenue and duplicate by federal acquisition to dis- Fund. tribute those funds among the taxing districts The tax rate on domestic insurance com- suffering the loss of tax revenue. The propor- panies is set at three mills. tionate share of each district is determined by multiplying the total value of the lands Cigarette tax. The act sets the tax on removed from the duplicate for each district, cigarettes at 15¢ per package. It exempts ciga- and multiplying by the tax rate for that dis- rettes from the sales and use tax. trict. Severance tax. The act imposes an excise tax on the privilege of engaging in the sever- Miscellaneous. The act applies a sales and ance of the following natural resourecs at the use tax exemption involving the transfer of rates indicated: tangible property to be incorporated into an air pollution control facility whenever the pol- Resource Rate lution control certificate is issued. Coal 4¢ per ton Salt 4a per ton The act permits the industrial water pollu- Limestone and Dolomite 10 per ton Sand and Gravel 1¢ per ton tion control sales and use tax exemption to ap- Oil 3¢ per barrel ply whenever the pollution control certificate Natural Gas 1¢ per 1,000 cubic feet is issued.

137 Appx. 59 II. ELEMENTARY AND SECONDARY teacher conferences; permits districts to opo- EDUCATION ate on the pentamester plan and requires tI,• State Board to define "school day"; mandat.,•: Makes certain changes in the school founda- a 200 per hour wage increase for certain non tion program including: (1) a 22% mill charge- teaching employees; and peficnits the appoinl off, (2) bases the basic foundation support cal- ment of referees in teacher contract termina culation on a per pupil amount of $300 for each tion cases. kindergarten child and $600 for each elementary and secondary student, (3) places the cal- School foundation program culation of special education, transportation, Eligibility. Under the act, a district will I:. and vocational education units below the charge- required to have by June 30, 1973, the authm off, (4) adds a "municipal overburden" calcu- ity to levy 20 mills in the calendar year 1971 lation to the formula after the charge-off, (5) provides a guarantee to nonadditional aid dis- The act increases the minimum teacher nul tricts on a graduated per pupil amount based ary scliedule in two steps as follows: (1) e1Fre on tax valuation, (6) increases the classroom tive January 1, 1972, the required salary I'i-i allowance to $4,000 for vocational and special a nondegree teacher without experience will education units, (7) increases the retirement be $5,017 and the salary for a teacher H• 11i allowance from 13 to 15%, (8) raises the quali- a master's degree or higher and 11 or morn fier for participation in the program from 17% years of experience will be $9,413.40; (2) rf to 20 mills effective June 30, 1973, (9) provides fective July 1, 1972, the minimum schedido minimum guarantees of school foundation pay- will range from $5,536 to $10,387.20. Ilin ments throughout the 1971-73 biennium, and tricts will receive foundation payments as if (10) provides parental grants for nonpublic the higher schedule were effective December I. pupils. Other changes in the act include: in- 1971. creases the minimum salary schedule for teachers to a $5,800 base January 1, 1972 and a Nonpublic school aid. The act distribulox $6,400 base July 1, 1972; increases the subsidy nonpublic aid to local school districts whn In for disadvantaged students from $175 to $200 turn distribute parental grants and paymi+ntn and reduces from 100 to 50 the number of ADC for services and materials. It makes all nwn recipients a district must have to qualify; pro- public aid part of the school foundation I ru vides new subsidies for the transportation of gram after the charge-off. EMR students and for the purchase of equip- Parental grants for school years 1971-147:! ment to provide lunches for needy students; and 1972-1973 will be $90 per pupil, or 401; eliminates a subsidy of $25 per pupil for pupils of the cost of educating a public school piipil enrolled in county board of mental retardation in the district, whichever is less. Applicanta f.;r programs; changes the share of county board grants will be required to certify that: (t) lhn of education costs apportioned among local parent spent an amount equal to or grHntnf school districts from $120 per unit to $6 per than the grant; (2) his child is attendins n pupil; requires the State Board of Education qualified institution; (3) the school meeta lhw to adopt standards for school district use of requirements of the Civil Rights Act of 1944; data processing services; provides for the de- (4) the school does not discriminate in tft0 velopment of management information sys- hiring of teachers or admission of pupils; (6) tems; increases the per pupil amount the De- the applicant is an Ohio resident. Grant aplil(, partment of Education can spend for driver's cations must be submitted at the end of Esuoh education from $30 to $50 in fiscal year 1973 semester. and thereafter; requires school districts to certify the availability of revenue before making The act requires that all the money apprnOri- expenditures; makes the state minimum school ated for parental grants and auxiliary servii±od year uniform for all districts and permits the be spent for those purposes. The allocation 4o use of up to 4 half-days per year for parent- districts of funds for materials and serviroa la

138 Appx. 60 gtsed on the nonpublic school's average portation of educable mentally retarded stu- embershp. Grants are to be prorated dents who cannot be transported on the regular basis of the number of months the child school bus. The act requires the State Board ly enrolled in the semester, but attend- of Education to adopt guidelines for the ap- 'br any portion of the month makes the proval of EMR transportation subsidies, and eligible for a full month's subsidy. requires districts to transport all EMR pupils. dndation payment schedule. The act com- (3) A subsidy is established to provide free the per pupil and unit approaches in the lunches to needy children and assist needy Ula. School districts receive a credit to- school districts in purchasing necessary equip- the calculation of basic foundation sup- ment for food preparation. of $300 per kindergarten pupil and $600 child in grades 1-12 with deductions for (4) School districts will no longer receive the t•i'icts not employing 35 teachers per thou- $25 per pupil subsidy for each resident school hfl and teachers at the state mean level of age child enrolled in a school administered by a lning and experience. Special education su- county board of mental retardation. visors and coordinators are computed be- State support o/'county boards of education. r. the charge-off on a unit basis, but the State reimbursement of county boards of edu- c.nlation for nonpublic aid, vocational and cation is put on a per pupil basis. The state Crri•ial education classroom units, transporta- pays that part of the board's budget over $6 lon and the municipal overburden are figured per pupil. Special education units operated by ftcr the charge-off. The charge-off is set at the county board of education are made eligible HJ<. mills and the guarantee to flat rate dis- for funding under the school foundation pro- hrG•ts is placed on a sliding scale based on the gram. Jtroperty tax wealth of the district. The state board is to be reimbursed for pay- tJnder the act, 25%a of a district's students in ments to county boards for supervisory ser- clayses in joint vocational schools are counted vices by making a deduction from each local in with the average daily membership (ADM) school district's foundation payment propor- for grades 7-12 as well as in the calculation of tionate to the ratio each local district's ADM ii,int vocational units. The ADM in vocational bears to the county total ADM. County boards nnd joint vocational units is to be based on full- are made eligible to operate and receive funds Iinie equivalent (FTE) students in the units as for special education classes. determined by rules and regulations of the til.ate Board of Education. Pupils attending Joint vocational school subsidy. The act sets cIasses in licensed proprietary schools with pro- the subsidy for retirement at 15% and the ^rams equivalent to public schools may be classroom allowance at $4,000. .,unted in the contracting school district's ocational ADM. Other changes A new set of steps for calculation for state Standards for data processing services. The ioayments for school districts is established in Board is required by the act to establish mini- I.he act. mum standards for the development and for the purchasing and leasing of data processing Special program subsidies. (1) The act sets the maximum amount for ADC at $200 per services for all school districts. ADC recipient and at 50 the number of ADC Driver education. The act sets the limitation recipients a district must have in order to on pupil transportation expenditures at $50 per qualify for the subsidy. Calculation of the pupil, beginning in fiscal year 1973. subsidy for the 1972 fiscal year will be based on the number of ADC recipents in a district The act authorizes state licensed commercial in December, 1970. driver training schools to receive a state subsidy for each school age pupil who was unable (2) A subsidy is established for the trans- to take a public school course because the Appx. 61 139 course was not available or because of sched- The act permits districts to operate on a uling difficulties. A statement signed by the "pentamester" plan under which the school public school principal certifying the unavail- year would be divided into five 45 school day ability or scheduling difficulty is required to be periods with each pupil being assigned to four submitted to the local board of education by of the five "pentamesters." The school year for the commercial operator. Thereupon, the board districts operating on pentamesters consists of must reimburse the operator by an amount not a minimum of 225 days including two profes- to exceed the state subsidy for pupils in public sional days and one day or the equivalent per school driver education courses. pentamester for parent-teacher conferences. Certification of the availability of revenues. The act permits joint vocational school districts The act requires the clerk and the president of to operate on trimester, quarter, or pentamester plans. the board of education and the superintendent to certify for every contract, expenditure, or The act requires the State Board of Educa- increase during a school year in a wage and tion to define the term "school day," and to salary schedule that sufficient funds are avail- define those types of activities to be judged able to provide an "adequate instructional pro- legitimate parts of the school day. gram" for the remainder of the district's adopt- Adult high school. The act defines an adult ed school calendar and for the equivalent num- high school continuation program to mean an ber of days each month during the first six instructional program for pupils over the age months of the 'succeeding school year. Any con- of 16. tract or expenditure without the required certificate will be void. Any person "knowingly" Mergers. The act excludes joint vocational making an expenditure or contract in violation school districts from the prohibition against of the section or "knowingly" issuing a false creation by a means other than merger, and certificate is made liable to the district for the authorizes kindergarten in districts other than amount of the transaction. The chief law ofjoint vocational school districts. ficer is required to enforce the liability on behalf of the school district. If the clerk's certi- Distribution of foundation payments. The ficate which is required by existing law has act requires that if payments are made been attached to a purehase order, current pay- other than monthly, the payments be made roll, or employment contract an additional "on the same basis" for each city, exempted certification under this section is not required. village, local, and joint vocational school district. Changes in school year and school day. The The act states that if sufficient funds are not act sets the following school year require- appropriated to make all required payments to ments: 182 days per year for semester plan districts the Superintendent of Public Instruc- districts including up to 4 days per year when tion may reallocate surplus funds from one classes are dismissed one-half day early, or the program to another program with insufficient equivalent amount of time during a different revenues or make a uniform reduction in all number of days, for parent-teacher conferences payments to school districts. If excess revenues and reporting periods, and two days for profes- are appropriated, the act would permit a uni- sional meetings; 80 days per trimester and 240 form increase in payments to school districts. days per year for trimester plan districts including two days or the equivalent per trimes- Referees for teacher contract terminatimru ter for parent-teacher conferences and two cases. The act permits the substitution of a days per year for professional meetings; 59 referee in place of the board of education to days per quarter and 236 days per year for dis- bear the termination case if demanded in writ- tricts on the quarter.plan including one day or ing by the teacher or the board ; however, the the equivalent per quarter for parent-teacher determination of the referee must be acceptod conferences and two days per year for profes- or rejected by the board by a majority voto. sional meetings. If a referee is demanded, the clerk of the board

140 Appx.62 must give the Superintendent of Public In- The act provides a special subsidy for school truction 20 days notice before the hearing districts whose per pupil tax valuation is $20,- 'tleadline date. Referees are required to file 000 or less and which are eligible to receive their report within 10 days of the hearing, and foundation payments, but which will not re- n order of termination issued by the board ceive sufficient new state money to fund the will be required to state the grounds for tertni- niandated salary increases for teachers and to nation. pay the nonteaching employees wage increase. The act requires the Superintendent of Pub- It specifies dates when applications for the lic Instruction to compile a list of referees special subsidies must be submitted and limits from names submitted annually by the State the additional dollars a district may receive to Rar Association, requires the referee to be a the amount which, when combined with the "resident elector," and requires the Superin- district's regular foundation payments, will tendent to select three persons from the list provide enough new revenue for the district to when he has received notice that either the pay the new salary schedule. teacher or the board has demanded a referee. If the teacher and board are unable to agree Nonteaching employees' wage increase on one of the three persons to serve as referee Beginning January 1, 1972, the act man- within 5 days after the names are received, dates a 204 per hour increase for nonteaching the Superintendent of Public Instruction makes employees less any hourly increase the em- the selection. The act prohibits an appointee ployee received after June 30, 1971, which was from being a person associated with the board not an increment, longevity, cost-of-living, or or teacher by employment or blood relationship "other.wage or salary increase which would and limits a referee to hearing two cases per have accrued to the employee if there had been year. Referees are to be paid their reasonable no such salary or wage agreement." No non- and customary fees from the school district's teaching employee whose wages are set in re- general fund. lation to the prevailing wage rate or who receives more than $4.50 per hour on the effective Guarantees date of the act will receive an increase. The Every district eligible to receive a foundation increased rates are mandated for a maximum payment in fiscal year 1972 or 1973 must re- of 2,080 working hours per fiscal year. ceive during those years, either (a) the amount it received from the state in fiscal year 1971, Advances in school foundation payments or (b) the amount calculated under the found- The act permits a district to receive an ad- ation formula or the statutory consolidation vance of up to three months of its school guarantees, whichever is greater. foundation payments if the Superintendent of The act stipulates that a district which would Public Instruction certifies that: (1) the dis- be ineligible to receive a foundation payment trict was unable to collect the taxes because of under the previous formula in either fiscal year legal proceedings; (2) the delinquent taxes 1972 or 1973 is ineligible to receive a payment represent more than 1% of the taxes levied in under the act during either of those years. the previous calendar year by the district; (3) the application contains a list and description The act guarantees that all the foundation of the property so encumbered and the amounts payments and special subsidy payments which due; (4) the board of education has certified a district would have received had the act been that the money would be used for the same effective on December 1, 1971, be paid to the purpose for which the tax money could have district beginning in March, 1972. been used. The act permits, until July 1, 1972, districts to receive full funding for all pupils as long as Reduction of a school district's tax duplicate the district employs the number of teachers for purposes of the school foundation program which would have been required under prior The act permits a reduction in a district's law. tax duplicate for the purposes of calculating 141 Appx. 63 the "charge-off" in the school foundation pro- the General Assembly on or before June U. gram for property in the district owned by 1972; a final program and report is requirt4l Penn Central if the property exceeded 1% of before the beginning of the next biennium. the district's duplicate, and for tangible per- Libraries. The act authorizes the StaG• sonal property in the district used for strip Library Board to approve or disapprove appli mining whose value exceeds $5 million and cations for the formation of area library ser which is the subject of legal proceedings to vice organizations. It permits the payment of determine the liability of the equipment. The duplicate used in the calculation of the formula special program grants to a "metropolitan Ii. will be reduced by the amount the delinquent brary system." taxes of Penn Central exceed 1% of the district's duplicate and by the actual amount the III. APPROPRIATIONS strip mining property comprises of the duplicate. The Department of Education will certify Makes appropriations for fiscal years 197" the amount of the reduction by June 1, so and 1973, totalling $7,691,217,242 for all 1;o.• that the charge-off may be adjusted according- ernmental operations, including subsidiea. ly for the next fiscal year. The act makes the rotaries, revenue distribution, and debt service tax duplicate reduction for foundation purposes applicable for taxes which the district (in millions of dollars) was precluded from collecting on July 1, 1971, Fund 1972 1973 Biennium for the 1971-72 school year. General Revenue $2,041.6 $2,286.7 $4,328.d Highway 420:8 387.5 808a Highway Safety 46.9 48.9 96.7 6.2 12.3 Payment of school foundation subsidy Wildlife 6.1 Liquor Control 343.3 353.6 696.9 Rotaries 352.1 375.7 727.x The act provides for the payment of the Revenue Distribution 344.7 360.4 70.0 school foundation subsidy from the portion of Debt Service 161.1 155.7 31e.8 the personal income tax required by the Con- TOTAL $3,716.6 $3,974.7 $7,691.2 stitution to be returned to the county, school Note: Dollar amounts are rounded and do not nece+ district, city, village, or township of origin. It sarily equal the totals. outlines procedures for payment of the subsidy. Generai revenue fund Management system The major increase in appropriations is in The Department of Education is required to the General Revenue Fund, amounting to $1. develop a comprehensive system for providing 266 million. Spending in the areas of education, educational management information and ac- higher education, welfare, and salary increasex countability capabilities for implementation on account for the larger part of increases over a state-wide basis. In the course of the study, the 1969-1971 General Revenue Fund appropri the Department is required to utilize pilot ations. school districts and to: (1) define accountability objectives; (2) identify data elements to Education determine whether the objectives are being Department of Education. The appropria- met; (3) develop methods and procedures for tion to the Department is $1,490,886,009. assessing the teaching-learning process in light of student performance; (4) develop uniform (in millions) accounting methods; (5) report the findings. Subsidies The Department is authorized to employ or School Found.-Basic $1,206.u Transportation 76.7 contract for necessary personnel and request Bus Purchases t2. 1 supplemental funds from the Controlling Vocational: Joint Districts 31i :l Board. An interim progress report on the ex- Compre. High Schools tent to which the Department has met the Educationally and Culturally Disadvantaged 62.11 duties imposed by the act must be filed with Auxiliary Services 61.0 142

Appx. 64 Student subsidies. The student subsidy ap- 12.9 propriation, limited to Ohio resident students, 4.0 is distributed on the basis of the per student 6.6 2.8 instructional subsidy amounts stated in the act. No per student subsidy support is provided $1,478.4 by this act for out-of-state students. Ice salary allowances in the 126,000 are included. An ap- Academic Centers $ 360 million is made for 9chool Lower Division ations also include Department 2 yr. Campus 4 yr. Campus lwrational expenses of $6.3 mil- General Studies 480 r the Blind, $1.9 million; and Technical 810 Upper Division (i Deaf, $2.8 million. Bacc. General 1,035 Bacc. Professional 1,530 nvides $1.1 million for three new Masters 1,890 llrograms (consumer, environment- Grad. Professional 1,890 Doctor's 3,990 ) nnd a study of the administration Medicine 5,400 ry and secondary education. Student fees. The act establishes maximum (bu•tment is directed to develop a com- instructional and general fees for universities, a nystem for providing educational community colleges, and technical schools, and, tnul. information and accountability after June 15, 1972, eliminates the waiver or nn. reporting to the General Assembly nonpayment of instructional or general fees. h Ilum June 30, 1973. Maximum fees 1972 1973 prro-r(ing, subsidy and rotary appropri- A. Quarterly Instructional Fees r,r (he Bureau of Vocational Rehabilita- (Paid by all students) M,a bcen transferred to the Rehabilitation Undergraduate $200 $210 Graduate and r'rrmmission, Graduate Professional 300 400 Central State University 135 135 r education Comm. Colleges & Tech. Inst. 200 210 B. Tuition Charge rr..lrriations for higher education are as Comm. Colleges & Tech. Inst. Biennium (Paid by students outside district) $ 25 Central State University (in millions) (Paid by Ohio resident students , urf ion unless waived.) 100 .r.w. Subsidies $ 479.1 C. Tuition Surcharge nrI..n:.l Student Subsidies 7.6 (Paid by out-of-state students) , -•t State Student Subsidies 0 Undergraduate $400 State Supplement 3.8 Graduate 500 i-La,14 State Supplement 0 D. General Fees - i, i-t State Supplement 0 (Paid by all students) $ 50 i.=i College of Ohio 9.4 tvostern 5.4 Grants of aid to students. The act appro- ..,r:h . 1 .[tesearch 11.1 priates $31 million for instructional grants to •^^.:•i Research 0 Ohio residents attending an Ohio public or pri- Service i, Extension 6.0 vate higher education institution, not to ex- .1' ;(ospital 17.8 ceed $1,200 per academic year if the instruc- • nati Hosp. 6.0 tional and general fees are at least $1,000 (non- +i•ial College of Ohio Hospital 6.0 -:al 4.1 public institutions). The maximum grant is nt Assistance $510 if the student attends an institution Orphans Scholarships .3 crctional Grants 31.0 (state-assisted) where fees total less than $1,- n.. d of Regents 000. The amount of the grant is determined by ui, ating Expense 1.2 i d ary Grant .6 family income and number of dependents. irt Service :ting & Renovation 0 The act sets the family income eligibility Service 28.7 level for the instructional grant program at $ 618.0 $11,000 and the amount of the grants raised 143 Appx. 65 at $90-$510 for public institutions and $150- $1,200 for private institutions. Day Care 3.0 New Children's Services 5.6 Hospitals. Appropriations to medical institutions and hospitals are as follows: TOTAL $1,264.6

Medical College of Ohio at Toledo 9,400,000 Dependent children. The appropriations re- Medical College of Ohio Hospital 6,000,000 flect the estimate of an average monthly in- Ohio State University Hospitals 17,810,000 Case-Western Reserve Medical School 5,360,000 crease of 7,500 recipients over June, 1971 levels. University of Cincinnati Hospital 6,000,000 The act limits the average monthly payment to Higher education management improvement $47 for fiscal 1972, and $50 thereafter for the program. An Education Review Committee, remainder of the biennium. The act directs the composed of inembers of the General Assembly, Director of the Department of Public Welfare is established by the act and $75,000 is appro- to adjust subsidy payments so total payments priated to the Committee. The Committee is do not exceed appropriations in the act. directed to review the administration of higher, The appropriations for aged, blind, disabled, elementary, and secondary education and to dependent children, and public assistance re- oversee the conduct of a higher education com- ceipts provide for continuation of current prehensive management improvement program monthly payments, with slight adjustments for of the Board of Regents. The Board is instruct- utilities and rental payments. ed to conduct a study evaluating present and possible formulas for allocating state tax funds Legislative control. The act prohibits the and the difficulties encountered in budgetary Director of Public Welfare from changing poli- planning and commitment of funds by the col- cies, procedures, or practices during the bienni- leges and universities. um which have the effect of increasing the cost of assistance programs without approval of the Other provisions. The act permits usage of Controlling Board. the "General Service" special purpose appropriation to the Board of Regents to be used to subsidize local police services where added Other Purposes police services have been generated by the presence of the state university in the locality. The Mental hygiene and correction. General amount of subsidy is to be determined by the Revenue Fund appropriations to the depart- Board of Regents and approved by the Director ment are $424 niillion. of Finance. Also included is an appropriation Dirision of $28.7 million for payments to the Ohio Pub- Corrections $ 78.1 lic Facilities Commission for debt services for Other Divisions 345.9 education institutions. The act also prohibits TOTAL $ 424.0 use of the appropriations or other general in- The major increases' in the Department's ap- come to pay for sabbatical leave. propriation are in the Division of Mental H,y- giene and Division of Mental Retardation. A Public Welfare drug abuse program is funded at $7 million, Ten million dollars is appropriated for debt ser Subsidies for welfare are shown below. vice costs of new facilities. Subsidies (in millions) Department of Natural Resources. Apprw priations are $39.8 million. The Ohio Soil and Blind $ 6.0 Disabled 93.7 Water Conservation Commission has been in- Dependent Children 521.1 corporated in the appropriation for this do- Public Assistance 132.7 Crippled Children 3.9 partment. $1.5 million is appropriated to t.hn Aged 151.9 Ohio Public Facilities Commission for debt ser, Burial Claims 1.0 Health Care 339.8 vices. 144 Appx. 66 Department of Health. The act appro- ing development, and $3 million to guarantee riates $14.7 million. A program of "Air Pol- loans for housing developments. lition Control" is appropriated $.5 million. An appropriation of $85.9 million to the Com- missioners of the Sinking Fund is made for Department of Urban Affairs. The act pro- debt service for improvement bond retirement, ;yides $3.2 million for fiscal 1973 for a law en- development bond retirement, and public iln- Corcement planning agency when the program provement bond retirement obligations. The becomes fully operational. These funds are to Controlling Board must release these funds be used pursuant to the provisions of the U.S. before they may be expended. Omnibus Crime Control Act of 1970. The subsidy appropriation to the Police and Firemen's Disability and Pension Fund is $9.7 Rehabilitation Service Commission. The ap- million. propriation provides $12.4 million of General The Ohio Transportation Research Center is [tevenue Funds for the 1971-73• biennium. Of appropriated $1,000,000 of General Revenue this amount, $10.6 million is for vocational job Fund moneys for operational expenses. Contin- training and case services. gency funds of.$150,000 are included in the appropriation to the Governor, to fund task Employee benefits. The act provides an ap- forces appointed by the Governor, consultant propriation of $50 million to the Emergency services, and other expenses. Purposes Fund of the Controlling Board for An appropriation of $150,000 is made to the pay increases for state employees, the state's Ohio Defense Corps. share of increased health insurance prenziums, and the state's share of premiums for a state employees life insurance program as enacted Other Funds by the General Assembly. The Board is em- Revenue distribution funds. Local govern- powered to make transfers to agencies. ments will receive approximately $701.1 million of the total revenue distribution funds appropriation of $705 nlillion. The major dis- Emergency purposes fund of the controlling tributions to local governments are: board. This fund includes $20,712,889 for General Revenue Fund "All Purposes," $1,000,- (in millions) 000 of which may be transferred to higher education institutions which were unable to Auto Registration $308.3 Gasoline Excise 171.8 increase student fees because of the federal Local Government 201.0 wage-price freeze, and $1,900,000 for Amtrak rail services. Seven million dollars is appro- Liquor control fund. Appropriations from priated for reorganization of pollution control this fund total $696.9 million. functions, and .$11,000,000 for retirement allowances. Highway fund. The Department of High- ways appropriations total $777.5 million.

Other general revenue fund appropriations. (in millions) An. $8 million appropriation is made to the Administration and Engineering $127.5 Water and Sewer Rotary Comnlission to fund Operation and Maintenance 1432 Highway Improvements 502.2 loans for assessments resulting from certain Central Highway Garage (Rotary) 4.6 water and sewer projects of local government 5777.5 units. The newly created Ohio Housing Devel- TOTAL opment Board receives an appropriation of $5.9 The act appropriates $26,700,000 of Issue I million ; $400,000 for administration, $2.5 mil- (1968) highway purpose moneys to eliminate lion for noninterest bearing advances for hous- traffic bottlenecks. Appx.67 145 Highway safety fund. The act appropriates sessment or valuation can be filed with the $85.7 million to the Department of Highway county auditor, and repeals the five-day wait- Safety. ing procedure for payment of county bills. (Ef- fective March 7, 1972) Korean war conflict fund. The Director of Finance is authorized to transfer any balances remaining in the Korean Conflict Compensation PURPOSE Fund and Korean Conflict Compensation Bond To establish a fixed date for the filing of Retirement Fund after making provisions for valuation complaints, and to permit a county tu outstanding liabilities and a final report from take advantage of discounts by prompt pay- the Commissioners of the Sinking Fund. ment of bills. Bond retirement funds. Appropriations to these funds total $316.8 million. CONTENT AND OPERATION

(in millions) The act establishes December 20 as the day on or before which complaints about real prop- Improvements and Capital Improvements $ 48.0 Development and Public Improvements 66.9 erty tax assessments and valuation may be Highway Bond Retirement Funds 20119 filed, but pernlits as an alternative the time TOTAL $316.8 limit for payment for the first half year as Sinking fund. The Commissioners of the extended under statutory authority by the Sinking Fund are authorized, in accordance Board of County Commissioners or the Board with Section 2i, Article VIII, Ohio Constitu- of Tax Appeals. tion, to issue and sell $125 million in addition The act repeals a law requiring that no bill to the $300 million from the Highway Obliga- be paid from a fund controlled by the Board tions Construction Fund. of County Commissioners unless the bill is first filed with the auditor and entered in a book AM. H. B. 931 at least five days before it may be approved by the Board. Reps. Fry - Mueller - Scherer; Sens. Collins - Secrest - Stockdale - Armstrong - Regula - Mottl - Meshel - Holcomb - Guyer - Novak. See also: Senate Bills 38, 51, 165, 206, 208. Establishes a specific date as a deadline by 222, 229, and 407, House Bills 108 and 990, which a complaint about real property tax as- and House Joint Resolution 1.

146 Appx. 68 OHIO LEGISLATM SERVICE C©MIVII^SION CC?LI3MBUS, OHIO JANUAR'Y,1981

Appx.69 -624-

Exempts sales made to a noncommercial educational radio or television broadcasting station licensed by the Federal Communications Commission from sales and use taxes. (Effective: March 23, 1981)

Sales by or to a nonprofit organization operated "exclusively for charitable purposes" are exempt from state and local sales and use taxes, provided no part of the net income of the organization iaures to the benefit of any private shareholder or individual, and no substantial part of its activities consists of influencing legislation. Sales of motor vehicles and house trailers by such organizations are excluded from this exemption.

For purposes of this exemption, "charitable purposes" -consists only of specific enumerated activities, and in order for a nonprofit organization to be exempt, it must be operated exclusively for one or more of the enumerated purposes. The act adds to the list of such charitable activities the operation of a radio or television broadcasting station that is licensed by the Federal Communications Commission as a noncommercial educational radio or television station (the standards for such licensing are contained in sections 73.503 and 73.621 of Title 47, Code of Federal Regulations). Sales to a nonprofit organization operated as such a broadcasting station. thus are tax-exempt, provided (1) no part of the organization's netincome inures to the benefit of any private shareholder or individual and (2) influencing legislation is not a substantial part of its activities. Sales by such an organization remain taxable, as under prior law.

Sec. 4739.02. **s

Am. H.B. 1238

Reps. Hinig, J. Johnson, Colonna, & Hughes, Deering, Rose, Fox, Shoemaker, Batchelder, Oxley, 2ehner, Taft, Branstool, Boyle, Luebbers, Saxbe, Bowers, Cook, Corbin, Panehal, Mayer, Pope, Ball, Nettle, Donham, R. Brown, Damschroder, R. James, S. Brown, Healy, Pottenger, Lehman, Stinziano, Mahnic, Manahan, Wojtanowski, D. Johnson, R. Hughes, Fis,. McTSwen, MeCIa.skey, Sawyer, Orlett, Boggs, Rocco, Hays, McLin, Karmol, Vukovich, Malott, Rankin, L Thompson, Bonanno, Conley, Beatty, L. Browa, Jonesr Bara, J. Thompson, Maier, Carney, Skeen.

Sens. Roberto, Pfeiffer, Finan, Matia, Valiquette, Nabakowski, McCormack, Stano, Calabrese, Jackson.

Requires the classification of all real property ap either residential/agricultural or nonresidential/agricultural and a separate but uniform reduction in the taxes levied by certain voted taxes against the real property in each of the two classes; requires the Commissioner of Tax Equalization to provide by rule what constitutes the property that makes up each of the two classes; and provides for the implementation of the new law beginning with the 1980 taxes, based upon the current rules of the Commissioner for classifying property as residential or agriculturaL (Effective: December 19, 1980)

Backf^round

Amended House Joint Resolution 39 was adopted by the General Assembly in July, 1980 and approved by the electors at the general election held November 4, 1980. As a consequence, the Constitution now authorizes the General Assembly to enact.a 144150katp requires all of the following with respect to each voted property tax*: -625-

(1) The placement of all real property into one of two classes-residential and agricultural being one class and all other real property being the,other class.

(2) A separate but uniform percentage reduction in the current year's taxes levied against property in each class as follows:

-Residential and agricultural property that was both subject to the tax in the preceding year and taxed in the residential/agricultural class in the preceding year would, as a class, produce in the current year the same amount of tax revenue for the taxing district imposing the tax as the tax produced from that property in the preceding year. The computation must be made for residential/agricultural property as a c3ass, not for individual parcels of property in the class. The computation would exclude from any revenue from or valuation of any ptoperty that was not taajed in the residential/agricultural class in both the preceding year and the current year and any property that was not sattject to the tax in both of those years.

-All real property that was not included in the residential/agricultural class would receive a tax reduction computed in the same manner as the reduction computed for property in the residential/agricultural class.

The constitutional amendment also permits the establishment of a floor below which the effective tax rate for the current expenses of any type of taxing district may not be reduced. A different but uniform floor may be established for each type of taxing district. For example, the General Assembly could provide that the total effective tax rate for the current expenses of schools, including both voted and unvoted taxes, could not be reduced below 2% of taxable value, an effective rate of 20 mills. Any floor would have to apply uniformly to each of the two classes of real property, but a different floor could be established for any type of taxing district. Floors are not mandatory. Amended House Bill 1238 enacts the tax reducation provisions authorized by Am. H.J.R. 39.

Prior law

Amended Substitute House Bili 920, of the 111th General Assembly, relieved real property owners from paying a portion of their annual taxes. The extent of the reduction was computed by the Commissioner of Tax Equalization, who determined by September 1 with respect to each individual levy to which the law applied, the percentage by which the current year's tax, imposed at its full rate against the total value of real property (other than improvements), had to be reduced in order to keep real property tax coIlections from those properties (not on each individual property) at the same level they were in the preceding year. The resultant percentage was the percentage of that•tax that all real property taxpayers were relieved from paying for the current year. These provisions did not apply to unvoted millage, charter city millage, debt mil3age, or millage rates that are fixed each year to provide a specified amount of revenue. In addition, taxes for the current eapenses of schools were subject to the limitation that they couid not, when combined with joint vocational school district taxes, fall below an effective rate of Z0 mills.

Prior law also provided for an adjustment the first year a new tax was imposed. It limited a taxing district to collecting in that year only as much as the full rate of the tax would have produced in the preceding year, plus whatever it would have produced from improvements that had been added to the tax list since the preceding year. Provisions were made for using estimated reduction factors and for adjusting the following year's taxes after the actual reduction factor was determined. Appx. 71 -626-

Changes made by the act

Classification. The act requires the Commissioner of Tax Equalization to adopt rules for tax year 1981 and thereafter for the classification of aII real property into one of two classes-residential/agricultural property and nonresidential/agricultural property. For 1980 only, the classification of property is to be made In accordance with the rules of the Commissioner of Tax Equalization that were ai effect on the act's effective date and that require aII property record cards to designate the classification of the property described on the card. Those rules prescribe the criteria for agricultural and residential classification as followst -

Agricultural-The land and improvements to land used for agricultural purposes, including, but not limited to, general crop farming, dairying, animal and poultry husbandry, market and vegetable gardening, floriculture, nurseries, fruit and nut orchards, vineyards and forestry.

Residential-The land and improvements to the land used and occupied as a dwelling by one, two, or three families.

(a) Condominium-Units of condominium to be sold and occupied as dweliing by one, two, or three families, as provided in the condominium declaration filed pursuant to section 5311.06 of the Revised Code, shall be classified as residential.

(b) Urbau and nonfarm residential-Urbaa, suburban and rural nonfarm dweIIings as differentiated from dwellings that are a part of the fam building, group occupied by the operator of the farm.

(c) Country estate-High grade residential property in a rural district which may or may not have a farm operation connected therewith. .

Residential land sball include all residential property other than farm houses on eitber platted lots or acreage regardless of location..

Property meeting the above criteria is classified as agricultura3/residential for tax year 1980; all other property is classified nonagricultural/residential for that year.

Levies already in effect. Prior law'§ tax reduction factor procedures are changed as follows:

(1) The county auditor classifies each parcel of property as either residential/agricultural property or nonresidential/agricultural property;

(2) The Commissioner of Tax Equalization computes and certifies to the county auditor two tax reduction factors rather than one tax reduction factor; reduction factors are computed for the same kinds of taxes for which a reduction factor was computed under prior law, but a separate factor is computed for each of the two classes of property;

(3) With the exceptions discussed below, the Commissioner's computations are made for each class in the same manner as they were formerly computed for aIl property. Under prior lawr the Commissioner previously determined by what per cent the current year's taxes against all real property except new improvements and property located in territory acquired by annexation since the preceding year would have to be re^duc order to equal the preceding year's taxes against ail real property except that con`^aSaX •^ territory that was lost through annexation since the preceding year. The resultant -627-

percentage was the current year's tax reduction factor, which was applied to the ta:ces levied against each parcel of real property for the current year. Under the act, the computation excludes from the prior year's taxes (1) the revenue derived from any property that is not taxed by the district in the current year (e.g., property that became exempt since iast year, property destroyed by fire or the wrecking ball since last year, and as under prior law, property lost to the district through annexation) and (2) property that is taxed ta the other class in the current year. The effect of these changes is that the property remaiuing in the class In the ctsrrent year does not have to make up the reventle lost to the district from property that has become tax exempt or that no longer exists. Under previous law, it was only the revenue lost as a resolt of territory changes that was not made up.

With respect to the other part of the computation (i.e., what makes up the unadjusted tax bi11 for the current year that needs to be reduced to the prior year's level of tax revenue), prior law considered the taxes levied against all property subject to taxatioa in the current year except new construction and territory acquired through annesatiw. Any exclusion fr4m this part of the computation reduced the size of the reduction factor and thus produced higher taxes than would have resulted if the item were not excluded. The act continues to require the exclusion of the value of new construction and property:located in annexed territory, but also requires the exclusion of property that was exempt in the preceding year but taxable in the current year and property that was taxed by the district in the preceding year, but taxed in the other class. The attached table illustrates the different results obtained under the act and under the prior tax reduction law.

New levies. The reduction for new levies is made separately for each class rather thanQrproperty f^ as was done under prior law. In additioa, the value of new improvements is excluded from the base when making the computation, which has the result of increasing. the size of the tax reduction factor.

Other changes. The act makes the following additiousl changes:

(1) Appeals regarding classification of individual parcels of property may be taken to the county board of revision in the same manner and subject to the same procedures that apply to other appeals concerning real property tases; (2) the act retains the 20 mili floor for levies for the current expenses of schools, but applies the floor separately to each of the two classes; and (3) gives the Commissioner of Tax Equalization the authority to extend both the dates by which officers must perform duties pertaining to the levy and coliection of 1980 taxes and by which taxpayers must pay their 1980 taxes without incurring penalties for Iate payment.

Secs. 319.30, 319.301, 319.30.2, 321.24, 323.08, 323.131, 323.152, 323.154, 323.155, 709.19, 3311.21, 3317.02, 3354.1Z, 5705.61, 5713.041, 5715.19, and 5715.30.

***

Am. S.B. 103

Sens. Mahoney, Nabakowski, Milleson, Stano.

Reps. Tranter, Panehal, Tansey, Quilter, Giimore, Wittiams, Skeea, Carney.

Reduces, for foar years, the tax paid by quarter horse racing peru^pPho^ers on amounts wagered. (Effective: Jamtazq 16, 1980) THE STATE OF OHIO

VOLUME CXLI LEGISLATIVE ACTS INCLUDING APPROPRIATION ACTS PASSED

AND JOINT RESOLUTIONS ADOPTED

BY THE ONE HUNDRED AND SIXTEENTH GENERAL ASSEMBLY OF OHIO

AT ITS REGULAR SESSION JANUARY 7, 1985 TO DECEMBER 31, 1986 INCWSIVE

Issued by SHERROD BROWN Secretary of State

Appx. 74 sL•xddK

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(I0Z ja9wnBI II!E asnoH a9njS3S9nS) 09LI Sub. H. B. No. 201 1761

133.36, 133.52, 133.71, 135.21, 141.04, 141.06, 141.11,141.15, 141.151,141.16,144.01, 145.11, 145.26, 145.295, 145.31, 145.51, 146.02, 146.03, 146.05, 146:07, 146.08, 146.09, 146.10, 146.16, 146.19, 149.30, 149.38, 149.39, 149.41, 149.42, 153.01, 153.02, 153.03, 153.08, 153.14, 153.17, 153.18, 154.20, 154.21, 154.22, 154.23, 155.10, 155.11, 169.01, 169.05, 169.08, 171.04, 173.01, 175.02, 302.20, 309.14, 319.11, 319.14, 319.16,319.30,319.301,319.302,319.311,319.37, 319.47, 319.50, 319.52, 319.53, 319.54, 319.99, 321.03, 321.08, 321.12, 321.15, 321.16, 321.24, 321.30,321.34,321.341,321.37,323.153,323.156, 323.251, 323.30, 323.611, 325.28, 339.43, 339.63, 340.03, 340.10, 501.01 to 501.04, 501.041, 501.06 to 501.10,705.22, 717.10, 717.11, 723.53, 733.12, 737.04, 737.051, 737.161, 741.10, 741.41, 741.61, 741.62, 741.63, 741.64, 741.65, 741.66, 741.67, 741.68, 741.69, 741.70, 742.01, 742.15, 742.23, 742.24, 742.25, 742.261, 742.30, 742.301, 742.31, 742.32, 742.33, 742.34, 742.35, 742.37, 742.371, 742.372, 742.373, 742.40, 901.32, 901.61, 907.04, 918.43, 924.10, 924.51, 924.52, 924.54, 924.55, 925.10, 926.05, 926.16, 926.17, 926.18, 926.19, 926.20, 926.23, 926.26, 926.32, 929.03, 947.06, 947.11, 955.08, 991.04, 991.05, 1125.16, 1125.28, 1155.07, 1155.10, 1155.13, 1155.131, 1155.17, 1306.03, 1309.401, 1321.21, 1501.01, 1501.031, 1501.07, 1501.11, 1501.30, 1502.02, 1502.03, 1502.05, 1503.05, 1505.09, 1507.04, 1507.05, 1507.051, 1509.02, 1509.061, 1509.071, 1513.02, 1513.08, 1513.10, 1513.16, 1513.18, 1513.181, 1513.20, 1513.25, 1513.27, 1513.28, 1513.29, 1513.30, 1513.32, 1513.33, 1513.37, 1514.03, 1514.05; 1514.06, 1514.11, 1515.14, 1515.15, Appx. 76 Sub. H. B. No. 201 2016 shall supply the information in the form and by the date sper fied in the order. If the auditor fails to comply with .an order issued under this division, except for good cause as determini,4l by the commissioner, the commissioner shall dir^eet the aucliLiw of state to withhold from such county or taxing district therein, fifty per cent of state revenues to local governments pursuani to section 5747.50 OF THE REVISED CODE or SHA1,1. DIRECT THE DEPARTMENT OF EDUCATION TO WITII HOLD THEREFROM FIFTY PER CENT OF STATE REVh; NUES TO SCHOOL DISTRICTS PURSUANT TO Chapter 3317 of the Revised Code. The auditer of stete COMMISSIONE:Ii SHALL WITHHOLD THE DISTRIBUTION OF SUCH REVE NUES UNTIL THE COUNTY AUDITOR HAS COMPLIE:Ii WITH THIS DIVISION, AND THE DEPARTMENTshali witli hold the distribution of such revenues until the commissioner has notified him THE DEPARTMENT that the county auditor has complied with this division. (H) If the comnussioner is unable to certify a tax reductiou factor for either class of property in a taxing district located iu more than one county by the. last day of November becauno information required under division (G) of this section iz unavailable, he may compute and certify an estimated tan reduction factor for that district for that class. The estimated factor shall be based upon an estimate of the unavailable infar mation. Upon receipt of the actual information for a taxing (16 trict that received an estimated tax reduction factor, the cocu missioner shall compute the actual tax reduction factor and um« that factor to compute the taxes that should have been chargelil and payable against each parcel of property for the year f,n which the estiniated reduction factor was used. The amount hv which the estimated factor resulted in an overpayment or underpayment in taxes on any parcel shall be added to or suh tracted from the amount due on that parcel in the ensuing ta x year. A percentage or a tax reduction factor determined or coni puted by the commissioner under this section shall be used solely for the purpose of reducing the sums to be levied by thw tax to which it applies for the year for which it was determinrd or computed. It shall not be used in making any tax computsi tions for any ensuing tax year. Sec. 319.302. After complying with section 319.301 of tha Revised Code, the courity auditor shall reduce the remaining sums to be levied against each parcel of real property listed i,a the general tax list and duplicate of real and public utility prolo erty for the current tax year by ten per cent. Except as othE+r wise provided in section 323.152 of the Revised Code, thu

Appx.77 Sub. H. B. No. 201 2017 amount of the taxes remaining after such reduction shall be the real and public utility property taxes charged and payable on such property and shall be the amounts certified to the county treasurer for collection. Upon receipt of the tax duplicate, the treasurer shall certify to the aacliLeF of state TAX COMMIS- SIONER the total amount by which such taxes were reduced under this section, as shown on the duplicate. Such reduction shall not directly or indirectly affect the determination of the principal amount of notes that may be issued in anticipation of any tax levies or the amount of bonds or notes for any planned improvements. If after application of sections 5705.31 and 5705.32 of the Revised Code and other applicable provisions of law, including division (F) of section 321.24 of the Revised Code, there would be insufficient funds for payment of debt charges on bonds or notes payable from taxes reduced by this section, the reduction of taxes provided for in this section shall be adjusted to the extent necessary to provide funds from such taxes. Sec. 319.311. After complying with section 319.31 of the Revised Code, the county auditor shall compute the amount of taxes that would have been charged in the current year against property for which an exemption is claimed under division (C)(2) of section 5709.01 of the Revised Code, if such property were taxable. The auditor shall certify the amount so determined to the county treasurer with the general duplicate of personal property at the time required under section 319.29 of the Revised Code, and the treasurer shall certify that amount to the audiLeF of state TAX COMMISSIONER. The tax commissioner shall furnish each county auditor the information needed to make such computations. Sec. 319.37. After the refunding of taxes as prescribed by section 319.36 of the Revised Code: (A) At the next settlement with the atxckkeF.s€ sEs#e"TAX COMMISSIONER, the county auditor shall deduct from the amount of taxes due the state at such settlement the amount of such taxes that have been paid into the state treasury. (B) At the next settlement with the county treasurer, the amount of each such refund apportioned among the various subdivision accounts shall be subtracted by the auditor from those accounts. Sec. 319.47. Within ten days after he has made each semiannual settlement with the county treasurer, the county auditor shall transmit to the ai-ditee of state TAX COMMISSIONER a duplicate of each of the several certificates and abstracts required to be made in the settlements.

Appx.78 Sub. H. B. No. 201 2657

The appropriations made in this act are subject to all provisions of Amended Substitute House BiI1 No. 238 of the 116th General Assembly for the 1985-1987 biennium which are generally applicable to General Revenue Fund appropriations.

Appx. 79 Sub. H. B. No. 201

The section numbering of law of a general and permanent nature is complete and in conformity with the Revised Code.

Sections 126.23 (126.14), 149.38, 149.39, 149.41, 149.42, 1513.181, 3317.024, 3317.11, 3770.06, 3773.54, 5123.18, 5126.12, 5749.02, and 5749.021 of the Revised Code are amended by this act and also by Am. Sub. H.B. 238 of the 116th General Assembly. Section 1125.16 of the Revised Code is amended by this act and also by Sub. H.B. 354of the 116th General Assembly. Section 3713:02 of the Revised Code is amended by this act and also by Am. H.B. 323 of the 116th General Assembly. Sections 5733.12 and 5747.11 of the Revised Code are amended by this act and also by S.B. 127 of the 116th General Assembly. Comparison of these amendments in pursuance of section 1.52 of the Revised Code discloses that they are not irreconcilable, so that they are required by those sections to be harmonized to give effect to each amendment.

Director, Leqisl e Service Commi 'on

Appx.8o I

GENERAL LAWS OFTHE ONE HUNDRED TWENTY-FIRST GENERAL ASSEMBLY Continued

Appx. 81 -VtI0d2I00 ÌVdmI1dIIAt komwfmw a4i o7 Pa^M equaBlum mv3o s3uaucpuacus pus u=.â 8 pnq ^f;unoa aqa;o saamosaa palsunisa;o a;sageaaaa Isng;o a âamose.z paqeu[elsa;o alaag!Ixaa„ (Q) upuoq;oaanenseiaql ;o uo0sdpiZus uI panse< ealou susaux salou uot3ttdpsp{as puog„ (0) •am^ uopmdo,zdde -(us uI papnpa 6p nog.asd jou dauom do âSPu^ ôqi^ dIH8IZM0J, II0 `]S.i,Nl100 'NOI,LV3IOd -2I00'IVdIOIN[1LQ Awdwtwtute;o uonos,zaqao ALs pus apo0 Paa.Uag aq3 JO 06'SOLS Put 88'SOL9 suonaos u! aJ Poinfaz dIHS1QM0il 2I0 `JLL NIIOO ÀIOI.L'VHOd'Yi00 ÌVdIDIAiiIw A"Qwrmme;o amssamuons -udo.zddg us oa luamatddne io 'a.msiaaut uoqsudozdde us;o 1uauquaure 'a.mseaiu uorlsudo.tdde Sas susaut a.mssata uoHsudosddy„ (g) •apo0 pasreag aq;;o yy gTT uo4-1a9 Aq pazuoq;ns saaou aqa susacu „saTou zuaurw xsa aoasnpy„ (v) ua7dwla sMQI PwnsV 'i0'8TI '.*8 :smoqo; se Psa.z o1 paqeua eq apo J paa.mag m To 0I90'809Y P'+s '841 'EZE 'ILZ'8TI 'EZO'811 '$ZO'8iI 'IZ0'8IT suO!7oae Ptm ' PaPuQum aq TEI'EZS Pm'7AE'6IE '66'8TT '89'8iI 'LZ'8II '99'81I '93'81I 'n'STI 'E3'81T '33'8I1 13'81I 'OZ'SII '61'8I1 'Si'8II 'LI'81T `9T'8II `4T'STI '6T'8TT 'EI•8II '3I'8IT 'I1'8II '0I'8TI '80'8I1 'L0'8TT '90'811 '90'8IT 'b0'8TT 'E0'8TT 'ZO 8TI 10'8II suo!iOGO Vt.L 'I No[7On :o:yo fo ams mn lb itivumfv t40=0 m 49 Y*"" n'a

anuaAa:^ daunoo xaq;o qi!es saxn paadataxe aqi asmquna.t o; Ptm samoq Pgan3 as;etusm pum speagsawoq uo suoqdumxa ssa p.naed ausa8 oTsrauoisemuoa,t;unoa;o spasoq mei.zaa auiq ;o popad paarmR 18.1o3 aauoqam o; pa+a 'adtqsumon pus saiaunoa apnpm oi beZ saiaua8aa1HR pMM p3ol aqa pusdxa oa apo0 pasuag aqi;o 0T90'E04V Pim '84I'.EZE 'ILZ'8TT 'EZ.O'STI 'ZE0'8I1 '130'gII saoipm ptuo (n put IEI'EZ8 Pue 'Z08°6iE '66'STI 8Z'8TI (n 0T'8II '80•8IT a) TO'SiT quorvas Puam oJ,

(a9r .â^x ê ^x v+w!âvos) t ^Kl^v R^J rilaU OfiIS Sub. H. B. No. 462 5186 ployee, advisory committee, task force, or agent to whom such information was given, of that fact; (4) Knowingly use or cause to be used moneys of a construction fund for purposes other than the lawful purposes of the construction fund, or knowingly use or cause to be used moneys of a fumi created under this chapter for the payment of principal and interest on debt obligations, or a bond retirement fund, or sinking fund for other than the payment of the principal of and interest on debt obligations or other authorized eosts or payments from such funds, or knowingly fait to perform the duty of such officer or employee to cause the prompt deposit of moneys to any of the funds referred to in this division. (B) The prohibitions set forth in division (A) of this section are in addition to any other prohibitions PROVIDED by law FOR A MUNICI- PAL CORPORA'fION, COUNTY, OR TOWNSHIP.orby or pursuant to the A MUNICIPAL chartereflfiemeeicipslity. (C) In addition to any other penalty or liability provided by law FOR A MUNICIPAL CORPORATION, COUNTY, OR TOWNSHIPzorby or pursuant to t^he A MUNICIPAL charter eFbhe wmrAeipslitGy , a violation of division (AXl), (2), (3), or (4) of this section is a misdemeanor of the second degree. Upon conviction of any officer or employee of the emv"psli6y A MUNICIPAL CORPORATION, COUNTY, OR TOWNSHIP for any violation under division (A)(1), (2), (3), or (4) of this section, such officer or employee shall forfeithis office or employment. Sec. 319.302. After complying with section 319.301 of the Revised Code, the county auditor shall reduce the remaining sums to be levied against each parcel of real property listed on the general tax list and duplicate of real and public utility property for the current tax year by ten per cent. Except as otherwise provided in eee6iea SECTTONS 323.152 AND 323.158 of the Revised Code, the amount of the taxes remainingafter such reduction shall be the real and public utiHty property taxes charged and payable on such property and shall be the amounts certified to the county treasurer for collection. Upon receipt of the tax duplicate, the treasurer shall certify to the tax commissioner the total amount by which such taxes were reduced under this section, as shown on the. duplicate. Such reduction shall not directly or indirectly affect the determination of the principal amount of notes that may be issued in anticipation of any tax levies or the amount of bonds or notes for any phumed improvements. If after application of sections 5705.31 and 5705.32 of the Revised Code and other applicable provisions of law, including division (F) of section 321.24 of the Revised Code, there would be insufficient funds for payment of debt charges on bonds or notes payable from taxes reduced by this section, the reduction of taxes provided for in this section shall be adjusted to the extent necessary to provide funds from such taxes. . Sec. 323.131. Each tax bil! prepared and mailed or delivered under section 323.13 of the Revised Code shall be in the form and contain the information required by the tax commissioner. The commissioner may prescribe different forms for each county and may authorize the county auditor to make up tax bilis end tax receipts to be used by the county treasurer. FOR ANY COUNTY IN WHICH THE BOARD OF COUN- Appx. 83 Sub. H. B. No. 462 5191

SECrtoN 2 That eaisting aections 118:01, 118.02, 118.03, 118.04, 118.f^'r, 118.06, 11&07, 118,08, 118.10, 118.11y 118.18, 118.18, 118.14, 118.16, 118.16; 118.17, 118.18, 118.19, 118.20, 118.21, 118.22, 118.23, 118.24,118.25, 1l"$:86,118.27;118.28, 118.99, 819:302, and M.181 of the Revised Code sue hereby repealed.

Paseed __.a

Governor. Sub. H. B. No. 462 5192

The section numbering of law of a genetat and permanent nature is complete and in conformity with the Revised Code.

Dir+eotor, I.rgislalive Service Com.mfsaion.

Fitedin the f6ce ofthe ofStste at Columbaa, Ohio, onthe day of , 13. 19CA 1Q.

^^ Tia Saeratary of Stote. GENERAL LAWS OFTHE

ONE HUNDRED TWENTY-FIRST GENERAL ASSEMBLY Continued

Appx.86 5463 (IEUC GepArW Amembly) (Amended Subsdtute Hooee BID NumDei 617)

AN ACT

Tb amend eeetions 819.8D2 and 716.261 and to enact sections 605.06 and 715.263 of the Revised Code to au- tlwrize muniaipal corporations andtownships to grant resl propertytax credits topereone who parr]iaeeand abate nuisances on tax foreclosed property, and to prohibit municipal corporations from plscing on the taxliet the costof abating a nuisance on property that haabeenforfeited to thestate.

Be it enactad by the General Aasembby of the State of Ohio: SECtiON 1. That sections 319.302 and 715.261 of the Revised Code be amended and sections 506.06 and 715.E63 of the Revised Code be enacted toreadasfollows: - Sea 319.302. After complying with section 319.801 of the Revised Code, the camty auditor shsil reduce the remaining sums to be levied againat each parcel of real property lfated on the general tax liat and dupHeate of real and pubHc utility property for the current tax year by ten per cent. Except as otherwise provided in eecliea SECTIONS 328.16Z1 605.06, AND716.268 of the Revised Code, theamountoftbetaxea reniaining a!@er sucb reduction shall be the real and pubHc tlWity pmperty taxes ctwrged and p^nyable on such property and ahaU be the amounts certified to the oonnty treasurer for collection. Upon receipt of the tax duplicate, the treaearer abaR certify to the tax mmmieaioner the total amount by wbich eueh taxes were reduced under thia section, as shown on the dupHoate. I. Such redaction aball not directly or indirectiy afFect the determination of the prinapal amount of notes that may be issued in anticipation ofany tax leviea or the amount of bonds or notes for any planned 'unprovements. If after applip"n of aeetiona 67%.81 and 6706.82 of the Revised Code and otber appficable provisions of law, hwhuft diviaion (F) of sed3on 321.24 oftbe Revised Code, there wonid be' ent fundsforpayment of debt ebarges on bw►de or notes payable from taxes reduced by tbis aection, the reduction of taxes provided for in this section ahall be adjusted to the extent neceesary to prortide fiwda from such tazes. Sec. 606.06. (A) AS USED IN THIS SECTION: SECTioN 2. That existing sectiona 319.302 and 715.261 of the Revised Code are hereby repealed. Am. Sub. H. B. No. 517 5473

The section numbering of law of a general and permanent nature is complete and in conformity with the Revised Code.

F31ed in.the q^ of the Seco^tary of $tate at Columbus, Ohio, on the 4^ day of ^^ , A. t3. 19C!s.

F'ile No. ," C)^

I LII

GENERAL LAWS of the

One Hundred Twenty-Second General Assembly

Continued

Appx.90 I

7986

(1ffid Cecen! AaeemWr) (AmAnded 8u6efiEutBt Seoute &ll Number 142)

AN ACT

To amend sections 303.21, 305.31, 319.202, 319:302, 319.54, 321.261, 321.45, 322.01, 322.02, 322.021, 322.03, 322.05, 322.99, 323.151, 323.152, 323.153, 323.154, 323.155, 323.156, 323.31, 325.31, 519.21, 1151.349, 1345.71,1506.01,1521.01,1923.01,3733.01,3733.02, 3733.021, 3733.022, 3733.025, 3733.06, 3733.101, 3733.11;3733.19,3781.06,3781.07,3781.10,3781.181, 3791.04, 4501,01, 4503.04, 4503.042, 4503.06, 45M.061, 4503.062, 4503.063; 4503.064, 4503.065, 4503.066, 4503.067, 4503.19, 4503.21, 4503.99, 4505.01,4505.06,4505.08,4505.11,4505.20,4511.701, 4517.01, 4517.03, 4517.30, 4703.18, 4733.18, 4905.90, 5117.01, 5701.02, 5715.39, 5728.01, 5739.02, and 5741.02 and to enact sections 303.212, 322.06, 519.212, 3781.184, and 5739.0210 of the Revised Code to revise the sales and use taxes applicable to manufactured homes, require that aII manufactured and mobile homes pay either a real property tax or a manufactured home tax, and make various other changes relative to the taxation of manufactured and mobile homes; to clarify that state and local building codes do not govern manufactured homes, but that all manufactured homes must be built pursuant to federal standards and carry a permanent tag to indicate compliance; to require that manufactured homes that meet specified appearance criteria and are permanently sited be treated as single-fami7y homes for zoning purposes if they meet all tocal zoning requil+e- I Am. Sub. S. B. No. 142 7992 with prevafling general price levels. No person shaU willfully falsify the value of property conveyed. (D) The auditor shall indorse each conveyance on its face to indicate the amount of the conveyance fee and compliance with this section. The auditor shall retain the original copy of the statement of value, forward to the tax commissioner one copy on which shaU be noted the most recent assessed value of the property, and furnish one copy to the grantee or iee THE GRANTEE'S representative. (E) In order to achieve uniform administration and collection of the real property transfer fee required by division (FXS) of section 319.54 of the Revised Code, the tax commissioner shall adopt and promulgate rules for the administration and enforcement of the levy and collection of such fee. Sec. 319.302. After complying with section 319.301 of the Revised Code, the county auditor shall reduce the remaining sums to be levied against each parcel of real property listed on the general tax list and duplicate of real and public utility property for the current tax year AND AGAINST EACH MANUFACTURED AND MOBILE HOME Ti&T IS TAXED PURSUANT TO DIVISION (DX2) OF SECTION 4605.06 OF THE REVISED CODE AND THAT IS ON THE MANUFACTURED HOME TAX LIST FOR THE CURRENT TAX YEARby ten per cent. Exceptas otherwise provided in sections 323.152, aed 323.158, 505.06, and 715.263 of the Revised Code, the amount of the taxes remaining after such reduction shall be the real and public utility property taxes charged and payable ee eeehl AND THE MANUFACTURED HOME TAX CHARGED AND PAYABLE, ON EACH property and shall be the amounts certified to the county treasurer for collection. Upon receipt of the tax duplicate, the treasurer shall certify to the tax commissioner the total amount by which such taxes were reduced under this section, as shown on the duplicate. Such reduction sha1l not directly or indirc,^ctly affect the determination of the principal amount of notes that may be issued in anticipation of any tax levies or the amount of bonds or notes for any planned improvements. If after application of sections 5705.31 and 5705.32 of the Revised Code and other applicable provisions of law, including division (F) of section 321.24 of the Revised Code, there would be insufficient funds for payment of debt charges on bonds or notes payable from taxes reduced by this section, the reduction of taxes provided for in this section shall be adjusted to the extent necessary to provide funds from such taxes. Sec. 319.54. (A) On all moneys collected by the county treasurer on any tax duplicate of the county, other than estate tax duplicates, and on all moneys received as advance payments of personal property and classified property taxes, the county auditor, on settlement with the treasurer and tax commissioner, on or before the date prescribed by law for such settlement or any lawful extension of such date, sha4 be allowed as compensation for hie THE COUNTY AUDITOR'S services the following percentages: (1) On the first one hundred thousand dollars, two and one-half per cent; Am. Sub. S. B. No. 142 8120

SECr[oN 3. Section M31 ofthe Revised Cbde ispresented in this aet as a omnposite of the section as amended by both Am. Sub: SA ' 188 and Am. Sub. H.B. 99ofthe 121stGenoralAssembly, withtIienewl'anguage of neither of the acts shown #n'cagitatletters. SecEion $19:302 of the Revised Code,i "s presented in this act asa composite of the seetion as amended by bothSub: H.H. 462andAm. Siib. H.B.517ofthe 121stGeiieralAssembly, with the new language of neither of the acts shoan in capiW letters. Section3781.19 of the Revised Cbde 3s presented in this aet as a aomposite of the section as amended by both Sub. H.B. 231 and Am. Sub. S.$.1OB of the 121st Genetal Assembly, with the new language of neither of the acts shown in capital letters. This is in recognition of the principle stated in division (B) of section 1.52 of the Revised Code that such amendments are to be harmonized where not substantively irreconcilable and constitutes a legislative finding that such is a resulting version in effect prior to the effective date of this act. The section ninnbering of law of a general and permanent nature is complete and in conformity with the Revised Code.

Director, Legislative Service Commission. ded in the oMce of he Secretary of Statea Columbus, Ohio, on the ^ day of , A. D. 1

-97,J q 9^. File No.. aL l Effective Date

Section 323.153 of the Revised Code is amended by this act and also by Am. Sub. H. B. 177 and Am. Sub. S. B. 201, both of the 122nd General Assembly. Sections 4501.01, 4505.06, and 4517.01 of the Revised Code are amended by this act and also by Am. Sub. H. B. 611 of the 122nd General Assembly. Comparison of these amendments in pursuance of section 152 of the Revised Code discloses that they,are not irreconcilable so that they are required by that sectiot^ to. be harmonized to give effect to each amendment.

Director, Legislative Service Commission

Appx. 94 J(125th Geneal Asseml^y) (P.mended SubsGtute House Bill Numinr 168)

AN ACT

To amend sections 135.143, 135.22, 135.341, 135.35, 152.17, 154.01, 154.08, 175.09, 319.302, 321.24, 321.46, 323.121, 323.31, 4503.06, 571320, 5719.051, 5721.10, 5721.30, 5721.31, 5721.32, 5721.33, 5721.34, 5721.37, 5721.38, 5721.39, 5721.40, and 5721.41 and to enact sections 321.47, 5721.021, and 5721.43 of the Revised Code to establish procedures for suspending the investment and portfolio management authority of a county treasurer who fails to meet the initial or continuing education requirements and transfer this authority to a county's investment advisory committee, to modify the investment authority of county treasurers, specify when penalties may be imposed on property subject to delinquent tax contracts, modify the authority of a county treasurer to compensate tax collectors of personal property taxes, authorize a county treasurer to employ tax collectors of delinquent real property taxes, modify procedures for the sale and redemption of tax certificates, prohibit certain contacts between tax certificate holders and property owners, and make other changes related to the administration of laws relating to real property, public utility property, and manufactured home taxes, to provide that bond service charges for certain state obligations may include costs related to credit enhancement facilities, and to expand the investment authority of the Treasurer of State.

Be it enacted by the General.9ssembly of the State of Ohio:

Appx. 95 Am. Sub. H. B. No. 168 2

SECT[0H 1. That sections 135.143, 135.22, 135341, 135.35, 152.17, 154.01, 154.08, 175.09, 319.302, 321.24, 321.46, 323.121, 323.31, 4503.06, 5713.20, 5719.051, 5721.10, 5721.30, 5721.31, 5721.32, 5721.33, 5721.34, 5721.37, 5721.38, 5721.39, 5721.40, and 5721.41 be amended and sections 321.47, 5721.021, and 5721.43 of the Revised Code be enacted to read as follows: Sec. 135.143. (A) The tceasurer of state may invest or execute transactions for any part or all of the interim funds of the state in the following classifications of obligations: (1) United States treasury bills, notes, bonds, or any other obligations or securities issued by the United States treasury or any other obligation guaranteed as to principal and interest by the United States; (2) Bonds, notes, debentures, or any other obligations or securities issued by any federal govemment agency or inst,rumentality; (3) Bonds and other direct obligations of the state of Ohio issued by the treasurer of state and of the Ohio public facilities commission. the Ohio building authoritv and the Ohio housing finance ag_encv; (4)(a) Written repurchase agreements with any eligible Ohio financial institution that is a member of the federal reserve system or federal home loan bank or any recognized United States govemment securities dealer, under the terms of which agreement the treasurer of state purchases and the eligible fmancial institution or dealer agrees unconditionally to repurchase any of the securities that are listed in division (A)(1), (2), or (6) of this section and that will mature or are redeemable within ten years from the date of purchase. The market value of securities subject to these transactions must exceed the principal value of the repurchase agreement by an amount specified by the treasurer of state, and the securities must be delivered into the custody of the treasurer of state or the qualified trustee or agent designated by the treasurer of state. The agreement shall contain the requirement that for each transaction pursuant to the agreement, the participating institution or dealer shall provide all of the following information: (i) The par value of the securities; (ii) The type, rate, and maturity date of the securities; (iii) A numerical identifier generally accepted in the securities industry that designates the securities. (b) The treasurer of state also may sell any securities, listed in division (A)(1), (2), or (6) of this section, regardless of maturity or time of redemption of the securities, under the same terms and conditions for

Appx.96 Am. Sub. H. B. No. 168 23 incidental to the performance of the authority's duties and the execution of the authority's powers and do all other acts necessary or proper to the fulfillment of the authority's purposes and to carry out the powers expressly granted in this chapter. (G) The issuing authority shall have responsibility for keeping records, making reports, and making payments related to arbitrage compliance and rebate requirements under the bond proceedings for obligations issued pursuant to this chapter. Sec. 175.09. (A) All bonds issued under this chapter are lawful investments of banks, societies for savings, savings and loan associations, deposit guarantee associations, trust companies, trustees, fiduciaries, insurance companies, including domestic for life and domestic not for life, irustees or other officers having charge of sinking and bond retirement or other special funds of political subdivisions and taxing districts of this state, the eeamiissienefs treasurer of state, the administrator of workers' compensation, the state teachers retirement system, the public employees retirement system, the school employees retirement system, and the Ohio police and fire pension fund, notwithstanding any other provision of the Revised Code or rules adopted pursuant thereto by any governmental agency of the state with respect to investments by them, and are acceptable as security for the deposit of public moneys. (B) The exercise of the powers granted by this chapter will be in all respects for the benefit of the people of the state, for the improvement of their health, safety, convenience, and economic welfare, and for the enhancement of the opportunities for safe and sanitary housing and is a public purpose. The programs undertaken by the Ohio housing finance agency constitute the performance of essential public functions, and the bonds issued under this chapter, their transfer, and the income therefrom, including any profit made on the sale thereof, is at all times free from taxation within the state. Sec. 319.302. After complying with section 319.301 of the Revised Code, the county auditor shall reduce the remaining sums to be levied against each parcel of real property listed on the general tax list and duplicate of real and public utility property for the current tax year, and against each manufactured and mobile home that is taxed pursuant to division (D)(2) of section 4503.06 of the Revised Code and that is on the manufactured home tax list for the cunent tax year, by ten per cent. Except as otherwise provided in sections 323.152, 323.158, 505.06, and 715.263 of the Revised Code, the amount of the taxes remaining after such reduction

Appx.97 Am. Sub. H. B. No. 168 24 shall be the real and public utility property taxes charged and payable, and the manufactured home tax charged and payable, on each property and shall be the amounts certified to the county treasurer for collection. Upon receipt of the tax duplicate, the treasurer shall certify to the tax commissioner the total amount by which seek taxes were reduced under this section, as shown on the duplicate. Such reduction shall not directly or indirectly affect the detemiination of the principal amount of notes that may be issued in anticipation of any tax levies or the amount of bonds or notes for any planned improvements. If after application of sections 5705.31 and 5705.32 of the Revised Code and other applicable provisions of law, including rliyisiea divisions (F) and I of section 321.24 of the Revised Code, there would be insufficient funds for payment of debt charges on bonds or notes payable from taxes reduced by this section, the reduction of taxes provided for in this section shall be adjusted to the extent necessary to provide funds from such taxes. ' Sec. 321.24. (A) On or before the fifteenth day of February, in each year, the county treasurer shall settle with the county auditor for all taxes and assessments that the treasurer has collected on the general duplicate of real and public utility property at the time of making the settlement. (B) On or before the thirtieth day of June, in each year, the treasurer shall settle with the auditor for all advance payments of general personal and classified property taxes that the treasurer has received at the time of making the settlement. (C) On or before the tenth day of August, in each year, the treasurer shall settle with the auditor for all taxes and assessments that the treasurer has collected on the general duplicates of real and public utility property at the time of making such settlement, not included in the preceding February settlement. (D) On or before the thirty-first day of October, in each year, the treasurer shall settle with the auditor for all taxes that the treasurer has collected on the general personal and classified property duplicates, and for all advance payments of general personal and classified property taxes, not included in the preceding June settlement, that the treasurer has received at the time of making such settlement. (E) In the event the time for the payment of taxes is extended, pursuant to section 323.17 of the Revised Code, the date on or before which settlement for the taxes so extended must be made, as herein prescribed, shall be deemed to be extended for a like period of time. At each such settlement, the auditor shall allow to the treasurer, on the moneys received or collected and accounted for by the treasurer, the treasurer's. fees, at the

Appx. 98 (126tb Generel Assembly) (Amended Subsdtute House Bill Number 66)

AN ACT

To amend sections 9.24, 9.981, 101.68, 102.02, 102.06, 108.05, 109.54, 109.57, 109.79, 109.91, 109.98, 117.10, 120.06, 120.13, 120.23, 120.52, 120.53, 12137, 121.38, 122.011, 122.17, 122.171, 122.18, 122.40, 122.603, 122.71, 122.72, 122.73, 122.74, 122.75, 122.751, 122.76, 122.77, 122.78, 122.79, 122.82, 122.83, 122.95, 122.951, 123.01, 123.152,. 123.17, 124.07, 124.321, 124.328, 125.041, 125.05, 125.11, 125.831, 125.832, 126.25, 127.16, 131.02, 131.23, 133.08, 133.081, 133.09, 140.01, 141.011, 141.04, 145.01, 145.33, 147.Q5, 147.10, 147.11, 147.12, 147.371, 149.30, 150.07, 150.10, 154.11, 173.26, 173.40, 173.99, 181.251, 181.51, 181.52, 181.54, 181.55, 181.56, 183.28, 184.02, 305.171, 307.37, 307.695, 307.86, 307.88, 317.08, 317.36, 319.20, 319.302, 321.24, 323.01, 323.152, 325.31, 329.04, 329.051, 339.72, 339.88, 340.03, 340.16, 351.01, 351.021, 351.06, 351.141, 351.16, 718.09, 718.10, 731.14, 731.141, 742.59, 901.43, 903.05, 905.32, 905.33, 905.331, 905.36, 905.37, 90538, 905.381, 905.50, 905.501, 905.66, 907.16, 913.02, 913.23, 915.02, 915.16, 915.24, 921.02, 921.16, 923.44, 923.45, 923.46, 926.01, 927.69, 1111.04, 1327.511, 1502.02, 1509.06,1509.072, 1509.31, 1515.14, 1517.02, 1521.062, 1531.27, 1533.10, 1533.11, 1533.111, 1533.112, 1533.12, 1533.32, 1541.03, 1548.06, 1707.01, 1707.17, 1707.19, 1707.20, 1707.22, 170723, 1707.25, 1707.261, 1707.431, 1707.44, 1707.46, 1711.52, 1711.53, 1713.03, 1751.03, 1751.04, 1751.05, 1901.26, 1901.31, 190724, 2113_041, 2117.061, 2151.352, 2151.416,

Appx. 99 Am. Sub. H. B. No. 66 2

2152.43, 2152.74, 2303.201, 2305.234, 2329.66, 2743.191, 2744.05, 2744.08, 2901.07, 2913.40, 2921.13, 2923.25, 2923.35, 2923.46, 2925.44, 2933.43, 2933.74, 2949.092, 2971.05, 3107.10, 3111.04, 3119.54, 3121.12, 3121.50, 3125.18, 3301.079, 3301.0710, 3301.0711, 3301.0714, 3301.0715, 3301.12, 3301.16, 3301.311, 3301.32, 3301.56, 3301.86, 3301.88, 3302.03, 3313.207, 3313.208, 3313,209, 3313.489, 3313.975, 3313.976, 3313.977, 3313.978, 3313.98, 3314.013, 3314.015, 3314.02, 3314.021, 3314.03, 3314.031, 3314.032, 3314.06, 3314.074, 3314.08, 3314.13, 3315.17, 3315.18, 3315.37, 3316.06, 3316.16, 3317.01, 3317.013, 3317.02, 3317.021, 3317.022, 3317.023, 3317.024, 3317.026, 3317.027, 3317.028, 3317.029, 3317.0216, 3317.0217, 3317.03, 3317.031, 3317.05, 3317.052, 3317.053, 3317.06, 3317.063, 3317.07, 3317.081, 3317.09, 3317.10, 3317.16, 3317.20, 3317.21, 3317.22, 3317.23, 3317.50, 3317.51, 3318.091, 3318.33, 3319.081, 3319.17, 3319.22, 3319.235, 3319.55, 3323.021, 3323.091, 3323.14, 3323.16, 3327.01, 3332.092, 3333.04, 3333.044, 3333.12, 3333.121, 3333.27, 3333.28, 3333.36, 3333.38, 3334.01, 3334.02, 3334.03, 3334.07, 3334.08, 3334.09, 3334.10, 3334.11, 3334.12, 3334.15, 3334.16, 3334.17, 3334.18, 3334.19, 3335.02, 3345.10, 3345.19, 3345.32, 3353.01, 3353.04, 3353.06, 3353.07, 3362.02, 3365.01, 3365.02, 3365.04, 3365.041, 3365.05, 3365.08, 3375.40, 3375.48, 3375.49, 3375.54, 3375.55, 3381.02, 3381.04, 3381.05, 3381.06, 3381.07, 3381.15, 3383.02, 3383.09, 3501.141, 3501.17, 3513.04, 3513.041, 3513.05, 3513.052, 3513.257, 3513.259, 3513.261, 3517.13, 3517.151, 3701.023, 3701.146, 3701.65, 3702.141, 3702.51, 3702.68, 3702.71, 3702.74, 3703.01, 3703.03, 3703.04,

Appx.100 Am. Sub. H. B. No. 66 259

assessments, or other charges as originally levied, or the total amount of the balance due. The auditor shall cer6fy such apportionments to the county treasurer. Whenever the state acquires an entire parcel or a part only of a parcel of real property in fee simple, the county auditor, upon application of the grantor or property owner or the state, which application shall contain a description of the property as it appears on the tax list and the date of transfer of ownership, shall prepare an estimate of the taxes that are a lien on said lie property, but have not been determined, assessed, and levied for the year in which the property was acquired. The county auditor shall thereupon apportion sueh the estimated taxes proportionately between the grantor and the state for the period of the lien year that each had or shall have had ownership or possession of the property, whichever is earlier. The aountv treasurer shall accent pavment from the state for estimated taxes at the time that the real nronertv •is acguired if the state has paid in full in the year in which the propeM is accuired that 12L9pQrtion of the estimated taxes that the tax commissioner determines are not subiectto remission bvthe countv auditor for such xear under division (C) of section 5713.08 of the Revised Code, the estimated taxes paid shall be considered the tax liability on the exempted nroperly for that year. Section 319.42 of the Revised Code applies to the apportionment of special assessments. Complaint against such values as deterntined by the auditor or the allocation of assessments by the certifying authority may be filed by the transferee or the remaining owner, and if filed, proceedings including appeals shall be had in the manner and within the time provided by sections 5717.01 to 5717.06 and 5715.19 to 5715.22 of the Revised Code, for complaints against valuation or assessment of real property. The auditor shall endorse on the deed or other evidences of title presented to the auditor that the proper transfer of the real estate described in suek the deed has been made in the auditor's office or that it is not entered for taxation, and sign the auditor's name to sueh the deed. The address of the grantee, or any one of the grantees, set forth in the deed or other evidences of title shall be entered by the auditor on the transfer sheets and on the general tax list of real property prepared pursuant to section 319.28 of the Revised Code. Sec. 319.302. jAZ(1) Real pronertv that is not intended primarily for use in a business activitv shall qualify for a partial exemption from real property taxation. For p=qses of this partial exemption. "business activitv" includes all uses of real property, except farming; leasing uronerty for farming;

Appx.101 Am. Sub. H. B. No. 66 260 occunyina or holding nronertv improved with single-familv_ two-family,or thrae-family dwellings: leasing ro e improved with single ilv two-family or three-family dwellings: or holding vacant land that the county auditor determines will be used for farmingor to develo,p sinele-family, ttwo-family, or three-family dwellings. For purposes of this partial exemntion "fanning" does not include land used for the commercial nroduction of timber that is receiving the tax benefit under section 5713 .23 or 5713.31 of the Revised Code and all imnrovements connected with such commercial production of timber. (2) Each year, the county auditor shall review each narcel of real pronertv to determine whether it qualifies for the gartial exemntion provided for by this section as of the first day of Januarv of the currerit tax year. fB) After complying with section 319.301 of the Revised Code, the county auditor shall reduce the remaining sums to be levied against each parcel of realproperty that is listed on the general tax list.and duplicate of real and public utility property for the current tax year and that qualifies for partial exemption under division (A) of this section and against each manufactured and mobile home that is taxed pursuant to division (D)(2) of section 4503.06 of the Revised Code and that is on the manufactured home tax list for the current tax year, by ten per cenC to ^rovide a partial exemntion for that parcel or home. Except as otherwise provided in sections 323.152, 323.158, 505.06, and 715.263 of the Revised Code, the amount of the taxes remaining after an such reduction shall be the real and public utility property taxes charged and payable on eachparcel of real Qroperty, includingMperty that does not aualify for partial exemption under division (A) of this section. and the manufactured home tax charged and payable; on each prepeAy manufactnred or mobile home. and shall be the amounts certified to the county treasurer for collection. Upon receipt of the tax duplicate, the treasurer shall certify to the tax commissioner the total amount by which taxes were reduced under this section, as shown on the duplicate. Such reduction shall not directly or indirectly affect the determination of the principal amount of notes that may be issued in anticipation of any tax levies or the amount of bonds or notes for any planned improvements. If after application of sections 5705.31 and 5705.32 of the Revised Code and other applicable provisions of law, including divisions (F) and (I) of section 321.24 of the Revised Code, there would be insufficient funds for payment of debt charges on bonds or notes payable from taxes reduced by this section, the reduction of taxes provided for in this section shall be adjusted to the extent necessary to provide funds from such taxes. (C) The tax commissioner mayatont mles governine the administration

Appx.102 Am. Sub. H. B. No. 66 261

9f the partial exemption provided for by this section. (D) The determination of whether QropgM qualifies for rar ial exemption under division (A) of this section is solely for the p=ose of allowing the partial exemntion under division (B) of this section. Seo. 321.24. (A) On or before the fifteenth day of February, in each year, the county treasurer shall settle with the county auditor for all taxes and assessments that the treasurer has collected on the general duplicate of real and public utility property at the time of making the settlement. (B) On or before the thirtieth day of June, in each year, the treasurer shall settle with the auditor for all advance payments of general personal and classified property taxes that the treasurer has received at the time of making the settlement. (C) On or before'the tenth day of August, in each year, the treasurer shall settle with the auditor for all taxes and assessments that the treasurer has collected.on the general duplicates of realand public utility property at the time of making such settlement, not included in the preceding February settlement. (D) On or before the thirty-first day of October, in each year, the treasurer shall settle with the auditor for all taxes that the treasurer has collected on the general personal and classified property duplicates, and for all advance payments of general personal and classified property taxes, not included in the preceding June settlement, that the treasurer has received at the time of making such settlement. (E) In the event the time for the payment of taxes is extended, pursuant to section 323.17 of the Revised Code, the date on or before which settlement for the taxes so extended must be made, as herein prescribed, shall be deemed to be extended for a like period of time. At each such settlement, the auditor shall allow to the treasurer, on the moneys received or collected and accounted for by the treasurer, the treasurer's fees, at the rate or percentage allowed by law, at a full settlement of the treasurer. (F) Within thirty days after the day of each settlement of taxes required under divisions (A) and (C) of this section, the treasurer shall certify to the tax commissioner any adjustments whieh that have been made to the amount certified previously pursuant to section 319.302 of the Revised Code and that the settlement has been completed. Upon receipt of such certification, the commissioner shall provide for payment to the county treasurer from the general revenue fund of an amount equal to one-half of the amount certified by the treasurer in the preceding tax year under section 319.302 of the Revised Code, less one-half of the amount computed for all taxing districts in that county for the,cturent fiscal year under section 5703.80 of the

Appx. 103 Review Existing H.B. Analysis Page 1 of 13 PDF version of this analysis Fiscal Note for this version of analysis Text of latest version of this bill

Legislative Service Commission

Am. Sub. H.B. 168 125th General Assembly (As Passed by the General Assembly)

Reps. Trakas, Calvert, Koziura, Carano, Aslanides, S. Patton, Miller, D. Stewart, Reidelbach, J. Stewart, G. Smith, Otterman, Seitz, Beatty, Blasdel, Buehrer, Callender, Cates, Collier, Domenick, C. Evans, D. Evans, Flowers, Grendell, Hagan, Hartnett, Hoops, Jolivette, Niehaus, T. Patton, Peterson, Redfern, Schaffer, Schmidt, Schneider, Setzer, Taylor, Woodard, Young Sens. Harris, Stivers, Carey, Armbruster, Brady, Robert Gardner, Schuler, Spada, Zurz Effective date:

ACT SUMMARY

• Expands the range of permissible investments for inactive funds of a county treasury to generally include investment in certain U.S. treasury securities and "strips" of securities or obligations of the U.S. government, commercial paper notes with longer maturities, notes of U.S. corporations or domestic depository institutions, debt interests of foreign nations diplomatically recognized by the U.S., and mutual funds consisting of specified investments in which the Treasurer of State is authorized to place state interim funds. • Modifies initial and continuing education requirements of county treasurers, including providing for a biennial schedule for completion, carryover hours, and enforcement provisions, as well as the transfer of investing and portfolio management authority to a county's investment advisory committee if the county treasurer fails to comply with initial or continuing education requirements. • Expands the range of permissible investments for state interim funds to include bonds and other direct obligations of the state issued by the Ohio Building Authority and the Ohio Housing Financing Agency. Appx. 104 Review Existing H.B. Analysis Page 2 of 13 • Authorizes the board of county commissioners--serving a county with a population of at least 200,000--to employ tax collectors to collect delinquent real property taxes under certain circumstances. • Prohibits a party holding a delinquent real property tax certificate from contacting the property owner during the first year after purchasing the certificate. • Permits the holder of a delinquent tax certificate purchased at public auction to pursue a private foreclosure suit against the property in order to recover the delinquent taxes represented by the certificate, rather than requesting the county prosecutor to undertake the suit. • Extends a delinquent tax certificate holder's deadline for filing a foreclosure request on property while the property owner's bankruptcy petition remains open. • Modifies the amount and calculation of interest and other amounts payable after a foreclosure sale to a delinquent tax certificate holder that requested the foreclosure. • Modifies the amount that must be paid to extinguish delinquent tax certificates and redeem the delinquent property, the requirements for bidding on tax certificates and for notifying property owners and others of the sale of the certificates, and other aspects of the delinquent tax certificate law. • Modifies the computation of penalties charged for late payment of real property taxes or manufactured home taxes when the owner is paying past due taxes under an installment payment agreement. • Prescribes additional procedures for the foreclosure of delinquent manufactured home taxes, and makes other changes in the law governing manufactured home taxes. • Formally distinguishes between past due tax installment payment contracts arising from a delinquency and those arising from the property having been omitted from the tax records. • Authorizes a county treasurer, upon documenting that the state reimbursement payment for the $10,000 tangible personal property exemption in fiscal year 2003 was incorrect, to file an amended certification for the purposes of the ten-year phase-out of the reimbursement. Appx. 105 Review Existing H.B. Analysis Page 3 of 13 • Clarifies the effective date for the operation of a use tax provision. TABLE OF CONTENTS 1NVESTMENT AND INVESTING EDUCATION REQUIREMENTS County investment authority. 4

Permissible investments. 4 Inflation-indexed bonds not a prohibited derivative investment 5

Education requirements for county treasurers. 6

Schedule for completion; carryover hours. 6 Enforcement of education requirements; investment advisory committee duties. 7

Treasurer of State investment authority. 9 Bond service charges. 10

TAX MODIFICATIONS Tax collectors of delinquent property taxes. 11 Delinquent real property tax certificates. 11

Contact with property owner prohibited. 11 Tax certificate redemption price. 12 Notice to interested parties. 12 Bidder requirements. 13 Private foreclosure actions; effect of bankruptcy filing. 13 Proceeds to a certificate holder requesting foreclosure. 14 Prosecutor's fees. 15 Rules for private certificate sales. 16 Redeeming a certificate parcel 16 Other tax certificate changes. 16

Omitted property tax contracts. 17 Late penalties for tax installment contracts. 17 Tax foreclosures on manufactured homes. 17 Other manufactured home-related tax provisions. 18

Reimbursement for property tax reductions on manufactured homes. 18 Clerical errors in tax lists. 18

State reimbursement for $10,000 business property exemption. 19 Use tax clarification. 19

CONTENT AND OPERATION INVESTMENT AND INVESTING EDUCATION REQUIREMENTS Couniy investment authorit,P Appx. 106 Review Existing H.B. Analysis Page 4 of 13 (R.C. 135.35) Permissible investments Continuing law restricts how funds in a county treasury may be invested while such fands are not needed to pay expenses or meet other obligations (so-called "inactive moneys"; the term includes not only funds belonging to the county itself, but to other subdivisions in the county having money deposited in the county treasury). The range of permissible investments generally includes U.S. government and federal agency debt, Ohio state govemment debt and Ohio local government bonds, certificates of deposit, mutual funds consisting of federal or federal agency debt, the Ohio Subdivisions Fund (STAR Ohio), securities lending agreements with described financial institutions or certain dealers of U.S. government securities, some commercial paper of large corporations, and some short-term bankers acceptances. The act expands the permissible range of investments in which county inactive money may be made, as follows:

• Book entry, zero-coupon United States treasury securities that are direct obligations of the United States. The act also eliminates a prohibition on investment in stripped principal or interest obligations of any security or interest obligation issued or guaranteed by the United States government, including the proposed obligations. • Commercial paper notes that, in addition to other requirements, mature in not more than 270 days (rather than 180 days, as in prior law). Under continuing law not changed by the act, these commercial paper notes must be rated in the highest classification by two nationally recognized standard rating services and the aggregate value of the notes purchased must not exceed 10% of the outstanding notes of the issuing corporation. • Up to 15% of the county's total average portfolio may be invested in notes issued by corporations incorporated under federal law and operating in the United States, or in notes issued by depository institutions operating in the United States and doing business under federal law or a state's law. Investment is permitted in these notes only if the notes are rated "AA" or higher by two nationally recognized standard rating services (e.g., Standard and Poor's) at the time of purchase and if they mature within two years after purchase. • Up to 1% of the county's total average portfolio may be invested in debt interests issued by a foreign nation that is diplomatically recognized by the United States. Investment in such debt is permitted only if it is rated at the time of purchase in the three highest categories according to two nationally recognized standard rating services; principal and interest are denominated and payable in United States funds; the debt is backed by the full faith and credit of the issuing nation; the issuing nation has no prior history of default; and the debt matures within five years after purchase. The act further specifies that a debt interest is rated in the three highest categories if either the debt interest itself or the issuer of the debt interest is rated, or is implicitly rated, at the time of purchase in the three highest categories by two nationally recognized standard rating services. • No load money market mutual funds that are rated in the highest category by at least one nationally recognized standard rating service and that consist exclusively of obligations that (1) are issued or guaranteed by the U.S. government or issued by a federal government agency or instrumentality or (2) are commercial paper issued by U.S. corporations and rated in the two highest categories by two of the nationally recognized rating services. (These also are kinds of investments in which the Treasurer of State is authorized to place the state's funds on an interim basis (see R.C. 135.143(A)(1), (2), and (6)).

Appx.107 Review Existing H.B. Analysis Page 5 of 13 Inflation-indexed bonds not a nrohibited derivative investment Continuing law prohibits county money from being invested in "derivatives." For purposes of this prohibition, a derivative is defined as any financial instrument, contract, or obligation having a value or return based on or linked to another asset or index separate from the instrument, contract, or obligation itself--including instruments created from United States Treasury or other federal agency obligations. The act creates an exception for "treasury inflation-protected securities," stating that such securities are not to be considered derivatives if they mature within five years. The act also replaces references to "investment authority" with "investing authority," which term generally is defined by continuing law to be a county treasurer. Education reguirements for countv treasurers Schedule for completion: carryover hours (R.C. 135.22, 321.46, and 321.47) Before taking office, newly elected county treasurers are required to take at least 13 hours in education programs about investments and cash management, the manner and content of which are determined by the Treasurer of State. The newly elected county treasurers are also required to take 13 hours in education programs about governmental accounting and portfolio reporting and compliance, the manner and content of which are determined by the Auditor of State. Prior law required a county treasurer, after one year in office, to take not less than 12 hours of continuing education annually in education programs about these and additional specified topics, the manner and content of which similarly were determined by the Treasurer of State and the Auditor of State. The act requires that 24 hours of continuing education be completed biennially after a county treasurer's first year in office. However, the act suggests that a county treasurer who fails to comply with the continuing education requirements by the end of a biennial cycle may comply with the continuing education requirements if the county treasurer (1) attends courses required to be provided and approved by the State Auditor or State Treasurer and (2) complies fully with the continuing education requirements by April 30 of the year following a biennial cycle. in addition, a county treasurer who accumulates more than 24 hours of continuing education in a biennial cycle may carry forward these excess hours to the next biennial cycle. However, no more than six hours in specified continuing education topics determined by the Treasurer of State, and six hours in specified continuing education topics determined by the Auditor of State, may be carried forward. The act also clarifies that education requirements of county treasurers are separate from the education requirements applicable to treasurers, or those persons responsible for managing funds, of other political subdivisions. Enforcement of education requirements; investment advisory committee duties (R.C. 135.341, 321.46, and 321.47) Under prior law, a county treasurer who failed to comply with initial or continuing education requirements "without a valid health-related excuse or other special hardship" was limited to investing in (1) the Ohio Subdivisions Fund (STAR Ohio), (2) certain no-load money market mutual funds, or (3) certain certificates of deposit or deposit accounts. If a county treasurer who had not completed the initial or continuing education programs made investments other than in those above, the treasurer was subject to removal from office upon complaint and investigation by a county's prosecuting attorney and the adoption of a resolution of removal by the county's board of commissioners. The act eliminates a "valid health-related excuse or other special hardship" as excuses for failing to comply with the initial or continuing education requirements and eliminates the possibility of removal from office of a county treasurer failing to meet these requirements. Instead, in enforcing the initial education requirement, the act specifies that a county treasurer's authority to invest county funds and to manage the county's portfolio will be immediately suspended for non-compliance and transferred to a county's investment advisory committee until full compliance is determined by the Treasurer of State.LU Appx.108 Review Existing H.B. Analysis Page 6 of 13 In enforcing the continuing education requirements of county treasurers, the act generally provides procedures that must be followed, which ultimately may require suspending a treasurer's investing and portfolio management authority and transferring this authority to a county's investment advisory committee. Under the act, however, a county treasurer who does not comply with initial or continuing education requirements nonetheless may invest in investments described in (1) to (3) above butwill face the enforcement provisions if there is investment in any other obligations (i.e., immediate suspension of investing and portfolio management duties and transfer of these duties to a county's investment advisory committee for failure to comply with the initial education requirement; other enforcement procedures that ultimately may lead to the suspension and transfer of these duties to a county's investment advisory committee for failure to comply with continuing education requirements). Auditor of State and Treasurer of State nef orcement duties. Under the act, by January 15 of the year following the year of completion of a biennial cycle, the Auditor of State must contact the Treasurer of State about the number of continuing education hours completed under the Auditor's supervision by each county treasurer in the preceding biennial cycle (a cycle runs every two calendar years after a county treasurer's first year in office). And by January 31 of the year following the year of completion of a biennial cycle, the Treasurer of State must determine whether any county treasurer has failed to comply with any continuing education requirements. The Treasurer of State also has duties under the act as discussed below, if there are court enforcement proceedings relating to county treasurer continuing education requirements. In addition, by January 31 of the year following the year of completion of a biennial cycle, the Treasurer of State must notify by certified mail any county treasurer who has not complied with continuing education requirements during the preceding biennial cycle. The act specifies that this notice must contain notification that (1) the county treasurer is deficient in continuing education hours, (2) the county treasurer has one month to submit proof of an error in the Treasurer of State's records and that the county treasurer is in compliance with the continuing education requirements, (3) completion of continuing education requirements also may be obtained by attending courses approved by the Auditor of State or the Treasurer of State, but that continuing education requirements must be complied with fully and the Treasurer of State must have proof of full compliance by April 30 of the year following the year of completion of a biennial cycle, and (4) if the county treasurer fails to comply with the continuing education requirements by April 30 of the year following the year of completion of a biennial cycle, the Treasurer of State immediately will notify the prosecuting attorney in that county. Court enforcement proceedings. Upon receipt of notice from the Treasurer of State pursuant to (4) above, the prosecuting attorney for the county which the county treasurer represents must file a petition stating the facts and that the county treasurer has failed to meet the continuing education requirements. The petition must be filed with a common pleas court and seek an order suspending the county treasurer's investing and portfolio management authority. A copy of the petition anda copy of the act's provisions relating to enforcement of the continuing education requirements must be served, by certified mail or personally, by the prosecuting attorney upon the county treasurer before or simultaneously with this filing made in a common pleas court. Upon the filing of a petition with a court of common pleas, the court, on motion of the prosecuting attorney, must enter an order setting a hearing date not later than two weeks after the petition is filed. In addition, the court must require that a copy of this order be given to the county treasurer in the manner in which a summons must be served or substituted service must be made in other cases. The act requires that, at this hearing, the court must consider the petition and evidence and determine whether the county treasurer has met the continuing education requirements. If the court determines that the county treasurer has not met the continuing education requirements, the court must enter an order transferring the authority to invest county funds and to manage the county's portfolio to the county's Appx. 109 Review Existing H.B. Analysis Page 7 of 13 investment advisory committee, until there is full compliance. The act modifies the duties of county investment advisory committees in recognition of this possible transfer of authority and also requires the committees to retain an investment advisor if this transfer occurs. The cost of the hearing is to be assessed or apportioned as the court determines reasonable. Upon receiving proof of completion of the continuing education requirements for the preceding biennial cycle, the Treasurer of State must notify the prosecuting attorney of the full compliance, and the prosecuting attorney must submit this information to the common pleas court. Thereafter, the court must enter an order terminating the county investment advisory committee's authority to invest county funds and to manage the county's portfolio and restoring this authority to the county treasurer. The act specifies that court enforcement of the continuing education requirements are "special proceedings," the final orders of which may be reviewed, and affirmed, modified, or reversed pursuant to Ohio Appellate Procedure Rules and, to the extent not in conflict with those rules, pursuant to Ohio law on Procedures on Appeal. Treasurer ofState investment autho (R.C. 135.143, 152.17, and 175.09) Under the state's Uniform Depository Act (Chapter 135.), the Treasurer of State is authorized to invest or deposit the state's interim funds in certain obligations. Generally, the state's interim funds are the public moneys in the state treasury that are not needed for immediate use but that will be needed at such a time that they do not qualify as inactive deposits. The Treasurer is authorized to invest or deposit the state's interim funds only in those obligations specified in section 135.143 of the Revised Code. Eligible obligations include obligations or securities issued by the United States treasury or any federal government agency, bonds or other direct obligations of the state issued by the Treasurer or the Ohio Public Facilities Commission, as well as other classifications of obligations. The act establishes eligibility for another class of obligations in which the Treasurer may invest the state's interim funds. Specifically, the state's interim funds may be invested in bonds and other direct obligations of the state issued by the Ohio Building Authority as well as those issued by the Ohio Housing Financing Agency. Bond service charees (R.C. 154.01 and 154.08) Continuing law authorizes the Treasurer of State to issue state obligations to finance capital facilities for mental hygiene and retardation, state-supported and state-assisted institutions of higher education, and parks and recreation (R.C. Chapter 154.). These bond proceedings may, among other things, provide for credit enhancement facilities,M the cost of which is permitted to be included in the costs of issuance of the obligations and the pledge, holding, and disposition of the proceeds of the obligations. For purposes of this law, "bond service charges" on the obligations is defined as principal, including mandatory sinking fund requirements for retirement of obligations, and interest, and redemption premium, if any, required to be paid by the state on obligations. The act specifies that, if not prohibited by the applicable bond proceedings, bond service charges may include costs relating to credit enhancement facilities that are related to and represent, or are intended to provide a source of payment of or limitation on, other bond service charges. TAX MODIFICATIONS Tax collectors of delinquent property taxes (R.C. 5719.051 and 5721.021) Under continuing law largely retained by the act, a county's board of commissioners and its treasurer may employ and fix the salary of tax collectors of delinquent personal property taxes. The act modifies this authority to permit a county's board of commissioners and its treasurer to employ and fix the compensation of the tax collectors. Appx.llo Review Existing H.B. Analysis Page 8 of 13 Additionally, the act authorizes the employment of tax collectors of delinquent real property taxes in certain counties. Specifically, the board of county commissioners--serving a county with a population of at least 200,000--may, with the consent of the prosecuting attorney, authorize the county treasurer to employ tax collectors to collect delinquent property taxes on delinquent lands and fix the compensation of the collectors. The compensation is to be paid from the funds that share in the distribution of the taxes. Delinquent realprQperty tax certificates (R.C. Chapter 5721.) Traditional real property tax foreclosure actions seek to derive past due taxes from property either by selling it or by forcing the owner to pay the taxes under threat of losing ownership. In either case, the collection of the revenue may be delayed for months or years. An altemative collection procedure employs the sale of delinquent tax certificates to private parties; in effect, such a certificate represents the right to collect the state's tax "receivables." The proceeds from selling the certificates generally are distributed among taxing districts as if they were tax collections, and the purchaser of the certificate is entitled to the taxes once they are derived from the property owner or, ultimately, from a foreclosure sale. Certificates bear interest at a rate determined by public auction or negotiated (Le., private) sale. In the case of an auction, the lowest rate bid wins. Contact with properiy ownerkrohibited (R.C. 5721.43) The act prohibits any person holding a tax certificate from contacting the property owner within one year after the certificate is purchased to encourage or demand payment of the sum due on the property. The prohibition applies whether the certificate holder makes the contact directly or indirectly through an agent. If a certificate holder violates the prohibition, the county treasurer may bar the holder from bidding on tax certificates and the violator is subject to a civil penalty of up to $5,000 per offense (to be paid into the state General Revenue Fund). Upon the written request of the county treasurer, the Attorney General or county prosecuting attorney must commence this civil action. Also, an injunction action may be brought against a certificate holder who violates, or threatens to violate, the prohibition. Tax certificate redemptior^price (R.C. 5721.30, 5721.33, and 5721.41) The redemption price of a tax certificate is the amount of money that must be paid to nullify, in effect, the delinquent charge against the property and to extinguish the underlying tax lien. Generally, the redemption price of a certificate other than a zero interest rate certificate equals the sum of all the delinquent taxes and charges, interest that has accrued on the certificate since it was purchased (at the rate bid by the purchaser at auction), and fees charged by the county treasurer to defray the county's expense of preparing and selling certificates. If a certificate is redeemed within one year after it is sold, the certificate holder is entitled to a minimum "interest" or carrying charge equal to 6% of the certificate purchase price, in lieu of the interest accruing at the rate bid by the purchaser (unless the rate exceeds 6%). If it is sold after one year, the 6% minimum charge applies in the first year after the sale (unless the bid interest rate for the first year is greater), and the bid interest rate applies thereafter. The act guarantees a minimum carrying charge of 6% of the certificate purchase price regardless of when the certificate is redeemed, provided the certificate is not a zero interest rate certificate. If the interest that accrues until redemption exceeds 6% of the purchase price, then the redemption price includes the interest rather than the 6% charge. The act provides that even if the tax certificate is redeemed before the fust day that interest accrues, 6% of the certificate purchase price still is due upon redemption of a certificate. And the act expressly requires county treasurers selling certificates at private sale to sell the certificates bearing a rate of interest that is "in the best interests of the county." Notice to interested parties (R.C. 5721.31) Under continuing law largely retained by the act, before delinquent tax certificates may be sold, the Appx. 111 Review Existing H.B. Analysis Page 9 of 13 county treasurer must send written notices of the sale to either the property owner or other interested parties (e.g., mortgagors). If the sale is to be by public auction, the notice is to be sent to the listed owner or other interested parties who are discovered through a title search. Under prior law, if the sale was to be by private (negotiated) sale, the notice was to be sent to the listed owner or interested parties whose interest was recorded with the county recorder, or to both the owner and such interested parties. The notice of a private sale was to be sent at least 60 days before the sale. The act removes the notice requirement if previous notices sent to the owner were returned as undeliverable. Also, it specifies that the absence of a valid tax mailing address does not preclude the sale of tax certificates. In the case of private certificate sales, no notice must be sent to any interested party other than the owner, and notices must be sent at least 30 (not 60) days before the sale. Bidder requirements (R.C. 5721.32) The act permits county treasurers to require potential bidders to submit a letter from a fmancial institution stating that the bidder has sufficient funds to pay the purchase price of the property to be bid on, along with a written authorization from the bidder for the treasurer to verify the statement. Any person required to submit such a statement and authorization who fails to do so is barred from bidding. Privateforeclosure actions; effect ofbankruptcy filing (R.C. 5721.37 and 5721.40) Under continuing law, a tax certificate holder may recover the investment in the certificate by foreclosing on the property at any time between one year and three years after the certificate was purchased for a certificate sold at public auction or six years for a certificate sold through private sale. Formerly, if the certificate was purchased at public auction, the foreclosure had to be initiated through the county treasurer's office at the request of the certificate holder. (If the certificate is purchased through a private sale, the foreclosure is initiated by the certificate holder's private attorney.) Formerly however, regardless of how a certificate was sold, if the owner of the property filed for bankruptcy, the last day foreclosure could be requested by a certificate holder was the later of three years after the certificate was sold or 180 days after the bankruptcy case closed. The act permits holders of certificates purchased at public auction to pursue foreclosure either through the county treasurer's office or a private attorney. The act also specifies that when a property twice has been offered for sale pursuant to a private foreclosure action but has not sold, the property is forfeited to the certificate holder--as is the case under continuing law when a certificate holder twice pursues foreclosure through the county treasurer's office. With respect to a bankruptcy filing by the property owner, the act continues the requirement that the certificate holder of a certificate sold at public auction has until the later of.three years after the date the certificate was sold or 180 days after the bankruptcy case is closed to file a request for foreclosure. The act provides that the certificate holder of a certificate sold through a private sale has until the later of six years after the date the certificate was sold or 180 days after the bankruptcy case is closed to file a request for foreclosure. However, the act also provides that the three- and six-year periods measured from the date the certificate was sold are tolled while the property owner's petition in bankruptcy is being heard and remains open. Proceeds to a certificate holder requestingforeclosure (R.C. 5721.39) Continuing law specifies the components of a payment after a foreclosure sale that are made to a tax certificate holder that requested foreclosure on the property. Previously, the certificate holder was paid the sum of the following amounts: --The certificate redemption prices of all the tax certificates sold against the parcel; --Any premium paid by the certificate holder at the time of purchase; --Interest on the certificate purchase prices of those certificates at the rate of 18% per year beginning on the day on which the certificate holder submitted payment to initiate the foreclosure proceedings and Appx.112 Review Existing H.B. Analysis Page 10 of 13 ending on the day of the sale, except that interest could not accrue for more than three years after the day the certificate was purchased if the holder did not submit that payment before the end of that three-year period; --The amounts paid by the certificate holder to initiate the proceedings that represented any delinquent taxes or other charges against the property that were not covered by a tax certificate, and, for proceedings filed by the county prosecuting attorney, the fee to cover the prosecuting attomey's legal costs. The act revises these components, so that the tax certificate holder that requested the foreclosure is paid the sum of the following amounts: --The certificate redemption prices of all the certificates sold against the parcel to the certificate holder requesting the foreclosure; --Any premium paid by the certificate holder at the time of purchase; --Interest at the rate of 18% per year on the amount paid by the certificate holder to initiate the proceedings that represents the certificate redemption prices of all outstanding tax certificates on the parcel other than those owned by the holder, beginning on the day the amount was paid and ending on the day before the day the proceeds of the foreclosure sale are paid to the certificate holder; --Interest at the rate of 18% per year on the amounts paid by the certificate holder to initiate the proceedings that represent any delinquent taxes or other charges against the property that are not covered by a tax certificate, and, for proceedings filed by the county prosecuting attorney, the fee to cover the prosecuting attomey's legal costs, beginning on the day the amount was paid and ending on the day before the day the proceeds of the foreclosure sale are paid to the certificate holder, and except that interest cannot accrue for more than six years after the day the certificate was purchased if the holder did not submit that payment before the end of that six-year period; --The amounts paid by the certificate holder to initiate the proceedings that represent the certificate redemption prices of all outstanding tax certificates on the parcel other than those owned by that holder, any delinquent taxes or other charges against the property that are not covered by a tax certificate, and, for proceedings filed by the county prosecuting attolney, the fee to cover the prosecuting attorney's legal costs. Prosecutor's fees (R.C. 5721.38) Under continuing law, a property owner may redeem the property, and thereby prevent a tax certificate foreclosure action, by paying the delinquent taxes, penalties, and interest, plus the interest that has accrued on the certificate and any premium paid for the certificate by its purchaser (the "certificate redemption price"). If the certificate holder has requested that the county begin foreclosure actions but the property has not yet been sold, the owner also must pay a sum to cover the county prosecuting attorney's expenses (these expenses are prepaid by the certificate holder as a condition for having the foreclosure action begin). The act provides for the possibility that an owner might redeem the property after the certificate holder requests foreclosure but before the prosecutor files the action with the court. In such a case, the prosecutor's fee is adjusted to reflect the services the prosecutor has provided until the time the property is redeemed. If the certificate holder pre-paid more than the adjusted fee, the overpayment is refunded to the certificate holder. Rules for private certificate sales (R.C. 5721.33) Previously, county treasurers were authorized, but not required, to adopt rules governing private certificate sales. The act requires them to adopt such rules and to provide copies of the rules upon request. Redeeming a certificate parcel (R.C. 5721.38) Appx. 113 Review Existing H.B. Analysis Page 11 of 13 Under continuing law, at any time before a tax certificate holder initiates foreclosure proceedings on a certificate parcel by submitting the required payments to the county treasurer, the owner of the parcel (or any other person entitled to redeem it) may redeem the parcel by paying to the treasurer the total of the certificate redemption prices of all certificates sold on the parcel. In addition, prior law required the owner to pay the sum of taxes and other charges against the parcel that have become due since the last certificate was sold. The act removes the requirement that the owner pay the sum of taxes and other charges against the parcel that have become due since the last certificate was sold to redeem the parcel. Other tax certifi.^ate changes The act makes several changes intended to clarify the law govetning delinquent tax certificates without substantively changing the law, including the following:

• Simplifying language describing the amount to be refunded when a certificate is voided because the taxes have been paid or are in the process of being paid, including specifying that the portion of the refund representing fees paid the county treasurer and interest are paid from the county tax certificate administration fund rather than the undivided tax fund. (R.C. 5721.34.) • Eliminating the specification that, in its order for the sale of a property for which a tax certificate holder has requested foreclosure, a court order the sale pursuant to existing law setting forth the requirements of a foreclosure sale by a private attorney upon a certificate holder's request to foreclose the holder's lien. (R.C. 5721.39.)

Omitted property tax contracts (R.C. 5713.20) Whenever real property has escaped taxation by being omitted from the tax lists, continuing law requires it to be added to the lists and requires up to five years' worth of unpaid taxes to be charged against the property. To pay the past due taxes, the property owner may agree to a "delinquent tax contract," whereby the past due taxes are paid in installments. The act changes the name of such an installment contract--to an "omitted tax contract"--to distinguish it from a contract to pay delinquent taxes on property that was included on the tax lists. Late penalties for tax installment contracts (R.C. 323.121, 323.31, and 4503.06(G)) Under continuing law largely retained by the act, real property taxes are charged annually and are due in arrears--one-half of the tax bill is due on the last day of the year, and the second half is due June 20 of the following year (delays in the preparation of tax bills routinely extend the first-half due date into January). If taxes are not paid when due, a 10% penalty attaches (50% of the penalty is waived if the taxes are paid within a ten-day grace period). Taxes on manufactured homes that are not taxed as real property also are payable in two semiannual installments, by March 1 and by July 31, but the taxes are paid currently rather than in arrears. A similar penalty applies to past due manufactured home taxes that applies to real property taxes. The act suspends imposition of the penalty for past due real property and manufactured home taxes after the second half collection period begins, if the first half taxes are being paid under a delinquent or omitted installment tax contract. The suspension ends if the contract becomes void. The act also defines "unpaid current taxes" that may be paid under a delinquent tax contract: they are taxes (and any penalty) due, but not paid, on the first-half due date (as distinguished from "delinquent" taxes, which are taxes remaining unpaid on the second-half due date). Tax foreclosures on manufactured homes (R.C. 4503.06(H)) Appx.114 Review Existing H.B. Analysis Page 12 of 13

Manufactured homes may be taxed as real property or as separate articles of personal property, depending on whether they are permanently fixed to the land and certain other factors. In either case, if taxes are not paid for an extended period, collection procedures ultimately may force foreclosure of the tax lien by sale of the property and the forfeiture of the owner's interest in the home. The act specifies the point imtime at which the final result of a foreclosure action occurs in the case of manufactured homes that are not taxed as real property. Once the home is sold at foreclosure, title to the home vests in the purchaser when the confirmation of sale is filed or when the order of forfeiture is filed. The act also specifies that the clerk of courts (who maintains ownership records of manufactured homes) must issue a certificate of title to the purchaser if the purchaser provides proof of the confirmation or order (or, if the title was forfeited by the previous owner, by providing the certificate of sale issued by the county auditor). Other manufactured home-related tax provisions Reimbursement for property tax reductions on manufactured homes (R.C. 321.24 and 319.302) Under continuing law, all real property, including manufactured homes that are treated as real property for the purposes of property taxation, is entitled to a reduction of 10% of the tax bill. To compensate school districts and other taxing districts for the resulting reduction in property tax revenue, the state pays General Revenue Fund money to each district. The act corrects recent legislation (S.B. 142 and H.B. 672 of the 123rd General Assembly) that did not adequately provide for these payments in the case of manufactured homes treated like real property for tax purposes. Clerical errors in tax lists (R.C. 4503.06(M)) Continuing law provides for the correction of "clerical" errors in property tax records that result in erroneous tax charges. (Generally, a clerical error is an error that does not result from an exercise of discretion--for example, a mathematical error or incorrect listing.) The act conforms provisions governing the correction of clerical errors in manufactured home tax records with continuing law goveming the correction of errors in property tax records. Specifically, the correction of such errors must be initiated by the county auditor (who possesses the definitive tax lists), and the board of revision must determine whether an erroneous charge has truly resulted. If so, the board must order the correction and any adjustment in the amount due, including any refund, in the same manner as for errors regarding real property taxes. State reimbursement for $10 000 business^ropertv exemption (Section 3) Continuing law exempts the first $10,000 of a business's tangible personal property from property taxation (R.C. 5709.01(C)(3), not in the act). Prior to the enactment of Am. Sub. H.B. 95 of the 125th General Assembly, the state reimbursed local taxing districts for the resulting revenue reductions. However, Am. Sub. H.B. 95 phased out the reimbursement for the exemption over ten years. Under the phase-out, county treasurers receive a payment each year that is a reduced percentage of the county's fiscal year 2003 reimbursement. The payment is then apportioned among the county's taxing districts as if levied and collected as personal property taxes. The act provides that if a county treasurer is able to document that the reimbursement amount certified and paid to the county in FY 2003 was incorrect, the treasurer may file an amended certification not later than June 30, 2004. Upon receipt of the amended certification, the Tax Commissioner may amend the certified amount accordingly for the purpose of making payments under the ten-year phase-out schedule. Use tax clarifzcation (Section 4) The act provides that the enactment of R.C. 5741.05, which pertains to the state and local use tax and Appx. 115 Review Existing H.B. Analysis Page 13 of 13 determining for which jurisdiction the tax is to be collected, by Am. Sub. S.B. 143 of the 124th General Assembly takes effect January 1, 2005. The act states that the General Assembly intends by enacting this section to clarify that the operation of R.C. 5741.05 was to be coordinated with the revised effective dates to amended sales tax provision R.C. 5739.033 that were made by Sub. S.B. 47 and Sub. H.B. 127 of the 125th General Assembly. HISTORY

ACTION DATE JOURNAL ENTRY Introduced 04-29-03 p. 444 Reported, H. Banking, Pensions, & Securities 09-23-03 p. 1084 Passed House (92-0) 10-08-03 pp. 1103-1104 Reported, S. Finance & Financial Institutions 01-29-04 pp. 1458-1459 Passed Senate (33-0) 02-04-04 pp. 1505-1507 House concurred in Senate amendments (86-5) 02-04-04 pp- 1630-1632

04-hb168-125.doc/kl

The Legislative Service Commission had not received formal notification of the effective date at the time this analysis was prepared. Additionally, the analysis may not reflect action taken by the Governor. IU The county investment advisory committee consists of two county commissioners designated by the board of county commissioners, and the county treasurer. Alternatively, the board of county commissioners can provide that the county investment advisory committee consists of all three county commissioners, the county treasurer, and the clerk of the court of common pleas. LU "Credit enhancement facilities" means letters of credit, lines of credit, stand-by, contingent, or firm securities purchase agreements, insurance, or surety arrangements, guarantees, and other arrangements that provide for direct or contingent payment of debt charges, for security or additional security in the event of nonpayment or default in respect of securities, or for making payment of debt charges to and at the option and on demand of securities holders or at the option of the issuer or upon certain conditions occurring under put or similar arrangements, or for otherwise supporting the credit or liquidity of the securities, and includes credit, reimbursement, marketing, remarketing, indexing, carrying, interest rate hedge, and subrogation agreements, and other agreements and arrangements for payment and reimbursement of the person providing the credit enhancement facility and the securityfor that payment and reimbursement (R. C 133.01, not in the act).

Appx. 116 Final Analysis JenniferA. Parker, Legislative Service Commission Ralph D. Clark, and other LSC staff

Am. Sub. H.B. 66' 126th General Assembly (As Passed by the General Assembly)

Reps. Calvert, Flowers, Martin, McGregor, Peterson, Schlichter, Webster, Aslanides, Blasdel, Coley, Collier, Combs, DeWine, Dolan, C. Evans, D. Evans, Hagan, Kearns, Kilbane, Law, T. Patton, Seaver, Setzer, Wagoner, White, Widowfield, Rusted

Sens. Amstutz, Goodman, Clancy, Carey, Jacobson, Harris

Effective date: June 30, 2005; certain provisions effective September 29, 2005; certain provisions effective on other dates; certain items vetoed This final analysis is an-anged by state agency, beginning with the Adjutant General and continuing in alphabetical order. Items that do not directly involve an agency are Iocated under the agency that has regulatory authority over the item or that otherwise deals with the subject matter of the item. The analysis includes a Local Government category and a Retirement Systems category. It concludes with a Miscellaneous category.

Within each category, a summary of the items appears first (in the form of dot points), followed by a discussion of their content and operation.

TABLE OF CONTENTS

ADJUTANT GENERAL Reimbursement of federal life insurance premiums for active duty members of the Ohio National Guard ...... 29 Death benefit for active duty members of the Ohio National Guard ...... 29 Ohio Military Reserve ...... 30 Background ...... 3 0 New annual report ...... 30 New study connnission ...... 30

" This final analysis does not address appropriations, fund transfers, and similar provisions See the Legislative Service Commission's Budget in Detail spreadsheet and Final Fiscal Analysis for H.B. 66 for an analysis ofsuch provisions.

Appx. 117 Tax credits converted to grants administered by the Department of Development ...... 569 Telephone company tax credit for providing telephone service programs to aid the communicatively impaired ...... 570 III. Personal Income Tax ...... :...... 570 Tax rates reduced uniformly by 21% ...... 570 Inflation adjustments delayed ...... 572 Deduction for qualified tuition and fees eliminated ...... 572 Credit for low-income taxpayers created ...... 573 Injured military personnel income tax refund contribution system ...... 573 Overview ...... 573 Reporting requirement ...... 574 Rulemaking required ...... 574 Administrative costs ...... 574 Taxation of trust income made permanent ...... 574 Trust residency rules ...... 575 "Qualifying investment pass-through entity...... 576 Trust election to be subject to the commercial activity tax ...... 577 Credit for a resident's out-of-state income tax liability disallowed if the out-of-state income tax liability is deducted in computing the resident's tax base ...... 578 Meaning of "indirect" ownership ...... 578 Treatment of income from nonresident's sale of a pass-through entity ...... 579 IV. Property Taxes and Transfer Fees ...... 580 Elimination of the 10% rollback in real property taxes for real property used in business ...... 580 Phase-out of tax on business and telecommunications personal property ...... 581 Exemption of new business machinery and equipment ...... 581 Phase-out of tax on all other business tangible personal property ...... 582 Phase-out of tax on teleconnnunications property ...... 5 82 Reimbursement of local taxing units ...... 583 Reimbursement for county administrative fee losses ...... 585 Clarification of definition of "manufacturing equipment...... 585 Joint Legislative Tax Reform Impact Study Committee ...... 586 Reduction in assessment rate on public utility property ...... 587 Tax treatment of nonutility electricity providers ...... 587 Railroad property assessment ...... 588 Property leased to public utilities ...... 588 Taxation of oil and gas recovery equipment ...... 589 School district property tax to offset funding formula charge-off increases ...... 590 Accelerate phase-out of state reimbursement for $10,000 business property exemption ...... 5 90 Equalization of real property assessments ...... :591

M Legislative Service Commission -23- Am. Sub. H.B. 66

Appx. 118 School district property tax replacement payments when district mergers occur ...... 591 Computation used to determine amounts deposited each year in the Property Tax Administration Fund changed ...... 593 State payment of estimated taxes for acquired property ...... 595 Interest rate reduced on personal property tax late payments and overpayments ...... 5 95 Incentive districts ...... 596 Overview ...... 596 Conditions for creating incentive districts ...... 596 Notice requirements and reimbursement of municipalities, counties, or townships in which incentive districts are located ...... 597 Grandfathering incentive districts ...... 598 Treatment of special tax levies levied on property exempted in incentive districts ...... :...... 598 Tax increment fmancing changes ...... 599 Real property tax exemption for certain buildings and lands used by a state university ...... 600 Performing arts center tax exemption ...... 601 V. Sales and Use Taxes ...... 602 Rate change ...... 602 Temporarily maintain the 0.9% discount for vendors and sellers ...... 603 Overview of the Streamlined Sales and Use Tax Agreement and changes made to conform to it ...... 603 Sourcing multiple points of use sales; sales of direct mail ...... 603 Administering exempt sales under the Agreement ...... 604 Change to the statute of limitations for assessing sales or use taxes ...... 605 Medical equipment definitions and exemptions ...... 605 Revisions to the definition of "price"; tax treatment of "bundled transactions...... 606 Telecommunications defmitions and sourcing requirements ...... 606 Timing of the adoption of resolutions for county permissive sales tax levies ...... 606 County license fee reimbursement ...... 607 Transmission to the Treasurer of State of sales and use taxes collected by court clerks upon issuing certificates of title ...... 608 Sales of investment metal bullion and coins subject to sales and use taxes ...... 608 VI. Kilowatt-hour and Natural Gas Consumption Taxes ...... 609 The kilowatt-hour (kWh) tax ...... 609 Elimination of the trigger for reducing revenues credited to GRF ...... 609 The natural gas consumption tax ...... 610 Elimination of the threshold for transferring GRF moneys to other funds ...... 610

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Appx. 119 VII. Cigarette Taxes ...... 610 Sale, distribution, and taxation of cigarettes...... 610 Cigarette tax ...... 610 "Floor tax" on cigarette inventories ...... 610 Unstamped cigarettes prohibitions: quantity basis rather than value basis...... 611 Persons subject to Ohio laws governing sale, distribution, and taxation of cigarettes ...... 612 Tax stamps ...... 612 Records pertaining to cigarette sales and purchases ...... 613 Manufacturer and importer reports ...... 613 Seizure and forfeiture of cigarettes ...... 614 Tax Commissioner's and peace officers' inspection powers ...... 614 Licenses to traffic in cigarettes ...... 614 Authorized sales ...... 615 "Authorized recipients of tobacco products...... 616 Consent for consumer shipment ...... 617 Use tax exemption for cigarettes ...... 618 Cigarette excise use tax exemption for cigarettes ...... 618 Transportation of untaxed cigarettes ...... 618 VIII. Other Taxation Provisions ...... 618 Local Government Funds ...... 618 Permanent law ...... 619 Act's treatment of LGF, LGRAF, and LLGSF...... 621 LGF and LGRAF ...... 621 LLGSF ...... 623 Job retention tax credit ...... 624 Authority to enter into agreements for job retention tax credits extended...... 624 Job retention tax credit: capital investment projects...... 624 Job creation tax credit ...... 624 Overview of the job creation tax credit ...... 624 Extension of the job creation tax credit to insurance companies ...... 625 Estate taxes ...... ^...... 625 Overview of the additional estate tax, generation-skipping tax, and the family-owned business deduction ...... 625 Federal changes that have affected the state estate tax law ...... 626 Constructive elimination of the additional estate tax and generation- skipping tax; repeal of the deduction for family-owned businesses ...... 626 Temporary tax credit ...... 627 Estate tax penalty for late payments and filings; change to rate applied to overpayments and underpayments of the estate tax ...... 627 Interest ...... 628 Penalties ...... 628 Waiving penalties ...... 628

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Appx.120 Additional amendments made to incorporate federal tax law changes ...... 629 Technical correction ...... 629 Real estate assessment funds ...... 630 Phase-out of the grain handling tax ...... 630 Tax credits under the Ohio Venture Capital Program ...... 631 Credit extended to dealers in intangibles and public utilities ...... 631 Credit amounts ...... 631 Claiming of credit by equity investors...... 632 Motor fuel taxes ...... 63 3 The motor fuel use tax ...... 633 Motor fuel excise tax: prompt payment discount and shrinkage allowance .... 634 Motor fuel tax refund application ...... 634 Pass-through entity tax law: technical and conforming changes ...... 635 Tax Commissioner authorized to require identifying information from persons filing tax documents with the Department of Taxation ...... 636 Overview ...... 636 Confidentiality of social security numbers ...... 636 Commissioner may impose penalties for failure to provide or update identifying information ...... 636 Criniinal penalties ...... 637 School district income tax on earnings ...... 637 Background ...... 637 Alternative school district income tax base ...... 63 8 Reauthorization of municipal income tax sharing with school districts ...... 63 8 Convention facilities authority lodging tax ...... 639 Convention center tax authorizations ...... 640 Food and beverage tax for convention centers ...... 640 Lodging taxes for convention centers ...... 641 Temporary tax amnesty program ...... 643 Program description ...... 643 Distribution of taxes collected under the program ...... 644 State reimbursement for $10,000 business property exemption ...... 644 Dealers in intangibles tax: penalty review procedures established ...... 644 Definition of "dealer in intangibles...... 645 Tax Commissioner reports on tourism-related tax revenue ...... 646

DEPARTMENT OF TRANSPORTATION Transportation improvement district projects ...... 648 Transportation improvement district bond refunding through the State Infrastructure Bank ...... 648 General aviation license tax ...... 649 Maintenance of state park roads ...... 649

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Appx. 121 • Authorizes counties having a population of 1.2 million or more to levy a food and beverage tax and a hotel lodging (or bed) tax to pay costs relative to a convention center.

• Requires that the Tax Commissioner administer a temporary tax amnesty program from January 1, 2006, to February 15, 2006, under which taxpayers who voluntarily pay outstanding state taxes, tangible personal property taxes, county and transit authority sales taxes, and school district income taxes are not required to pay penalties associated with those outstanding taxes, are excused from having to pay one-half of the interest accruing on the taxes, and are immune from criminal and civil action in connection with the taxes.

• Provides procedures whereby dealers in intangibles may petition for, and receive, review of penalties imposed upon them in connection with their reporting and payment of the dealers in intangibles tax.

• Narrows the definition of who is considered a "dealer in intangibles" for purpose of the tax imposed on dealers in intangibles and requires the Tax Conunissioner to adopt a rule clarifying the definition of "dealer in intangibles" for purposes of the dealer in intangibles tax.

• Requires the Tax Commissioner to prepare semiannual reports summarizing tax revenue associated with the travel and tourism industry.

I. Commercial Activity Tax

New business nrivifeee tax

(R.C. 5751.02; Section 557.09)

The act imposes a new tax on businesses and other entities that generate business income, beginning July 1, 2005. The tax, referred to as the "commercial activity tax," is an annual excise tax like the existing corporation franchise tax, but is imposed on the basis of gross receipts instead of net worth or net income. The tax is imposed for the privilege of doing business in Ohio. "Doing business" is defmed as engaging in an activity (including illegal activity) conducted for or resulting in gain, profit, or income. The tax is not a transactional tax (such as a sales tax) and is not subject to the federal law limiting the power of states to tax nonresident entities engaged in interstate commerce. That federal law (Public Law No. 86-272) prohibits states from imposing net income (or net income-measured)

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Appx. 122 taxes on nonresident entities whose only activities in a state are soliciting orders for sales of tangible personal property that are accepted outside the state and shipped from a point outside the state.

The tax is expressly made part of the "price" for purposes of the sales and use taxes, with the effect being that, if a taxpayer under the new tax makes sales subject to the sales and use tax, the price on which the sales or use tax is based is computed without any deduction for the commercial activity tax paid by the taxpayer-seller even if the tax is billed or invoiced or separately stated.

Only the person receiving gross receipts is subject to the conunercial activity tax and the tax may not be billed or invoiced to another person. However, the act explicitly permits a person subject to the tax to recover the tax by including it in the price of a good or service. The Governor vetoed a clause that would have permitted a person to recover the tax by combining or separately stating it as an overhead charge or other charge as part of any existing, amended, or future legal contract.

The first tax return and tax payment are due February 10, 2006, based on gross receipts for the six-month period running from July 1 through December 31, 2005.

Persons subject to tax

(R.C. 5751.01(A), (D), and (E))

The tax applies to any legal person with nnre than $150,000 in annual taxable gross receipts in Ohio regardless of the person's legal or organizational form (e.g., corporation, partnership, limited liability company, S corporation, sole proprietor, business trust, estate, etc.), but does not apply to "excluded persons" or to the state, its agencies, its instrumentalities, and its political subdivisions. Nonprofit organizations are not subject to the tax.

Persons not subiect to the tax

(R.C. 5751.01(E))

To be an "excluded person," and therefore exempted altogether from the commercial activity tax, a legal person must either have annual taxable gross receipts under $150,000, or be a member of one of the following classes of legal persons:

• Banks and other financial institutions.

• Bank holding companies.

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Appx. 123 • Financial holding companies.

• Savings and loan holding companies.

• An affiliate of any of the foregoing if the affiliate is majority-owned or controlled by any of the foregoing (directly, or indirectly through other persons), provided the affiliate is engaged in a business considered by the Federal keserve Board to be frnancial in nature or incidental thereto Z°Z

• Insurance companies subject to and paying the insurance company tax.

• Affiliates of such insurance companies if the affiliate is majority- owned or controlled by the insurance company (directly, or indirectly through other persons), so long as the insurance company is authorized to do business in Ohio.

• Any person having the sole purpose of facilitating or servicing a securitization243 or similar transaction for or by any of the foregoing (including the affiliates).

• Public utilities subject to and paying the public utility excise tax (but see below for combined companies).

• Dealers in intangibles subject to and paying the dealers in intangibles tax.

241 This inc[udes lending, exchanging, transferring, investing for others, or safeguarding money or securities; insurance; providing financial, investment, or economic advisory services; issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; underwriting, dealing in, or making a market in securities; and holding an interest in a nonfinancial company through a securities affiliate or insurance company as part of an underwriting, merchant banking, or investment banking activity for the purpose of gaining from appreciation in the nonfinancial company's value, and whereby the financial holding company does not routinely manage or operate the nonfinancial company other than to obtain a return on the investment. However, if a nonfinancial company is held as part of a merchant banking activity, the nonfmancial company is not an excluded person.

243 "Securitization" is defined as the transfer of assets to another person that issues securities backed by the right to receive pcryment from the asset-e.g., selling loans to a person that packages loans into securities offered in a secondary market.

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Appx. 124 In the first six months the tax is in effect, the $150,000 exclusion applies to a person's taxable gross receipts during all of 2005.

Except for public utilities, dealers in intangibles, insurance companies, and persons with $150,000 or less in taxable gross receipts, all excluded persons that are C corporations remain subject to the corporation franchise tax levied under R.C. Chapter 5733. on the basis of net income or net worth.

Receipts of combined companies (i.e., companies that are both electric companies and either natural gas or heating companies) are excluded from the commercial activity tax with regard to the company's taxable gross receipts that are directly attributed to an activity that is subject to the public utility excise tax (i.e., nonelectric activities).

Computation oftax

(R.C. 5751.01, 5751.03, 5751.031, 5751.032, 5751.033, and 5751.034; Sections 557.09 and 557.13)

Initial rate. The tax is levied in two parts: on the first $1 million in annual taxable gross receipts, the tax is $150; on taxable gross receipts in excess of $1 million per year, the tax is 0.26% (2.6 mills per dollar) of those taxable gross receipts, at least for the first two and one-half years the tax is imposed. After the first two and one-half years, the 0.26% rate will be reduced if the tax generates revenue in excess of current projections (described below).

Revenue limitation and future rate adiustments

(R.C. 5751.03(D), 5751.031, and 5751.032; Section 557.09)

The act imposes a rate adjustment mechanism on the commercial activity tax that is activated if revenue exceeds or falls short of specified revenue thresholds by more than 10% of the threshold. The tax rate is adjusted upward if there is a revenue shortfall or is adjusted downward if there is excess revenue. If revenue exceeds the specified threshold by more than 10%, the excess above 10% is credited to the Budget Stabilization Fund (BSF) and to a fund that is used to return revenue to commercial activity tax taxpayers through a tax credit.

Specifically, if revenue from the tax exceeds specified thresholds (shown below) for any of three "test" periods by more than 10% of the threshold, the rate is adjusted downward. The adjusted rate equals the rate that would have produced the specified threshold over the test period, minus one-half of the amount by which actual revenue exceeded 110% of the specified threshold. (The subtraction is made because one-half of the excess is returned to taxpayers through a credit mechanism explained below.) One-half of the revenue in excess of 110% of the

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Appx. 125 threshold is credited to the BSF and one-half is credited to a new "CAT Refund Fund." Money credited to the CAT Refund Fund is returned, through a tax credit, to commercial activity tax taxpayers that fully paid their taxes for the year in which the test period ends. Each taxpayer is entitled to the taxpayer's pro rata share of the excess revenue credited to the CAT Refund Fund based on the taxpayer's tax liability in comparison to the total liability of all taxpayers entitled to the credit.

If revenue falls short of the thresholds for any of the three test periods, the rate is adjusted upward to the rate that would have produced the specified threshold over the test period.

Rate adjustments are to be rounded to the nearest 1/100 of one mill (i.e., 1/1000 of 1%). The rate must be computed by the Tax Commissioner and certified to the Govemor and every member of the General Assembly. The adjusted rate is permanent, unless a new adjustment is made for the second or third test period.

The test periods and corresponding revenue thresholds are as follows:

The act states the General Assembly's intent to conduct regular reviews of the act's revenue limitations to lower them or to reduce the tax rate or both. A review would be conducted every two years in conjunction with biennial budget deliberations, and any lowering of the revenue limit or tax rate (below those already provided in the act) would be made on the basis of the tax's yield, the condition of the state economy, and any savings from Medicaid reform or other policy initiatives.

Phase-in of tax. In recognition of the new tax being imposed at the same time as the act phases out the corporation franchise tax (as explained elsewhere in this analysis), the act phases in the tax for all taxpayers other than those having annual taxable gross receipts of less than $1 million (and thus owing only $150).

The tax becomes effective July 1, 2005. In the first six months of the tax, the tax equals $75 on the first $500,000 in taxable gross receipts during that period, plus 0.06% on taxable gross receipts in excess of $500,000 during that period. (This rate results from multiplying the permanent 0.26% rate by 23%,

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Appx. 126 which is the initial phase-in percentage--see immediately below, and then rounding to the nearest hundredth per cent.) The return for that semiannual period must be filed not later than February 10, 2006.

In the first quarter of 2006, only 23% of the tax as normally computed is payable; for the four quarters running from April 2006 to Apri12007, 40% of the normal tax is due; for the four quarters running from April 2007 to April 2008, 60% of the normal tax is due; for the four quarters running from April 2008 to April 2009, 80% of the normal tax is due; and from April 2009 on, the tax is payable on the basis of the permanent computation of 0.26% (or the adjusted rate, as explained above).

"Taxable eross receipts"

(R.C. 5751.01(F) and (G), 5751.011(C)(2), and 5751.033; Sections 557.09.03, 557.09.06, and 557.09.09)

The tax applies to taxable gross receipts, which is the portion of a taxpayer's total gross receipts sitused to Ohio under the act's situsing provisions. Total gross receipts is defmed broadly to include the total amount realized by a person, without deduction for the cost of goods sold or other expenses, that contributes to the production of that person's gross income. It includes the fair market value of any property and any services received and any debt transferred or forgiven as consideration.244 The act specifies certain examples of gross receipts, including:

• Amounts realized from the sale, exchange, or other disposition of property.

• Amounts realized from perfomiing services.

• Amounts realized from rentals, leases, or other use or possession of the taxpayer's property or capital.

Gross receipts are to be calculated using the same accounting method a taxpayer uses for federal income tax purposes. If a cash discount is allowed and is actually taken in a transaction, the discount is deductible from gross receipts. Likewise, the value of retums and similar allowances is deductible. If a taxpayer

244 The value of property that is brought into Ohio for a taxpayer's own use within one year after it is received outside Ohio by the taxpayer is deemed to be taxable gross receipts unless the Tax Commissioner ascertains that the receiving-outside-and-bringing- into was not intended in whole or in part to avoid the commercial activity tax in whole or in part. (R. C. 5751. 013)

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Appx. 127 is owed an uncollectible payment from a transaction that was previously included in taxable gross receipts the taxpayer previously paid tax on, the uncollectible amount is deductible as a bad debt 245 And if an account receivable is sold, the amount realized from the sale is deductible to the extent receipts from the underlying transaction giving rise to the account receivable were included in the taxpayer's gross receipts.

Excluded amounts. The act specifically excludes the following amounts from the calculation of gross receipts:

• Interest income, except interest on credit sales.

• Dividends and distributions from corporations, and distributive or proportionate shares of receipts or income from a pass-through entity.

• Receipts from the sale, exchange, or other disposition of assets for which capital gain treatment is given under the Internal Revenue Code, without regard to the holding period.

• Proceeds attributable to the repayment, maturity, or redemption of the principal of a loan, bond, mutual fund, certificate of deposit, or marketable instrument.

• The principal amount received under a repurchase agreement or on account of any transaction properly characterized as a loan to the taxpayer.

• Contributions received by a trust, plan, or other arrangement, any of which is described in section 501(a) of the Internal Revenue Code, or to any of the various pension and deferred compensation plans given favorable federal tax treatment.

• Compensation, whether current or deferred, and whether in cash or in kind, received or to be received by an employee, former employee, or the employee's legal successor for services rendered to

245 A"bad debt" is a debt that has become worthless or uncollectible between the preceding and current quarterly tax payment periods, has been uncoZlected for at least six months, and may be deducted under the Internal Revenue Code, or that could be claimed as a bad debt tf the taxpayer kept accounts on the accrual basfs. "Bad debt" does not include uncollectible amounts on property that remains in the taxpayer's possession until dze full purchase price is paid, expenses in attempting to collect an account receivable or for any portion of the debt recovered, and repossessed property.

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Appx. 128 or for an employer, including fringe benefits and expense reimbursements.

• Proceeds from the issuance of the taxpayer's own stock, options, warrants, puts, or calls, or from the sale of the taxpayer's treasury stock.

• Proceeds on the account of payments from life insurance policies.

• Gifts or charitable contributions, membership dues, and payments received for educational courses, meetings, meals, or similar payments to a trade, professional, or other similar association; fundraising receipts if excess receipts are donated or used exclusively for charitable purposes; and proceeds received by a nonprofit organization, including those proceeds realized with regard to its unrelated business taxable income.

• Damages received as the result of litigation in excess of amounts that, if received without litigation, would be gross receipts.

• Property, money, and other amounts received or acquired by an "agent" on behalf of another in excess of the agent's commission, fee, or other remuneration.2"6

• Tax refunds and other tax benefit recoveries.

• Pension reversions.

• Contributions to capital.

• Sales and use taxes collected by a vendor (including out of state vendors).

• Federal and state excise taxes on cigarettes and other tobacco products paid by any person who is a member of the various classes

246 The act defines an "agent" as a person authorized by another person to act on its behalf to undertake a transactionfor the other, including a person who receives a fee to sell fmancial instruments; a person retaining only a commission from a transaction with the other, proceeds from the transaction being remitted to another person; or a person who acts as an agent ofthe Division of Liquor Control, who issues hunting, fishing, and other Department ofNatural Resources-issued licenses andpermits, or who is a licensed lottery sales agent. (RC. 5751.01(P))

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Appx. 129 of dealers, distributors, manufacturers, and sellers of cigarettes or tobacco products.

• Federal and state excise taxes on liquor and other alcoholic beverages paid by any person who is a member of the various classes of permit holders.

• Federal and state excise taxes on gasoline, diesel, or other motor vehicle fuel by a person who is a member of the various classes of motor fuel dealers.

• Receipts realized by a new or used motor vehicle dealer from sales or other transfers to another motor vehicle dealer for the purpose of resale by the purchasing dealer, but only if the sales or other transfers are based on the transferee's need to meet a specific customer's preference for a motor vehicle.

• Receipts received relating to the sale or transmission of electricity through the use of an intermediary regional transmission organization approved by the Federal Energy Regulatory Commission, even if those receipts are from and to the same member of a group that has elected to be a consolidated elected taxpayer (see "Taxable eross receipts," above).

• Receipts in connection with loan or credit account management services provided to a financial institution, if the fmancial institution and the recipient of the receipts are at least 50% owned or controlled, directly or constructively through related interests, by common owners.

• Receipts realized from administering anti-neoplastic drugs and other cancer chemotherapy, biologicals, therapeutic agents, and supportive drugs in a physician's office to patients with cancer.

• From conunissions of horse racing permit holders, any amounts that must be paid to or collected by the Tax Commissioner as a tax under the horse racing law and amounts specified under that law that are required to be used as purse money.

• Property, money, and other amounts received by a professional employer organization from a client employer, in excess of the administrative fee charged by the professional employer organization to the client employer.

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Appx. 130 • Amounts received from the sale of tangible personal property that is delivered into or shipped from a "qualified foreign trade zone area" that includes a "qualified intermodal facility." A "qualified foreign trade zone area" is a warehouse or other place of delivery or shipment that is located within one mile of the nearest boundary of an international airport and that also is located, in whole or in part, within a foreign trade zone. A"qualified intermodal facility" is a transshipment station capable of receiving and shipping freight through rail transportation, highway transportation, and air transportation. A transshipment station is deemed "capable of receiving and shipping freight" after construction of each of the rail, highway, and air transportation components of the facility commences 247

• Funds other than fees or other consideration received or used by a mortgage broker that is not a dealer In intangibles under a first lien "table-funded" or "warehouse-lending" mortgage loan. (Table- funded mortgage loans are those in which a mortgage broker is initially the payee under the loan, but the loan is assigned to a lender upon closing of the loan. Warehouse-lending mortgage loans are those in which the mortgage broker, using funds alvanced by a lender, funds a mortgage loan under which the broker is initially the payee, but the broker transfers the loan to tTae lender or a secondary market investor before the first scheduled loan payment.)

Also excluded from the calculation of gross ieceipts are any receipts the taxation of which is prohibited by the Ohio Constitution, the United States Constitution, or federal law.

A real estate broker's fees are included in taxable gross receipts only to the extent a taxpayer is acting as a real estate broker and the fees are retained by the broker and not paid to another broker or an associated salesperson.

Receipts from the following sales of motor fuel are exempted until July 1, 2007: (1) sales by a refmery to a terminal if the fuel is intended b) be used as nzotor fuel, (2) sales from a terminal to a motor fuel dealer, unless the fuel is not subject to the motor fuel excise tax, and (3) sales of fuel on which the motor fuel excise tax has been imposed (unless the tax is imposed for the illegal use of the fuel as motor fuel). The Tax Commissioner is authorized to adopt rules to administer the motor fuel exemption, including a method to determine which fuel is intended to be used as a motor fuel. Until March 1, 2007, the Tax

247 This exclusion is contained in an uncodifred provision of the act (Section 557.09.09).

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Appx. 131 Commissioner must accept reconunendations and comments on the application of the commercial activity tax to motor fuel sale receipts, including from motor fuel dealers. By that date, the Commissioner must prepare a report summarizing the comments and recommendations and presenting any recommendations the commissioner wants to make, and submit the report to the Senate President, the House Speaker, and both minority caucus party leaders.

Situsinr receipts to Ohio. Only gross receipts sitused to Ohio are taxable. The act prescribes specific situsing rules for various kinds of gross receipts. The following kinds of receipts are to be sitused to Ohio as follows:

• Gross rents and royalties from real property located in Ohio.

• Gross rents and royalties from tangible personal property to the extent it is located or used in Ohio.

• Gross receipts from the sale of real property located in Ohio.

• Gross receipts from the sale of tangible personal property if the property is received in Ohio by the purchaser. If the tangible personal property is delivered by common carrier or by other means of transportation, the place where the property is ultimately received after all transportation has been completed is considered the place where the purchaser receives the property, even when the purchaser accepts property in Ohio and then transports the property "directly or by other means" to a location outside Ohio. Direct delivery in Ohio, other than for purposes of transportation, to a person or firm designated by the purchaser is delivery in Ohio, and direct delivery outside Ohio to a person or firm designated by the purchaser is not delivery to the purchaser in Ohio, regardless of where title passes or other conditions of sale.

• Gross receipts from the sale, exchange, disposition, or other grant of the right to use trademarks, trade names, patents, copyrights, and similar intellectual property to the extent the receipts are based on the amount of use of the property in Ohio. If receipts are based on the right to use property and the payor has the right to use the property in Ohio, receipts are sitused to Ohio to the extent they are based on the right to use the property in Ohio.

• Gross receipts from the sale of transportation services by a common or contract carrier are sitused to Ohio in proportion to the mileage traveled by the carrier during the tax period on roadways, waterways, airways, and railways in Ohio to the mileage traveled by

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Appx. 132 the carrier during the tax period on roadways, waterways, airways, and railways everywhere. With the Tax Commissioner's prior written approval, a common or contract carrier may use an alternative situsing procedure for transportation services.

Gross receipts from dividends, interest, mortgage loan interest and fees, the sale of loans, credit card interest and fees, the sale of credit card receivables, credit card issuer's reimbursement fees, merchant discount receipts, mortgage loan servicing fees, and investment asset income (to the extent those receipts are taxable under the CAT) are sitused to Ohio to the extent they would be included in the numerator of a financial institution's apportionment fractions under the franchise tax if the CAT taxpayer were a financial institution subject to the franchise tax.

• Gross receipts from the sale of services not otherwise sitused, and all other gross receipts not otherwise sitused as provided above, are sitused to Ohio in the proportion to the purchaser's benefit in Ohio as compared to the purchaser's benefit everywhere. The physical location where the benefit ultimately is received is "paramount" in determining this proportion.

• Gross receipts from the sale of electricity and electric transmission and distribution services are sitused in the same manner as under the corporation franchise tax (see R.C. 5733.059).

If the foregoing situsing rules do not fairly represent the extent of a taxpayer's activity in Ohio, the taxpayer may request, or the Tax Commissioner may require or permit, alternative situsing rules. A taxpayer must request altemate situsing rules within the time prescribed by the applicable statute of limitations.

The Tax Commissioner may adopt rules providing guidance with regard to the situsing rules, and providing altemative situsing rules for all taxpayers or for a subset of taxpayers in a particular trade or business.

Uncodified law in the act (Section 557.09.03), which the Governor vetoed, stated that it is the intent of the General Assembly that the situsing provisions be applied in a manner that is consistent with and identical to the situsing provisions that apply to the corporation franchise tax, and must be interpreted and applied by the Tax Commissioner in a manner that is consistent with the body of case law addressing the situsing of sales for purposes of the sales factor as determined under the corporation franchise tax law, and in a manner that is consistent with the Tax Commissioner's prior treatment of the sales factor situsing law for taxpayers under the corporation franchise tax law.

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Appx. 133 Use ofrevenue

(R.C. 5751.20 to 5751.22)

Revenue from the new commercial activity tax will be for the General Revenue Fund (GRF) and to reimburse school districts and other local taxing units for the phase-out of.taxes from business machinery and equipment and for the acceleration in the phase-out of taxes from business inventories. Initially, revenue from the new tax is to be credited to the newly created Commercial Activities Tax Receipts Fund, and thence divided between the GRF and the newly created School District Tangible Property Tax Replacement Fund (SDRF) and Local Government Tangible Property Tax Replacement Fund (LGRF) in specified proportions until the end of fiscal year 2018, as follows:

2006 67.7% 22.6% 9.7% 2007 0% 70.0% 30.0% 2008 0% 70.0% 30.0% 2009 0% 70.0% 30.0% 2010 0% 70.0% 30.0% 2011 0% 70.0% 30.0% 2012 5.3% 70.0% 24.7% 2013 19.4% 70.0% 10.6% 2014 14.1% 70.0% 15.9% 2015 17.6% 70.0"/0 12.4% 2016 21.1% 70.0% 8.9% 2017 24.6% 70.0% 5.4"/n 2018 28.1% 70.0% 1.9% 2019 and thereafter 100% 0% 0°/a

The revenue credited to the School District Tangible Property Tax Replacement Fund and Local Government Tangible Property Tax Replacement Fund is to be used, in addition to GRF money, to provide the reimbursement to school districts and other local taxing units for the phase-out of taxes on business personal property and telecommunications property, as explained in another section of this analysis.

M LegislatlveServiceCommission -554- Am. Sub. H.B. 66

Appx. 134 Tax credits

(R.C. 122.17, 122.171, 5751.50 to 5751.52, and 5751.98)

The act permits four of the credits that currently apply to the corporation franchise tax and personal income tax to be applied against the new commercial activity tax:

• The refundable jobs creation credit (R.C. 122.17).

• The nonrefundable jobs retention credit (R.C. 122.171).

• The nonrefundable credit for qualified research expenses (R.C. 5733.351).

• The nonrefundable credit for research and development loan payments (R.C. 5733.352).

The credits would apply against the new commercial activity tax for tax reporting periods beginning on or after July 1, 2008. The credits can no longer be claimed against the corporation franchise tax and personal income after that point; however, to the extent the credits have not been fully utilized with respect to those taxes, the credits can be carried forward and used against the commercial activity tax.

If a corporation or other person claims such a credit against the franchise or income tax, the person may not claim the same credit amount against the new tax.

Generally, the same terms and conditions that govern the credits under the corporation franchise tax and personal income tax law also govern the credits under the new tax. One difference, however, is that some taxpayers will pay the new tax on a quarterly basis, and they may apply the credits against quarterly tax payments. However, any applicable liniit on carryforward periods or on credit maximums are still on an annual basis, meaning they are not affected by the quarterly payment requirement applicable to some taxpayers.

With respect to the job creation and job retention tax credits, the act specifies that unused portions of those credits automatically convert to commercial activity tax credits in 2008 without any action having to be taken by the Tax Credit Authority, which, under continuing law, administers those credits. A converted job creation or retention credit applies to those calendar years in which end the remaining taxable years for which the credit was originally approved.

M LegislaiiveService Commission -555- Am. Sub. H.B. 66

Appx. 135 ReQistration and fee

(R.C. 5751.04; Section 557.09(C))

Every legal person subject to the new commercial activity tax must register with the Tax Commissioner by November 15, 2005, or within 30 days after first becoming subject to the tax. The registration must be made on a form prescribed by the Commissioner that includes various items of information about the taxpayer insofar as it is applicable to the taxpayer: the taxpayer's name; the name of the state or country under the laws of which the taxpayer is incorporated; the location of the taxpayer's principal office and, if the taxpayer is a foreign corporation, the location of its principal place of business in Ohio and the name and address of the corporation's officer or agent who is in charge of its business in Ohio; the names of the taxpayer's president, secretary, treasurer, and statutory agent, together with the post office address of each; the kind of business in which the taxpayer is engaged, including applicable business or industry codes; the date the taxpayer's annual accounting period begins; the names of the taxpayer's owners and officers (if the taxpayer is not a corporation or sole proprietor); the taxpayer's federal employer identification number or numbers or, if those numbers are not applicable, the taxpayer's social security number or its equivalent; and all other information the Tax Commissioner requires to administer and enforce the commercial activity tax. If a person ceases to be a taxpayer, the person must notify the tax Commissioner that the person's registration should be cancelled.

A one-time $15 registration fee is payable if the person registers electronically; if registration is not done electronically, the fee is $20. The fee is credited toward the first tax payment due. If a person registers after the due date, an additional fee of up. to $100 per month. may be charged (up to a maximum of $1,000), which the Tax Conunissioner may abate; the additional fee is not credited against the tax due. Persons that would otherwise be subject to the tax but that begin business after November 30 in any year are exempt from the fee, as are persons that do not surpass the $150,000 taxable gross receipts threshold as of December 1. Fees may be assessed.

Registration fee collections are credited to the Commercial Activity Tax Administrative Fund, and are used to defray the Commissioner's costs of implementing and administering the tax, including promoting awareness of the tax during its initial implementation.

M Legislative Service Commission -556- Am. Sub. H.B. 66

Appx. 136 Consolidation of related taxpavers

(R.C. 5751.01(B), (E)(1), (H), and (I)'and 5751.011)

The act permits a group of commonly owned or controlled persons (including the common owner) to elect to file and pay the tax on a consolidated basis in exchange for excluding otherwise taxable gross receipts from transactions with other members of the group. For purposes of the election, common ownership or control means at least an 80% interest, or a 50% interest, as chosen by the group, but each group may apply only one of the percentage-ownership tests. Foreign corporations may be included in a group if they satisfy the group's chosen ownership test, but the group must include either all such foreign corporations or none.

If an entity is one-half owned by a consolidated group and one-half owned by another consolidated group, and each of those groups is formed under the 50% ownership test, the entity is considered to be a member of each group, and each group must include 50% of the entity's taxable gross receipts in the group's gross receipts. But two groups that are not related except through mutual 50% ownership of another entity may.not use-that 50% ownership to consolidate into one group and thereby exclude receipts from sales between all members of the group.

Excluded persons not subject to the tax may be included in the group, but there is no tax payable on behalf of the excluded members; their inclusion is for the purpose of exempting receipts that taxable persons in the group receive from their dealings with excluded persons under common ownership or control. However, a dealer in intangibles may not be included in a consolidated group unless the dealer is under common ownership and control with a financial institution or insurance company (i.e., is a"qualifying dealer").

Gross receipts related to the sale or transmission of electricity through the use of an intermediary regional transmission organization approved by the Federal Energy Regulatory Commission must be excluded from taxable gross receipts even if the receipts are from and to the same member of the group. Otherwise, taxable gross receipts received from a person who is not a member of a group are not excluded.

Each member of the group remains jointly and severally liable for the tax and associated penalties and interest, and each member is subject to assessment.

Once made, the consolidation election means the group must file as a single taxpayer for at least the next eight consecutive calendar quarters so long as at least two members satisfy the ownership and control criteria. The election rolls over to

M Legislative Service Commission -557- Am. Sub. N.B. 66

Appx. 137 the following eight quarters unless, before expiration of the eighth calendar quarter, the group notifies the Tax Commissioner that it is canceling its designation as a consolidated elected taxpayer. If a person is no longer under common ownership or control with the group, the person must report and pay the tax as a separate taxpayer, as part of a combined taxpayer group (see below), or as a member of a different consolidated group that is eligible to file and pay tax on a consolidated basis. If a person is added to the group after the election, the person must be added to the consolidated group for the purpose of paying and reporting the tax on a consolidated basis, and the group must notify the Tax Commissioner of the addition with the next return filed. The exemption for taxpayers having taxable gross receipts of $150,000 or less does not apply to consolidated taxpayers.

If a consolidation election is in effect for a group, the group must report and pay the tax on the basis of every member's taxable gross receipts, including members that do not have substantial nexus with Ohio. For this purpose, "substantial nexus" means a person satisfies at least one of the following criteria:

• It owns or uses a part or all of its capital in Ohio.

• It holds a certificate of compliance authorizing it to do business in Ohio.

• It has "bright-line presence" in Ohio (explained below).

• It otherwise has nexus with Ohio to the extent that the state may require the person to renrit the tax under the United States Constitution.

The act defines "bright-line presence" as any one of the following conditions:

• Having, at any time during the calendar year, property in Ohio with an aggregate value of at least $50,000. Value equals original cost or, in the case of rented property, eight times the net annual rental charge.

• Having, during the calendar year, payroll in Ohio of at least $50,000. Payroll includes any amount subject to Ohio income tax withholding, any other compensation paid to an individual under the supervision or control of the person for work done in Ohio, and any amount the person pays for services performed in Ohio.

M Legislative Service Commission -558- Am. Sub. H.B. 66

Appx. 138 • Having, during the calendar year, taxable gross receipts in Ohio of at least $500,000.

• Having in Ohio, at any time during the calendar year, at least 25% of the person's total property, total payroll, or total sales.

• Being domiciled in Ohio as an individual or for corporate, commercial, or other business purposes.

The Tax Commissioner may require one of the members of a consolidated group to undertake the registration and tax payment requirements on behalf of the group. The registration fee is $20 for each member of the group, up to a maximum per-group fee of $200. The consolidation election must be made on a form prescribed by the Tax Commissioner, and must be accepted by the Commissioner if the group satisfies the criteria for making such an election.

Combined taxpayers

(R.C. 5751.012)

All persons subject to the new commercial activity tax that have more than 50% of their ownership interests owned or controlled by common owners, but that do not elect to be treated as consolidated elected taxpayers, are treated, together with their common owners, as "combined taxpayers." Like a consolidated elected taxpayer, a combined taxpayer must report and pay the tax as a single taxpayer, and each member of the combined taxpayer is jointly and severally liable for the group's tax and any associated penalty and interest and is individually subject to assessment. A combined taxpayer must register as a group and is subject to the same $20 per member registration fee as a consolidated elected taxpayer, up to a maximum of $200. If a person is added to the combined taxpayer, the group must notify the Tax Commissioner of the addition with the next return filed. The exemption for taxpayers having taxable gross receipts of $150,000 or less does not apply to combined taxpayers. However, unlike members of a consolidated elected taxpayer, members of a combined taxpayer may not exclude receipts arising from transactions between the members.

Tax periods

(R.C. 5751.05 and 5751.051)

The commercial activity tax is computed on the basis of "tax periods," which are either calendar quarters or calendar years for each taxpayer depending on the taxpayer's level of taxable gross receipts. Taxpayers generating annual taxable gross receipts of $1 million or more are required to pay the tax on a

M Legislative Service Commrssion -559- Am. Sub. H.B. 66

Appx. 139 quarterly basis. Such taxpayers are referred to as "calendar quarter taxpayers." They must report and pay the tax within 40 days after the end of each quarterly period, which correspond with the calendar quarters: January through March, April through June, July through September, and October through December. The fourth-quarter report is considered to be the annual report, and must reflect quarterly underpayments or overpayments for the year. The Tax Commissioner is authorized to approve altemative filing and payment schedules for a taxpayer if the taxpayer shows the need for an alternative. The Tax Commissioner also can adopt altemative filing and payment rules for groups of taxpayers without the taxpayers seeking approval.

Taxpayers having estimated annual taxable gross receipts of less than $1 million may report and pay the tax on a calendar year basis, but only if the taxpayers make an election to do so. Such taxpayers are referred to as "calendar year taxpayers." The tax report and payment is due within 40 days after the end of the calendar year. Once a calendar year taxpayer's annual taxable gross receipts reach $1 million, the taxpayer must begin to report and pay on a quarterly basis in the following year, and must continue to do so until the taxpayer again qualifies for annual reporting and payment and receives written approval to do so from the Tax Commissioner.

General administration

(R.C. 5751.04, 5751.05, 5751.051, 5751.06, 5751.07, 5751.08, 5751.081, 5751.09, 5751.10, 5751.11, 5751.12, and 5751.99)

Payments. Tax payments must be made either quarterly or annually, depending on the taxpayer's status as a quarterly taxpayer or annual taxpayer. Calendar quarter taxpayers must make payments electronically and, if he Tax Commissioner requires, file retums electronically. Such taxpayers may be excused from the electronic filing and payment requirement by applying to the Tax Commissioner, who may excuse taxpayers for good cause.

If a quarterly taxpayer incorrectly reports and pays the tax for a quarter and the tax rate for the quarter is levied at a lower rate (wluch could occur during the five-year phase-in as the tax rate is incrementally increased), the taxpayer must pay the tax on the basis of the tax rate in effect for the proper quarter, rather than the quarter for which the tax is actually reported and paid. However, a quarterly tax report and payment will be considered to be incorrect only if the amount of tax paid and reported is more than 5% more or less than the amount actually due.

Penalties and interest. Penalties are imposed for not filing and paying the tax or for not filing and paying on time. The penalty for late filing and payment is up to $50 or 10% of the amount due, whichever is greater. A penalty of up to 10%

M Legislative Service Commission -560- Am. Sub. H.B. 66

Appx. 140 may be nnposed if a quarterly taxpayer underpays the tax by more than 5% for a quarter during which the tax rate is lower than the rate for the quarter for which the tax is actually paid. In the case of underpaid tax, the penalty is up to 15% of the underpayment, including in those cases where payment is made after the taxpayer is notified of the deficiency by the Tax Commissioner. Penalties also may be imposed if taxpayers required to file and pay electronically fail to do so. The penalty is up to 5% of the payment due for the first two occasions, and 10% for subsequent occasions.

A penalty also may be imposed if a taxpayer fails to switch from being a calendar year taxpayer to a calendar quarter taxpayer once the taxpayer's annual taxable gross receipts exceeds $2 million (giving such taxpayers a $1 million margin of error). The penalty may be up to 10% of the amount of the tax due on taxable gross receipts over $2 million. This penalty applies only after 2008.

A penalty is imposed on persons who have been notified of the registration requirement but that fail to register within 60 days. The penalty is up to 35% of the tax found to be due.

Interest accrues against unpaid • amounts at the normal statutory rate of 3 percentage points above the current yield on marketable United States govemment securities having a remaining maturity of three years or less. The interest accrues from the due date to the time the tax is paid or an assessment is issued, whichever occurs first.

The Tax Commissioner is authorized to abate penalties, but not interest, and is authorized to adopt rules governing abatement of penalties.

Refunds. Refunds are available for overpaid, illegal, or erroneously paid taxes. Refunds must be applied for within the four-year statute of limitations on the issuance of assessments. Interest accrues on refund amounts at the same rate as it accrues on underpayments. A taxpayer that, "because of the operation of the taxpayer's business," is not able to exclude the full $1 million excludable annually from the 0.26% tax on receipts above $1 million may be issued a refund to obtain the full $1 million exclusion. A refund may not be issued to any registered taxpayer for the $150 tax on the first $1 million in annual receipts unless tie taxpayer cancels the registration before February 10 of the current year.

As with other taxes, refunds must be offset for various debts to the state, including unpaid workers compensation preniiums, unemployment compensation contributions, unpaid motor vehicle fees, and incorrect medical assistance payments. The debt must be "final," meaning that any time for appealing the debt has expired without an appeal being made.

M Legislatrve Service Commission -561- Am. Sub. H.B. 66

Appx. 141 Anyone who files a fraudulent refund claim is subject to a fine of up to $1,000 or imprisonment for up to 60 days or both.

Assessments. As with other taxes, the Tax Commissioner may issue assessments for unpaid or unreported commercial activity taxes. The assessment provisions are substantially the same as for other state taxes, except the statute of limitations for issuing an assessment is four years unless fraud or failure to file is involved, in which case there is no time limit. Also, since the commercial activity tax is based on gross receipts, the Tax Commissioner may use sampling in conducting an audit of a taxpayer if the Tax Commissioner has information indicating a tax underpayment. The sampling must be conducted for a representative period of time; the Commissioner must make a good faith effort to agree with the taxpayer on selecting the representative sample, and the sampling method must be one that has been prescribed by administrative rule.

Windinn-un oblipations. Taxpayers quitting business or selling their business to another person, or disposing in any manner other than in the regular course of business of 75% or more of the business assets, must pay the commercial activity tax and file a return within 15 days afterwards. The purchaser or other successor must withhold enough money from the purchase money to cover the tax obligation until the former owner produces a receipt showing payment of the tax due or a certificate showing no tax is due. The purchaser is liable for any unpaid tax due.

Recordkeeninp. The act authorizes the Tax Commissioner to prescribe recordkeeping requirements applicable under the commercial activity tax. The act also requires the Tax Commissioner to make an electronic list available to the public identifying registered taxpayers, as well as persons whose. registration has been cancelled within the preceding four years. Information is confidential taxpayer information, except for the listing of registered taxpayers.

Violations. If any person fails to pay the tax, file required returns, or pay any penalty due, the person may be subject to a quo warranto action initiated by the state to annul the person's privilege to do business in Ohio. This legal remedy is the same as that authorized to enforce the corporation franchise tax under continuing law.

Criminal penalties

Criminal penalties are imposed for filing a fraudulent refund claim (as described above under "Refunds"), and for any other violation, which is punishable by a fine of up to $500 and imprisonment for up to 30 days.

M LegislativeServiceCommission -562- Am. Sub. H.B. 66

Appx. 142 ChallenQine lepalitv oftax's application

(R.C. 5751.31)

The act provides for taxpayer appeals directly to the Ohio Supreme Court when the Tax Commissioner issues a finaldetermination in response to a taxpayer's challenge of an assessment and the primary issue raised by the taxpayer is one arising under the act's "bright-line" nexus standard or provisions in the Ohio Constitution governing the General Assembly's power to tax incomes and to levy excise and franchise taxes;248 the manner in which the General Assembly may use moneys derived from motor vehicle license and fuel taxes;249 or the General Assembly's power to tax food for human consumption.250 The appeal must be made within 30 days after issuance of the fmal deterniination.

II. Corporation Franchise Tax

Phase-out of corporation franchise tax

(R.C. 5733.01(G))

The act phases out the corporation franchise tax over five years, beginning with tax year 2006, for all corporations other than banks and other fmancial institutions, and certain kinds of affiliates of financial institutions, insurance companies, and other corporations that are not subject to the conunercial activity tax because they are "excluded persons" (these persons are described under the commercial activity tax heading). Excluded persons that are corporations (or associations treated as corporations for federal income tax purposes) will continue to be subject to the franchise tax.

The phase-out begins with tax year 2006, and the tax is eliminated for corporations other than fmancial institutions and certain other "excluded persons" beginning in 2010. The phase-out is made in even increments over the intervening five years. In 2006, corporations will owe the greater of the minimum tax (which is $50 or $1,000, depending on a corporation's employment level and gross receipts)251 or 4/5 of the difference between the tax they would otherwise owe

248 Section 3, Artrcle XIIOhio Constitution.

249 Section 5q Anicle XII, Ohio Constitution

250 Section 13, Article XII, Ohio Constitution.

251 The $1, 000 minimum tax applies to any corporation having at least 300 employees or worldwide gross receipts of $5 million or more.

M Legislative Service Commission -563- Am. Sub. H.B. 66

Appx. 143 under continuing law and their nomefundable credits. If a credit carryforward is allowed for a nomefundable credit that exceeds annual tax liability, the excess is computed before the 4/5 phase-out fraction is applied. If a corporation has refundable credits for the year, or is entitled to the credit for taxes paid on its behalf by a partnership of which it is a partner, the refundable or partnership credit is not included in the calculation.Z52 Likewise, in 2007, corporations oNe the greater of the minimum tax or 3/5 of the difference between the tax they otherwise would owe and the nonrefundable credits and credit carryforwards from a prior year. Refundable credits and the partnership credit are not included in that amount. The fractions decline in 2008 to 2/5 and in 2009 to 1/5, and any refundable credits and the partnership credit are treated in the same fashion in each of those years.

The act adjusts the computation of the withholding tax imposed on pass- through entities with certain corporate owners to reflect the phase-out of the corporation franchise tax. The withholding tax is computed on the basis of the total of the franchise tax liabilities of corporate owners not having a taxable presence in Ohio (other than their ownership of the entity). The computation of the withholding tax reflects the phase-out of the corporation franchise tax, but only for those corporate owners that qualify for the phase-out. If a corporate owner of the entity remains subject to the franchise tax, its share of the withholding tax computation remains as under continuing law, without applying the phase-out fractions.

Credit for unused net oneratinz loss deductions, other deferred tax assets

(R.C. 5751.53 and 5751.98; Section 612.21)

The act permits corporations becoming subject to the commercial activity tax to claim a tax credit offsetting some of the financial statement effects of losing the ability to deduct net operating losses (NOLs) and some other deferred tax items in computing their corporation franchise tax, which is being phased out for most corporations. Under the law in operation before the tax is fully phased out, corporations may deduct NOLs in computing their net incomes and may carry

251 The partnership credit, known as the "qualifying pass-through entity tax credit, " is a credit for taxes paid by a partnership or other pass-through entity on behalf of a corporation that is a partner or owner of a pass-through entity doing business in Ohio, but which itself does not have any taxable business presence in the state. A withholding tax is imposed on the partnership or entity to ensure that the corporation satisfies its franchise tax obligation. The corporation then is credited with the tax paid on its beha f by the entity against the corporation's individual franchise tax obligation.

W Legislative Service Commission -564- Am. Sub. H.B. 66

Appx.144 forward any excess NOL that is not applied to the current year's net income computation; NOLs may be carried forward for up to 20 years?s3

Under accounting standards that govem accounting for income taxes, a taxpayer's ability to carry forward currently unused NOLs, credits, and other tax items that may reduce future tax liabilities create what are known as deductible temporary differences. The differences arise from differences in tax accounting versus financial accounting for events--such as an operating loss--that affect fmancial statements in a different time period from when they affect the tax accounts. To the extent these differences under the current tax laws are more likely than not to result in a future reduction in tax liability (e.g., a future deduction of a currently unused NOL), they represent a deferred tax asset on the current balance sheet Z54 But if some event occurs that causes the asset to lose value before its value is fully realized--for example, because of a reduction in future tax rates or the disallowance of the deduction because of legislative changes--the loss of value must be recorded on current financial statements when the event occurs, which results in a current net accounting loss.

The act addresses the current financial effects of such losses by permitting some corporations to claim a+credit against the commercial activity tax. In effect, the credit represents a new deferred tax asset to offset some of the financial loss resulting from the devaluation of the existing deferred tax asset. The credit is available only for corporations that have a qualifying NOL carryforward, after adjusting for other net temporary differences (see below), that exceeds $50 million. (In effect, the credit offsets only losses from the disallowance of NOL carryforwards to the extent those losses exceed $50 million.) If a corporation filed a combined franchise tax report with related corporations for tax year 2005, the $50 million threshold is divisible among the corporations filing the combined report. The NOL carryforward amount after deducting the $50 million amount is termed the "disallowed Ohio net operating loss carryforward."

NOL carryforwards qualify for the credit computation only if they are otherwise deductible in franchise tax year 2006 and to the extent they do not exceed the carryforward available from franchise tax year 2005255 The amount of

253 However, the carryforward period is 15 years ifthe NOL is incurred before August 6, 1997.

254 Conversely, temporary derences likely to be realtzed as afuture tax liability-known as taxable temporary differences--represent deferred tax liabilities.

255 As reflected in the 2005 franchise tax report or an amended 2005 report filed before July 1, 2006.

M Legislative Service Carrtmission -565- Am. Sub. H.B. 66

Appx. 145 such NOL carryforwards for which the credit may be claimed is the lesser of the following amounts minus $50 million: (1) the NOL carryforward amount (reflecting apportionment to Ohio) or (2) the NOL carryforward amount the corporation used to compute the corporation's deferred tax asset on its books on the last day of the corporation's taxable year that ended in 2004. This second amount is to be determined net of the valuation allowance account related to the NOL carryforward (which reflects the diminution in the value of the asset on the basis of the corporation's assessment of the likelihood of not realizing the asset).

Other tax items representing deductible temporary differences or taxable temporary differences must be included in the credit computation if they are shown on the corporation's books on the last day of the corporation's taxable year that ended in 2004256 The act excludes any temporary differences that arise from unused credit carryforwards. The net amount of the deductible and taxable temporary differences (which may be a negative number) must be apportioned under the franchise tax three-factor apportionment formula. The net apportioned amount of these items may not exceed 25% of the NOL carryforward amount that qualifies for the act's credit computation.

The credit amount is computed on the basis of the net amount of the disallowed Ohio NOL carryforward and the other deferred tax assets or liabilities. (This net amount is termed the "amortizable amount.") If the net sum of the other deferred amounts is not less than zero, the amortizable amount equals 8% of the sum of the disallowed Ohio NOL carryforward and the other items. If the net sum of the other deferred items is less than zero, but when expressed as a positive number is less than the disallowed Ohio NOL carryforward, the amortizable amount equals 8% of the difference. If the net sum of the other items is less than zero but when expressed as a positive number exceeds the disallowed Ohio NOL carryforward, the amortizable amount equals zero and there is no credit.

The credit for the amortizable amount is available beginning in 2010, but it is not available all at once. Instead, it is gradually phased in over ten years, with the credit available for 10% of the amortizable amount available in 2010 and ten additional percent available each year until 2019, when the credit becomes available for 100% of the amortizable amount (less previously claimed credit amounts) through 2029. In any year through 2029, the credit may not exceed one- half of a corporation's commercial activity tax liability after deducting any other credits allowed against the commercial activity tax. If the total of the credits taken between 2010 and 2029 is less than the amortizable amount for which the credit

256 All temporary differences must be computed net of any related valuation allowance account-i.e., net of any adjustments to their values to account for the likelihood the associated deferred tax asset or liability will not be realized

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Appx. 146 could be claimed, a refundable credit is allowed in 2030 for the remaining effects of the unclaimed credit, but the credit may be claimed in 2030 only if the person claiming the credit is a commercial activity tax taxpayer in that year.

If a corporation entitled to the credit is a member of a consolidated elected taxpayer group or combined taxpayer group (both of which file and pay the commercial activity tax as a single taxpayer), the group is entitled to the credit. If a nonrecognition transaction occurs with respect to a corporation entitled to the credit, the amortizable amount, and all amounts contributing to the computation of that amount, must be computed in a manner consistent with the federal computation of net operating losses under such circumstances.

The credit may not be transferred or used as collateral or otherwise assigned to another person. The credit is not subject to attachment, execution, levy, lien, or other judicial proceeding.

If the Tax Commissioner finds that a corporation claims the credit on the basis of an amount that results from a sham transaction, twice the amount in question is to be deducted from the amortizable amount.

All corporations intending to claim the credit mrst file a report with the Tax Commissioner by June 30, 2006, showing the amortizable amount on the basis of which the corporation (or its consolidated or combined group) intends to claim the credit, and any other information the Tax Commissioner requires. The credit is denied if a corporation fails to provide the report.

The Tax Commissioner may audit the accuracy of a taxpayer's amortizable amount until June 30, 2010 (or later if extended by mutual consent) and adjust the amount or, if appropriate, issue an assessment as necessary to correct any errors.

Some noncorporations treated as corporations

(R.C. 5733.01(E))

The act clarifies that any entity that is taxed as a corporation under federal income tax law (such as some limited liability companies) also is to be treated as a corporation under Ohio's corporation franchise tax law. Although this principle is stated in prior law, the act makes it clear that any equity stake in such an entity (such as a membership interest in such an LLC) is to be treated in the same manner as owning capital stock of a corporation for the purposes of the aspects of the franchise tax law referring to capital stock of corporations.

M Legislative Service Commission -567- Am. W. H.B. 66

Appx.147 Recvcline and Litter Prevention Fund

(R.C. 5733.065, 5733.066, and 5733.122; Section 557.10)

Continuing law levies a tax on corporations for the privilege of manufacturing or selling "litter stream products" in this state. "Litter stream products" include such things as glass, metal, plastic, and container crowns. These taxes are credited to the Recycling and Litter Prevention Fund and are used to fund recycling and litter prevention.

The act provides for a final series of payments to the Recycling and Litter Prevention Fund during fiscal year 2006 equal to $1.5 million from the General Revenue Fund. The act specifies, further, that future litter taxes paid by corporations be used to fund recycling and litter prevention but not through the Recycling and Litter Prevention Fund.

Purchase and installation of new manufacturin¢ machinery and equipment

Tax credits not available for purchases made after June 30. 2005

(R.C. 5733.33 and 5747.31 (not in the act))

Continuing law authorizes a tax credit against the corporation franchise and personal income taxes for new manufacturing machinery and equipment purchased and used in Ohio by corporations and other business organizations. Under prior law, the credit applied to purchases made on or before December 31, 2015. To qualify for the credit, a taxpayer was required to install the machinery and equipment in Ohio no later than December 31, 2016. Under continuing law, the credit equals a percentage of a taxpayer's incremental increase in machinery and equipment investment in a county over its existing stock of machinery and equipment during a baseline period. The percentage is 7.5%, except when the machinery or equipment is purchased for use in certain economically depressed areas, in which case the percentage is 13.5%. The credit is claimed over a seven- year period. The credit is nonrefundable, but may be carried forward for three tax years, in the case of the corporation franchise tax, or three taxable years, in the case of the personal income tax. A taxpayer who purchases new manufacturing machinery and equipment and who intends to claim the credit must file a notice of intent to claim the credit with the Department of Development.

The act limits the availability of the credits to machinery and equipment purchased no later than June 30, 2005, and installed no later than June 30, 2006.

The act requires that a taxpayer's notice of intent to claim the credit must be filed with the Department of Development on or before September 30, 2005. If

M Legislative Service Commission -568- Am. Sub. H.B. 66

Appx. 148 the taxpayer does not file the notice on or before that date, the taxpayer is precluded from claiming the credit.

The act provides, further, that no credit or credit carry-forward may be claimed with respect to any taxable year ending after June 30, 2005. However, any unclaimed credit or credit carry-forward remaining after June 30, 2005, may be converted to a grant under the grant program described below (see "Tax credHs converted to ¢rants administered by the Department ofDevelopment." below)257

Tax credits converted to grants administered by the Department of Development

(R.C. 122.172, 122.173, and 5733.33)

The act converts the existing tax credits for purchases and installations of new manufacturing machinery and equipment into grants administered by the Depariment of Development that can be claimed against corporation franchise and personal income tax liabilities. The grants first apply to taxable years beginning on or after July 1, 2005. Generally, the same eligibility requirements and the same terms and conditions that govem the existing credits also govem the new grants. One difference is the order in which the grant is applied against a tax liability. Taxpayers must apply manufacturing machinery and equipment grants against tax liabilities after allowing for all nonrefundable credits but prior to allowing for refundable credits against those tax liabilities. The Govemor vetoed a sentence stating that a taxpayer did not need to be a manufacturer in order to be eligible for a grant.

The act charges the Director of Development with responsibility for administering the grant program. A taxpayer who is eIigible for a grant may apply for a grant on a request form developed by the Director in consultation with the Tax Conunissioner. The taxpayer must file the request form with the tax return filed for the taxable year in which the grant is claimed. A taxpayer must supply all of the information requested on the grant request form. A grant request form is subject to audit by the Director and the Tax Commissioner.

2s7 In Cuno v. DaimlerChrysler, No. 01-3960, 2004 FED App. 0293P (6th Cir. Sept. 2, 2004), the Sixth Circuit Court of Appeals held that the corporation franchise tax credit for purchases and installations of new manufacturing machinery and equipment violates the Federal Constitution's Commerce Clause, U.S. Const. Art. 1, §8, cl. 3, which grants Congress the authority to "regulate Commerce with foreign nations, and among the several States." The court held that the credit discriminates against interstate commerce by coercing businesses already subject to Ohio's corporation franchise tax to expand locally rather than out-of-state.

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Appx. 149 A grant may not be claimed with respect to any taxable year for which a taxpayer was allowed a manufacturing machinery and equipment tax credit. However, the act provides that if a taxpayer is required to repay any manufacturing and machinery tax credit for a taxable year ending before July 1, 2005, for any reason not specified in the corporation franchise and income tax provisions of the Revised Code, a grant is to be made available to the taxpayer for that taxable year. In addition, any unused tax credit or tax credit-carry forward existing on July 1, 2005, may be converted into a grant.

Telephone company tax credit for providinQ telephone service aroerams to aid the communicatively impaired

(R.C. 5733.56, not in the act; Section 557.04)

Under continuing law, beginning in tax year 2005, telephone companies are no longer subject to the public utility excise tax on gross receipts.and become subject to the corporation franchise tax. For that tax year (to solve timing issues in moving from one tax to another), telephone companies are required to compute taxes owed and net operating loss carry forward by multiplying the tax owed, net of nonrefundable credits, or. the loss for the taxable year, by 50%.

The act specifies that in tax year 2005, telephone companies may claim the full amount of the nonrefnndable tax credit for providing telephone service programs to aid the communicatively impaired in accessing a telephone network.

III. Personal Income Tax

Tax rates reduced uniformly by 21 %

(R.C. 5747.02(A)) Continuing law establishes nine income tax brackets, each with a corresponding tax dollar amount and tax rate. Under prior law, the income brackets and applicable tax dollar amounts and tax rates for each bracket were as follows:

$5,000 or less .743% More than $5,000 but not more $37.15 plus 1.486"/u of the amount than $10,000 in excess of $5,000 More than $10,000 but not more $111.45 plus 2.972% of the amount than $15,000 in excess of $10,000 More than $15,000 but not more $260.05 plus 3.715% of the amount than $20,000 in excess of $15,000

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Appx. 150 More than $20,000 but not more $445.80 plus 4.457% of the amount than $40,000 in excess of $20,000 More than $40,000 but not more $1,337.20 plus 5.201% of the amount than $80,000 in excess of $40,000 More than $80,000 but not more $3,417.60 plus 5.943% of the amount than $100,000 in excess of $80,000 More than $100,000 but not more $4,606.20 plus 6.9°/a of the amount than $200,000 in excess of $100,000 More than $200,000 $11,506.20 plus 7.5% of the amount in excess of $200,000

The act reduces the rates and amounts within each bracket by a total of 21 "/o over five years, beginning with taxable years beginning in 2005, in nearly even per-year increments. The resulting tax brackets for 2009 and thereafter are as follows:

$5,000 or less .587% More than $5,000 but not more $29.35 plus 1.174% of the amount than $10,000 in excess of $5,000 More than $10,000 but not more $88.05 plus 2.348% of the amount than $15,000 in excess of $10,000 More than $15,000 but not more $205.45 plus 2.935% of the amount than $20,000 in excess of $15,000 More than $20,000 but not more $352.20 plus 3.521% of the amount than $40,000 in excess of $20,000 More than $40,000 but not more $1,056.40 plus 4.109°/u of the amount than $80,000 in excess of $40,000 More than $80,000 but not more $2,700.00 plus 4.695% of the amount than $100,000 in excess of $80,000 More than $100,000 but not more $3,639.00 plus 5.451% of the amount than $200,000 in excess of $100,000 More than $200,000 $9,090.00 plus 5.925% of the amount in excess of $200,000

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Appx. 151 For each taxable year beginning after 2009, the income tax dollar amounts and rates are the same as for taxable years beginning in 2009.

Inflation adjustments delayed

(R.C. 5747.02(A))

Under prior law, beginning in July 2005, the Tax Commissioner was to make yearly adjustments to each of the existing tax bracket income amounts to account for general price inflation. The act postpones commencement of these yearly adjustments unti12010.

Deduction for aualiTed tuition and fees eliminated

(R.C. 5747.01(A)(18))

Prior law permitted taxpayers to take a deduction for certain tuition costs and fees paid by them on their own behalf or on behalf of a spouse or dependent during the taxable year. The deduction was available for tuition and fees paid to a state university or other postsecondary institution located in Ohio. For taxpayers enrolled in a fu1l-Gme course of study, the deduction was available for tuition and fees paid in each of the first two years of postsecondary education. For taxpayers enrolled part-time, the deduction was available for tuition and fees paid for the academic equivalent of the first two years of postsecondary education during a maximum of five taxable years. The total amount of tuition and fees that could be deducted by a taxpayer for all taxable years was $5,000. The deduction was not available to individuals filing a joint return showing a combined federal adjusted gross income258 greater than $100,000 and was not available to single filers having federal adjusted gross income in excess of $50,000.

The act eliminates the deduction for tuition and fees. The act provides that the deduction is not available for any taxable year beginning after December 31, 2005.

258 A taxpayer's Ohio adjusted gross income, which is the income tax base from which Ohio income tax liability is calculated, is calculated on the basis ofthe tazpayer's federal adjustedgross income (R.C. 5747.01(A)).

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Appx. 152 Credit for low-income taxpayers created

(R.C. 5747.056, 5747.08, and 5747.98)

The act creates a nonrefundab1e259 credit for individuals whose Ohio adjusted gross income (less exemptions) does not exceed $10,000. The amount of the credit varies depending upon the taxable year for which it is claimed, as shown in the following table.

Iniured military nersonnel income tax refund contribution system

(R.C. 5101.184, 5101.98, and 5747.113)

Overview

Under continuing law, taxpayers may contribute a portion of their income tax refunds to two environmental protection funds: the Natural Areas and Preserves Fund and the Nongame and Endangered Wildlife Fund. The act establishes the Military Injury Relief Fund in the state treasury as a third fund to which taxpayers may contribute a portion of their income tax refunds. As with the environmental protection funds, taxpayers may indicate their willingness to make a contribution to the Military Injury Relief Fund directly on their income tax retums. Individuals also may contribute directly to the fund in addition to or independently of making a contribution through their income tax returns.

The Director of Job and Family Services administers the Military Injury Relief Fund. Money in the fund is to be used exclusively for maldng grants to individuals injured while in active service as a member of the United States Armed Forces serving under Operation Iraqi Freedom or Operation Enduring

259 A"nonrefundable" credit is a credit that can be claimed by a taxpayer only to the extent the amount of the credit does not exceed the taxpayer's tax liability. If a nonrefundable credit exceeds a taxpayer's tax liability, the taxpayer is not entitled to a refund ofthe excess.

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Appx. 153 Freedom. An individual who receives a grant from the fund is not precluded from receiving additional grants from the fund and is not precluded from being considered for or receiving other forms of assistance offered by the Department of Job and Family Services.

RenortinQ reauirement

Under continuing law, the Director of Natural Resources is required to file reports with the General Assembly appraising the effectiveness of the income tax contribution system as it pertains to the environmental protection funds. The act imposes the same reporting requirement on the Director of Job and Family Services with respect to the Military Injury Relief Fund. Specifically, the act requires that the Director file a report with the General Assembly in January of every odd-numbered year describing the amount of money contributed to the fund in each of the previous five years, the amount of money contributed directly to the fund in addition to or independently of the income tax refund contribution system in each of the previous five years, and the purposes for which money in the fund was expended.

Rulemakine required

The act requires that the Director of Job and Family Services adopt rules necessary to administer the grant program. The act specifically requires that the Director adopt rules establishing all of the following: (1) forms and procedures by which individuals may apply for a grant from the fand, (2) criteria for reviewing, evaluating, and ranking grant applications, and (3) criteria for determining the amount of grants.

Administrative costs

Under prior law, the two environmental protection funds each shared one- half of the administrative costs of the income tax contribution system. The act specifies that the two environmental protection funds and the Military Injury Relief Fund each share one-third of the administrative costs.

Taxation of trust income made permanent

(R.C. 5747.01(A)(6), (I), and (S)(12) and (14) and 5747.02(D))

Under prior law, the income tax applied to trusts for only three taxable years: namely, the taxable years of a trust beginning in 2002, 2003, and 2004. Thus, under prior law, the last year in which trusts were subject to the personal income tax was the taxable year of a trust beginning in 2004. The act makes application of the personal income tax to trusts permanent.

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Appx. 154 Trust residency rules

(R.C. 5747.01(I)(3)(a)(iii) and (I)(3)(d)(iii))

The residency of a trust detemiines the extent to which the trust's nonbusiness income is taxable by Ohio. If a trust is not a resident trust, it is entitled to a credit for taxes paid to another state on the nonbusiness income.

Under continuing law, a trust is considered a resident tnrst to the extent it consists of assets transferred under any of the following three conditions:

(1) With respect to certain testamentary and irrevocable inter vivos trusts, the assets were transferred by a person, a court, or a governmental entity or instrumentality on account of the decedent-transferor's death;

(2) The assets were transferred by a person domiciled in Ohio (for Ohio income tax purposes) at the time of transfer, provided at least one of the trust''s beneficiaries is domiciled in Ohio (for Ohio income tax purposes) during some portion of the trust's current taxable year;

(3) The assets were transferred by a person donuciled in Ohio (for Ohio income tax purposes) when the trust became irrevocable, but only if at least one of the trust's beneficiaries was an Ohio resident (for Ohio income tax purposes) during some portion of the trust's taxable year.

The act specifies that, with respect to (3) above, a trust is considered a resident trust if the trust became irrevocable upon the death of a person domiciled in Ohio (for Ohio income tax purposes).

Under continuing law, the extent to which a trust consists of assets transferred to it from any of the sources enumerated in (1), (2), and (3) above is ascertained by multiplying the fair market value of the tiust's assets by a "qualifying ratio'a60 that is based, generally, on the relationship of the fair market value of the transferred assets at the time of transfer to the fair market value of all of the trust's assets at that time. The act provides that the domicile of a trust's

260 The frst time the trust receives assets, the numerator of the qualifying ratio is the fair market value of those assets at that time and the denominator is the fair market value of all of the trust's assets at that time. Each subsequent time the trust receives assets the numerator of the qualifying ratio is the sum of (1) the fair market value of the trust's assets immediatelyprior to the subsequent transfer multiplied by the last qualifying ratio computed, and (2) the fair market value of the subsequently transferred assets at the time transferred. The denominator is the fair market value of all of the trust's assets immediately after the subsequent transfer.

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Appx. 155 beneficiaries is not to be taken into account in this computation insofar as the sources are as described in (1), (2), or (3) above.

'Quali(vinQ investment nass-throuQh entitv"

(R.C. 5747.012) .

Trusts are taxed on the basis of "modified taxable income," which is derived from a trnst's federal taxable income. To compute modified taxable income, federal taxable income is adjusted by various additions aid deductions prescribed by law, and divided into three components: modified business income, modified nonbusiness income, and the qualifying trust amount. The qualifying trust amount is comprised of capital gains and losses from holding debt or equity of a business, government, or other issuer. Modified business income is the business income of a trust minus any business income included in the qualifying trust amount; modified nonbusiness income is any income other than business income and income included in the qualifying trust amount. The division of income into three components is for the purpose of apportioning and allocating the portion of a trust's income that is taxable by Ohio; each component is apportioned or allocated by a different method.

Modified business income is apportioned by the same method used to apportion a corporation's ordinary income under the corporation franchise tax law: that is, in proportion to the value of property, payroll, and sales in Ohio relative to all property, payroll, and sales. Modified nonbusiness income is allocated to Ohio to the extent that the trust's nonbusiness income is produced by trust assets that compose the Ohio resident part of the trust. A trust's qualifying trust amount is apportioned to Ohio on the basis of where the underlying physical assets producing the gain or loss are located.

Under continuing law, certain kinds of investment income of certain Icinds of resident trusts are apportioned in the same manner as modified business income (i.e., under the relative property, payroll, and sales formula). Investment income of other trusts is allocated as modified nonbusiness income. To be apportioned as modified business income, the investment income must satisfy certain conditions, one of which is that the income must be attributable to the trust's ownership of a "qualifying investment pass-through entity." A qualifying investment pass- through entity is a partnership or other pass-through entityZb. that satisfies the following three criteria:

261 A pass-through entity is a partnership, limited liability company, S corporation, or other entity that generally is not taxed as an entity; instead, the constituent owners are taxed on their distributive shares of income from the entity.

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Appx. 156 (1) It deriws at least 40% of its income from loanmaking, investment management, other financial business activities, managing intangible assets, or from ownership of any other partnership or pass-through entity;

(2) It has at least 40% of its asset value composed of intangible assets; and

(3) It was formed or organized before June 5, 2002.

The act modifies the third criteria above by specifying that the entity must have been formed or organized "as an entity" prior to June 5, 2002, which suggests that, under the xt, an entity would not have to have existed as a pass-through entity on June 5, 2002, to qualify as a qualifying investment pass-through entity, as long as it was an organized entity on that date and is presently a pass-through entity. The act provides, further, that a partnership or pass-through entity is a "qualifying investment pass-through entity" only if it exists as a pass-through entity for all of the taxable year of the trust.

Trust election to be subiect to the commercial activity tax

(R.C. 5747.01 and 5751.01)

The Governor vetoed provisions in the act that would have permitted a "pre-income tax trust" to elect to pay the conunercial activity tax created in the act in lieu of the personal income tax (see 'Commercial Activity Tax," above). The act would have defined a "pre-income tax trust" as a trast that was created by a docwnent or instrument that was executed before January 1, 1972, and that became irrevocable upon its creation. To subject itself to the commercial activity tax, a pre-income tax trust would have made a"qualifying pre-income tax trust election," which would have been an election by the trust to be subject to the commercial activity tax and to subject to that tax all pass-through entities in which the trust owns (directly, indirectly, or constructively through related interests by common owners) at least 5% of the ownership or equity interests. The trustee of a trust that wanted to make a qualifying pre-income tax trust election would have had to notify the Tax Commissioner of the election in writing on or before April 15, 2006.

A pre-income tax trust's timely election to be subject to the commercial activity tax would have been effective on and after January 1, 2005. The election would have remained in effect with respect to all tax periods and tax years until the trust's trustee revoked the election.

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Appx. 157 Credit for a resident's out-of-state income tax liabilitv disallowed if the out-ofstate income tax liability is deducted in comnutinr the resident's tax base

(R.C. 5747.05(B)(4))

Continuing law allows a credit against the personal income tax for income taxes paid by an Ohio resident to another state or the District of Columbia. The credit is equal to the lesser of: (1) the amount of income tax otherwise due to Ohio on the portion of Ohio adjusted gross income (which is the tax base from which Ohio income tax liability is calculated) that is subject to taxation by another state or the District of Columbia, or (2) the amount of income tax liability to another state or the District of Columbia on the portion of Ohio adjusted gross income that is subject to taxation by another state or the District of Columbia.

The act provides that the credit for income taxes paid by Ohio residents to other states or the.District of Columbia is not available to any taxpayer who has directly or indirectly deducted, or was required to directly or indirectly deduct, the amount of income taxes owed to another state or the District of Columbia in computing federal adjusted gross income. Thus, the act precludes a resident taxpayer from claiming the credit when the taxpayer deducted, or should have deducted, the out-of-state income taxes in computing the taxpayer's federal income tax base. Because Ohio's income tax base is derived from the federal income tax base, the effect of the provision is to preclude a resident taxpayer from taking, for state income tax purposes, a deduction for out-of-state income taxes and also claiming a credit with respect to those taxes.

MeaninQ of "indirect" ownership

(R.C. 5747.01(EE))

The act specifies the meaning and scope of the term "indirectly" insofar as the term is used in the income tax law in connection with an individual's, estate's, trust's, pass-through entity's, or other legal person's ownership of a corporation. Generally, the act provides that the shareholder of a "C" corporation (or of any association treated as a C corporation for federal income tax purposes) does not, by virtue of being a shareholder, indirectly own the assets of the corporation. The provision appears to have the effect of clarifying that nonresident shareholders may not claim the nonresident credit on the basis of the portion of dividends received from a corporation with Ohio income equal to the portion of the corporation's business income apportioned outside Ohio.

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Appx. 158 Treatment of income from nonresident's sale of a nass-throukh entity

(R.C.5747.212)

The act modifies the income tax treatment of income arising from a nonresident's sale of an interest in a pass-through entity by specifying that prior law's treatment applies only to closely held entities and applies even if the sale involves an interest in an entity that was formerly a pass-through entity but has been converted to some other organizational form within three years before the sale (e.g., an S corporation that is converted to a C corporation by dis-electing S corporation status).

Under prior law, a nonresident who owned 20% or more of a pass-through entity in any of the three preceding years and who sold (or otherwise disposed of) some or all of that interest was required to apportion the income from the sale using the average of the entity's income apportionment factors over the most recent three years. The computation was required for the purpose of computing the nonresident credit, which depends on the apportionment of a nomesident's share of an entity's business income. The computation is directed at nonresidents who increase their nonresident credit--thus reducing'their Ohio tax--by applying only the entity's most recent year's apportionment factors.

The act applies the three-year apportionment requirement to nonresidents owning 20% or more of an entity that is closely held in the sense that, for at least one day in the three-year period ending on the last day of the nonresident's taxable year in which the sale occurs, only five or fewer persons own the entity or only one person owns at least 50% of the entity. (The act also specifies that the ownership interests must be equity interests with voting rights, and includes both direct and indirect ownership.)

The three-year apportionment requirement applies even if the entity in which the nonresident sells an interest converts from being a pass-through entity into another organizational form but was a pass-through entity on at least one day during that three-year period. The act's changes appear to prevent a nonresident from avoiding the three-year apportionment requirement--and thereby possibly increasing their nonresident credit and reducing their Ohio tax liability--by the entity changing its organizational form from a pass-through entity to another form, such as a C corporation, before the nonresident sells the interest in the entity.

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Appx.159 IV. Property Taxes and Transfer Fees

Elimination of the 10% rollback in real nropertv taxes for real nrooertv used in business

(R.C. 319.302 and 323.152; Section 557.15)

Under prior law, all real property, and manufactured and mobile homes that are treated as real property for purposes of property taxation, received a reduction of 10% of the property tax bill (known as the "rollback"). Under the act, beginning in tax year 2005, the rollback will apply only to property not intended primarily for use in a "business activity." Property intended primarily for use in a business activity will no longer receive the rollback. The act specifies that the phrase "business activity" includes all uses of real property except those specifically enumerated in the act. Under the act, property used for the following purposes is not considered to be used in a "business activity" and is therefore eligible for the rollback: farming;26Z leasing property for farming; occupying or holding property improved with single-family, two-family, or three-family dwellings; leasing property improved with single-family, two-family, or three- family dwellings; or holding vacant land that the county auditor determines will be used for farming or to develop single-family, two-family, or three-family dwellings. Property used in any other activity is deemed under the act to be used in a "business activity" and therefore ineligible for the rollback.

The county auditor must review each parcel of real property each year to determine if it qualifies for the rollback as of January 1 of the current tax year. The act specifies that the determination of wirether real property qualifies for the rollback is solely for the purpose of allowing the rollback.

The act authorizes the Tax Commissioner to adopt rules for the administration of the rollback.

262 Land and improvenents used in the commercial production of timber are not eligible for the rollback if they are already receiving preferential tax treatment under continuing law. Under continuing law, forest land that the owner declares is devoted exclusively to forestry or timber growing is taxed at 50% of the local tax rate (R.C. 5713.23 (not in the act)). Further, under continuing law, all land devoted exclusively to agricultural use is valued for taxation purposes at the current value the land has for agricultural use rather than the value the land would have if used in the most profitable manner possible (RC. 5713.31 (not in the act)). Valuing agricultural land in this manner deflates the taxable value of the land, thereby reducing property taxes. The act speciftes that any real property used in the commercial production of timber that receives either of these existing tax beneflts is not eligible for the rollback.

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Appx.160 Continuing law provides for the reduction of real property taxes on homesteads and manufactured home taxes on manufactured or mobile homes, in an amount equal to '/< of the amount by which taxes are reduced under the 10% rollback (which equals 2%z%). The act replaces this equation with language that simply states that to provide a partial exemption, real property taxes on homesteads and manufactured home taxes on manufactured or mobile homes is 2'/:% of the amount of taxes to be levied on the homestead or home.

Phase-out of tax on business and telecommunications personal property

(R.C. 5711.01, 5711.16, 5711.21, 5711.22, 5727.01, 5727.02, 5727.031, 5727.06, and 5727.111)

The act phases 'out taxation of all tangible personal property used in business over four years, beginning in 2006 and ending in 2009, when all such property becomes exempted from taxation. Under prior law, such property was subject to taxation by local taxing jurisdictions. All such property other than inventory was taxable on 25% of its value. Inventory was taxed on 23% of its value, and was scheduled to be taxed on decreasing percentages of its value, reduced by two percentage points per year from 2007 through 2017, when it was scheduled to become exempt. New machinery and equipment used in manufacturing is exempted immediately under the act, as explained below. The act also phases out the taxation of tangible personal property used in providing telecommunications service, which includes the property of telephone companies, telegraph companies, and interexchange telecommunications companies and is taxed as public utility property. The phase-out of the tax on telecommunications property is over a five-year period beginning in 2007.

Exemption of new business machinerv and eguinment

(R.C. 5711.16(A) and 5711.22(F))

The act exempts from property taxation all machinery and equipment used in business that is installed (or otherwise first used in business in Ohio) after the end of 2004. The exemption applies to all such property if it was not used in business before 2005 by the property's owner or by a related member or predecessor of the owner, unless the property was the inventory of the owner, related member, or predecessor (in which case the property is subject to the phase- out described below).

The act defines manufacturing equipment so that it can be distinguished from other tangible personal property. Manufacturing equipment includes machinery and equipment and tools and implements, including any associated patterns, jigs, dies, drawings, and business fixtures, used at a manufacturing

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Appx. 161 facility by a manufacturer, including any such property leased to the manufacturer. Manufacturing equipment does not include property used for general office purposes. A manufacturing facility is defmed as a facility or portion of a facility used for manufacturing, mining, refining, rectifying, or combining different materials with a view of making a gain or profit, including a portion of a facility used to store or transport raw materials, work-in-process, or finished goods inventory, for packaging, for research, or to test for quality control, so long as manufacturing, mining, refining, rectifying, or combining is also performed at the facility. A manufacturing facility does not include any portion of a facility used primarily for making retail sales.

Phase-out oftaz on all other business tangible personal nropertv

(R.C. 5711.22(G))

All business tangible personal property other than the new manufacturing equipment that is exempted immediately is to be taxed on decreasing percentages of its value for five years beginning with tax year 2006 until it is no longer subject to taxation in 2009 and thereafter. The phase-out applies to three classes of property: manufacturing equipment, farniture and fixtures, and inventory. Since inventory taxation was scheduled to be phased out under prior law according to a much slower schedule; the act's phase-out represents an acceleration in the phase- out for inventory taxation.

The assessment percentages applicable to the three classes of property decline as shown in the following table:

Year Percentage 2005 25% (inventory 23%) 2006 18.75% 2007 12.5% 2008 6.25% 2009 0%

Phase-out of tax on telecommunications nroneriy

The act phases out taxation of the tangible personal property of telephone companies, telegraph companies, and interexchange telecommunications companies over five years, beginning in 2007. Under prior law, telephone and telegraph company property was taxed on 25% of its value unless it was in place

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Appx. 162 before 1996, in which case it was to be taxed on 67% of its value in 2005, 46% in 2006, and 25% in 2007 and thereafter. Interexchange telecommunications company property was taxed on 25% of its value.

Under the act, all such property is to be taxed on 20% of its value in 2007, 15% in 2008, 10% in 2009, and 5% in 2010. It will be exempted from taxation in 2011 and thereafter. Also, between 2007 and 2010, such property will be listed and assessed in the same manner as business personal property instead of as public utility property, except that the value of a company's property will continue to be apportioned among taxing units as it currently is--i.e., according to wire-miles or the cost of property located in each taxing unit.

Reimbursement of local taxinQ units

(R.C. 5751.20 to 5751.22)

The act provides reimbursement to school districts and other local taxing units for some of the net revenue reduction that results from the act's exemption and phase-out of machinery and equipment and furniture and fixtures taxation, the accelerated inventory taxation phase-out; and the phase-out'oftelecommunications property taxation. Reimbursement is to be paid to school districts and joint vocational school districts through the newly created School District Tangible Property Tax Replacement Fund and to other local taxing units through the newly created Local Govemment Tangible Property Tax Replacement Fund. These funds are to be funded by a portion of the new commercial activity tax. The act prescribes specific computations and procedures the Tax Commissioner and the Department of Education are to follow to implement the reimbursement.

School districts. Generally, the reimbursement for school districts (including joint vocational school districts) is based on the net revenue effect of the act's property tax exemption and phase-outs after offsetting the increased state funding school districts receive when their taxable property values decline, and disregarding the effects of the scheduled phase-down of inventory taxes. The revenue effect of the previously enacted inventory tax phase-out is essentially subtracted from the revenue effect of the act's exemptions and phase-outs, meaning the act does not reimburse districts for revenue losses resulting from the previously enacted inventory phase-down. (Nor does ongoing law provide direct reimbursement for the previously enacted inventory phase-down.) For the same reason, the state education aid offset incorporated in the act's reimbursement formula does not offset state aid increases to the extent those increases result from the previously enacted inventory phase-down. In other words, the act's reimbursement provision reimburses only for net revenue losses resulting from the act's tax changes, disregarding previously enacted changes.

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Appx. 163 The reimbursable net revenue losses generally are computed on the basis of 2004 taxable values and school district levies in effect in 2004 or in 2005 (so long as the levy was approved by voters before September 1, 2005). The reimbursement for telecommunications property also is based on tax year 2004 values as if all the property was assessed at 25% of value for that year, but since the phase-out of taxes on that property does not begin unti12007, reimbursement is delayed until after the phase-out begins.

In the case of levies raising a fixed sum of money, such as bond levies and emergency levies, reimbursable losses are computed for as long as the district continues to impose the levy after 2005 and through 2018, including, in the case of emergency levies only, any renewals for the same amount as the original emergency levy minus the 2006 reimbursement amount. If a voted debt levy continues beyond 2018, it continues to be reimbursed until it expires. Voted debt levies also are reimbursed fully and do not become subject to the phase-down reimbursement percentages after 2010 (except for their contribution to the `/rmill increase in the school district's fixed-sum levies, which is not reimbursed). The total reimbursement for all fixed-sum levies imposed by the school district is to within %rmill worth of the reimbursable loss. The unreimbursed %rmill is divided among the school district's fixed-sum levies in proportion to their relative rates.

Reimbursement for fixed-rate levies is to be paid in full through fiscal year 2011, and then in declining amounts through the end of fiscal year 2018, but fixed- rate levies expiring after fiscal year 2010 are not reimbursed for any year after their expiration. The rate of decline in the reimbursement for fiscal years 2011 and 2012 is 3/17 per year of the computed fixed-rate loss; the rate of decline for fiscal years 2013 through 2018 is 2/17 per year. In fiscal year 2018, the last 1/17 is paid, and no reimbursement is paid thereafter. Fixed-sum levies and unvoted millage for debt are fully reimbursed through the end of fiscal year 2018, but, in the case of unvoted debt levies, the reimbursement is payable only so long as the millage continues to be levied for debt purposes. If the purpose is changed to some other purpose, the reimbursement is computed according to the phase-out reimbursement percentages applicable to fixed-rate levies. Reimbursement payments are to be made three times per year in May, August, and November, beginning in May 2006 and ending in May 2018.

Other taxinn units. Reimbursement to local taxing units other than school districts and joint vocational school districts is similar in concept to the school district reimbursement except there is no offset for increases in state aid. Accordingly, local taxing units are reimbursed for the net revenue losses caused by the act's exemption of newly installed manufacturing equipment, the phase-out of taxes on existing machinery and equipment and furniture and fixtures, the incremental revenue loss from the accelerated phase-out of taxes on inventory, and

M Legislative Service Commisslon -584- Am. Sub. H.B. 66

Appx. 164 the phase-out of taxes on telecommunications personal property. Revenue losses from the previously enacted phase-down of inventory taxes are not reimbursed. Levies qualify for reimbursement under the same temvs as for school district levies, except local taxing units do not impose emergency levies of the sort that school districts may impose. Reimbursement for fixed-rate levies is to be paid in full through 2010 and in declining amounts from 2011 through the end of calendar year 2017. The rate of decline in the reimbursement for 2011 and 2012 is 3/17 of the fixed rate levy loss; the rate of decline from 2013 through 2017 is 2/17 of the fixed-rate loss. In 2017, the last 1/17 is paid, and no reimbursement is paid thereafter. Fixed-sum levies and unvoted millage for debt are to be fally reimbursed through 2017, but, in the case of unvoted debt levies, the reimbursement is payable only so long as the millage continues to be levied for debt purposes. If the purpose is changed to some other purpose, the reimbursement is computed according to the phase-out reimbursement percentages applicable to fixed-rate levies. Reimbursement payments are to be made in each May, August, and October, beginning in May 2006 and ending in October 2017.

Reimbursement for county administrative fee losses

(R.C.5721.23)

The act devotes a portion of the reimbursement payable to school districts and taxing units to compensate county auditors and treasurers for the loss of administrative fees payable on the basis of property taac collections. Under continuing law, county auditors and treasurers are entitled to a percentage of the property taxes collected to help cover the cost of administering and collecting property taxes, including the percentage credited to the real estate assessment fund to defray the cost. of assessing real property. Under the act, a percentage of the reimbursable revenue loss is used to reimburse the county auditors, county treasurers, and real estate assessment funds for the loss of these fees. The percentage is 1.1159"/o if the county's 2004 tax collections from all tax duplicates (other than the estate tax list) were $150 million or less, and 0.9659% if the county's 2004 collections were more than $150 million. The fee reimbursement compensation is phased out according to the reimbursement phase-out schedule for local taxing units.

Clarifacation of derinition of "manufacturine eauinment"

(R.C. 5711.16(A)(2))

The act states that nothing in the definition of "manufacturing equipment," which includes patterns, jigs, dies, and drawings, is to be construed as changing the general definition of "personal property," which excludes from taxation

M Legislative Service Commission -585- Am. Sub. H.B. 66

Appx. 165 patterns, jigs, dies, or drawings that are held for use and not for sale in the ordinary course of business.

Joint LeQislative Tax Reform Impact Study Committee

(Section 557.13.09)

The act, in a provision vetoed by the Govemor, would have created the Joint Legislative Tax Reform Impact Study Comnuttee to study the effects on school districts and other local taxing units of the act's phase-out of the tangible personal property tax and any other matter related to the phase-out the committee considered of significance. In particular, the committee would have been required to estimate the total taxes lost by school districts and by local taxing units as a result of the phase-out; to estimate the capacity of the commercial activity tax to replace lost tangible property tax revenues and to fand the General Revenue Fund; to estimate the cost for delivery of services by school districts and other local taxing units; to estimate emerging demands for those services arising from demographic and economic changes to districts and units; to identify alternatives for effectively balancing state and local tax revenues available to school districts and other taxing units and their responsibilities for delivery of services; to examine how the commercial activity tax treats for-profit corporations as compared to nonprofit corporations; to review the impact of the connnercial activity tax on the various business sectors; and to estimate the revenue impact of reclassifying rental real property having more than three units as residentiaUagricultural real property instead of as nonresidential/agricultural real property.

The Committee would have had ten members from the General Assembly: the chairperson of the Senate Ways and Means and Economic Development Committee, four senators appointed by the Senate President, the chairperson of the House Ways and Means Conunittee, and four representatives appointed by the House Speaker. Not more than two of the members respectively appointed by the President and Speaker could have been members of the same political party. The two chairpersons would have served as co-chairpersons of the study committee.

The Department of Taxation would have been required to cooperate with the study committee and, upon request, to provide the study committee with any information or assistance it needs to carry out its duties.

The study committee would have been required to hold at least four meetings at the call of the co-chairpersons.

The Committee would have been required to issue a report of its findings and recommendations by January 31, 2006, at which time it would have ceased to exist.

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Appx.166 Reduction in assessment rate on public utilitv property

(R.C. 5727.01(E) and 5727.111)

Currently, most electric companies' transmission and distribution equipment is taxed on 88% of its value and their other property is taxed on 25% of its value. The act reduces the 88% assessment rate for transmission and distribution equipment to 85% and reduces the 25% assessment rate for all other property to 24%. The reductions take effect beginning in tax year 2006. But the act imposes the tangible personal property tax on the patterns, jigs, dies, and drawings of an electric company or a combined company that are for use in the activity of an electric company.

The act does not change the current assessment rates on the property of rural electric companies, which are cooperatives and other organizations providing electricity to their members, primarily in rural communities.

Tax treatment of nonutilitv electricitv providers

(R.C. 5711.21, 5711.22, 5727.02,.and 5727.031)

Under continuing law, when a business other than an electric company generates or distributes electricity for its own use, as in large manufacturing operations, and provides electricity to others (for example, when excess capacity is available), the property used to generate or distribute the electricity is treated, in effect, as partly business property and partly public utility property. This treatment recognizes that the method of deriving the value of public utility property and business property differs, as do the respective assessment rates. The value of the property is divided into two parts each year on the basis of the relative percentage of the electricity used by the generator and by anyone else in the previous year. The part attributed to the generator is valued and assessed like business property (at 25%), and the part attributed to generation for others is treated as electric company property: i.e., the transmission and distribution component of that part is valued and assessed like that of electric companies (at 88%), and the generation component is valued and assessed like that of electric companies (at 25%).

Under the act, businesses that generate electricity and supply some of it to others, but whose primary business is not supplying electricity, will continue to be taxed on their electricity-related property in the same manner as under prior law. However, because much of the part of that property attributed to the business's own electricity use will no longer be taxable after 2008 (because of the act's phase- out of tax on business machinery and equipment), the business will be required to report its electricity-related property as an electric company does beginning with

M Legislative Service Commission -587- Am. Sub. H.B. 66

Appx. 167 2009. Its report will have to contain only the part of the value of the property attributed to supplying electricity to others (determined on the basis of the relative percentage of electricity supplied to others, as under prior law). The reportable property will continue to be determined and assessed as under prior law--i.e., in the same manner as for the equivalent electric company property--but at the act's new assessment rates: 85"/o- for transmission and distribution property and 24% for all other property.

Railroad property assessment

(R.C. 5713.01, 5727.06, 5727.10, 5727.11, and 5727.12; Section 557.19)

Under prior law, the Tax Commissioner valued and assessed the real property of railroads. The act provides that beginning in tax year 2006, the Commissioner must value and assess real property owned by a railroad that is used in railroad operations. For tax year 2006 and thereafter, the county auditor must value and assess real property owned by a railroad that the Commissioner determines is not used in railroad operations.

Property leased to public utilities

(R.C. 5711.21(C), 5711.22(C), 5727.01(M), 5727.06, 5727.08, 5727.11, and 5727.23)

Under continuing law, property owned by someone other than a public utility or interexchange teleconununications company but leased by that person to a public utility or interexchange telecommunications company under a sale and leaseback arrangement is valued and assessed as if it were owned by the public utility or interexchange telecommunications company:

The act maintains the current treatment for property leased under a sale and leaseback arrangement, but applies the same treatment to tangible personal property leased to a public itility or interexchange telecommunications company other than through a sale and leaseback transaction, beginning in 2009. (This provision does not apply to property leased to a railroad company, water transportation company, telephone company, or telegraph company.) The property is to be reported and the tax paid by the lessor of the property (termed the "public utility property lessor") using the assessment rate that would apply to the lessee if the lessee owned the property.

The act provides that personal property owned by a public utility property lessor that is leased, in other than a sale and leaseback transaction, to a public utility or an interexchange telecommunications company must be reported by the lessor and the lessor must pay the public utility property tax. A "public utility

M Legislative Service Commission -588- Am. Sub. H.B. 66

Appx. 168 property lessor" is any person, other than a public utility or an interexchange telecommunications company, that leases personal property, other than in a sale and leaseback transaction, to a public utility, other than a railroad, water transportation, telephone, or telegraph company, if the property would be taxable property if it was owned by the public utility. A public utility property lessor that leases property to a public utility is not a public utility, but must report its property and be assessed in the same manner as the utility to which it leases the property.

The act commences the reporting and payment requirement in tax year 2009, to coincide with the phase-out of the general personal property tax. The act provides that a public utility property lessor is subject to the public utility personal property tax law only for the purposes of reporting and paying the tax on taxable property it leases to a public utility (i.e., to other than the four excepted classes of utilities indicated above).

Taxation of oil and ras recovery equipment

(R.C. 5709.112 and 5715.01; Section 557.13.03)

The act provides that for tax year 2006 and thereafter, all tangible personal property used to recover oil and gas is exempt from tangible personal property tax treatment, when it is installed and located on the premises or the leased premises of the owner. The exemption does not apply if the property is not installed on the premises or leased premises of the owner, or if it is used for the transmission, transportation, or distribution of oil or gas. The exemption also does not apply to public utilities that file reports on their property under the public utility property tax law and have their property assessed by the Tax Commissioner. The act authorizes the Commissioner to adopt rules governing the administration of this exemption.

The act also provides that when determining the true value of minerals or rights to minerals for the purpose of real property taxation, the Tax Commissioner cannot include in that value the value of tangible personal property used in the recovery of those minerals. The act requires that the Commissioner review the calculations of the multipliers used in the determination of oil and gas valuations in sufficient time to be used in the Commissioner's annual entry adopting the multipliers for tax year 2006, to ensure that oil and gas properties are uniformly assessed under the act.

M Legislative Service Commission -589- Am. Sub. H.B. 66

Appx. 169 School district property tax to offset fundine formula charee-off increases

(R.C. 3317.01 and 5705.211)

The act, in a provision vetoed by the Govemor, would have authorized school districts, with voter approval, to levy a property tax designed to raise an amount of revenue each year equal to reductions in basic state funding caused by increases in the charge-off computation. The charge-off is a deduction from the district's state basic per-pupil funding equal to 2.3% of the district's "recognized valuation." Recognized valuation is a measure of a school district's taxable property value (including both real property and tangible personal property). The measure incorporates appreciation in real property values in one-third increments over the three-year property reassessment cycle. As recognized valuation increases or decreases in response to changes in property values, the charge-off increases or decreases accordingly, which in turn causes a district's basic funding to decrease or increase by a factor of 2.3% of the change in recognized valuation.

The tax rate would have been adjusted each year to raise the required amount. But the rate would have been limited so that the levy could not raise so much that the total current expense revenue from all property levies could increase by more than 4% per year. (The act would have authorized a school board to adopt a lower growth percentage.) Revenue increases from new current expense levies would not have counted toward the growth limitation unless the new levy was a renewal or replacement levy imposed at the same rate or a lesser rate as compared to the levy being renewed or replaced. The tax would have had to have been levied for current expenses, and could have been levied either permanently or for a specified number of years, but not fewer than five years.

Accelerate nhase-out of state reimbursement for $10,000 business property exemption

(R.C. 321.24(G))

Continuing law exempts the first $10,000 of a business's tangible personal property from property taxation (R.C. 5709.01(C)(3)). Currently, the state reimburses local taxing districts for the resulting revenue reduction, but Am. Sub. H.B. 95 of the 125th General Assembly phases-out the state's reimbursement for the exemption, over ten years. Under the phase-out, county treasurers receive a payment each year from the General Revenue Fund that is a reduced percentage of the county's fiscal year 2003 reimbursement. The payment is then apportioned among the county's taxing districts as if levied and collected as personal property taxes. No fur[her reimbursements are to be paid after fiscal year 2012.

Legislative Service Commission -590- Am. Sub. H.B. 66

Appx.170 The act accelerates the phase-out period so that no reimbursement payments are made after fiscal year 2009. The act also adjusts the reimbursement percentages in fiscal year 2006, from 70% to 64%; in fiscal year 2007, from 60% to 40%; in fiscal year 2008, from 50% to 32%; and in fiscal year 2009, from 40% to 16%.

Eaualization of real property assessments

(R.C. 5715.24)

Under continuing law, all real property in a county is reappraised every six years for purposes of establishing its taxable ralue. The Tax Commissioner is required to determine whether the real property in counties that have completed a sexennial reappraisal in the current year has been properly assessed. If, upon reviewing a sexennial reappraisal, the Commissioner determines that the property is not properly listed for taxation, the Commissioner is required to increase or decrease the aggregate value of the real property, or any class of real property, by a percentage or amount that will cause it to be correctly assessed at its taxable value.

The act provides that in determining whether a class of real property has been assessed at its correct taxable value and in determining any percent or amount by which the aggregate value of the class from a prior year should be increased or decreased to be correctly assessed, the Commissioner is to consider only the aggregate values of property that existed in the prior year and that is to be taxed in the current year. The value of new construction is not to be regarded as an increase in aggregate value from the prior year. Likewise, the value of property destroyed or demolished since the prior year is to be deducted from the aggregate value of that class for the prior year.

School district property tax replacement pavments when district merQers occur

(R.C. 5727.85(G) and (J))

Under continuing law, school districts and joint vocational school districts receive property tax replacement payments to offset the loss of revenues that occurred when the assessment rates on the tangible personal property of rural electric companies, electric companies, and natural gas companies were reduced. These replacement payments come from a portion of the kilowatt-hour and MCF tax revenues, and are based on a district's fixed-rate levy loss and fixed-sum levy loss. The act establishes a procedure to determine how payments are to be made to those districts that merge with or transfer territory to other districts, as follows:

M Legislative Service Commission -59I - Am. Sub. N.B. 66

Appx. 171 Complete merger of Successor district receives the Successor district receives two or more districts sum of the fixed-rate levy losses the sum of the fixed-sum for each district merged. levy losses for each district merged. Transfer of part of a Recipient district receives the The Department of district's territory to an transferring district's total fixed- Education, in consultation existing district rate levy loss times a fraction, with the Tax Commissioner, with the numerator being the makes an equitable division value of electric company of the fixed-sum levy losses tangible personal property in the for both districts, if the part of the territory transferred, recipient district takes on and the denominator being the debt from the other district. total value of that property in the entire district from which the territory was transferred.263

Transfer of part of one New district receives just its The Department of or more districts' current fixed-rate levy loss Education, in consultation territory to form a new through August 2006. From with the Tax Commissioner, district between February 2007 to August 2016, makes an equitable division January 1, 2000, and the new district receives the of the fixed-sum levy losses January 1, 2005 . lesser of (1) an amount for all the districts, if the determined under continuing law new district takes on debt (R.C. 5727.85(C)) by first from the other district(s). subtracting the district's state education aid for fiscal year 2002 from the district's state education aid for the current fiscal year and then subtracting the result of that calculation from the district's inflation- adjusted property tax loss, or (2) the amount determined as if the new district were a local taxing unit entitled to receive a payment for its fixed rate levy loss under the schedule in continuing law (R.C. 5727.86(A)(1)).

263 The value of electric company tangible personal property is determined for the most recent year for which data is available.

W, LegistativeServiceCommission -592- Am. Sub. H.B. 66

Appx. 172 Transfer of part of one New district does not receive New district does not receive or more districts' any fixed-rate levy loss. The any fixed-sum levy loss, territory to form a new transferring district(s) continue unless it takes on debt from district on or after to receive their current fixed-rate the other district(s), in which January 1, 2005 levy loss. case the Department of Education, in consultation with the Tax Contmissioner, makes an equitable division of the losses for the districts.

The act also changes one of the ending dates by which the Director of Budget and Management must transfer amounts from the School District Property Tax Replacement Fund to the General Revenue Fund, from February 2017 to May 2017.

Computation used to determine amounts devosited each year in the Property Tax Administration Fund chanped

(R.C. 321.24 and 5703.80)

Continuing law provides for a percentage of real property tax rollback reimbursements to local governments to be diverted to a special fund known as the Property Tax Administration Fund. The fund is used by the Department of Taxation to defray its costs of administering property taxation and of equalizing real property. The Department oversees the equalization of real property valuation throughout the state, and administers the assessment of all public udlity property and tangible personal property of businesses operating in more than one county 26°

The Property Tax Administration Fund is funded from a portion of the state reimbursement that otherwise is payable to taxing districts for the 10% rollback for real property. Under prior law, the portion diverted to the fund was the sum of the following:

• 0.3% of the 10% real property tax rollback reimbursement (including the rollback reimbursement for manufactured and mobile homes);

• 0.15% of the taxes charged against public utility personal property;

264 Under the act, as explained above, the Tax Commissioner will assess the real property of railroads only when it is used in railroad operations.

M Legislative Service Commission -593- Am. Sub. H.B. 66

Appx. 173 • 0.75% of taxes charged against tangible personal property of businesses owning property in more than one county.

The act changes the computation used to determine the portion of the 10% rollback reimbursement to be diverted to the Property Tax Administration Fund. Under the act, the portion diverted to the fund is computed as follows:

• For fiscal year 2006:

0.33% of the 10% real property tax rollback reimbursement (including the rollback reimbursement for manufactured and mobile homes); plus

0.5% of the taxes charged against public utility personal property; plus

0.5% of the taxes charged against tangible personal property of businesses owning property in more than one county.

• For fiscal year 2007:

0.35% of the 10% real property tax rollback reimbursement (including the rollback reimbursement for manufactured and mobile homes); plus

0.56% of the taxes charged against public utility personal property; plus

0.56% of the taxes charged against tangible personal property of businesses owning property in more than one county.

• For fiscal year 2008 and thereafter:

0.35% of the 10% real property tax rollback reimbursement (including the rollback reimbursement for manufactured and mobile homes); plus

0.6% of the taxes charged against public utility personal property; plus

0.6% of the taxes charged against tangible personal property of businesses owning property in more than one county.

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Appx. 174 State pavment of estimated taxes for acquired property

(R.C. 319.20)

Prior law specified that whenever the state acquired an entire or partial parcel of real property in fee simple, the county auditor, upon application of the grantor, the property owner, or the state, had to prepare an estimate of the taxes that were a lien on the property, but that had not been detemrined, assessed, and levied for the year in which the property was acquired. The county auditor was required to apportion the estimated taxes proportionately between the grantor and the state for the period of the lien year that each had or would have had ownership or possession of the property, whichever was earlier.

The act requires the county treasurer to accept payment from the state for estimated taxes at the time the real property is acquired. If the state has paid in full in the year in which the property is acquired that portion of the estimated taxes that the Tax Commissioner detemunes are not subject to remission by the county auditor for such year,Z65 then the estimated taxes paid are to be considered the tax liability on the exempted property for that year.

Interest rate reduced on personal property tax late pavments and overpavments

(R.C. 5703.47 and 5719.041)

Tangible personal property located and used in business in Ohio is subject to taxation by local taxing units. If the taxes are not paid on time, a 10% penalty is charged and interest accrues on the unpaid balance at the "rate per annum." If taxes are overpaid, interest accrues at the same rate on the overpayment until a refund is issued. Most of the interest on late payments is credited to the funds of local taxing units; interest on refunded overpayments is payable from the funds of local taxing units.

Continuing law provides that on October 15 of each year, the Tax Commissioner must determine the federal short-term rate, rounded to the nearest whole number per cent, plus 3%. That rate is the "rate per annum." The act changes this rate for personal property taxes. For purposes of those taxes, the "federal short-term rate" is the federal short-term rate rounded to the nearest whole number per cent. Thus, the act reduces the interest rate that accrues on personal property tax late payments and overpayments, by applying the "federal short-term rate" rather than the rate per annum.

265 Continuing law requires the county auditor to remit taxes that have not yet been assessed in the year the property is acquired by the state (RC. 5713.08(C)J.

M LegistativeServiceCommission -595- Am. Sub. H.B. 66

Appx.175 Incentive districts

Overview

(R.C. 5709.40, 5709.73, 5709.77, and 5709.78)

The act makes various changes in the law regarding incentive districts, and places certain conditions on their creation. Under continuing law, the legislative authority of a municipal corporation may adopt an ordinance, or a board of county commissioners or board of township trustees may adopt a resolution, that creates an "incentive district" (also known as an area-wide TIF) in an area not more than 300 acres in size enclosed by a continuous boundary and that has certain distress characteristics, such as high unemployment, or contains public infrastructure that is inadequate to meet the development needs of the district. The ordinance or resolution also must declare that "improvements" to parcels in the district are for a public purpose and exempt from taxation, and must specify the life of the district, the percentage of improvements to be exempted, and the public infrastructure improvements to be made that benefit or serve parcels in the district. "Improvements" means the increase in the assessed value of real property in the incentive district, excluding public infrastrncture improvements, e.g., roads, water and sewer lines, environmental remediation, or land acquisition. Under prior law, ordinances or resolutions creating incentive districts had to have been adopted on or before June 30, 2007.

Conditions for creatinP incentive districts

(R.C. 5709.40(A) and (C), 5709.73(A) and (C), 5709.77(D), and 5709.78(B))

The act eliminates the sunset date for incentive districts so that there is no date limitation on the adoption of ordinances or resolutions creating the districts. The act also provides that no legislative authority may adopt an ordinance, or no board of county commissioners or township trustees may adopt a resolution, that creates an incentive district if the population of the municipal corporation, county, or township exceeds 25,000 and, as a result of adopting the ordinance or resolution, more than 25% of the taxable value of the municipal corporation, county, or township, as of January 1 of the year in which the ordinance or resolution takes effect, is exempted because of an incentive district. The 25% limitation does not apply to an incentive district that was created by an ordinance or resolution adopted prior to January 1, 2006, unless an additional incentive district is created after that date.

The act also requires that the ordinance or resolution creating an incentive district identify one or more specific projects being, or to be, undertaken in the

M Legislative Service Commission -596- Am. Sub. H.B. 66

Appx.176 district that place additional demand on the public infrastructure improvements designated in the ordinance or resolution. The project identified may, but need not be, the project that under continuing law must be designated in the ordinance or resolution as placing real property in use for commercial or industrial purposes, if the ordinance or resolution authorizes the use of service payments for the purpose of housing renovations within the district.

The act eliminates the exclusion of public infrastructure improvements from the definition of "improvements" so that they are included as improvements to parcels in the incentive district. The act fintlrer provides that public infrastructure improvements to be made in an incentive district cannot include police or fire equipment.

Notice requirements and reimbursement of municioalities, counties, or townships in which incentive districts are located

(R.C. 5709.40(E), 5709.73(E), and 5709.78(D))

The act provides that if a proposed ordinance or resolution creating an incentive district exempts improvements with respect to a parcel for more than ten years, or the percentage of the improvement exempted from taxation exceeds 75%, not later than 45 business days prior to adopting the ordinance or resolution the legislative authority of a municipal corporation or the board of county commissioners or township trustees proposing it (the "proposing subdivision") must deliver to the other subdivision in which the incentive district is or will be located, a notice that states the proposing subdivision's intent to adopt an ordinance or a resolution creating an incentive district. This notice requirement applies to all of the following: (1) the legislative authority of a municipal corporation, which must deliver the notice to the board of county commissioners of the county within which the incentive district is or will be located, (2) a board of township trustees, which must deliver the notice to the board of county commissioners of the county within which the incentive district is or will be located, and (3) a board of county commissioners, which must deliver the notice to the board of township trustees of any township or the legislative authority of any municipal corporation within which the incentive district is or will be located. The notice must include a copy of the proposed ordinance or resolution.

The other subdivision in which the incentive district is or will be located, by ordinance or resolution, as appropriate, may object to any exemption for the number of years in excess of ten or to the percentage of the improvement to be exempted in excess of 75%, or both, or may accept either or both exemptions. If the other subdivision objects, it may negotiate an agreement with the proposing subdivision that provides to the other subdivision in which the incentive district is or will be located in the 11th and subsequent years of the exemption period

W Legislative Service Commission -597- Am. Sub. H.B. 66

Appx.177 compensation equal in value to not more than 50% of the taxes that would be payable to the other subdivision on the portion of the improvement that exceeds 75%, were that portion subject to taxation. The other subdivision must certify its resolution or ordinance to the proposing subdivision not later than 30 days after receipt of notice of the proposing subdivision's intent to adopt an ordinance or resolution creating an incentive district.

If the other subdivision in which the incentive district is or will be located does not object, or fails to certify its ordinance or resolution objecting to an exemption, within 30 days after receipt of the proposing subdivision's notice, the proposing subdivision may adopt the ordinance or resolution creating the incentive district, and no compensation has to be provided to the other subdivision. If the other subdivision timely certifies its ordinance or resolution objecting to the proposing subdivision's ordinance or resolution creating the incentive district, the proposing subdivision may adopt the ordinance or resolution creating the incentive district at any time after a compensation agreement is agreed to by the proposing subdivision and the other subdivision (see above), or, if no compensation agreement is negotiated, at any time after the proposing subdivision agrees to provide compensation to the other subdivision of 50% of the taxes that would be payable to the other subdivision in the 11th and subsequent years of the exemption period on the portion of the improvement that exceeds 75%, were that portion subject to taxation.

Grandfathering incentive districts

(Section 557.17)

The new conditions for creating incentive districts and the notice and reimbursement requirements discussed immediately above do not apply to a project if either (1) a project agreement has been completed on or before December 31, 2005, for the project or (2) bonds have been issued for the project on or before December 31, 2005.

Treatment of special tax levies levied on nronertv exempted in incentive districts

(R.C. 5709.40(F), 5709.73(F), and 5709.78(E))

The act provides that property tax levies that are enacted (1) on and after January 1, 2006, for the following purposes and (2) after the date an ordinance or resolution creating an incentive district is adopted on or after January 1, 2006, must be levied on property in the district that was exempted from taxation by the ordinance or resolution:

M Legislative Service Commission -598- Am. Sub. H.B. 66

Appx. 178 (1) Community mental retardation and developmental disabilities programs and services.

(2) Providing or maintaining senior citizens services or facilities.

(3) County hospitals.

(4) Alcohol, drug addiction, and mental health services.

(5) Library purposes.

(6) The support of children services and the placement and care of children.

Revenues collected from these special levies cannot be used to provide service payments.

Tax increment financin,2 cleanQes

(R.C. 5709.40(B), (D), and (G), 5709.73(B), (D), and (G), and 5709.78(A), (C), and (F); Sectioti 553.02.06)

On and after January 1, 2006, the act permits real property tax exemptions granted under the tax increment fmancing (TIF) law (for both incentive districts and parcel-by-parcel public purpose TIFs) to begin at any time specified in the TIF resolution or ordinance. Under prior law, the exemption began when the increased value from the parcel first appeared on the tax list (whether through development or an increase in assessed value). The act also provides that exemptions from taxation granted pursuant to an ordinance or resolution adopted under the TIF law on or after July 1, 2005, and on or before December 31, 2005, commence with the tax year specified in the ordinance or resolution.

Under former law, a public infrastructure improvement could receive a TIF tax exemption and be fmanced with service payments in lieu of taxes if a project on a parcel placed "direct, additional demand" on the improvement. The act eliminates this test, but continues to require that the public infrastructure improvements directly benefit the parcel for which the improvements are declared to be a public purpose. The acfs changes in this regard pertain to TIF tax exemptions granted on a parcel-by-parcel basis, not incentive districts.

The act makes other modifications to provisions in the TIF law that govern when a school district must approve of a property tax exemption, but the modifications do not appear to change the substance of those provisions. The changes expressly acknowledge that any compensation to be paid to the school district must be mutually agreeable.

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Appx.179 Real yranerty tax exemption for certain buildinps and lands used by a state univers'

(R.C. 5709.07; Section 553.02.03)

Continuing law provides that public colleges and academies and all buildings connected with them, and all lands connected with public institutions of leaming, not used with a view to profit, are exempt from real property taxation, but leasehold estates or real property held under the authority of a college or university of learning do not qualify for the exemption.

The act creates a real property tax exemption for buildings and lands that satisfy all of the following:

(1) The buildings are used for housing for full-time students or for housing-related facilities for students, faculty, or employees of a state university, or for other purposes related to the state university's educational purpose, and the lands are underneath the buildings or are used for common space, walkways, and green spaces for students, faculty, or employees of the state university. "Housing- related facilities" includes both parking facilities related to the buildings and common buildings made available to students, faculty, or employees of a state university.

(2) The buildings and land are supervised or otherwise under the control, directly or indirectly, of a 501(c)(3) charitable organizationZbb with which the state university has entered into a"qualifying joint use agreement" that entitles the university's students, faculty, or employees to use the lands or buildings. A "qualifying joint use agreement" is an agreement that satisfies all of the following: (a) the agreement was entered into before June 30, 2004, (b) the agreement is between a state university and a 501(c)(3) charitable organization, and (c) the state university that is party to the agreement reported to the Board of Regents that the university maintained a headcount of at least 25,000 students on its main campus during the academic school year that began in calendar year 2003 and ended in calendar year 2004. 67

266 Corporations, community chests, funds, or foundations, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.

267 Under continuing law, every state university and college that receives state aid is required to file annual reports with the Board ofRegents (R.C. 3345.05 (not in the act)).

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Appx. 180 (3) The state university has agreed, under the terms of, and to the extent applicable under, the qualifying joint use agreement, to make payments to the charitable organization in amounts sufficient to maintain agreed-upon debt service coverage ratios on bonds related to the lands or buildings.

The act provides that the leasing of space in housing-related facilities is not considered to be an activity with a view to profit; thus, the leases are exempt from real property taxation. As noted above, leasehold estates or real property held under the authority of a college or university generally is subject to taxation. The act exempts this property from taxation if it satisfies all the conditions described above.

The act defines a "state university" as a public institution of higher education that is a body politic and corporate, with each of the following recognized as a state university: University of Akron, Bowling Green State University, Central State University, University of Cincinnati, Cleveland State University, Kent State University, Miami University, Ohio University, Ohio State University, Shawnee State University, University of Toledo, Wright State University, and Youngstown State University.

The act specifies that real property that satisfies the conditions for exemption described above is to be deemed to be used with reasonable certainty in furthering or carrying out the necessary objects and purposes of a state university.

The act provides that this new exemption first applies with respect to tax year 2005. Notwithstanding the possibility that buildings and lands may qualify for a real property tax exemption under another section of the Revised Code specifically applicable to such buildings and lands, the above-described buildings and lands are nonetheless entitled to the new exemption.

Performinp arts center tax exemption

(R.C. 5709.12 and 5709.121)

Under continuing law, real and tangible personal property belonging to a charitable or educational institution, the state, or a political subdivision of the state is exempt from taxation if the property is used as a community or area center in which presentations in music, dramatics, the arts, and related fields are conducted for the purpose of fostering public interest and education in the performing arts. The act specifies that such property continues to be exempt from taxation even if it is conveyed through a single conveyance or a series of conveyances to an entity that is not a charitable or educational institution, the state, or a political subdivision. However, the exemption continues to apply only if all of the following conditions are satisfied:

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Appx. 181 (1) The property has been listed as exempt on the county auditor's tax list and duplicate for the county in which it is located for the ten tax years immediately preceding the year in which the property is conveyed;

(2) The owner to which the property is conveyed leases the property, through one lease or a series of leases, to (a) the entity that owned or occupied the property for the ten tax years immediately preceding the year in which the property is conveyed or (b) an affiliate of that prior owner or occupant;

(3) The property includes improvements that are at least 50 years old;

(4) The property is being renovated in connection with a claim for historic preservation tax credits available under federal law;

(5) The property continues to be used for the performing arts; and

(6) The property is certified by the United States Secretary of the Interior as a "certified historic structure" or is certified as being part of a certified historic structure.

Under continuing law, applications to exempt property from taxation must be filed with the tax commissioner by the owner of the property (R.C. 5715.27 (not in the act)). With respect to property that satisfies the six criteria for exemption described above, the act permits either the owner of the property or its occupant to file an application for exemption from taxation.

V. Sales and Use Taxes

Rate chanpe

(R.C. 5739.02(A), 5739.025, 5739.10, and 5741.02(A))

Am. Sub. H.B. 95 of the 125th General Assembly temporarily increased state sales and use taxes from 5% to 6%. The temporary increase applied to sales occuning on and after July 1, 2003, but before July 1, 2005. Under prior law, the rate was scheduled to return to 5% on July 1, 2005.

The act establishes a permanent sales and use tax rate of 5%2%, beginning July 1, 2005. This rate also applies to the vendors' excise tax for the privilege of engaging in the business of making retail sales on and after July 1, 2005. To reflect the tax rate change, the act revises the tax rate schedules that specify how the tax is applied to fractions of dollars when sales are not in exact dollar amounts.

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Appx.182 Temporarily maintain the 0.9% discount for vendors and sellers

(R.C. 5739.12)

For promptly filing sales and use tax retums and paying those taxes, continuing law gives vendors and sellers a 0.9% discount of the amount shown to be due on their returns. That discount rate was scheduled to be reduced to 0.75%, beginning July 1, 2005.

The act maintains the discount at the rate of 0.9°/q until July 1, 2007, when it becomes 0.75%.

Overview of the Streamlined Sales and Use Tax Aereement and changes made to conform to it

Since 2002, Ohio has been required by state law to participate in multi-state discussions to develop and finalize a voluntary, streamlined system for the collection of sales and use taxes from remote sellers. Ohio was one of the implementing states to develop the system through a Streamlined Sales and Use Tax Agreement (the Agreement), which provides states with the structure for simplifying their sales and use tax collection systems by changing state statutes to establish the systems. The Agreement provides that any state that becomes a member to the Agreement is authorized to collect taxes from remote sellers that have voluntarily registered with the central electronic registration system established under the Agreement. The Agreement requires that states bring their laws, rules, regulations, and policies into substantial compliance with each of its provisions in order to become a member state.

On November 12, 2002, the implementing states approved the Agreement, and subsequently amended it April 16, 2005. The act contains changes that help to bring Ohio's law into substantial compliance with each provision of the Agreement.

Sourcinr multiple points of use sales; sales of direct mail

(R.C. 5739.033)

Recent revisions to the Agreement changed the manner in which sales of digital goods, computer software, or services used in business are sourced when they are used in more than one taxing jurisdiction (multiple points of use) and the consumer does not hold a direct payment permit. The act adopts those changes by providing that a business consumer that purchases a digital good, computer software (except software received in person by a business consumer at a vendor's place of business) or a service, and that knows those items will be concurrently available for use in more than one taxing jurisdiction, must deliver to the vendor

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Appx. 183 in addition to the exemption certificate provided by the contractor to the vendor. A contractee that provides a certification is deemed to be the consumer of all items purchased by the contractor under the claim of exemption, if it is subsequently determined that the exemption is not properly claimed. The certification must be in such form as the Tax Commissioner prescribes.

Chan¢e to the statute of limitations for assessinr sales or use taxes

(R.C. 5739.16 and 5741.16)

Beginning January 1, 2006, the act extends the statute of limitations for making sales or use tax assessments against consumers whose exemption certificates have been denied. Continuing law provides that no assessment can be made for state or local sales or use taxes more than four years after the return date for the period in which the sale or purchase was made, or more than four years after the return for such period was filed, whichever date is later.

The act provides that a consumer who provides a fully completed exemption certificate may be assessed any state or local sales or use tax that results from denial of a claimed exemption within the later of the period established by continuing law or one year after the date the certificate was provided.

Medical equipment definitions and exenmtions

(R.C. 5739.01(HHH) and (III) and 5739.02(B)(18))

Continuing law defines "durable medical equipment" and "mobility enhancing equipment." The act clarifies the definitions to conform them with the defmitions in the Agreement. Although the definition of these terms are the same as in the Agreement, the act provides that the definitions are mutually exclusive of each other, a specification that is made under the Agreement.

Former law exempted from sales and use taxation sales of drugs for a human being, dispensed pursuant to a prescription; hospital beds when purchased for use by persons with medical problems for medical purposes; and medical oxygen and medical oxygen- dispensing equipment when purchased for use by a person with medical problems for medical purposes. The act limits the exemptions so that sales of drugs for a human being are exempt when they may be dispensed only pursuant to a prescription, and so that sales of hospital beds and medical oxygen and medical oxygen-dispensing equipment are exempt only when purchased by hospitals, nursing homes, or other medical facilities.

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Appx. 185 Revisions to the definition of "price": tax treatment of "bundled transactions"

(R.C. 5739.01(H) and 5739.012)

To conform with the April 16, 2005, amendments to the Agreement, the act amends the defmition of "price" to address the sales and use tax treatment of coupons or discounts, third party payments, and discounts offered under automobile manufacturing employee vehicle purchases.

The act also enacts a new law regarding the tax treatment of bundled transactions that was also in the amendments to the Agreement. The act defines "bundled transaction," which, in general, is the retail sale of two or more products where the products are otherwise distinct and identifiable products and are sold for one non-itemized price. The act establishes how the price of a bundled transaction is determined and how the transaction is taxed when taxable and exempt products are bundled in a sale.

These changes take effect January 1, 2006.

Telecommunications delinitions and sourcinp requirements

(R.C. 5739.01(B)(3)(f) and (p), (H)(4), and (AA), 5739.02(B)(46) and (47), 5739.034, 5739.035, and 5739.17)

The act adopts the Agreement's definition of "telecommunications service" and the defnritions for numerous types of telecommunications services, including "900 service," "prepaid wireless calling service," "value-added non-voice data service," and "private communication service."

The act exempts from sales and use taxes sales by a telecommunications service vendor of 900 service to a subscriber, and sales of value-added non-voice data service.

The act establishes sourcing requirements for private communication service, and clarifies sourcing of prepaid wireless calling service.

Timin$ of the adoption of resolutions for county nermissive sales tax levies

(R.C. 5739.026)

The Agreement requires that member states change local tax rates only on the first day of a calendar quarter after a minimum of 60 days' notice to vendors and sellers. Ohio law requires a board of county commissioners to give the Tax

W LegislativeServiceCommission -606- Am. Sub. H.B. 66

Appx. 186 Commissioner 65 days' notice before the day a rate change is to become effective, so that the Commissioner may report the change accordingly. But this notice requirement creates a problem if a resolution levying or changing the tax is adopted without submitting it to the electors of the county. That type of resolution is subject to referendum, and the tax rate change would not go into effect unless the referendum is defeated at the next election.

The act provides that county permissive tax levy changes that are not emergency levies and are not placed on the ballot by a board of county commissioners must be adopted by resolution at least 120 days prior to the date on which the tax or the increased rate of tax is to go into effect. This time period allows the referendum petition process to be completed without affecting the Agreement's notice requirements. This change takes effect January 1, .2006, and applies to resolutions adopted under R.C. 5739.026, but not those adopted under R.C. 5739.021.

County license fee reimbursement

(R.C. 5739.17)

Continuing law provides that the Tax Commissioner may establish a registration system whereby a vendor may pay $25 to the Commissioner, rather than a county, and obtain a vendor's license. The system was added to Ohio law because the Agreement requires that it be made available to remote vendors. The Tax Commissioner issues the license and forwards a copy of the application and the license fee to the county auditor of the county in which the vendor desires to engage in business.

The act establishes the mechanism for returning the fees to the counties. License fees must be deposited into the Vendor's License Application Fund, which is created in the state treasury. The Commissioner must certify to the Director of Budget and Management within ten business days after the close of a month the license fees that will be transmitted to each county from the Fund for vendor's license applications received by the Commissioner during that month. When a license fee is transmitted to a county, but is not received by the Commissioner, for example, when an electronic transfer fails, the fee may be netted against a future distribution to that county, including distributions of sales taxes made each month to the county under existing law.

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Appx. 187 Transmission to the Treasurer of State o(sales and use taxes collected by court clerks upon issuine certificates of title

(R.C. 1548.06 and 4505.06)

Under continuing law, applications for certificates of title for motor vehicles, watercraft, and watercraft outboard motors are filed with the clerks of the courts of common pleas, and the clerks are required to collect unpaid sales and use taxes from the applicants at the time the applications are filed. The clerks retain a poundage fee for collecting the taxes. Under prior law, the clerks were required to forward the taxes collected by them to the Treasurer of State in a manner prescribed by the Tax Commissioner.

The act establishes procedures to govern the transmission to the Treasurer of State of sales and use taxes collected by the court clerks. The act provides that the clerks are to transmit sales and use taxes resulting from sales of motor vehicles, off-highway motorcycles, all-purpose vehicles, and titled watercraft and outboard motors during the week to the Treasurer on or before the Friday following the close of that week. If, on any Friday, the offices of a court clerk or the state are closed, the tax must be forwarded to the Treasureron or before the next day on which the offices are open. Every remittance of tax made by a clerk must be accompanied by a remittance report. The Tax Commissioner is to determine the form of this report. Upon receiving a tax remittance and report, the Treasurer is required to date stamp the report and forward it to the Tax Commissioner. The Treasurer may require the court clerks to transmit tax collections and reniittance reports electronically.

If the tax due for any week with respect to titled watercraft and outboard motors is not remitted by a court clerk in accordance with the procedures outlined in the act, the clerk must forfeit the poundage fees collected by the clerk for sales made during that week. If the tax due for any week with respect to motor vehicles, off-highway motorcycles, and all-purpose vehicles is not remitted by a court clerk in accordance with the act's procedures, the Tax Commissioner may require the clerk to forfeit the poundage fees collected by the clerk for sales made during that week.

Sales of investment metal bullion and coins subject to sales and use taxes

(R.C. 5739.02(B)(35); Section 612.69.06)

Prior law exempted sales of investment metal bullion and investment coins from sales and use taxes. The act repeals the exemption, effective July 1, 2005, thus making sales of investment metal bullion and investment coins subject to sales and use taxes. "Investment metal bullion" was defined as any elementary

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Appx.188 precious metal (such as gold, silver, or platinum) that has been put through a smelting or refining process and that is in such a state that its value depends upon its content and not upon its form. (Sales of fabricated precious metal that has been processed or manufactured for specific and customary industrial, professional, or artistic uses thus was not exempted by prior law from sales and use taxes.) "Investment coins" were defined as numismatic coins or other forms of money and legal tender manufactured of gold, silver, platinum, palladium, or other metal under the law of the United States or a foreign nation that have a fair market value greater than any statutory or nominal value.

VI. Kilowatt-hour and Natural Gas Consumption Taxes

The kilowatt-hour (kWh) tax

Elimination of the tripper forreducinp revenues credited to GRF

(R.C. 5727.84(B)(6) and (7))

Under prior law, if, in fiscal years 2002 to 2006, kilowatt-hour (kWh) tax revenues were less than $552 million, the amount credited to the General Revenue Fund (GRF) would have been reduced by the amount necessary to credit to the Local Government Fund (LGF) and Local Government Revenue Assistance Fund (LGRAF) the amount each would have received if the tax did raise that unount in the fiscal year. Beginning in fiscal year 2007, if the tax revenues were less than $552 million, prior law required that the amount credited to the GRF be reduced by the amount necessary to credit to the LGF, the LGRAF, and two property tax replacement funds 268 the amount each fund would have received if the tax did raise that amount in the fiscal year.

The act removes this trigger so that, regardless of the amount of revenues raised by the kWh tax, no reduction in the amount credited to the GRF will occur, and the other funds will not be credited for any shortfall.

268 yhe tWo,funds, the School District Property Tax Replacement Fund and the Local Government Property Tax Replacement Fund, were created to reimburse local taxing units for the reduction in some public utility property tax assessments pursuant to deregulation.

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Appx.189 The natural pas consumption tax

Elimination of the threshold for transferrinr GRF moneys to other funds

(R.C. 5727.84(C)(3))

Under prior law, if, beginning in fiscal year 2007, natural gas consumption tax (mcf tax) revenues were less than $90 million, an amount equal to the difference between the amount collected and $90 million would have been transferred from the General Revenue Fund (GRF) to the School District Property Tax Replacement Fund and the Local Govemment Property Tax Replacement Fund in the same percentages as if that amount had been collected as mcf taxes. The Tax Commissioner was required to certify to the Director of Budget and Management the amounts to be transferred.

The act eliminates this threshold so that no revenues will be transferred from the GRF to either of the other funds, regardless of the amount of mcf taxes collected.

VII. Cigarette Taxes

Sale, distribution, and taxation ofciparettes

Ciparette tax

(R.C. 5743.02 and 5743.32)

Under prior law, an excise tax is levied on the sale, use, consumption, or storage in this state of cigarettes at the rate of 27.5 mills per cigarette. The act increases the tax to 62.5 mills per cigarette. A "mill" is equal to one-tenth of one. cent. Accordingly, 10 mills equals one cent, 27.5 mills equals 2.750, and 62.5 mills equals 6.250. So, an excise tax of 62.5 mills per cigarette equates to a tax of $1.25 on a package of cigarettes containing 20 cigarettes. The increase took effect July 1, 2005.

"Floor tax" on ciparette inventories

(Section 557.06)

The act requires wholesale dealers to pay the "net additional tax" resulting from the act's increase in the cigarette tax, less the dealer discount, on stamped cigarettes and unaffixed Ohio tax stamps in their possession on July 1, 2005, the date on which the tax increase took effect. For retail dealers, the "net additional tax" is the net additional tax resulting from the act's increase in the cigarette tax due on all packages of Ohio stamped cigarettes and on all unaffixed Ohio cigarette

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Appx.190 tax stamps that a retail dealer has on hand as of the beginning of business on July 1,2005.

In addition to filing a cigarette tax return, each wholesale dealer and each retail dealer must file a return on forms prescribed by the Tax Commissioner showing the net additional tax due and any other information the Commissioner needs to adniinister the tax. On or before September 30, 2005, each wholesale dealer and retail dealer must deliver the return to the Treasurer of State, together with payment of the net additional tax due. A wholesale or retail dealer may claim a credit of 5% of the net additional tax if the dealer delivers the return on or before August 15, 2005, together with the net additional tax minus the dealer credit. The Treasarer of State must stamp or otherwise mark on the return the date on which the return and payment were received, and show on the return by stamp or otherwise the amount of the tax payment remitted with the return. Upon receipt, the Treasurer of State must immediately transmit all returns to the Tax Commissioner.

A dealer who fails to file a return or pay the net additional tax must pay a late charge of $50 or 10% of the net additional tax due, whichever is greater. Interest accrues on net additional tax that is not timely paid. Unpaid or unreported net additional taxes, late charges, and interest may be collected by assessment.

Unstamped cizarettes prohibitions: auantitv basis rather than value basis

(R.C. 5743.10, 5743.111, and 5743.112)

Current law prohibits the possession of or trading in cigarettes above a certain threshold value without the cigarette packages bearing tax stamps or other proper indications that the tax has been paid. The prohibitions are expressed in terms of the wholesale value of cigarettes. Any person is prohibited from possessing unstamped cigarettes with a wholesale value exceeding $60. Any person is prohibited from shipping, transporting, delivering, distributing, or otherwise trading in unstamped cigarettes with a wholesale value exceeding $60.

The act expresses the same prohibitions in terms of the number of unstamped cigarettes instead of the wholesale value of unstamped cigarettes. Instead of more than $60 wholesale value, the threshold number of cigarettes is established at 1,200.

The act also broadens an existing prohibition against a retail dealer possessing any quantity or value of unstamped cigarettes by applying the prohibition instead to any person.

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Appx. 191 Persons subiect to Ohio laws eoverninr sale, distribution, and taxation of ci2arettes

(R.C. 5743.01)

The act exempts certain persons from the laws governing the sale, distribution, and taxation of cigarettes in Ohio. Specifically, the act provides that the "wholesale dealers" to wluch those laws apply do not include any cigarette manufacturer, export warehouse proprietor, or cigarette importer possessing a valid federal permit to conduct that business if the person sells cigarettes in Ohio only to (1) a wholesale dealer holding a valid and current Ohio license to traffic in cigarettes or (2) an export warehouse proprietor or another manufacturer.

The act specifies that the class of retail dealers subject to Ohio's cigarette laws includes every person, other than a wholesale dealer, engaged in the business of selling cigarettes in Ohio, regardless of whether the person is located in Ohio or elsewhere. Accordingly, the act provides, further, that, for purposes of Ohio's cigarette laws, a "sale" of cigarettes includes (rather than excludes) transactions in interstate or foreign commerce.

The act defines a cigarette "importer" as any person that is authorized under a valid federal permit to directly or indirectly import finished cigarettes into the United States.

Tax stamps

(R.C. 5743.03, 5743.03 1, and 5743.05)

The cigarette tax is paid by the purchase of cigarette tax stamps, which are affixed to packages of cigarettes. The act specifies that a wholesale dealer may affix tax stamps only to packages of cigarettes that the dealer received directly from a manufacturer or importer of cigarettes that possesses a valid and current Ohio license to traffic in cigarettes. However, a wholesale dealer may affix tax stamps to packages of cigarettes that the dealer received directly from another licensed wholesale dealer if the Tax Commissioner has authorized the sale of the cigarettes between those wholesale dealers and the wholesale dealer that sold the cigarettes received them from a manufacturer or importer that possesses a valid and current Ohio license to traffic in cigarettes.

The act provides that only a wholesale dealer that possesses a valid Ohio license may purchase or obtain tax stamps. A wholesale dealer may not sell or provide tax stamps to any other wholesale dealer or to any other person. Accordingly, the act requires wholesale dealers, and not also retail dealers, to affix the tax stamps to packages of cigarettes if they have not been previously affixed.

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Appx. 192 Retail dealers are merely to inspect packages of cigarettes upon receipt and before sale to ensure the tax stamps have been affixed. Only wholesale dealers, and not also retail dealers, therefore are required to make a semiannual cigarette tax return.

Under the act, any person shipping unstamped packages of cigarettes into Ohio to a person other than a licensed wholesale dealer must, before shipping the cigarettes, file notice of the shipment with the Tax Comnussioner. The person transporting the unstamped cigarettes into or within Ohio must carry in the vehicle used to transport the cigarettes invoices or other equivalent documentation of the shipment. The invoices or other equivalent documentation _ must cover all cigarettes in the shipment, and must show the true name and address of the consignor or seller, the true name and address of the consignee or purchaser, and the quantity of cigarettes being transported. However, this requirement does not apply to any common or contract carrier transporting cigarettes through Ohio to another location under a proper bill of lading or freight bill that states the quantity, source, and destination of the cigarettes.

Records pertaininp to ciParette sales and purchases

(R.C.5743,071,)

Under continuing law, every wholesale dealer and retail dealer must maintain complete and accurate records of purchases and sales of cigarettes, and must procure and retain all invoices, bills of lading, and other documents relating to purchases and sales of cigarettes. The act extends these record-keeping duties to manufacturers and importers. The act provides, further, that the invoices or documents must be maintained for each place of business and must show the name and address of the other party to the sale or purchase, and must show the quantity of the cigarettes sold or purchased.

With the Tax Commissioner's consent, a person with multiple places of business may keep centralized records. However, that person must transmit duplicates of the invoices or documents to each place of business within 72 hours after the Commissioner requests access to the records.

Manufacturer and importer reports

(R.C. 5743.072)

The act requires that each manufacturer and each importer shipping cigarettes into or within Ohio file a monthly report with the Tax Commissioner in accordance with rules adopted by the Commissioner.

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Appx. 193 Seizure and forfeiture of ciearettes

(R.C.5743.08)

Under continuing law, when the Tax Commissioner discovers that cigarette taxes have not been paid on cigarettes, the Conmussioner may seize and take possession of the cigarettes. The act provides that this authority extends not only to cigarettes for which taxes have not been paid, but to any cigarettes that are being or have been shipped, or transported, or that are held for sale or distribution, in violation of any of Ohio's cigarette laws.

Tax Commissioner's and neace offuers' insnection nowers

(R.C. 5743.14)

Prior law granted the Tax Commissioner general authority to inspect any place where cigarettes are sold or stored, and prohibited any person from preventing or hindering the Tax Commissioner from making a full inspection of such a place or a full inspection of records required to be kept by the cigarette tax law. The act specifies that these inspections may be conducted by the Conunissioner or the Commissioner's agents and that the Commissioner's inspection authority includes a right to enter and extends to the "facilities" and records of manufacturers, importers, wholesale dealers, and retail dealers. The act provides, further, that the inspection must be conducted pursuant to a properly issued search warrant, but only if it is conducted outside normal business hours. An inspection does not require a search warrant if it is conducted during normal business hours. In this regard, the act generally prohibits any person from preventing or hindering the Commissioner or the Commissioner's agents from carrying out inspections under the inspection authority it grants.

The act authorizes a peace officer to stop and inspect any vehicle that the officer knows or has reasonable cause to believe is illegally transporting cigarettes or other tobacco products, to determine the presence of those cigarettes or tobacco products.

Licenses to traffi-c in ciparettes

(R.C. 5743.15, 5743.18, and 5743.19)

Continuing law requires that wholesale and retail businesses wishing to engage in the trafficking of cigarettes in Ohio first obtain a license to do so from the county auditor of the county in which the wholesaler or retailer wishes to conduct business. The act extends this licensing requirement to manufacturers and importers.

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Appx. 194 To obtain a license, a manufacturer or importer must, annually, on or before the fourth Monday in May file with the Tax Commissioner, on a blank furnished by the Commissioner, a statement showing the applicant's name, the nature of the applicant's business, and any other information required by the Commissioner. If the manufacturer or importer is a firm, partnership, or association other than a corporation, it must state the name and address of each of its members. If the manufacturer or importer is a corporation, it must state the name and address of each of its officers. A license issued by the Commissioner is valid for one year.

The act provides that the Commissioner's issuing of a license to a manufacturer does not excuse the manufacturer from filing the annual certification that continuing law requires be filed by tobacco product manufacturers (R.C. 1346.05). A manufacturer's annual certification certifies that the manufacturer is in full compliance with the Master Settlement Agreement entered into between the state and leading manufacturers of tobacco products in settlement of litigation pertaining to the negative health effects of tobacco product use. Continuing law requires that the Attomey General maintain a directory on its web site listing manufacturers who have provided current and accurate certifications. The act declares that any license issued to a manufacturer that is not listed in the Attorney General's directory ceases to be valid and is to be revoked by the Tax Commissioner.

The act grants the Tax Commissioner authority to adopt rules necessary to administer the licensing of manufacturers and importers.

The act also requires firms, partnerships, and associations other than corporations that apply for a wholesaler's or retailer's license to state on their applications the name and address of each of their members. Likewise, corporate wholesale or retail applicants must state the name and address of each of their officers.

Authorized sates

(R.C. 5743.20)

Continuing law specifies that wholesale cl;alers may not sell cigarettes to any person in Ohio other than a licensed retail dealer. The act adds an exception in the case of a licensed wholesale dealer who receives cigarettes directly from a licensed manufacturer or licensed importer and who, with the Tax Commissioner's permission, sells them to another licensed wholesale dealer. The act requires that the Commissioner adopt rules governing these wholesaler to wholesaler sales, including rules establishing criteria for authorizing the sales.

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Appx.195 The act also specifies that a retail dealer may not purchase cigarettes from any person other than a licensed wholesale dealer. In addition, the act provides that a manufacturer or importer may not sell cigarettes to another person in Ohio other than to a licensed wholesale dealer or licensed importer. An importer is not permitted to purchase cigarettes from any person other than a licensed manufacturer or licensed importer.

The act prohibits a retail dealer from purchasing tobacco products other than cigarettes from any person other than a licensed distributor. And a licensed distributor is prohibited from selling tobacco products to anyone other than a retail dealer. However, the act provides an exception in the case of a licensed distributor who receives tobacco products directly from a manufacturer or importer of tobacco products and who, with the Tax Commissioner's permission, sells them to another licensed distributor. The act permits the Commissioner to adopt rules governing these distributor-to-distributor sales, including rules establishing criteria for authorizing the sales.

The act provides that the identities of licensed distributors are subject to public disclosure. The Tax Commissioner must maintain an alphabetical list of distributors, post the list on a web site on the Internet that is accessible to the public, and periodically update the posting.

"Authorized recipients ortobacco products"

(R.C. 2927.023)

For the purpose of preventing the sale of cigarettes to minors and ensuring compliance with the Master Settlement Agreement,269 the act makes each of the following a criminal offense punishable by a fine of up to $1,000 for each violation:

(1) For any person to cause any cigarettes to be shipped to any person in Ohio other than an authorized recipient of tobacco products.

(2) For a common carrier, contract carrier, or other person knowingly to transport cigareites to any person in Ohio that the common carrier, contract carrier, or other person reasonably believes is not an authorized recipient of tobacco products.

(3) For any person who is engaged in the business of selling cigarettes and who ships or causes cigarettes to be shipped to any person in Ohio in any

269 For a description of the "Master Settlement Agreement," see "Licenses to traff'u in ciearettes. "above.

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Appx.196 container or wrapping other than the original container or wrapping to fail to plainly and visibly mark the exterior of the container or wrapping in which the cigarettes are shipped with the word "cigarettes."

For purposes of (2), above, if cigarettes are transported to a home or residence, it is presumed that the common carrier, contract carrier, or other person knew that the person to whom the cigarettes were delivered was not an authorized recipient of tobacco products.

The act defines each of the following as being "authorized recipients of tobacco products":

(1) A licensed cigarette wholesale dealer;

(2) A licensed distributor of tobacco products;

(3) An export warehouse proprietor;

(4) An operator of a customs bonded warehouse;

(5) An officer, employee, or agent of the federal or state govemment acting in the person's official capacity;

(6) A department, agency, instrumentality, or political subdivision of the federal or state government;

(7) A person having a consent for consumer shipment issued by the Tax Commissioner (see "Consent for consumer shipment." below).

Consent for consumer shipment

(R.C. 5743.71)

The act permits a person to apply to the Tax Commissioner for a "consent for consumer shipment" of cigarettes into Ohio if the cigarettes sought by the applicant are legal for sale in Ohio and are not reasonably available to the applicant at a retail location in Ohio. A consent for consumer shipment must be obtained before any cigarettes are purchased for shipment into Ohio.

The applicant must file the consent for consumer shipment with the Tax Commissioner "on" a form, which is prescribed by the Commissioner, showing purchase of the cigarettes as consented to, proof of the purchaser's age, and any other information required by the Commissioner.

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Appx. 197 Use tax exemntion for ciearettes

(R.C. 5741.02(C)(9))

The act exempts cigarettes a person uses, stores, or consumes in Ohio from the use tax, up to $300 worth per month (wholesale value). The exemption does not apply if the cigarettes are used or stored for resale. In effect, the exemption permits a person to purchase up to $300 worth of cigarettes outside Ohio and bring them back into Ohio without incurring any legal liability for use tax. No use tax report needs to be filed for such cigarettes. Generally, cigarettes, like other goods, brought into the state are subject to the use tax. (The act has a similar exemption from the cigarette excise use tax, explained immediately below.)

Ci-garette excise use tax exemntion for cfQarettes

(R.C. 5743.33 and 5743.331)

The act exempts cigarettes a person uses, stores, or consumes in Ohio from the cigarette excise use tax, up to $300 worth per month (wholesale value). The exemption does not apply if the cigarettes are used or stored for resale. In effect, the exemption permits a person to purchase up to $300 worth of cigarettes outside Ohio md bring them back into Ohio without incurring any legal liability for the cigarette excise use tax. No excise tax report needs to be filed for such cigarettes. Generally, cigarettes brought into the state are subject to the cigarette excise use tax. (The act has a similar exemption from the general use tax, explained immediately above.)

Transportation of untaxed cirarettes

(R.C. 5743.33)

Prior law prohibited transporting within the state untaxed cigarettes having a wholesale value greater than $60 without the prior consent of the Tax Commissioner. The act prohibits transporting within Ohio untaxed cigarettes having a wholesale value greater than $300 without the Commissioner's prior consent.

VIII. Other Taxation Provisions

Local Government Funds

(Section 557.12)

The act changes the amount of state tax revenue credited to the three state- local revenue sharing funds, and thus the amount of revenue available for

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Appx. 198 distribution to counties, municipal corporations, townships, public library systems, and other special-purpose subdivisions receiving revenue sharing payments. The revenue sharing funds involved are the Local Govemment Fund (LGF), the Local Govenunent Revenue Assistance Fund (LGRAF), and the Library and Local Government Support Fund (LLGSF).

Permanent law

Under permanent law provisions that have been suspended since the beginning of fiscal year 2002, each of the funds was credited with a percentage of the state's major tax sources, including the income tax, sales and use tax, corporation franchise tax, public utility excise tax, and kilowatt-hour (kWh) tax. Under those suspended provisions, the LGF would have received 4.2% of revenue from those taxes (except the kWh tax) and the LGRAF would have received 0_6°/u; the LLGSF would have received 5.7% of the income tax. After the percentage of revenue was credited to those funds, the remaining revenue was credited to the state's General Revenue Fund (GRF). Beginning with fiscal year 2002, the percentages were suspended to reserve more of the revenue for the GRF. The revenue credited to the LGF, LGRAF, and LLGSF was fixed or "frozen" at their respective fiscal, year 2001 levels.

Money in the LGF is distributed among counties, townships, municipal corporations (cities and villages), and some other special-purpose subdivisions (e.g., park districts) under a three-stage system. At the first stage, LGF money is divided into a municipal share (for municipal corporations levying an income tax) and a share for all subdivisions in a county participating in the county's LGF distribution. Under the "permanent" distribution formula as it operated before FY 2002, slightly less than 10% of the LGF was set aside for allocation only to municipal corporations levying an income tax, and the remaining 90% or so was allocated among all participating subdivisions in a county (including municipal corporations levying an income tax). This remaining subdivision allocation was then distributed under one of two formulas, with the formula yielding the higher payment for a county being applied to that county. Under either formula, the 90% subdivision share was divided into fourths, with three-fourths distributed in proportion to municipal taxable property value in the county and one-fourth distributed in proportion to county population. One formula added a third factor: the county's 1983 deposits tax revenue. Until 1983, counties received revenue from a tax on deposits held in the county at the rate of 1-3/8 mills per dollar of deposits. This second LGF formula ensured that each county received 145.45% of its 1983 deposits taxes (145.45% represents what the revenue would be if the deposits tax had been levied at a rate of two mills). The total of the counties' deposit tax portion was deducted from the counties' approximately 90% share of the LGF, and an additional $6 million was deducted. The remaining amount was

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Appx.199 then divided into fourths, with three-fourths distributed in proportion to municipal taxable property value in each county and one-fourth distributed in proportion to county population, as in the first formula.

The minimum distribution under either formula (disregarding the deposits tax portion) was $225,000 per county. Each county's share of the LGF was the higher of the two formula computations. The shares of all the counties were added together, and each county's amount was divided into the total to yield the county's percentage of the total county part of the LGF. There was a hold-harmless guaranteeing each county at least the amount it received in 1983.

In addition to a county's formula amount, each county receives five mills' worth of the eight-mill state tax on dealers in intangibles originating from dealers in that county (except certain dealers that are subsidiaries of financial institutions); this five-mill portion of the distribution is not affected by the act. The sum of the formula amount and the five mill portion is then apportioned among the county and the townships, municipal corporations, and some special-purpose districts in the county. In almost all munties, the apportionment is based on a formula negotiated under the supervision of the county budget commission. In a few counties, the apportionment follows the statutory method, which apportions on the basis of relative "need" as defined by state law. Generally, need is measured by a subdivision's expenditures less its locally generated revenue.

The approximately one-tenth of the LGF allocated for municipal corporations levying an income tax is distributed in proportion to each municipal corporation's relative municipal income tax collections compared to total municipal income tax collections:

The pre-FY 2002 LGRAF distribution method was simpler than that of the LGF, and was based entirely on relative county populations. Each county received a percentage of the LGRAF equal to the county's percentage of Ohio's population. LGRAF distributions have been more or less frozen since the beginning of FY 2002.

The pre-FY 2002 LLGSF was distributed among counties for further distribution primarily to library systems in the county under a formula that essentially replaced the repealed intangible property tax revenue (repealed in 1986) and allowed for growth from that base amount on both an overall basis and on a per-capita basis. LLGSF distributions have been more or less frozen since the beginning of FY 2002.

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Appx.200 Act's treatment ofLGF. LGRAF, and LLGSF

LGF and LGXAF

Crediting of state revenue to LGF and LGRAF. The act establishes for fiscal years 2006 and 2007 a new scheme for crediting state revenue to the LGF and LGRAF.

With respect to amounts credited to LGF and LGRAF from corporate franchise tax and sales and use tax revenues, the act freezes those amounts at fiscal year 2005 levels. With respect to the personal income tax revenues credited to the funds, the act's folinula freezes those amounts also at the fiscal year 2005 levels and provides for a possible reduction in the credited amounts under certain circumstances (discussed below).

With respect to the amounts credited to LGF and LGRAF from public utility excise tax revenues, the act credits amounts for fiscal years 2006 and 2007 as expressed in the following chart:

^r ai e^a3.^^bOb a^ ~ D Fistal}Tr^a l004^p^^2007^^" V,:' ` ^ ^r. a' S ^.vJ_i.,^3F. July January July January $0 $0 $0 $0 August February August February $0 $454,520.77 $0 $64 931.53 September March September March $0 $2,357,987.57 $0 $336,855.37 October April October April $2,361,127.85 $0 $337,303.98 $0 November May November May $313,719.33 $990215.47 $44,817.05 $141,459.35 December June December June $363,012.50 2 803 350.27 $51,858.94 $400.478.61

The numbers in the chart, other than those specifying zero amounts, represent the product of multiplying 30% times a specified amount and rounding to the nearest cent. The act uses the same specified amounts in the same months for the calculation of the credited amounts for the kilowatt-hour tax (below).

With respect to the amounts credited to LGF and LGRAF from the kilowatt-hour tax revenues, the act credits amounts for fiscal years 2006 and 2007 as expressed in the following chart:

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Appx. 201 July January July January $D 1D $D $0 August February August February $0 $1,060,548.45 $0 $151,506.90 September March September March $0 $5,501,971 $0 $785,995.87 October April October April $5,509,298.31 $0 $787,042.61 $0 November May November May $732,011.78 $2,310,502.75 $104,573.11 $330,071.82 December June December June $847,029.17 $6 541 150.62 $121 004.19 $934,540.09

The numbers in the chart, other than those specifying zero amounts, represent the product of multiplying 70% times the specified amount for the month and rounding to the nearest cent.

With respect to crediting all the tax revenues described above, the act provides that if the amounts credited exceed what existing codified law would have credited, then the amounts of those taxes that are credited to the General Revenue Fund are to be reduced by that excess. If the amounts credited are less than what existing law would have credited, then the amounts of those taxes credited to the General Revenue Fund will be increased by an amount equal to the deficiency.

Additionally, the act also gives the Tax Commissioner authority to make adjusttnents to the credited amounts at the end of FY 2006 and FY 2007. Under this authority, the Commissioner is required, to reduce the amount of income tax revenue credited to the LGF, LGRAF, or LLGSF if more money is credited to all of those funds under the provisions of the act than would have otherwise been credited under the provisions of the Revised Code governing the crediting of those funds. The amount subtracted from income tax revenue credited to any one of the ftmds must be equal to the proportion by which that specific fund contributed to the crediting of the amount in excess of the statutory credit. The Commissioner must subtract the appropriate amounts from the appropriate fund or funds by June 7 of each fiscal year. The act gives the Director of Budget and Management, on the advice of the Commissioner, authority to make reductions in amounts credited monthly to the three funds in order to accomplish more effectively the purposes of this reduction authority. If any such monthly reductions tum out to be too large, the Director may also credit to any of the funds any amount of the reductions that exceeds the amount that should have been reduced.

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Appx.202 Distributions from LGF and LGRAF. The act freezes at FY 2005 levels the distributions from the LGF and LGRAF to each county's undivided local government fund and mdivided local government revenue assistance fund. To this end, the act provides for distributions to be made from the LGF and LGRAF each month on the 10th day of the immediately succeeding month as follows:

• Each county undivided local government fund will receive the same percentage of the total LGF distribution that it received for each respective month of August 2004 to July 2005;

• Each county undivided local government revenue assistance fund will receive the same percentage of the total LGRAF distribution that it received for each respective month of August 2004 to July 2005;

• Each municipal corporation receiving a direct distribution from the LGF will receive the same percentage of the total LGF distribution that it received for each respective month of August 2004 to July 2005.

The act does not expressly provide for distributions to the various local govemments of the amounts in the county undivided local govemment fund and county undivided local government revenue assistance fand for the FY 2006-2007 biennium. Because of the silence, it appears that codified law governing that distribution would apply. However, the act provides that no subdivision can receive a proportionate share from the county undivided local govemment fund or county undivided local government revenue assistance fund during the FY 2006- 2007 biennium that is less than the proportionate share the subdivision received from that fund during FY 2005, unless the subdivision consents to receive the lesser proportionate share.

LLGSF

For the FY 2006-2007 biennium, monthly deposits into the LLGSF are equal to the previously frozen amounts for the corresponding month in the FY 2004-2005 biennium. In each month from August 2005 to July 20Q7, each county undivided fund will receive the same percentage of the LLGSF as it received in the respective month from August 2004 through July 2005. Distributions are then to be made to the county library systems from each county undivided fund in accordance with codified law (see discussion above).

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Appx.203 Job retention tax credit

(R.C. 122.171)

Authority to enter into asreements for iob retention tax credits extended

Under continuing law, Ohio's Tax Credit Authority may enter into agreements with employers whereby the employer undertakes to retain Ohio jobs through a "capital investment project" in exchange for a tax credit against the corporation franchise tax or personal income tax. Under prior law, the authority to enter into these agreements was scheduled to expire on June 30, 2007. The act permits the Ohio Tax Credit Authority to continue entering into the agreements after this date.

Job retention tax credit: capital investment oroiects

Continuing law defines a "capital investment project" for which a job retention tax credit may be granted as an investment plan for a project site for the acquisition, construction, renovation, or repair of buildings, machinery, or equipment, or for the capitalized cost of basic research and new product development. Eligibility for a job retention tax credit deperids, in part, upon how much the employer has invested as part of the capital investment project. Under prior law, project costs paid after December 31, 2006, were not included in computing investments in a capital investment project. The act removes this restriction and makes project costs paid after that date part of the investrnents comprising a capital investment project.

Job creation tax credit

Overview of the iob creation tax credit

(R.C. 122.17)

Under continuing law, Ohio's Tax Credit Authority may enter into an agreement with an employer whereby the employer agrees to increase employment in Ohio in exchange for a tax credit against the corporation franchise tax (corporations and fmancial institutions) or the income tax (owners of most partnerships, limited liability companies, S corporations, and sole proprietorships). The credit is equal to a percentage, determined by the Authority and detailed in the agreement, of new income tax revenue withheld from the compensation of the employer's new employees. The credit is refundable, which means that the employer is entitled to a refund if the amount of the credit exceeds the employer's tax liability. Currently, insurance companies cannot benefit from the credit.

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Appx.204 Extension of the iob creation tax credit to insurance companies

(R.C. 122.17, 5725.32, and 5729.032)

In lieu of the corporation franchise tax or income tax, domestic and foreign insurance companies pay annual franchise taxes at a rate of 1.4% of the gross amount of premiums received from policies covering risks within Ohio, except for those companies that are health insuring corporations, which are taxed at a rate of 1% of premium rate payments received. The Superintendent of Insurance administers this tax.

The act extends the job creation tax credit to domestic and foreign insurance companies by allowing these companies to claim the credit against their annual franchise taxes. Under the act, all of the existing administrative procedures relating to the job creation tax credit apply with respect to insurance companies, including the requirement that the Director of Development issue tax credit certificates to taxpayers who are eligible for the credit. The act specifies that insurance companies are to claim the credit for the tax reporting period indicated on the certificate. The act adds the Superintendent of Insurance to the tax credit's administrative procedures because the Superintendent administers. the. franchise tax on domestic and foreign insurance companies.

Estate taxes

Overview of the additional estate tax, Qeneration-skinninQ tax, and the family-owned business deduction

Ohio's estate tax consists of four distinct levies: the basic tax, the additional estate.tax, the generation skipping tax, and the nonresident tax. The act addresses the additional estate tax and the generation-skipping tax in light of changes made in the federal estate tax law, which affects those two state taxes. The additional estate tax (R.C. 5731.18) is equal to the maximum credit allowed by federal estate tax law for paying state death taxes, while the generation- skipping tax (R.C. 5731.181) is equal to the federal credit for state taxes paid on generation-skipping transfers (of property to a person who is two or more generations below the transferor, such as from a grandparent to a grandchild). Both taxes, known as "sponge" taxes because they allow the state to absorb as much revenue from an estate as is permitted by the federal credits, are equal to the difference between state tax liability and the estate's federal credit. In effect, both sponge taxes allow Ohio to collect more tax from an estate without increasing the estate's combined federal/state tax liability, because federal tax liability is reduced by the amount of the additional estate tax and generation-skipping tax liability.

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Appx.205 The act also addresses the fanuly-owned business deduction because of revisions made to the federal estate tax law, which greatly affects this deduction. Federal law permits estates to avoid federal estate taxes on any part of the estate consisting of family-owned businesses inherited by or passed to family members. These family-owned business interests are deducted in computing the value of the estate that is subject to the federal estate tax. Ohio also has a deduction modeled closely after this federal deduction, for the value of a family-owned business (including a farm) when computing the Ohio estate tax, to the extent the business is passed on to other family members. The state deduction may be claimed only if the federal deduction is claimed against federal estate tax liability.

Federal chanpes that have affected the state estate tax law

The federal "Economic Growth and Tax Relief Reconciliation Act of 2001" (the "federal Act") phased out the federal credits for paying state death taxes and state generation-skipping transfer taxes. These credits no longer apply, respectively, to estates of decedents dying after December 31, 2004, or to generation-skipping transfers made after that date. Under the federal Act's sunset clause, the credits are scheduled to be restored to their current forms in 2011, assuming Congress does not intervene before that year and repeal or revise the credits.

The federal Act also suspended the federal deduction for family-owned business interests by providing that the deduction does not apply to estates of decedents dying after December 31, 2003. But, technically, the federal Act's sunset clause reinstates the deduction in 2011.

Constructive elimination of the additional estate tax and eeneration- skippinp tax: reneal of the deduction for familv owned businesses

(R.C. 5731.01(F), 5731.14, 5731.18, and 5731.181; repeal of 5731.20; Section 557.24)

The act amends the additional estate tax and generation-skipping tax statutes by revising their references to the Intemal Revenue Code (IRC), thereby incorporating changes made by the federal Act. For purposes of the entire state estate tax law, the act defines the "Internal Revenue Code" to be the Internal Revenue Code of 1986, 100 Stat. 2085, 26 U.S.C. 1, as amended. Under an Ohio Supreme Court decision, State v. Gill, 63 Ohio St.3d 53 (1992), updating Ohio statutory references to federal law incorporates changes in the federal law occurring since the most recent amendment of the Ohio statute. Therefore, updating references to the IRC in Ohio's two sponge tax statutes has the effect of incorporating the federal Act's phase-out of the federal credit for paying state death taxes and state generation-skipping taxes. In other words, the act

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Appx.206 constructively repeals Ohio's additional estate sponge tax and the generation- skipping sponge tax for decedents dying on and after the act's immediate effective date (see below).

The act repeals outright the state estate tax deduction for family-owned businesses, because the federal Act revised federal law to suspend the federal deduction for family-owned business interests for estates of decedents dying after December 31, 2003.

These amendments and the repeal took effect immediately on the day the Governor signed the act.

Temporary tax credit

(Section 557.03)

The act grants a tax credit against the additional estate "sponge" tax to the estate of a decedent who dies on or after January 1, 2002, but before the effective date of the act's changes (see above). In effect, the credit retroactively gives those relatively few larger estates that are subject to the sponge tax the tax reduction they would have received if Ohio's law had ieflected the phase-out of the federal credit for state estate taxes. Specifically, the credit equals the portion of the additional estate sponge tax that is over and above the sponge tax that would have been imposed if the tax had been equal to the maximum federal credit allowable for paying state estate taxes under the federal law that was in effect and applicable on the date of the decedent's death.

This credit took effect immediately on the day the Govemor signed the act.

Estate tax penalty for late payments and tilinps: chanee to rate applied to overpayments and underpayments of the estate tax

(R.C. 5703.47, 5731.22, and 5731.23)

Under continuing law, failure to timely file an estate tax return and pay the tax within nine months following a decedent's death results in a penalty, with interest accruing on the unpaid balance. If the tax paid is more than the amount of tax ultimately found to be due, the estate is entitled to interest on the overpayment. The overpayment and interest must be refunded by the cities, villages, or townships that received the overpayment, as well as from the state's general revenue fund, on a pro rata basis. Interest accrues from nine months from the date of the decedent's death or the date the tax is paid, whichever is later, to the date the overpayment is refunded.

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Appx.207 Interest

(R.C. 5731.23)

Under prior law, the rate of interest accming on unpaid estate taxes, and paid on estate tax overpayments, was equal to three percentage points above the "federal short-term rate," which is a rate computed on the basis of an index of yields on short-term U.S. government securities.

The act reduces the rate of interest that accrues on unpaid estate taxes and on estate tax overpayments. Instead of accruing at the "statutory" rate equal to the federal short-term rate plus 3%, interest will accrue at just the federal short-term rate.

Penalties

(R.C. 5731.22)

Continuing law imposes a penalty for not filing an estate tax return on time equal to 5% of the tax due if the filing is made within one month of the due date. If the filing is more than one month late, an additional 5% is added for each additional month for up to four months, so the cumulative penalty cannot exceed 25% of the tax due. The penalty does not apply if the estate's representative shows that the late filing is due to reasonable cause and not willful neglect. If, however, failure to file the return or an underpayment of tax due is because of fraud, continuing law requires the Tax Commissioner to impose an additional penalty of up to $10,000.

The Govemor vetoed provisions in the act that would have changed the estate tax penalty so that it equals 10% of the unpaid tax regardless of how late the payment or filing occurs. The Governor also vetoed provisions that would have eliminated the up-to-$ 10,000 additional penalty in cases of fraud.

Waivinff penalties

Current law authorizes the Tax Commissioner to waive or "remit" the 5%- per-month penalty if an estate's representative shows that the late payment or filing is due to reasonable cause and not willful neglect.

The Governor vetoed provisions in the act that would have removed this remission authority from the Tax Commissioner and instead vested it in county auditors. Specifically, a county auditor would have remitted a penalty if the estate's representative applied for remission and showed that the lateness of the filing or payment was due to reasonable cause and not willful neglect. A county auditor would have remitted a penalty only after consulting with the county

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Appx.208 treasurer. Once the county auditor decided whether to remit a penalty, the auditor would have been required to notify the estate's representative of the decision by mail. If remission were denied, the representative could have appealed the decision by applying to the Tax Commissioner, either in person or by certified mail, within 60 days after the auditor mailed notice of the decision. The Commissioner would have been required to consider the appeal and to determine whether the penalty should be remitted. Once the Commissioner decided the appeal, the Commissioner would have been required to notify the representative, the county auditor, and the county treasurer. The county auditor and county treasurer then would have been required to make any settlement and to correct accounts as necessitated by the Commissioner's decision. The estate representative who appealed to the Conunissioner could have appealed the Commissioner's decision by filing an exception with the probate court having jurisdiction over the estate in the same manner in which exceptions may be filed under continuing law from other determinations by the Commissioner regarding the tax on the estate (see R.C. 5731.30).

The act would have authorized the Tax Conunissioner to issue orders and instructions for uniform implementation of the act's remission provisions, and would have •required county auditors and treasurers to follow those orders and instructions.

Additional amendments made to incorporate federal tax law chan2es

(R.C. 5731.01(B), (D), and (F), 5731.05(C)(3), and 5731.131(A) and (B))

The act also revises all other IRC references in the state estate tax law, with the effect of generally incorporating any applicable federal tax law changes made since the last time those state laws were amended. The actual effect of this incorporation is difficult to discern, but the substantive effect does not appear to be substantial.

These amendments took effect immediately on the day the Governor signed the act.

Technical correction

(R.C. 5731.23)

The act corrects a longstanding error in a statute governing estate tax payments. In 1971, Am. Sub. 413 of the 109th General Assembly, 134 Ohio Laws 821, 822-823, removed language regarding discounts for early estate tax payments, but failed to remove related language stating that early payments should

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Appx.209 be paid on an estimated basis regardless of whether a return has been filed. The act removes this related language to correct the error.

Real estate assessment funds

(R.C. 325.31 and 5731.41)

Each county treasury has within it a real estate assessment fund, the moneys in which are used by a county to defray costs associated with administering various taxes. Continuing law sets forth the specific purposes for which a county may use moneys in the fund.

The act specifies that in addition to the purposes set forth in continuing law, counties may use moneys in real estate assessment fnnds to defray costs incurred in enforcing estate taxes. More specifically, the act permits a county to use moneys in its fund to defray costs incurred in compensating estate tax enforcement agents who, under continuing law, perform duties prescribed by the Tax Commissioner.

The act also authorizes the Tax Commissioner to appoint agents to adniinister real property and manufactured and mobile homes taxes as prescribed by the Commissioner. The act specifies that these agents, like estate tax enforcement agents, may be compensated from moneys in county real estate assessment funds.

Phase-out ofthe ¢rain handlin2 tax

(R.C. 5737.03)

Prior law levied an annual excise tax on each bushel of grain handled at one or more places in Ohio, in lieu of personal property taxes on the grain, at one-half mill per bushel for wheat and flax, and one-fourth mill per bushel for all other grain. Taxpayers reported the bushels of grain handled in a statement. The tax revenue was distributed to local taxing jurisdictions in proportion to the property tax rates levied by each jurisdiction.

The act phases-out the grain handling tax over two years. In 2006, the tax due is one-fourth mill per bushel for wheat and flax, and one-eighth mill per bushel for all other grain. No statement or tax is due in 2007 or any year thereafter. And any grain that would have been included in a statement for 2007 or any year thereafter is exempt from taxation as personal property.

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Appx. 210 Tax credits under the Ohio Venture Capital Proeram

(R.C. 150.07, 150.10, 5707.031, 5725.19, 5727.241, 5729.08, 5733.49, and 5747.80)

Credit extended to dealers in intangibles and public utilities

Under the continuing Ohio Venture Capital Program administered by the Ohio Venture Capital Authority, moneys in a "program fund" are invested in venture capital funds, which in turn invest in Ohio-based businesses that are in seed or early stages of development or established Ohio-based businesses that are developing new methods or technologies. The program fund is fanded through investments from private investors. Some of the profits from the program are put into the Ohio Venture Capital Fund (OVCF), which is used to secure the private investors against losses. To the extent the moneys in the OVCF are not adequate to secure an investor against losses, the investor is eligible for a tax credit granted by the Authority. Taxpayers may elect to receive a refundable or a nonrefundable tax credit. Eligibility for a tax credit is evidenced by a tax credit certificate issued by the Authority.

Under prior law, the Authority was authorized to approve tax credits against only the income tax, corporation franchise tax, and insurance company franchise taxes. The act authorizes the Authority to approve credits against two additional existing taxes: the tax levied on qualifying dealers in intangibles and the public utility tax. "Qualifying dealers in intangibles" are dealers in intangibles that are owned by, or that are under common control with, a financial institution, or are a member of a qualifying controlled group of which an insurance company also is a member.270 The entire tax levied under continuing law on qualifying dealers in intangibles is retained by tfie state whereas the tax levied urider continuing law on other types of dealers in intangibles is shared between the state and local taxing jurisdictions.

The act specifies that any credit approved by the Authority is to be claimed by a taxpayer who is a qualifying dealer in intangibles or public utility on a tax return that is due after the Authority issues a tax credit certificate to the taxpayer.

Credit anwunts

Under continuing law, a taxpayer who receives approval from the Authority for a tax credit may elect to receive either a refundable or a nonrefundable credit. The act clarifies the amount of credit that may be claimed for any given tax

270 Common ownership or control means direct or indirect control ofmore than 50% of a corporation's capital stock with voting rights (R.C. 5733.052(A) (not in the act)).

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Appx. 211 reporting period with respect to each of the taxes to which the credit can potentially apply.

(1) Continuing law specifies that taxpayers who elect a refundable credit and whose tax liability for any given reporting period is less than the amount of the credit receive a refund equal to 75% of the amount by which the credit exceeds the tax liability. The act clarifies that this 75% amount is in addition to the amount of tax against which the credit is applied for that reporting period.

(2) The act specifies, further, that to the extent a taxpayer's tax liability for any given reporting period exceeds the amount of refundable credit that the taxpayer is entitled to claim, the amount of credit to which the taxpayer is entitled is the full amount of refundable credit authorized by the authority.

(3) Finally, the act provides that for purposes of determining whether the amount of a refundable venture capital credit exceeds the taxpayer's tax liability with respect to any given reporting period, the amount of the credit is to be compared against the taxpayer's tax liability after deducting all nonrefundable credit that the taxpayer is entitled to claim for that tax reporting period.

Claimine of credit by equity investors

The act specifies the manner in which equity investors in a pass-through entity are to claim their respective shares of a tax credit granted to the pass- through entity by the Authority.271 The act provides that each equity investor may claim a credit against any of the taxes against which Venture Capital Authority tax credits may be claimed.272 The credit must be claimed for the equity investor's taxable year in which or with which ends the taxable year of the pass-through entity. The amount of the credit that may be claimed by an equity investor is equal to the investor's distributive or proportionate share of the total credit amount set forth in the tax credit certificate issued by the Authority. The act prohibits the issuing of a tax credit certificate to a pass-through entity until each equity investor in the pass-through entity elects to receive a refundable or nonrefundable tax credit.

271 A pass-through entity is a partnership, limited liability company, S corporation, or other entity that generally is not taxed as an entity; instead, the constituent owners are taxed on their distributive shares ofincome from the entity.

272 If all the equity investors in a pass-through entity are ineligible to claim a credit against the same tax, then each equity investor may elect to claim a credit against the tax to which the equity investor is subject.

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Appx. 212 Motor fuel taxes

The motor fuel use tax

(R.C. 5728.01, 5728.02, 5728.03, 5728.04, 5728.06, and 5728.08)

The motor fuel use tax is levied on the amount of motor fuel consumed by commercial cars and commercial trucks in Ohio, when the fuel was purchased outside Ohio. Until July 1, 2005, the tax was equal to the same amount as the motor fuel tax, plus 2¢ per gallon. On July 1, 2005, the 20 per gallon surcharge was eliminated, so the fuel use tax now equals the same amount as the motor fnel tax. Payment of the fuel use tax is made by purchasing in Ohio the same amount of motor fuel as is consumed while operating commercial cars or trucks on Ohio's highways, or by direct payment to the Treasurer of State with a fuel use tax retum. Every person liable for the tax must apply annually to the Tax Commissioner for a fuel use permit. Altematively, a person who is liable for the tax must apply to the Tax Commissioner for a single-trip fuel use permit.

Under the act, if payment of the fuel use tax is made by purchasing in Ohio motor fuel for which the motor fuel tax has been paid, no further use tax has to be paid, and a fuel use tax return does not have to be filed. In addition, a person does not have to obtain a fuel use permit, unless the person is operating a commercial car or commercial tractor upon public highways in two or more states (including the District of Columbia and Canada). This eliminates the requirement that persons operating commercial cars or tractors intrastate obtain a fuel use permit. Accordingly, the act specifies that the prohibition against operating a commercial car or commercial tractor without a fuel use permit does not apply if the car or tractor is operated intrastate.

Continuing law imposes the motor fuel use tax on three-axle commercial cars, commercial cars with two axles operated as part of a commercial tandem having a weight exceeding 26,000 pounds, and commercial tractors. The act specifies that the tax is imposed on three-axle commercial cars "regardless of weight," and that the tax is imposed on two -axle commercial cars having a weight exceeding 26,000 pounds operated alone or as part of a commercial tandem.

Under continuing law, the fuel use tax is imposed on commercial cars that carry property. The act imposes the tax also on commercial cars that carry persons.

Under former law, farm trucks with low fuel usage could file a return and pay the tax annually. The act eliniinates this requirement. Instead, the fuel use tax on farm trucks must be paid quarterly the same as other commercial cars or commercial tractors.

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Appx. 213 Motor fuel excise tax: nronmt oayment discount and shrinkaee allowance

(Sections 557.09.06 and 557.09.07)

The act temporarily reduces the motor fuel excise tax prompt payment discount and shrinkage allowance currently allowed for motor fuel dealers. Under the motor fuel excise tax law (R.C. 5735.06), a motor fuel dealer filing a complete and timely monthly report is entitled to deduct a discount equal to 3% of the fuel gallonage the dealer received minus 1% of the fuel gallonage sold to retail dealers (in recognition of the retail shrinkage allowance discussed below). The act reduces the discount to 2.5% (minus 0.83% of gallonage sold to retail dealers) during fiscal year 2006 and to 1.95% (minus 0.65% of gallonage sold to retail dealers) during fiscal year 2007.

The current shrinkage allowance (R.C. 5735.141), which is proNided as a refund to retail dealers against fuel taxes paid, equals 1% of the taxes paid on fuel the dealer purchases each semiannual period. Under the act, the shrinkage allowance equals 0.83% for the semiannual periods ending in fiscal year 2006 and equals 0.65% for the semiannual periods ending in fiscal year 2007.

The Tax Commissioner is authorized to adopt rules to administer the temporary reductions.

Motor fuel tax refund application

(Section 553.02.01)

The motor vehicle fuel tax is composed of several components. One component is levied by R.C. 5735.29 (not in the act). Prior to July 1, 2003, this component was 2¢ per gallon; it was increased to 40 per gallon on July 1, 2003, and to 60 on July 1, 2004. Continuing law permits a city, exempted village, joint vocational, or local school district or an educational service center that purchases any motor fuel for school district or service center operations to file an application with the Tax Commissioner for a refund of those portions of this component of the fuel tax that became effective on or after July 1, 2003. The refund application must be filed with the Tax Commissioner within one year from the date of purchase.

The act provides that notwithstanding this one year application deadline, a school district or educational service center that failed to file or failed to file in a timely manner an application for a refund of the portion of the motor vehicle fuel tax that became effective on July 1, 2003, and that the school district or educational service center paid through the purchase of motor fuel on or after that

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Appx. 214 date, may file a refund application with the Tax Commissioner during the 60 days following the act's immediate effective date. The Tax Commissioner must process any such refund application as if it had been timely filed under current law.

Pass-throueh entity tax law: technical and conformin¢ chan,2es

(R.C. 5733.40; Section 557.27)

Under ongoing law, a withholding tax is imposed on distributive shares held by nonresident investors in pass-through entities (e.g., partnerships, limited liability companies, and S corporations) that have a taxable business presence in Ohio. The tax helps ensure satisfaction of the investors' Ohio tax liabilities, especially if they lack any tax-related connection with Ohio other than their ownership of an entity doing business in Ohio. The tax is imposed on the entity on the basis of the nonresident investors' respective tax liabilities to Ohio (whether corporation franchise or personal income, depending on the status of the investor). In computing the amount of tax to be withheld, the entity's expenses and losses paid to a related entity are apportioned to Ohio under the weighted three-factor formula (sales, property, and payroll). In computing a nonresident investor's individual tax and the corresponding nonresident credit, only compensation expenses paid to a related entity are apportioned.

The act ensures that all expenses a pass-through entity pays to a related entity are apportioned for the purposes of both the withholding tax and computing the nonresident investors' individual tax and the corresponding nonresident credit.

The act also expressly provides that, for the purposes of the pass-through entity tax, a nonresident investor's distributive share of a pass-through entity (which.is the basis for measuring the withholding tax on account of the investor) includes income amounts from a qualified subchapter S subsidiary ("QSSS"). A QSSS is a wholly-owned subsidiary of an S corporation that is treated for federal tax purposes as not being separate from the parent S corporation. The act's treatment of QSSS distributive shares under the pass-through entity tax is consistent with the current treatment of distributive shares of a "disregarded entity," which is a company owned by a parent company but not treated as separate from the parent for tax purposes (e.g., a limited liability company with but a single member).

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Appx. 215 Tax Commissioner authorized to require identifvinp information from persons lfalina tax documents with the Department of Taxation

(R.C. 5703.057, 5703.26 (not in the act), and 5703.99 (not in the act))

Overview

The act authorizes the Tax Commissioner to require any person filing a tax document with the Department of Taxation to provide identifying information requested by the Commissioner, including the person's social security number, federal employer identification number, or other identification number requested by the Commissioner. A person who is required to provide identifying information is required to notify the Commissioner of any changes with respect to that information prior to, or at the time of, filing the next tax document requiring identifying information. The act states that the Tax Commissioner is being granted authority to request identifying information in order to increase the efficiency with which the Commissioner administers taxes and fees.

ConTdentialitv of social security numbers

The act requires that the Commissioner maintain the confidentiality of individuals' social security numbers. Specifically, the act provides that when transmitting or otherwise making use of a tax document that contains a person's social security number, the Commissioner is to take all reasonable measures necessary to ensure that the general public is unable to view the number. The act directs the Commissioner to mask social security numbers when necessary so that they are not readily discernible by the general public.

Commissioner mav impose penalties for failure to provide or update identifyine information

The act permits the Commissioner to impose penalties for failure to provide identifying information. If the Commissioner requests identifying information from a person and the person does not respond by providing valid identifying information within 30 days after the request is made, the Commissioner may impose a penalty upon that person of up to $100. If, after the expiration of the initial 30 day period, the Commissioner makes one or more subsequent requests for identifying infonnation, and valid identifying information is not provided to the Commissioner within 30 days after the Commissioner makes the subsequent request, the Commissioner may impose an additional penalty of up to $200 for each subsequent request that a person fails to comply with in atimely fashion. The act provides, further, that if a person required to provide identifying information fails to notify the Commissioner of a change with respect to that information within 30 days after filing the next tax document requiring the

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Appx. 216 identifying information, the Commissioner may impose a penalty upon that person of up to $50.

Under the act, penalties imposed by the Commissioner may be billed and assessed by the Commissioner in the same manner as the tax or fee with respect to which the Commissioner seeks the identifying information. The act specifies that the penalties are in addition to any applicable criminal penalties and any other penalties that the Commissioner is authorized by law to impose.

Crinrinal penalties

Continuing law makes it a aiminal offense to file a false or fraudulent document with the Department of Taxation with the intent to defraud the state or any of its political subdivisions. Violation of this criminal prohibition constitutes a felony of the fifth degree, which is punishable by six to 12 months of confmement and a fine of up to $2,500, to which a court may impose an additional fine of up to $7,500. The act specifies that the criminal prohibition for filing false or fraudulent tax documents with intent to defraud applies with respect to tax documents containing false or fraudulent identifying information.

School districtlncome tax on earninQs

(R.C. 5748.01, 5748.02, 5748.03, 5748.04, and 5748.08)

BackQround

The board of education of any school district, except a joint vocational school district, may propose an income tax levy to the district's voters. The proposal may be submiited separately or in combination with a property tax levy and bond issue for permanent improvements. Under continuing law, a school district income tax is levied on the "taxable income" of (1) an individual during the portion of the taxable year that the individual is a resident of the district and (2) on the estate of a decedent who was domiciled in the district at the time of death.

Under prior law, an individual's "taxable income" was always the individual's "Ohio adjusted gross income," which consists of both:

(A) "Earned income" (wages, salaries, tips, self-employment net earnings, and other employee compensation that is reported as eamed income on state and federal income tax retums); and

(B) "Uneamed income" (investment income, such as interest, dividends, and capital gains, and retirement benefits).

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Appx. 217 Alternative school district income tax base

The act pernnits a school district board to choose to levy a school district income tax on only individual earned income instead of levying the tax on an individual's and a decedent's entire taxable income. School districts are not required to use the alternative tax base and may continue to levy an income tax on Ohio adjusted gross income. If the board opts to use the altemative tax base, however, the board must specify in its resolutions and the ballot language proposed to the voters that the tax, if approved, will be levied on only the "earned income of individuals residing in the school district."

The act also makes modifications to the statutory procedures for levying and repealing school district income taxes to account for the new alternative tax base and the specifications that must be made by the district board in its resolutions and the applicable ballot language.

Reauthorization of municipal income tax sharing with school districts

(R.C. 718.09 and 718.10)

Between 1991 and the end of 2000, municipal corporations were permitted to enter into an agreement with an overlapping school district whereby the municipal corporation levied an income tax and shared at least 25% of the revenue with the school district. The tax had to be approved by the voters of the municipal corporation. The municipal corporation and school district territory had to be at least 95% in common, or 90% in common if the remaining 10% of school district territory lay entirely within another municipal corporation with a population of 400,000 or more. A tax sharing agreement also could be made between a school district and two or more municipal corporations so long as the territory of the school district was at least 95% in common with all of those municipal corporations.

No such tax sharing agreements could be initiated after 2000, but any that existed by the end of 2000 could continue in effect. According to the Department of Taxation, the City of Euclid and the Euclid City School District were the only municipal corporation and school district to have a tax sharing agreement in place when the authority was terminated.

The act permits municipal corporations to again levy income taxes to be shared with an overlapping school district under the same terms provided under the prior authority with one exception: the act authorizes a municipal corporation to levy the income tax only on the incomes of individuals who are residents of the municipal corporation. Nonresidents cannot be required to pay the tax.

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Appx. 218 Convention facilities authoritv lodQing tax

(R.C. 351.01, 351.021, 351.06, 351.141, 351.16, and 5739.08)

Continuing law authorizes counties to create convention facilities authorities with the authority to administer convention, entertainment, or sports facilities located within their respective territories. Under certain circumstances, a convention facilities authority is authorized to levy a lodging tax of up to 4%. In lieu of, or in addition to, this tax, an authority may levy a lodging tax of up to 0.9% in an overlapping municipal corporation that levies a city lodging tax. Under prior law, an authority could levy one or both of these taxes only if the authority's board of directors adopted the resolution levying the tax on or before December 31, 1988.

The act extends certain convention facilities authorities' taxation authority. Under the act, the board of directors of a convention facilities authority that is not currently levying a lodging tax as described above, that has been authorized by the board of county commissioners to levy a lodging tax, and that is located in an Appalachian county273 having a population less than 80,000 according to the most recent federal decennial census may levy a lodging tax of up to 3%. The tax must be levied pursuant to a resolution adopted by the board on or before December 31, 2005. The act specifies that the tax is in addition to any other lodging tax authorized to be levied by a political subdivision under continuing law.

The act authorizes a convention facilities authority to issue bonds and notes in anticipation of the proceeds of the tax. A convention facilities authority may secure any such bonds and notes through a trust agreement between the authority and a corporate trustee.

273 To be eligible for the new taxation authority created in the act, the convention facilities authority must be located in a county designated as being in the 'Appalachian region" under the federal Appalachian Regional Development Act of 1965 (ARDA)- The following Ohio counties are designated as being in the 'Appalachian region" under ARDA: Adams, Athens, Belmont, Brown, Carroll, Clermont, Columbiana, Coshocton, Gallia, Guernsey, Harrison, Highlanc4 Hocking, Holmes, Jackson, Jefferson, Lawrence, Meigs, Monroe, Morgan, Muskingum, Noble, Perry, Pike, Ross, Scioto, Tuscarawas, Vinton, and Washington (40 U.S.C. § 14102).

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Appx. 219 Convention center tax authorizations

The act authorizes counties meeting a minimum population threshold of 1.2 million to levy a food and beverage tax and a hotel lodging (or bed) tax to pay costs relative to a convention center.274

Food and beverane tax for convention centers

(R.C. 307.677)

Existing law (R.C. 307.676) authorized the board of county commissioners of a county having a population of one million or more according to the most recent federal decennial census to propose to the electors of the county the levy of a tax of not more than 2% on every retail sale in the county of food and beverages that are to be consumed on the premises where sold. Proceeds of the tax are used to pay the real and actual costs of administering the tax and the direct and indirect costs of constructing, improving, expanding, equipping, fmancing, or operating a convention center. Authorization to propose this food and beverage tax expired on September 1, 2004.

The act similarly authorizes the board of county commissioners of a county having a population of 1.2 million or more to propose to the electors of the county, by resolution adopted by a majority of its members on or before July 1, 2008, the levy of a tax of not more than 2% on every retail sale in the county of food and beverages that are to be consumed on the premises where sold. Proceeds of the food and beverage tax are to be used to pay the expenses of administering the tax and the direct and indirect costs of constructing, improving, expanding, equipping, fmancing, or operating a convention center. The proceeds may be contributed to a convention facilities authority. that was. created before . July 1,. 2005275 The proceeds may not be contributed to a convention facilities authority, corporation, or other entity that was created after July 1, 2005, unless the mayor of the municipal corporation in which the convention center is to be operated by the authority, corporation, or entity has consented to creation of the authority, corporation, or entity.

274 A "convention center" is any structure that has been expressly designed and constructed for the purposes of presenting conventions, public meetings, and exhibitions. A "convention center" includes parking facilities that serve the center and any personal property used in connection with the center's structure or facilities.

17S Continuing law authorizes a county to create a convention facilities authority to administer convention, entertainment, or sports facilities located within its territory (R.C. Chapter 351).

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Appx.220 The 1.2 million population tbreshold is determined by referring to the most recent federal decennial census or the most recent annual population estimate published or released by the Census Bureau at the time the resolution proposing the food and beverage tax is adopted. The food and beverages upon which the tax may be levied are any raw, cooked, or processed edible substance used or intended for use in whole or in part for human consumption, including ice, water, spirituous liquors, wine, mixed beverages, beer, soft drinks, soda, and other beverages.

The board certifies the resolution proposing the food and beverage tax to the board of elections. The resolution is to direct the board of elections to submit the proposal to the electors of the county at the next primary or general election occurring not less than 75 days after the resolution is certified. The food and beverage tax takes effect if it is approved by a majority of the electors voting on the proposal. The tax remains in effect for the period of time specified in the resolution, but for not longer than 40 years.

The board of county commissioners is required to establish all rules necessary for administration and allocation of the food and beverage tax. The rules may prescribe the time for payment of the tax, and may provide for the imposition of penalties or interest, or both, for late payments. A penalty may not exceed 10% of the tax due and the rate of interest may not exceed the federal short-term rate plus 3%.

The food and beverage tax is in addition to any other tax levied under continuing law. The price upon which state sales and use taxes are calculated does not include the food and beverage tax. Conversely, the price upon which the food and beverage tax is calculated does not include state sales and use taxes. Levy of the state sales tax on a transaction does not preclude levying the food and beverage tax on the same transaction.

Lodeinr taxes for convention centers

(R.C. 5739.09(I))

The act authorizes the following hotel lodging (or bed) taxes to complement three existing hotel lodging tax authorizations, the proceeds of which also pay costs relative to convention centers:

(1) The board of county commissioners of a county having a population of 1.2 million or more that, within 90 days after December 22, 1992, levied a lodging tax to enable the acquisition, construction, and equipping of a port authority educational and cultural facility in the county (R.C. 5739.09(D)) is authorized, by resolution adopted by a majority of its members, to provide for extending the lodging tax and for proceeds of the lodging tax to be used to pay the direct and

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Appx. 221 indirect costs of constructing, improving, expanding, equipping, fmancing, or operating a convention center--but only to the extent the proceeds are no longer needed for purposes of the port authority educational and cultural facility and only after deducting the real and actual costs of administering the tax.276 The tax is to be extended at a rate that does not exceed 1.5% for a period of time detemiined by the board, but that does not exceed an additional 40 years. The 1.2 million population threshold is determined by referring to the most recent federal decennial census or the most recent annual population estimate published or released by the Census Bureau at the time the resolution proposing the tax extension is adopted. (This authorization complements a similar authorization in R.C. 5739.09(H)(2) that applies to counties having a population of one million or more according to the most recent federal decennial census.)

(2) The board of county commissioners of a county having a population of 1.2 million or more that has levied a general lodging tax (R.C. 5739.09(A)(1)) is authorized, by resolution adopted by a majority of its members; to increase the rate of the general lodging tax to a rate that does not exceed 5%, and to provide that all proceeds from the rate in excess of 3%, after deducting the real and actual costs of administering the tax, are to be used to pay the direct and indirect costs of constructing, improving, expanding, equipping, financing, or operating a convention center. (This authorization complements a similar authorization in R.C. 5739.09(H)(3) that applies to counties having a population of one million or more.)

(3) The board of county commissioners of a county having a population of 1.2 million or more that has levied a general lodging tax (R.C. 5739.09(A)(1)) is authorized, by resolution adopted by a majority of its members on or before July 1, 2008, to provide that all or a portion of the proceeds of the general lodging tax, after deducting the real and actual costs of administering the tax and the amount of the first 3% of the proceeds that is required to be returned to townships and municipal corporations, are to be used (a) to satisfy any pledges made in connection with an agreement between the board and a convention and visitors' bureau whereby the bureau constructs and equips a convention center and the board levies a tax for that purpose (R.C. 307.695 and 5739.09(C)) or (b) otherwise to pay the direct and indirect costs of constructing, improving, expanding,

116 A'port authority educational and cultural facility" is a facility located within an urban renewal area that nury consist of a museum, archives, library, hall of fame, center for contemporary music, or other facilities necessary to provide programs of an educational and cultural nature, together with all parking facilities, walkways, and other auxiliary facilities, real and personal property, property rights, easements, and interests that may be appropriate for, or used in connection with, the operation of the facility (R C. 307.671 (not in the act)).

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Appx.222 equipping, financing, or operating a convention center. (This authorization complements a similar authorization in R.C. 5739.09(H)(4) that was available until September 1, 2004, to counties having a population of one million or more.)

The proceeds of a tax levied or extended as described in paragraphs (1), (2), and (3) above may be contributed to a convention facilities authority that was created before July 1, 2005. The proceeds of such a tax cannot be contributed to a convention facilities authority, corporation, or other entity that was created after July 1, 2005, unless the mayor of the municipal corporation in which the authority, corporation, or entity is to operate the convention center has consented to creation of the authority, corporation, or entity.

Temporary tax amnesty propram

(Section 553.01)

Proeram description

The act requires that the Tax Commissioner administer a temporary tax amnesty program from January 1, 2006, to February 15, 2006, with respect to delinquent state taxes, tangihle personal property taxes, county and transit authority sales taxes, and school district income taxes. The program applies only to taxes that were due and payable as of May 1, 2005, which were unreported or underreported, and which remain unpaid on the date on which the program commences. The program does not apply to any tax for which a notice of assessment or audit has been issued, for which a bill has been issued, or for which an audit has been conducted or is pending. Nor does the program apply to any unpaid tax that pertains to a tax period that ends after the act's immediate effective date.

If, during the program, a person pays the full amount of delinquent taxes owed by the person and one-half of any interest that has accrued on the taxes, the Commissioner is required to waive or abate all applicable penalties and the other one-half of any interest that accrued on the taxes. The act authorizes the Commissioner to require a person participating in the program to file applicable returns or reports, including amended returns or reports. Persons owing tangible personal property taxes are required to file a return with the Commissioner listing all taxable personal property not previously listed by the person on a tangible personal property tax return.

In addition to receiving a waiver of penalties and one-half of accrued interest, a person who participates in the program is immune from criminal prosecution or any civil action with respect to the taxes paid through the program.

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Appx.223 The act specifies, further, that no assessment may be issued against any person with respect to a tax paid through the program.

The act requires that the Convnissioner issue forms and instructions for the program, and take any other actions necessary to implement the program. The act directs the Commissioner to publicize the program so as to maximize public awareness of the program and participation in it.

Distribution of taxes collected under the nrogram

Generally, taxes and interest collected under the program will be credited to the General Revenue Fund. However, any tax collected under the program that a taxing district would have received had the tax been timely paid is distributed to that taxing district.

State reimbursement for $10,000 business aronerty exemption

Continuing law exempts the first $10,000 of a business' tangible personal property from property taxation (R.C. 5709.01(C)(3)). Currently, the state reimburses local taxing districts for the resulting revenue reduction.277 The act specifies that taxing districts will not be reimbursed for the amounts by which the exemption reduces tangible personal property taxes collected under the program.

Dealers in intanpibles tax: penalty review procedures established (R.C. 5711.28)

Continuing law imposes a tax on shares of, and capital employed by, dealers in intangibles at the rate of eight mills on the dollar. Dealers in intangibles are required to file annual reports describing their resources and tax liabilities. Continuing law imposes penalties upon dealers in intangibles who fail to file full and complete reports and pay tax.

The act establishes procedures by which a dealer in intangibles may petition for, and receive, a review of penalties imposed upon the dealer in connection with the dealer's reporting and payment of the dealers in intangibles tax. The procedures are the same as those that are currently available to taxpayers who have been penalized for failing to make a tangible personal property tax return or to report all taxable personal property.

277 The reimbursement for the $10,000 exemption is being phased out over the next several years. Under the act, the reimbursement is scheduled to be completely phased- out by 2009 (see 'Accelerate nhase-out of state reimbursement for $10,000 business propertp exemntion" above).

M LegislativeServiceCommission -644- Am. Sub. H.B. 66

Appx.224 RELATED REVISED CODE SECTIONS Vacant lots and tracts of land, upon which there is no 57J8.01,County auditor shall be assessor; assessment; structure or improvement, not included in the above procedure; employment and compensation of employees groups, shall be coded in accordarlce with its location 5715.01, Commissioner of tax equeRzation to direcl and su- and its highest and best probable legal use into one of pervise assessment of real property; procedures; county board the preceding major groups. of revision to hear complaints rules of canmissioner In quesiions of ctassificafion of property as real or personal property, the county auditor shall be guided by the tax commissioner's rule 5703-3-01. -^groups-=tri-TeeogDtborr- at-fhe-facl'thal -usu. .4,^.,..For the.:pur[>€ise e1 identdication -each om{te,fly--...^^ta^^ng,;t;plheds^ril4;,beceme-mare,.-.^---. record shall be coded so that the county audltor rs pre- prevalent in county auditors' offices in the future, each pared tofurnlsh fromsald records, and does furnlsh county auditor shall use the followirlg standardized yearly, to the commissioner of tax equalization, an ab- method of identifying or.codirg each parcel of real stract of taxable real property and an abstract of exernpt properiy in his county by property use. real property in which is set out in separate columns the aggregate taxabte value of land and buildings in each MAJOR USE AND CODES taxing district for each of the rnajor general groups of CODE NO. GROUP USE real property, which are set out hereunder. 100 to 199 Ind. Taxable agrioultural real property . (1) Agricultural-The land and improvenlents to land 200 to 299 Incl. Tmmble rruneral Pands and rights used for agricultural purposes, including, but not limited 300 to 399 Incl. Taxable industrfel real Property to, general crop farming, dairying, animal and poultry 400 to 499 Inct. Taxable Conrnercfal real property husbandry, market and vegetable gardening, floriculture, 500 to 599 InG. Taxable resideMiel real property nurseries, fruit and nut orchards, vineyards and forestry. 600 to 6991ncl. Exempt real property (2) Mineral land and rights-Land, and the buildirgs The first digit identifies the major use and the last two and improvements thereon, used primadly foi Fnining digits the sub-use or group. Parcels, other than exempt coal and other minerals as well as the production of oil property, that are vacant (no structures or improvements and gas inctuding the rights to mine and produce such present) shall be coded 100, 200, 300 or 400 depend- minerals whether separated from the fee or not. ing on the respective class, Certain numbers are left (3) induslriahThe land and improvements to land btank to provide for future expansion. used primarily for manufacturing, processing or refining USE foods and materials. (4)Corranercial-Thelandandimpiovementsto land 100 Agricultural, vacant, land which are used or occupied tor general commercial pur- 101 Cash-grain or general farm 102 Liveslock farms other than dairy and poultry poses and where production of income is a factor to be 103 Dairy farms considered in arriving at true vatue (apartment houses, 104 Poultry farms .warehouses, hotels, motels, theaters, office buildings, 105 Fruit and nut farms retail and wholesale stores, bank buildings, commercial 106 Vegetable farms garages, commercial parkirlg lots, shopping centers, 107 Tobaccofarms trailers, etc.) 108 Nurseries (5) ResidentiaF-The land and improvements to the 109 Green houses, vegetables and floraculture land used and occupied as a dwelling by one, two or 110 Agricultural vacant land "qualified for current three families. agricultural use value" (a) Condominiurn-Units of condominium to be sotd 111 Cash-grain or general farm "qualified for cur- and occupied as dwelling by one, two or three families, rent agricuflural use value" as provided in the condominium declaration filed pursu- 112 Livestock farms other than dairy and poultry ant to section 5311.06, of the Revised Code, shall be "qualified for current agricultural use value" classified as residential. 113 Dairy farms "qualified for current agricultural (b) Urban and nortfarm residential-Urban, suburban use value" and rural nonfarm dwellings as differen[fated from dwell- 114 Poultry farms "qualified for current agricultural ings that are a part of the farm building group occupied use value" by ihe operator of the fann. 115 Fruit and nut farms "qualified for current (c) Country estate-High grade residenfial property in agricultural use value" a rural disirict which may or may not have a farm opera- 116 Vegetable farrns "qualified for current agricul- tion connected therewith. tural use value" Residential land shall include all residenfial property 117 Tobacco farms "qualified for current agricul- other than farm houses on either piatted lots or acreage tural use value" regardless of location. 120 Timber (6) Real property exempt from taxation according to 121 Timber "qualiried for current agricultural use law, value" (B) AII property shall be coded according to its 190 Other agricuHural use highest and best probable legal use regardless of its lo- 199 Other agricultural use "qualified for current use cation in a township or municipal corporation. In the value" event of a dual or multipte use of a parcel of real 210 Coal lands-surface and rights property, the major use shall govern its classification. 220 Coal rights-working Interest

Appx.225 October 1977 OHIO ADMINISTRATIVE RULES 3-647

230 Coal rights-separate royatty interest 530 Three family dwelling 240 Oil and gas rights-working interest 540 House trailer or mobile home affixed to the real 250 Oil and gas rights-separate royalty interest estate 260 Other minerals 550 Condorninium residential unit

4ZGed-atxi _^. -:^ 320 Foundries and heavy manufacturing plants i thi^d °rlal dtgt i cates the size of tract used for residential property. 330 Manufacluring and assembly , medium 340 Manufacturing and assembty, light 350 Industrial warehouses 0 Platted lot 360 Industrial truck terminals 1 Unplatted - 9 to 9.99 acres 370 Smallshops (machine, tool & die, etc.) 2 •' 10 to 19.99 acres 380 Mines and quarries 3 " 20 to 29.99 acres 390 Grain elevators 4 •• 90 to 39.99 acres 399 Other industrial structures 5 '• 40 or more acres 400 Commercial-vacant land 600 Exempt property owned by United States of 401 Aparlments-4 to 19 families America 402 Apartments-20 to 39 families 610 Exempt property owned by State of Ohio 403 Apartments-40 or rrare families 620 fycempt property owned by counties 410 Motels and tourist cabins 630 Exempt property owned by townships 411 Hotels 640 Ecempt property owned by municipalities 412 Nursing homes and private hospitals 650 Exempt property owned by Board of Education 415 660 Ecempt property owned by park districts (pub- Trailer or mobile home park lic) 416 Commercial camp grounds 419 670 Fxentpt property owned by colleges, acade- Other commercial housing mies (private) 420 Small (under 10,000 sq. ft.) detached retail 680 Charitable exempGons-hospitals-homes tor stores aged, etc. 421 Supermarkets 685 Churche.s, etc.; public worship 422 Discount stores and junior department stores 690 Graveyards, monuments, and cemetedes 424 Full line department stores 425 Neighborhood shopping center (C) Application date of rule 5705-3-06-The im- 426 Community shopping center plementation of the coding system provided in division 427 Regional shopping center (B) of this rule shall begin in a county with the next gen- 429 Other retail structures eral appraisal commenced after the effective date of 430 Restaurant, cafeteria ard/or bar these rules unless the county auditor wishes to imple- 435 Drive-in restaurant or food service facility ment the system at an earlier date. 439 Other food service structures (D) The conxnissioner of tax equalization may adopt 440 Dry cleaning plants and laundries and issue entries modifying the coding system in 441 Funeral homes division (B) oi this rule without further hearings. 442 Medical clinics and offices (E) Nothing contained in rule 5705-3-06, however, 444 Full service banks shall be construed as an authorization tor any parcel of 445 Savings and loans real property in any class in any county to be valued for 447 tax purposes at any other value than its •'taxable value" Office buildings-1 and 2 stories as set out in rule 5705-3-01. 448 Office buildings--3 or more stories-waik up 449 Office buikling" or more stories-elevator HISTORY: Eff. 11-1-77 452 Automotive service station Fomier BTA-5•06, arn. 12-28-73 453 Car washes 454 Note: This rule was tiled pursuant to sections 5713.01, Automobile car sales and services 5713.03, and 5715.01 of the Revised Code. 455 Commercial garages 456 Parking garage, structures and lots RELATEO REVISED CODE SECTIONS 460 Theaters 5713.01, County auditor shall be assessor, assessrnent; 461 Drive-in theaters procedure; employment and cornpensatlon of employees 462 Golf driving ranges and miniature golf courses 5715.01, Commissioner of tax equafization to rkrect and su- 463 pervise assessment of real property; procedures county board Golf courses of revision to hear complaints; rules of cornrrussioner 464 Bowling alleys 465 Lodge halls ard amusement parks 480 Commercial warehouses 5705-3-07 Valuation of land 482 Commercial truck termidals 490 Marine service facilities (A) General-AII land shall be appraised at its true 496 Marina (small boat) value in ntoney as of tax lien date of the year in which the appraisal or update of values is made. In arriving at 1 ^ 499 OtheY commercial structures the true value in money the county auditor shall con- 500 Residential vacant land sider, along with other factors, not only the.present.use 510 Single family dweiling of the land but also its highest and best probable legal 520 Two family dwelling use consistent with existing zoning and building regula-

Appx.226 DEPARTMENT OF TAX EQUALIZATION 5705-3-06

of God or because of elements not wilhin the control of the firm (3) A lisl of laxing authorities with addresses tor which ft such as riots, war, organized work stoppage, or other delay nol firm or irqividual professional appraiser has completed a gen- caused by the appraisal firm, ihen the commissioner shall hear eral reappraisal of real property in the last ten yeam or the ap- the maNer and if, in his opinion, which shali be final, the delay praisal is Currently in progress. was actually caused by any of the above stated reasons or for (4) A list of references rrom financial ins6tutions. any other good reason over which the appraisal firm had no (5) After the initial submission of such tists the ftrm or in• controt, ihen the penaNyhereln providedfor in.the.contraetshall p9'iduaL-appraiser shaN5le ^sdoh ddoc.umeWbg t)ie: iW'Yo--fiR( of

...... (7) Re an BMernate io itie-^reiamage for the guarantee-^fr of ----_ ^-.{lf)=Afterseservmg"V7"e^dowmertts`S6BYriTtrd^by Ifie appraisal --^'--^ .__.:suppon^#-val0er-reqmreif^^y-paragrapTi ^(t7(;ij of this ruie and firms ard individual appraisers, ft commissioner shall create a the ien per cent retainage and the minimum two hurWred doitars tile of the same. The commissioner, after an informal discussion a day penatty required by paragraph fl(5) of this rule a per- wiNi the representat'wes of each firm or ind'rvidual appraiser who formance bond for the tuN amount of the contract satisfactory to has itYed such documents, shall adopt an erihy in the monfi of ttte county auditor, approved by the county prosecuting attorney February ot eaeh year. lisNng aN appraisal firms and iMividual and the commissioner of tax equalization will be accepted. The appraisers thattave createda file for that year. This ft will be performanoe bond must provide for Ihe completion of the con- used by the commissiener when oontddering the approval or tract incJuding the guatantee of Ihe support of values. A copy of disapproval of a county auditor's application requesting auQwr- the peRormahce bond musl be filed with Ihe commissioner of ity to empioy an appraisal fum or individual appralser. This file tax equalization at the Nme of filing the appraisal contract. wilt also be available to the county auditors for their use when (6) Provision thal the employees of the appraisal firm meet selecting an appraisal firm or an individual appraiser. the approval of the county auditor and that such employees (L) Nothing set out in these rules shaN be construed as a shaN be appoimed deputies of the county auditor tor Ihe pur- prohNion on Ihe county auditor with respect to ins duy to pose ot the reappraisal as weN as acting as agents tor the ap- revalue and assess at any time all or any part of the real praisal firm. property in Ns county where he finds thal the same has (9) Provision that cleariy recites ihat there is to be ra depar- changed in value or is not on the tax fist at its taxable value as ture from the tenns of the contrad or no change or aNerations provided by sedion 5713.01 of the Revised Code. of the same without the written approval of the commissioner being first obtained. HISTORY: EN. 10-20-61 (10) Provision that progress of work reports shall be made Am. 11-1-77; prior BTA-5-04, am. 12-28-73 during the oourse of theappraisal referred to in the canlract as REVISED COOE REFERENCES determined and requested by the commissioner on O.T.E. form 5713.01, Assessing real estate, 108. county auditor sheN be assessor; assessment: prpcedure; employment and cornperrse- (11) Provision that there is to be no subcontracting of all or tion of employees any part of lhe services provided under the contract without the 5715.01, Boards of tevision, oommissioner of tax equatiza- written consent of the county auditor and commissioner of tax tion to direct and supervise assessment of real property; proce- equalizat7on obtained prior to execution of the subcontract. dures; county board of revision to hear complaints; rules of (G) The appNcation to commence a general sexennial reap- commissioner praisal or revaluation of real 7roperty for tax purposes shan in- dude all of the real propeny sNuated in ft county and aN types Protflulgation: Section 5713.041 and cfasses of such real property shall be accounted for in the 5705-.3-06 Classification of reai property and codxg ot application for authority to employ experts, deputies, cierks, or •reeords other employees fited by the auditor pursuaM to this rule as set (A). As required by section 5713.041 of the Revised Code, forth above. No such appfiration and no such sexemqat reap- the county auditor shall dassify eaCh parcel of taxable real praisal or revaluation of real properly shaN be approved by the propeny in Ns county into one of the two following ciassf5ca- commissioner unless all types and classes of real property tions, which are: (land. buifdings, srmcture improvemenls and fixtures) are to be, (1) Residential and agricuNural land and improvements; or are, appraised, reappraised or revalued ahd placed on the (2) ANother taxable land and improvemerds, includmg com- tax list and duplicate for the same tax year. mercial, indusbiaf, mineral and public uNlity land and improve- (H) Each employee engaged in held work. including Nre em- ments. ployees furnished by an appraisal firm, shall be provided with a (B) Each separate parcel of real property with improvements proper identificalion card by the county auditor. shall be classified according to its principal and current use, (1) Paragraphs (A) to (H). as set forth above, are rrot to be and each vacant parcel of land shall be dassiried in accord- construed as a prohibition or fimitaGon upon the authority of the ance with its location and its highest and best probable legal county auditor to inelude in his coMrad viith an appraisal firm use. In the case where a single parcel has muitiple uses the any additional provisions which, in the judgment of the auditor, principal use shall be the use to which Ihe greatest percentage will insure that {he appraisal be performed and completed in the of the value of ft parcet is devoted. The totlowirg defirurions best possible manner, provitled twwever, that such additional shaN be used by the county auditor to determine 1he proper provisions shaN be in writing and shaN be induded as a clause classifirztion of each such parcal of real properly: in the written contracl. (1) "Agricultural land and improvements" The land andim- (J) Professional appraisal firms or individual professional ap- provements to land used for agricultural purposes. induding, praisers, prior lo contracting with a county auditor to make a but not NmNsd to, general crop tarrrnrg, dairying, animal and complete or partial appraisal eilher for a general reappraisal or pouttry husbandry, market and vegetable gardening, Noricuhure, for annual maintenance for real property tax purposes as pro- nurseries, fruit and nut orchards, vineyards and forestry. vided by these"rules, shall have submitted to the commissioner (2) "Mineral land and improvemeM"-Land, and the build- of lax equalization the following documents: ings and improvements thereon, used for mining ooal and other (1) A Nst of officers and management wAh their qualifications minerals as weN as the production of oil and gas indudug the as of the fiscal year preceding the Ihirly-first of December of the rights to mine and produce such minerals whether separated year in which submihed: or it a newly formed corpora6on or from the fee or rrot. pannership, a list of present officers and management with their (3) "Industrial land and improvements"-The land and im- qualirications. provements to land used for manufacturing, processing or refin- (2) A list of all regional or project appraisal supervisors, or irg foods and materials, and warehouses used in connaction equivalent, that operate in Ohio. iherewith.

tktober19a1

Appx.227 5705-3-06 OHIO MONTHLY RECORD - OCTOBER 1981 280

(4) "Commerciat land and improvements"-The land and 120 Timber or forest lands ,iprovements to land vhAch are owned or occupied for general 121 Timber "qualified for current agricultural use tommercial and income producing purposes and where produc- value" tion of income is a factor to be considered in arriving at true 190 Other agricultura: use value, inctuding, but not limited, to, apartment houses, hotels, 199 Other agricullural use "qualified for current use rrwtets, theaters, office buAdings, warehouses, retail and whole- ...... u vatue ......

..... ,.:_ .^T^ . .. _..__.. ResweM1a71Ana aiidiid^vema^ ...___^wemeritsYtT con ngo one7 ree, or four 230 Coal rights-sepaiate royalty interest dwelling unils, one of which is dccitpied by Ihe owner of the 240 Oil and gas rights-working interest property. 250 Oil and gas rights-separate royalry interest (C) Each property record of taxable real property shall be 260 Other minerals coded in accordance with the coda groups provided for in this 300 paragraph. Each property record of exempt property shaA also IndustriaF-vacant land be coded in accordance with the code groups for exempt 310 Food and drink processing planls and storage property. The county auditor shaY annually fumish to Ihe com- 320 Foundries and heavy manufacturing plants missioner of tax equaGzation an abstract of taxable values in 330 Manufacturing and assembly, medium which is set out in separat@ columns the aggregate taxable 340 Manufacturing and assemby, light values ofiand and improvements In each taxing district for each 350 Industrial warehouses of the major code groups provided for in this paragraph, and an 360 Industrial truck terminals abstract of exempt values in which is set out in separate.col- 370 Small shops (machine, tool & die, etc.) umns the aggregate exempt values of land and improvements in 380 Mines and quarries each taxing district for each of the major exempt code groups 390 provided for in this paragraph. Grain elevators 399 Other industrial structures MAJOR USE AND CODES 400 Commercial-vacant land CODE NO. GROUP USE 401 Apartments-1 to 19 rental units 100 to 199 Incl. Taxable agricultural real property 402 Apartments-20 to 39 rental units 2,00 to 299 Incl. Taxable mineral lands and rights 403 Apartments--40 or more rental units 300 to 399 Incl. Taxable industrial real property 410 Motels and tourist cabins 400 to 499 Incl. Taxable commercial real property 411 Hotels 500 to 599 lncl. Taxable residential real property 412 Nursing homes. and private hospitals 600 to 699 tnd. Exempt real property 415 Trailer or mobile home park 7001o799 Incl. Special tax abatements for improve- 416 Commercial camp grounds ments 419 Other commercial housing 420 The first digit identifies the major use ard the last two digits Small (under 10,000 sq. R.) detached retail stores the sub-use or group. Parcels, other than exempt property, that 421 are vacant (no slruqures or improvements present) shall be Supermarkets coded 100, 200, 300 or 400 depending on the respective class 422 Discount stores and junior department stores unless part of an existing unil. Certain numbers we left blank to 424 Full line department stores provide forfuture expansion. 425 Neighborhood shopping center 426 Community shopping center USE 427 Regional shopping center 100 Agricultural vacant land 429 Other retail structures 101 Cash-grain or generalfarm 430 Restaurant, cafeteria and/or bar 102 Livestock farms other than dairy and pouflry 435 Drive-in restaurant or food service facility 103 Dairy farms 439 Other food service structures 104 Poultry farms 440 Dry cleaning plants and laundries 105 Fruit and nut farms 441 Funeral homes 106 Vegetable farms 442 Medical clinics and offices 107 Tobacco farms 444 Full service banks 108 Nurseries 445 Savings and loans 109 Green houses, vegetables and floraculture 447 Office buildings-1 and 2 stories 110 Agricultural vacant land "qualified for current 448 Offtce buildings-3 or more stories-walk up agricultural use value" 449 Office buildings-3 or more stories-elevator 111 Cash-grain or general farm "qualified for cur- 452 Automotive service station rent agricultural use value" 453 Car washes 112 Livestock farms other than dairy and poultry 454 Automobile sales and services "qualified for current agricultural use value" 455 Commercial garages 113 Dairy farms "quafA'red for current agricultural 456 Parking garage, structures and lots use value" 460 Theaters 114 Poullry farms "qualified for current agricultural 461 Drive-in theaters use value" 462 Golf driving ranges and miniature golf courses 115 Fruit and nut farms "qualified for current 463 Golf courses agricultural use value" 464 Bowling alleys 116 Vegetable farms "qualified for current agricul- 465 Lodge halls and amusement parks tural use value" 480 Commercial warehouses 117 Tobacco farms "qualified for current agricul- 482 Commercial truck terminals tural use value" 490 Marine service facilities

Appx.228 biu5-:t-u9 OHIO MONTHLY RECORD - OCTOBER 1981 282

calion in the tmding area, the purchasing power of the entire values of land and improvements are added together, the result- area, and the relative availability of sites shaN be considered in ing value indicates the true value in money of the entire addition to previously mentioned factors. property. (H) Residentia(-Residential sites located in suburban and (B) In making this review all factors affecting value shall be rural areas shall be valued by using the same factors that are eonsidered including: used in valuing urban resbential lands with the same facilities ( 1) Mathematical accuracy. and amenities. Land classfiication and pricing,

___ _._, _._ ._..._.^..-_.__ ...... _...._ -as u^her iea7 properly. uame ot tne tadors Mtat shaN be oonsid- (b) Cgnstfuction features eretl in vafuNfg ixsal and mineral deposits are the quality and (c) Construction quality grade extent of the deposit, the active worfdng area which at current (d) Use of proper price schedute. produclion will be mined wlhinfive years, active reserves that (4) Proper application of deprecialion and obsolescenee. will not be worked for five to ten years. inaclive reserves that (5) Sales of comparable property for like use. will not be worked until afler ten years, and mined out or (C) If the reviewer finds that a property or properties have depleted areas. not been valued at true value he shall make the corrections Separate oil and gas rights shall be valued in accordance needed to obtain the correct values and shall place said cor- with the annual entry of the commissioner of tax equalization in rected values on the property record. the matter of adopting a uniform formu(a in regard to the valua- (D) As part of the appraisal review the county auditor shall tion of oil and gas deposits in the eighty2ight counties of the prepare or have prepared an analysis of recent real estate state. Iransactions comparing the appraisal value to the prices paid When rights to ceal, minerals, oil and gas have notl.ieen for real property to determine vfiether all real property in the separated from the fee, the value of the mineral deposits shall different subdivisions, neighborhoods and classes have been f be added to the value of the surface. appraised uniformly at one hundred per cent of true vaNe. (J) Pricing unils and preparaNon of land unit price schedufes, HISTORY: Eff. 10-20-81 and depth tables. Land unit prices (price per acre, square foot Am. 11-1-77; prior BTA-5-09, am. 12-28-73 or front toot) used shall be Ihose appropriate and typically used in Ihe market in pricing similar land. GeneraNy per acre prices REVISED CODE REFERENCES shall be used in pdcing agricultural lands. Large industrial, com- 5713.01, Assessing real estate, county auditor shall be mercial or residential tracts may be priced by the use of per assessor; assessment; procedure; employment and compensa- acre or square foot prices. Front foot prices shall be used, gen- tion of employees erally, for the pricing of residenUal and commercial tots and 5715.01, Boards of revision, commissioner of tax equaliza- lands in oongested areas. Regardless of the pricing unN used, tion to direcl and supervise assessment ofreaf property;proce- the result shall be the true value in money of theland. 'dures; county board of revision to hear complaints; rules of (K) Each county auditor shall prepare, or have prepared, commissioner mder his direction and supervision: (1) Land schedules, setting forth lard untl prices to be used Promu(gation: Sections 5713.01, 5715.01 and 5715.29 in appraising the different classes of land. 5705-3-12 Procedure after reappraisal or update i (2) Tables, where app(icable, showing depth, corner and alley influence factors, etc., to be used in conjunction with Ihe (A) Procedure after sexennial reappraisal: unit prices. (1) After the appraisal is completed the county audrtor shah (3) Tax maps that shall accurately irWicate the area, acreage total the "true value in money" of land, building and total of or dimensions of each lot, tract, or parcel land in the county. agrieuftural, industrial, commercial and residential property in together with the name of the owner, if 5ossible, and the lot each taxing district, and he shaN prepare and file an abstract of section, or survey number, showing the unit price used in pric- these true values with the department of tax equalization, which ing the various types of land. abstract shall be considered as a lentat"rve abstract of appraised One set of alt land unit price schedules, depth, corner ahd values only. Each tentative abstract shoukf be submitted prior to alley influence tables, and lax maps with unN prices shall be the second Monday in June. kept on file in the county auditor's office. open for public in- (2) In order to achieve uniformity of assessment among the spection during regular office hours. eighty-eght counties, and keeping in mind that there are variations in cost schedules, depreciation schedules, etc., used by HISTORY: Eff. 10-20-81 the various appraisal firms, the staff of the departmanl of tax Am. 11-1-77; prior BTA-5-07, am. 12-28-73 equalizaaon. upon receipt of the "appraised value" abstract as REVISED GODE REFLl1EN0ES prepared and filed by a county auditor, will review the appraisal in the field in the light of the informalion it has collected relative 5713.01, Assessing real estate. county auditor shall be to recent real property sales and other information relating to assessor: assessment; procedure; employmenl and compensa- real property values to determine whether all real property has tion of employees been uruformly appraised at "true value in money' as defined 5715.01, Boards of revisiPn, commissioner of tax equaliza- by rule 5705-3-01 of the Admirustrative Code. After such review tion to direct and supervise assessrnent of real property: procedures; counly board of revision to hear compairas: rules of the staff shall recommend to the commissioner of tax equaliza- ton whether the commissioner should accept the reported ap- commissioner praisal value as a reasonable estimale of Irue value as of tax Promulgation: Sections 5713.01, 5715.01 and 5715.29 Nen date of the year of reappraisal or rejecl tlte values and 6705-3-09 Review of appraisal order the auditor to make the changes needed to insure that the appraisal values are a reasonable esfimate of true value in (A) FoNowing the initial inspection and exlension of Irue money as of tax lien date of the year of reappraisal. The county values on the property record card, and prior to submiaing Ihe auditor shall be informed of the staff's recommendation. returns to the county board of revision as required by section (3) The commissioner shall then transmit to (he auditor a ten- 5715.16 of the revised code, each parcel of real properly shall tative order, which is not a final order of the commissioner, `te reviewed in the field by competent appraisers. The purpose which shall contain the recommendations of the commissioner if this review is to insure that each property has been valued as to any changes in aggregate values, or in any classIhereof, undormly in relation lo other properties at true value as defined in the couray or any taxing district Ihereof. After a review of in rule 5705-3-01 of the Administrative Code, so that when Ihe such tentative order the auditor shall submit to the commis-

Appx.229 5703-9-28 Ohio Monthly Record - September 1984 334

5703. DEPARTMENT OF TAXATION c Promulgation: Section 5703.14

5703-9-28 Sales and use tax: newspapers and ter annualy frbm an established place of business for a tlefinite magazines price.per copy or subscription perlod, eonlaining articles, photo- (A) As used in Ihis rule: graphs,iltustratians, news, advertisemants, opinions. or similar (1) "Newspaper" means an unbound publication bearing a Information of interest to the general pubiic or an idenliliable titte or name wTich is regulady published at least as frequently portion of the general pubhc. as biweeky and distributed from an estabBshed place of busi- (4) 'Controlled circulation publication" means a magazine ness to the general public primarily in a speei5c gebgraphic area containing at least twenly-four pages, at least twenty-five per for a definite price per copy or subscriptionperiod. Anewspaper cent ediforial content, regularly pubnshed at least as frequently must contain in all editions substantial news matter of interaa- as quarter annualy, and circulated without charge to the recipi- tional,riational, or local events and will normally contain adver- ent, provided that such publication is not owned or eontrolled,by tisements, photographs, illustrations, editoriat comment, opin- indviduals orbusiness concerns which conduct such publication ions, legal notices, and other announcements of public interest. as an auxiliary to and essentially for the advancement.ol the Newspapei does not ihclude a newsletter or sim7tar unbound main business or calling of those who own or control them. periodical of interest only to certain trade, prufessional, com- (B) Sales and use tax do not apply to the sate oi use of: mercial.. or_hobby interests and which does not serve the pur- (1) Newspapers; pose of providing instruction, enlightenment, or entertainment to (2) Community newspapers; the general public. (8) MagaijAesubscriptions shipped to the consumer by sec- . (2) "Community newspaper" means ap unbound publicalion ond-class mail; and bearing a title or name that is reg.ularly published from a fixed (4) Magazines distributed as controlled circulation place ol business at least as freqrfenlly as biweekly, the.majority publications. of copies of which are distributed to households In itsservice area, which sonlains news, editoriai comment, opinions; fea- NISTORY: EIt.9-27-84 tures, advertisements, or other matters of public interest, provided that.such pubiication is not ownedor controlled by indivitl- . Note: Effaclive 9-27-84, former 5703-9-28 (2-17-75) was ualsorbusiness.concernswhichpubgsh:dasanadxgfarytdantl repeaied essentialy forlhe advancement of another non'-newspaper business of those who own or conliol such pubrication. "Community newspaper" includes any advertising insert actually publishf:d RG 5703:05, Powers, duties, and functions oftax by the same persoh who pub5shes the comminity newspaper commissioners and is distributed therewilh: RC 5739.01. Uefinitions {S) "Magazine" means abound publication bearing a title or RC 5739.02, Levy of tax, purpose, rate, exemptions name which is regulary published atloast as frequently asquar- RC 5741.02, Levy of tax; mle; exemptions

5705 bIVIS10NOF TAX ELIUALIZATION-.DEPARTMENT OF TAXATION

Promulgation: Section 5703.14

.5705-3-06 Classification of real property and coding of the county auditor todetermine the proper dassirication of each records such parcel. of real prqperly: (A) As required by section 57149.041 of the Revised Code, (1) "Agricultural land and improvements"-The land and the county auditor shall classify each parcel of taxable real improvemenls to land irsed for agricultural purposes, including. property in his county into one of the (wo.fotlowing classi(ica- buf not limited to, .general nop farming, dairying, animal and fions, which are: poultry husbandry, market and vegetable gardehing, (loriculture, (1) Residential andagricultural land and impmvements; nurseries. (ruit and nut orcbards: vipeva rdsr and.forestrv 72TA7ror er raxaTeTanBan^^rovemeara.:^n^^com- ,. . S4 •MmeSalland an rm^v mereraF,-FrMUSfrral,^-mi{rera/-^srrd-pnblFe rolFFFty.-Fand-$rrd-,._ .g^e^ Gaad-BadlhRhw/1t^ ...... rmgrovernents. . . ngs andmrprovementsi _therear, . .uSedlotmim)g cosranit trther as we/f as the prod8ctiod of oil and gas inciuding the (B) Each separate parcel of real property with improvements minarals righ shall be classified according to its principal and currenf use, and ts to mme and produce soch minerahs whether separated trom the fee or nm- - each vacant parcel otland shagbe classigedin accordance with its location and its highest and best probablelegal use. !n the (3) "indostria/ land and improvemenfs"-Tiie land and case where a single parcel has multiple uses7he principal use improveurents to land used fur manufacturing,procassing- or shall be the ase 10 which the greatest percentage of the va/ue of refining foods and materials, and waretiouses used in connection the parcel is devoted. The following definitions shall be used by therewith.

Appx.230 335 Division of Tax Equalization-Department of Taxation 5705-3-06

(4) "Commercial land and improvements"-The land and 210 Coal lands-suNace and rights improvements to land whkh are owned or occupied fqr general 220 Coal rights-working interest . commercial and income producing purposes and where produc- 230 Coal rights-separate royalty interest lion of income is a factor to be considered in arriving at true 240 Oil and gas rights-working interest value, including, but not limited to, apartment houses..hotels, 250 Og and gas rights-3eparateroyahy interest 260 Other minerals motels, theaters. ofrme buildings, warehouses, relait and wholesale stores, bank buildings, commercial garages, commercial 300 Industrial-vacant land parking lots, and shopping centers. 310 Food and drink processingpfants and storage 320 Foundries and heavy manufacturing plants (5) "Residential land and improvements"- The land and 330 Manufacturing.and assembly, medium improvements to Jhe land used and occupied by one, two, or 340 Manufacturing and assembly, light three families. 350 Industrial warehouses - (C) Each property.record of taxable real propertyshall be 360 Industrial truck terminars coded in accordance rwith thecode groups provided /or in tAis 370 8mall shops (machine,tool It die, etc.) paragraph. Each property record of exempt property shell also 380 Mines and quarries be coded in accordance with the code groups for exempi prop- ' 390 Grain elevators 399 Other industrfal stractures erty. The county auditor shall annually fumish to theconimis- 400 sioner of tax equalizationan abstract 61 taxable va'lues in Commorcial-vaoant land which 401 is set ou1 in separate columns the, aggregate taxable values'ti1 Apartmenis-4 to 19 rental units 402 Apartments-20(0 39 rental units land and improvements in each taxing district for each of the 403 Aparttnenls-40 or more.rental uhits major code groups provided for In this paragraph, and an 410 Molels and tourist cabins abstract of exempt values in which is set out in separste coi- 411 1lotels umns the aggregate exempt values of land and improvements in 412 Nursing homes and private hospitals each taxing district for each ot the major exempt code groups 415 Trailer or mobile home park provided for in this paragraph: 416 Commercial camp grounds 419 Other conimercial housing MAJOR USE AND CODES 420 Sinall (under 10,000 sq. nJ detached retail srores 421 CODE NO. GROUP USE $upermarkets - 422 Discount store's and juniar department stores 100 to 199Ind- Taxable agricultural real propedy 424 Full line department stores 200 to 299 Incl: Taxable mineral lands and rights 425 Neighborhoodshopping center 300 to 399 Incl. Taxa¢fe industrial real property 426 Communily shopping center 400 to 499 Incl. Taxable commercial real,properly 427 Regional shopping center 500 to599lncl. Taxable residential real property 429 Other retail strectures 600 to 699 Incl. Exempt real property 430 Restaurant, cafeteria and/or bar 700 to 799 Incl. Special tax abalements for improve- 435 Drive-in restaurant or food service facility menls 439 Other food servicestruclures 600 l0 899 Pubtic utililies 440 Dry cleaningplants and laundries 441 Funeral homes The first digit identifies the major use and the last two digits 442 Medical clinics and olfices the sub-use or group. Parpets, other than exempt property. Ihat 444 Full service banks . are vacant (no structures or improvements presenr) shati be 445 Savings and loans coded 100, 200. 300 or 400 depending on the respective class 447 Office builtlings-1 and 2 stories 448 unless part of an existing unit Cerfain numbers are left biank to Ofhce buildings-3 or more stories-walk up 449 provide for future expansion. Office buildings-3 or mwestories-elevator 452 Automotive service station USE 453 Car washes 454 100 Agricultural vacant land Aulomabile sales and services 101 455 Commercial garages Cash-grain or generalfarm 456 102 Livestock farms other than dairy and poultry Parking garage,.slructures and lots 103 460 Theaters Dairy farms 461 104 Poultry farms Drive-in theaters 105 462 Golf driving ranges antl miniature golf courses Fruil and nut farms 463 106 Vegetabfe farms Goll courses 107 464 Bowling aUeys Tobacco farms 465 108 Nurseries Lodge balls and.amusemenl parks 109 480 Commercial warehouses Green houses, vegetables and Ilotaculture (sic) 482 110 Agriculturatvacant land "quaGfred for cwrenl agricul- Commercial lruek terminals . 490 Marine service facilities tural use value" 496 111 Marina (small boat) . Cash-grain or general farm "qualified for current 499 agricultural use ralue" Other commercial structures .-__.__Fyl_-tivestoclcfarmspthenh3^JaTry^an^'o((^"^`3i)i-qu T esl ee a'va_caattae3- fied for currenL.a g'cnu alysevalue'C-_-_:--..-----5.10- 113^-^ ^Dairy farrrrs-"qualiftedforaurremagrlcaherttl-ase 520 _...hn-4TaThd9--d-WeTlSng' . . .. value" 530 Three family dwelling 114 Poultry farms "qualified for ewrent agricultural use 550 Condominium residential unit value" 599 Otherresidential sbuotures 115 Fmit and nut farms "qualified for current agricultural use value" - In the residential coding the third or last digit indicates the 116 Vegetable fatms "qualified for cunenl agricultural siie of tract used forresidenlialproperty. use value" 0 Platted lot 117 Tobacco farms "qualified For current agricultural use i Unplatletl - 9 to 9.99 acres value" 2 " 101o 19.99 acres 120 Timber or forest lands 3 2010 29_99 acres 121 Timber "qualified for cunent agricultural use value" 4 " 30 to 3999 acres 190 Other agricultural use 5 '40 or more acres 199 Other agricultural use "qualilied for current use vafue" 600 Exempl property ownetl by United States of America

Appx. 231 5705-3-06 Ohio Monthly Record - September 1984 336

810 Exempt property owned by stateof Ohio 7<0 Other tax abatements (R.C. 165.01 and 303.52) 620 Exempt properly owned by counties 830 Exemptproperty owned by townships (D) The coding system provided in this ru/e wsha/f be eNec• 640 Exempi property owned by municipalifies tive foY tax year 1984. 650 Exempt proyerty owned by board of aducation ft7 A!othing contained in this rule howeve,, shall cause the 660 Exempt property oiwned by park districls (public) valsafion. bt any parcel ol reat property to be other than its frue 670 Exenipt property owned by cotleges, academies (pri- valae in money or be coostrued as an authorization for any vate) parcel of real property 680 Charitable exempAions-hospitals-hontes for aged, in any class in any cormty ln be valued for etc: tax purppses al any othar value than its "taxable value"as set 685 Churches, etc., public vnrship out in rule 5705.301 of the Adminisfrarive Code. 690 Graveyards, monuments, and cemetaries [sic] HFSTORY: Eff. 9-14-84 . 700 Community urban redevelopiuent corporation tax 10-20-81., 11-1-77 abatemenls (R.C. 1728.10) 710 Couimunity reinyestment area tax abatements (R.C. CROSS REFERENCES 3735.61) 720 Municipal improvement tax abatements. (R.C. RC 5703:05, Powers. duties. and functions of tax 5709.41) cominissioner 730 Municipal urban redevelopment tax abatements (R.C. RC 5713.04t, Each parcel classified annually according to 725.023 use

IlaRcsAenoie emergency roles which become inoper2tive in ninety days-

Appx.232 TO BE RESCINDED

5705-3-06 Classification of real property and coding of records.

(A) As required by section 5713.041 of the Revised Code, the county auditor shall classify each parcel of taxable real property in his county into one of the two following classifications, which are:

(1) Residential and agricultural land and improvements;

(2) All other taxable land and improvements, including commercial, industrial, mineral and public utility land and improvements.

(B) Each separate parcel of real property with improvements shall be classified according to its principal and current use, and each vacant parcel of land shall be classified in accordance with its location and its highest and best probable legal use. In the case where a single parcel has multiple uses the principal use shall be the use to which the greatest percentage of the value of the parcel is devoted. The following definitions shall be used by the county auditor to determine the proper classification of each such parcel of real property:

(1) "Agricultural land and improvements" - The land and improvements to land used for agricultural purposes, including, but not limited to, general crop farming, dairying, animal and poultry husbandry, market and vegetable gardening, floriculture, nurseries, fruit and nut orchards, vineyards and forestry.

(2) "Mineral land and improvement". - Land, and the buildings and improvements thereon, used for mining coal and other minerals as well as the production of oil and gas including the rights to mine and produce such ndnerals whether separated from the fee or not.

(3) "Industrial land and improvements" - The land and improvements to land used for manufacturing, processing, or refining foods and materials, and warehouses used in connection therewith.

(4) "Commercial land and improvements" - The land and improvements to land which are owned or occupied for general commercial and income producing purposes and where production of income is a factor to be considered in arriving at true value, including, but not limited to, apartment houses, hotels, motels, theaters, office buildings, warehouses, retail and wholesale stores, bank buildings, commercial garages, commercial parking lots, and shopping centers.

i2.i4. u: )W), 1.11567. m: i061s. d: [I SMIII P^ttlece:l2'IZ^_JOi P);^ AM

Appx.233 5705-3-06 TO BE RESCINDED 2

(5) "Residential land and improvements" - The land and improvements to the land used and occupied by one, two, or three fanrilies.

(C) Each property record of taxable real property shall be coded in accordance with the code groups provided for in this paragraph. Each property record of exempt property shall also be coded in accordance with the code groups for exempt property. The county auditor shall annually fiunish to the commissioner of tax equalization an abstract of taxable values in which is set out in separate columns the aggregate taxable values of land and improvements in each taxing district for each of the major code groups provided for in this paragraph, and an abstract of exempt values in which is set out in separate columns the aggregate exempt values of land and improvements in each taxing district for eacb of the major exempt code groups provided for in this paragraph.

MAJOR USE AND CODES

CODE NO. GROUP USE

100 to 199 Incl. Taxable agricultural real property

200 to 299 Incl. Taxable mineral lands and rights

300 to 399 Incl. Taxable industrial real property

400 to 499 Incl. Taxable commercial real property

500 to 599 Incl. Taxable residential real property

600 to 699 hrcl. Exempt real property

700 to 799 Incl. Special tax abatements for improvements

800 to 899 Public Utilities

The first digit identifies the major use and the last two digits the sub-use or group. Parcels, other than exempt property, that are vacant (no structures or improvements present) shall be coded 100, 200, 300, 400 or 500 depending on the respective class unless part of an existing unit. Certain numbers are left blank to provide for future expansion.

USE

100 Agricultural vacant land 101 Cash - grain or general farm

Appx.234 5705-3-06 TO BE RESCINDED 3

102 Livestock farms other than dairy and poultry 103 Dairy farms 104 Poultry farrns 105 Froit and nut farms 106 Vegetable farms 107 Tobacco farms 108 Nurseries

109 Green houses, vegetables and floraculture

110 Agricultural vacant land "qualified for current agricultural use value"

111 Cash - grain or general farm "qualified for current agricultural use value"

112 Livestock farms other than dairy and poultry "qualified for current agricultural use value"

113 Dairy farms "qualified for current agricultural use value"

114 Poultry fanns "qualified for current agricultural use value"

115 Fruit and nut farms "qualified for current agricultural use value"

116 Vegetable farms "qualified for current agricultural use value"

117 Tobacco farms "qualified for current agricultural use value"

120 Timber or forest lands

121 Timber "qualified for current agricultural use value"

190 Other agricultural use

199 Ot.her agricultural use "qualified for current use value"

210 Coal lands - surface and rights

220 Coal rights - working interest

230 Coal rights - separate royalty interest

240 Oil and gas rights - working interest

250 Oil and gas rights - separate royalty interest 260 Other minerals

Appx. 235 5705-3-06 TO BE RESCINDED 4

300 Industrial - vacant land 310 Food and drink processing plants and storage 320 Foundries and heavy manufacturing plants 330 Manufacturing and assembly, medium

340 Manufactrtring and assembly, light

350 Industrial warehouses

360 Industrial truck tenninals 370 Small shops (machine, tool & die, etc.) 380 Mines and quarries 390 Grain elevators

399 Other industrial structures

400 Commercial - vacant land

401 Apartments - 4 to 19 rental units

402 Aparhnents - 20 to 39 rental units

403 Apartments - 40 or more rental units

410 Motels and tourist cabins

411 Hotels 412 Nursing homes and private hospitals 415 Trailer or mobile home park 416 Commercial camp grounds 419 Other commercial housing 420 Small (under 10,000 sq. ft.) detached retail stores 421 Supermarkets 422 Discount stores and junior department stores 424 Full line department stores 425 Neighborhood shopping center

Appx.236 5705-3-06 TO BE RESCINDED 5

426 Community shopping center

427 Regional shopping center

429 Other retail structures

430 Restaurant, cafeteria and/or bar 435 Drive-in restaurant or food service facility 439 Other food service structures

440 Dry cleaning plants and laundries

441 Funeral homes

442 Medical clinics and offices

444 Full service banks 445 Savings and loans

447 Office buildings - 1 and 2 stories

448 Office buildings - 3 or more stories - walk up

449 Office buildings - 3 or more stories - elevator

450 Condominium office units

452 Automotive service station

453 Car washes

454 Automobile car sales and services

455 Commercial garages 456 Parking garage, structures and lots 460 Theaters 461 Drive-in theaters 462 Golf driving ranges and miniature golf courses 463 Golf courses 464 Bowling alleys 465 Lodge halls and amusement parks

Appx.237 5705-3-06 TO BE RESCINDED 6

480 Commercial warehouses 482 Commercial truck terminals 490 Marine service facilities 496 Marina (small boat) 499 Other commercial structures 500 Residential vacant land

510 Single family dwelling 520 Two family dwelling 530 Three family dwelling 550 Condonainium residential unit 560 House trailers or mobile homes affixed to real estate 599 Other residential structures

In the residential coding the third or last digit indicates the size of tract used for residential property.

0 Platted lot

1 Unplatted - 0 to 9.99 acres

2 10 to 19.99 acres

3 " 20 to 29.99 acres

4 „ 30 to 39.99 acres

5 " 40 or more acres

600 Exempt property owned by United States of America 610 Exempt property owned by state of Ohio 620 Exempt property owned by counties 630 Exempt property owned by townships 640 Exempt property owned by municipalities 645 Exempt property owned or acquired by metropolitan housing authorities

Appx.238 5705-3-06 TO BE RESCINDED 7

650 Exempt property owned by board of education 660 Exempt property owned by park districts (public) 670 Exempt property owned by colleges, academies (private) 680 Cbaritable exemptions - hospitals - homes for aged, etc.

685 Churches, etc., public worship 690 Graveyards, monuments, and cemeteries '700 Community urban redevelopment corporation tax abatements (R.C. 1728.10) 710 Community reinvestment area tax abatements (R.C. 3735.61) 720 Municipal improvement tax abatements (R.C. 5709,41) 730 Municipal urban redevelopment tax abatements (R_C. 725.02) 740 Other tax abatements (R.C. 165.01 and 303.52) 800 Agricultural land and improvements owned by a public utility other than a railroad 810 Mineral land and improvements owned by a public utility other than a railroad 820 Industrial land and improvements owned by a public utility other than a railroad 830 Commercial land and improvements (including all residential property) owned by a public utility other than a railroad 840 Ra7road real property used in operations 850 Railroad real property not used in operations 860 Railroad personal property used in operations 870 Railroad personal property not used in operations 880 Public Utility personal property other than rail-roads

(D) The coding system provided in this rule shall be effective for tax year 1985.

(B) Notbing contained in this nrle however, shall cause the valuation of any parcel of real property to be other than its true value in money or be construed as an authorization for any parcel of real property in any class in any county to be valued for tax purposes at any other value than its "taxable value" as set out in rule 5705-3-01 of

Appx.239 (4) The type of fuel; and RC 5735.142. Refunds for local transit syslems, application, (5) The number of gallons of fuel purchased. not assignable The odginal of the evidence of purchase shall be given to the RC 5735.15, Statement required when purchaser is entitled purchaser end a copy retained by the selter for a period of one to refund year. ^ (B) Form MVF-4A is prescribed for use as evidence of L' purchase of motor vehicle fuel. (C)(n heu of form MVF-4A. purchase may be evidenced by an 5703-25-01 invoice, credit card purchase receipl, cash purchase receipt, or Public utnity property tax; apportionment of any olher document that meets the requirements of paragraph the taxable value of personal property of electric light companies (A) of this ruk. (D) N the evidence of purchase submitted with the cla'nn does Commencing with the 1984 tax year, and as a result of the not contain all of the information required by paragraph (A) of Ohio supreme court decision in "Condee v. Lindley; " 12 Ohio St. Mis rule or is otherwise deficient, the tax commissioner may 3d 90 ( 1984), no porlion of the taxable value of the situsable require that the claimant supplement such evidence or may deny personal property of any electric light company shall be that portion of the claim that is not supported by sufficient assigned to a taxing district other than that in which such prop- evidence. erty Is physicaNy located. WSTORY: Eff. 11-19-84 HISTORY: Eff. 11-26-64 1994-85 OMR 215 CROSS REFERENCES RC 5703.05, Powers, duties, and functions of tax CROSS REFERENCES cammissloner RC 5703.16. Rules and regulations RC 5735.14, Relunds, fuel not used on hihgways or water, RC 5727.15, Apportionment of value of property of public om of state use, applications utilnies

5705 DIVISION OF TAX EQUALIZATION-DEPARTMENT OF TAXATION

Promulgation: Section 5703.14

$705•3-06 Classification of real property and coding of rights to mine and produce such minerals whether separated records from the fee or not. (3) "Industrial land and improvements"-The land and improvements to land used for manufacturing, processing, or (A) As required by section 5713.041 of Ihe Revised Code. refining foods and materials, and warehouses used in connection the coumy auditur shall classify each parcel of taxable real therewith. property in his county into one of the two following classifica- (4) "Commercial land and improvements"-The land and tions, which are: improvements to land which are owned or occupied for general (1) Residential and agricuhurat land and improvements; commercial and income producing purposes and where produc (2) Ali other taxable land and improvements, Including com- tion of income is a factor to be considered in arriving at true mercial, industriat, mineral and public utility land and value, including, but not limited to, apartment houses, hotels. improvements. motels, theaters, office buildings, warehouses, retail and wholesale stores, bank buildings, commercial garages, commercial (8) Each separale parcel of real property improvements with parking lots, and shopping centers. shall be classilled according to ils pdncipai and current use, and (5) "Residential land and improvements^-The land and each vacant parcel of land shall be classified in accordance with improvements to the land used and occupied by one, two, or its location and its highest and best probable legal use. In the three fami)ies. case where a single parcel has multiple uses the principal use (C) Each property record of taxable real property shall be shall be the use to which the greatest percentage of the value of coded in accordance with the code groups provided for in this the parcel is devoted. The fdlowing defmitions shall be used by paragraph. Each property record of exempt property shall also the county audilor to determine the proper classification of each be coded in accordance with the code groups for exempt prop- such parcel of real property: erty. The county auditor sha6 annually fumish to the commis- (1) "Agdcuhural land and improvements"-The land and sioner of lax equalization an abstract of taxable valuas in which improvements to land used for agriculturai purposes, including. is set out in separate columns the a a eo re ^ _ nw u.=e m--- d t t k i - poultry husbandry, market and vegetable gardenmo,_Igr^gugare,.. f major- oode-grou^s-);!ppldOSkYbF r^ t l-s:paiagraph,and^x sn n1NkdCfe's,_guifaod- nut.oceTtartls: vmeyards-and-foreshy- a3stract of exempt values in which is set out in separate col- (2) "Mlneral land and improvement"-Land, and the buiid- umns the aggregate exempt values of land and'unprovements in ings and improvements thereon, used lor mining coal and other each taxing dislrict for each of the major exempt code groups minerals as well as the production ol oil and gas Including the provided for in this paragraph.

haGCs denote emergency mles which become inoperative in ninety days_

Appx.240 633 Division of Tax Eq ualization- Department of Taxation 5705-3-06 ,-

MAJOR USEAND CODES 420 Smag (under 10,000 sq. ft.) detached retail stores CODE NO. GROUP USE 421 Supermarkets 422 Discount stores and junior department stores 100 to 1991ncl. Taxable agdculturai real property 424 FuB line department stores 200 to 299 Incl. Taxabte mineral lands and rights 425 Neighborhood shopping center 300 to 399 Incl. Taxable industrial real property 426 Community shopping center 400 to 499 Incl. Taxable commercial real property 427 Regional shopping center 500 to 599 Incl. Taxable residential real property 429 Other retag struclures 600 to 6991nc1. Exempt real property 430 Restaurant, caleteria and/or bar 70) to 799 Incl. Special tax abatements for improve- 435 DrYe•in restaurant or food service facility ments 439 Other food service stmotures 800 to 899 Public Utilities 440 Dry cleaning plants and laundries 441 Funeral homes The first digit identities the major use and the last two digits 442 Medical clinics and ogices the sub•use or group. Parcels, other than exempt properly, that 444 Full service banks are vacant (no atructures or improvements present) shall be 445 Savings and loans coded 100, 200, 300, 400 or 500 depending on the respective 447 Office buitdings-1 and 2 stories class uniess pan ol an existing unit. Certain numbers are left 448 ONice buildings-3 or more stories-walk up blank to provide for fulure expansion. 449 Ofgce buildings-3 or more slories-etevator 450 Condominium office units USE 452 Automotive service station 100 Agricultural vacant land 463 Car washes 101 Cash-grain or general farm 454 Automobile car sales and services 102 Livestock farms other than dauy and poultry 465 Commercial garages 103 Dairy farms 456 Parking garage. slmotures and lots 104 Poultry farms 460 Theaters 105 Fruit and nut farms 461 Drive-in Iheaters 106 Vegetablefarms 462 Golf driving ranges and miniature golf courses 107 Tobaccofarms 463 Golf courses 108 Nurseries 464 Bowling aiteys 109 Green houses, vegetables and floraculture (sic] 465 Lodge halls and amusement parks 110 Agricultural vacant land "qualified for current agricul- 480 Commercial warehouses tural use value" 482 Commercial truck terminals 111 Cash-grain or general farm "qualified for current 490 Marine service facilities agricultural use value' 496 Marina (small boat) t 12 Livestock farms other than dairy and poultry "quali- 499 Other commercial structures Fied for current agricultural use value" 113 Dairy farms "qualgied for current agricullural use 500 Residential vacant land value" 510 Single family dwelling 114 Poultry farms "qualified for current agriculturai use 520 Two family dwelling value" 530 Three family dwelling 115 Fmit and nut farms "qualified for current agricutlural 550 Condominium residential unit use value" 660 House trailers or mobge homes afflxed to real estate 116 Vegetable larms "qualified for current agricultural 599 Other residential stmctures use value" 117 Tobacco larms "qualified for current agricultural use In the residential coding the thkd or last digit indicates the value" size of tract used for residential property. 120 Timber or forest lands 0 Platted lot 121 Timber "qual4Ded for curcent agdculturat use vatue' 1 Unplatted - 0 to 9.99 acres 190 Other agricultural use 199 Other agricuRurat use "qualified lor current use 2 " 10 to 19:99acres 3 " 20 to 29.99 acres value" 4 ^ 30 to 39.99 acres 210 Coal lands-surface and rights 5 " 40 or more acres 220 Coal rights-working interest 230 Coal rights-separate royalty interest 600 Exempt property owned by United States otAmerica 240 Oil and gas rights-working intereat 610 Exempt property owned by state of Ohio 250 Oil and gas rights-separate royatty interest 620 Exemplproperty ownetl by counties 260 Other minerals 630 Exempt property owned by tovmships 640 Exempt property owned by municipalities 300 Industrial-vacant land 310 645 Exempt property owned or acquired by metropolitan Foed and drink processing plants and storage housing authorities 320 Foundries and heavy manufacturing plants 650 Exempt property owned by board of education 330 Manufacturing and assemby, medium 660 Exempt property owned by park distdcts (public) 340 Manutacturing and assembly, light 350 670 Exempt property owned by colleges, academies (pri- Industrial warehouses vate) 360 industrial lmck terminats 680 Charitable exemptions-hospitals-homes tor aged, 370 Small shops (machine, too18 die, etc.) __ :RU bir auarrres 865 Churches, etc., pqbBc worshP__,_,_. -999 eyaids,"monunenis,-andsemeteries 399 OlherinAusrriarstnicTurds - 700 Community urban redevelopmaM corporation tax 400 Commercial-vacam land abatements (R.C. 1728.10) 401 Apartments-4 to 19 rental units '710 Community reinvestment area tax abatements (R.C. 402 Apartments-20 to 39 rental units 3735.61) 403 Apartments-40 or more rental units 720 Municipal improvement tax abatements (R.C. 410 Motels and tourist cabins 5709_41) 411 Hotels 730 Municipal urban redevelopment tax abatements (R.C. 412 Nursing homes and private hospitals 725.02) 415 Trailer or mobile home park 740 Other tax abatements (R-C. 165.01 and 303.52) 416 Commercial camp grounds 800 Agricultural land and improvements owned by a pub- 419 Other commercial housing lic utility other than a railroad

Italics denote emergency rules which become inoperative in ninety days. November 1984

Appx. 241 810 Mineral land and improvements owned by a public value in money or be construed as an authodzation for any utility other than a railroad parcel of real property in any class in any county to be valued for 820 Industru3l land and improvements ownad by a pubec tax purposes at any other value than its "taxable vatue" as set raihoad utility other than a out in rWe 5705-3-01 of the Administrative Code. 830 Commercial land and improvements (includin9 all residential property) owned by a public utility other 1U37ORY: Eff. 12-11-84 than a railroad 840 Railrosd real property used in operations 1984-85 OMR 334; 10-20-81, 11-1-77 85ti Railroad real property not used In operations 880 Railroad personal property used in operations 870 Railroad personal property not used in operations CROSS REFERENCEB 880 Public Utifiy personal property other than railroads (D) The coding system provided in this-rule shall be egective RC 5703.05, Powers, duties, and functions of tax for tax year 1985. cmnmissioner (E) Nothing contained in this rule however, shaN cause the RC 5713.041, Each parcel classified annually according to valuation of any parcel of real property to be other than its true use

gaRes denote emergency rules which become inoperative In ninety days.

Appx.242 TO BE RESCINDED

5705-3-06 ClassiTrcation of real property and coding of records.

on-j7i3 t141 di tiit Revised Lode; ilie coanty atiditor shali classify each parcel of taxable real property in his county into one of the two following classifications, which are:

(I) Residential and agricultural land and improvements;

(2) AU other taxable land and improvements, including commercial, industrial, mineral and public utility land and improvements.

(B) Each separate parcel of real property.with improvements shall be classified according to its principal and current use, and each vacant parcel of land shall be classified in accordance with its location and its highest and best probable legal use. In the case where a single parcel has multiple uses the principal use shall be the use to which the greatest percentage of the value of the parcel is devoted. The following definitions shall be used by the county auditor to deterwine the proper classification of each such parcel of real property:

(1) "Agricultural land and improvements" - The land and improvements to land used for agricultural purposes, including, but not limited to, general crop farming, dairying, animal and poultry husbandry, market and vegetable gardening, florieolture, nurseries, fruit and nut orchards, vineyards and forestry.

(2) "Mineral land and improvement" - Land, and the buildings and improvements thereon, used for mining coal and other minerals as well as the production of oil and gas including the rights to mine and produce such minerals whether separated from the fee or not.

(3) "Industrial land and improvements" - The land and improvements to land used for manufacturing, processing, or refining foods and materials, and warehouses used in connection therewith.

(4) "Commercial land and improvements" - The land and improvements to land which are owned or occupied for general commercial and income producing purposes and where production of income is a factor to be considered in arriving at true value, including, but not liniited to, apartment houses, hotels, motels, theaters, office buildings, warehouses, retail and wholesale stores, bank buildings, commercial garages, commercial parking lots, and shopping centers.

Appx.243 lerLerr wSe.a.^ Z.Zi. Y: IWJl, W. 11565, •m: aV614 4 Ie6gi)1 printderc:l2'IJ^sYI' U953 AAt 5705-3-06 TO BE RESCINDED 2

(5) "Residential land and improvements" - The land and improvements to the land tts -andoccupied by-one^ two; or three families

(C) Each property record of taxable real property shall be coded in accordance with the code groups provided for in this paragraph. Each property record of exempt property shall also be coded in accordance with the code groups for exempt property. The county auditor shall annually fianish to the commissioner of tax equalization an abstract of taxable values in which is set out in separate columns the aggregate taxable values of land and improvements in each taxing district for each of the major code groups provided for in this paragraph, and an abstract of exempt values in which is set out in separate columns the aggregate exempt values of land and improvements in each taxing district for each of the major exempt code groups provided for in this paragraph.

MAJOR USE AND CODES CODE NO. GROUP USE

100 to 199 Incl. Taxable agricultural real property

200 to 299 Incl. Taxable mineral lands and rights

300 to 399 Incl_ Taxable industrial real property

400 to 499 Incl. Taxable commercial real property

500 to 599 Incl. Taxable residential real property

600 to 699 Incl. Exempt real property

700 to 799 Incl. Special tax abatements for improvements

800 to 899 Public Utilities

USE

100 Agricultural vacant land

101 Cash - grain or general farm

Appx.244 5705-3-06 TO BE RESCINDED 3

102 Livestock farms other than dairy and poultry .__403.:.. .:_.HBw ^^ ._...... _._:::: __..:

104 Poultry farms 105 Fruit and nut farms 106 Vegetable farms 107 Tobacco farms 108 Nurseries 109 Green houses, vegetables and floraculture 110 Agricultural vacant land "qualified for current agricultural use value"

111 Cash - grain or general farm "qualified for current agricultural use value" 112 Livestock farms other than dairy and poultry "qualified for current agricultural use value"

113 Dairy farms "qualified for current agricultural use value"

114 Poultry farms "qualified for current agricultural use value"

115 Fruit and nut farms "qualified for current agricultural use value"

116 Vegetable farms "qualified for current agricultural use value"

117 Tobacco farms "qualified for current agricultural use value"

120 Timber or forest lands

121 Timber "qualified for current agricultural use value"

190 Other agricultural use 199 Other agricultural use "qualified for current use value" 210 Coal lands - surface and rights 220 Coal rights - working interest 230 Coal rights - separate royalty interest 240 Oil and gas rights - working interest 250 Oil and gas rights - separate royalty interest

260 Other minerals

Appx.245 5705-3-06 TO BE RESCINDED 4

300 Industrial - vacant land :_:_^-Ifl-___.^:d^^Lantt^ro^essm^3slants^ttd^toi^ -=-. 320 Foundries and heavy manufacturing plants 330 Manufactaring and assembly, medium 340 Manufacturing and assembly, light 350 Industrial warehouses 360 Industrial truck terminals 370 Small shops (machine, tool & die, etc.) 380 Mines and quarries 390 Grain elevators 399 Other industrial structures

400 Commercial - vacant land

401 Apartments - 4 to 19 rental units

402 Apartments - 20 to 39 rental units

403 Apartments - 40 or more rental units

410 Motels and tourist cabins

411 Hotels

412 Nursing homes and private hospitals

415 Trailer or mobile home park 416 Commercial camp grounds 419 Other commercial housing 420 Small (under 10,000 sq. ft.) detached retail stores 421 Supermarkets

422 Discount stores and junior deparhnent stores

424 Full line department stores

425 Neighborhood shopping center

Appx.246 5705-3-06 TO BE RESCINDED 5

426 Community shopping center --. 427 - - . - _.ReZiona txhuWingrxnter_ . .. 429 Other retail structures 430 Restaurant, cafeteria andlor bar 435 Drivc-in restaurant or food service facility 439 Other food service structures 440 Dry cleaning plants and laundries 441 Funeral homes 442 Medical clinics and offices 444 Full service. banks 445 Savings and loans 447 Office buildings - 1 and 2 stories

448 Office buildings - 3 or more stories - walk up

449 Office buildings - 3 or more stories - elevator

450 Condominium office units

452 Automotive service station

453 Car washes

454 Automobile car sales and services

455 Commercial garages 456 Parking garage, structures and lots 460 Theaters 461 Drive-in theaters

462 Golf driving ranges and miniature golf courses

463 Golf courses

464 Bowling alleys 465 Lodge halls and amusement parks

Appx.247 5705-3-06 TO BE RESCINDED 6

480 Commercial warehouses 482 .-= _ -Cammereial-ttuck-teriai=(s...... _ 490 Marine service facilities 496 Marina (small boat) 499 Other commercial structures 500 Residential vacant land 510 Single family dwelling 520 Two family dwelling 530 Three family dwelling

550 Condominium residential unit

560 House trailers or mobile homes affixed to real estate

599 Other residential structures

In the residential coding the third or last digit indicates the size of tract used for residential property.

0 Platted lot - 0 to 9.99 acres 10 to 19.99 acres 20 to 29.99 acres 30 to 39.99 acres 40 or more acres

600 Exempt property owned by United States of America

610 Exempt property owned by state of Ohio

620 Exempt property owned by counties 630 Exempt property owned by townships 640 Exempt property owned by municipalities 645 Exempt property owned or acquired by metropolitan housing authorities

Appx.248 5705-3-06 TO BE RESCINDED 7

650 Exempt property owned by board of education

-669--- -^P^ Fo Perty 670 Exempt property owned by colleges, academies (private) 680 Charitable exemptions - hospitals - homes for aged, etc. 685 Churches, etc., public worship 690 Graveyards, monuments, and cemeteries

700 Community urban redevelopment corporation tax abatements (R.C. 1728.10) 710 Community reinvestment area tax abatements (R.C. 3735.61) 720 Municipal improvement tax abatements (R.C. 5709.41) 730 Municipal urban redevelopment tax abatements (1LC. 725.02) 740 Other tax abatements (R.C. 165.01 and 303.52) 800 Agricultural land and improvements owned by a public utility other than a railroad

810 Mineral land and improvements owned by a public utility other than a railroad 820 Industrial land and improvements owned by a public utility other than a railroad

830 Commercial land and improvements (including all residential property) owned by a public utility other than a railroad

840 Railroad real property used in operations

850 Railroad real property not used in operations

860 Railroad personal property used in operations

870 Railroad personal property not used in operations

880 Public Utility personal property other than rail-roads

(D) The coding system provided in this rule shall be effective for tax year 1985.

(E) Nothing contained in this rule however, shall cause the valuation of any parcel of real property to be other than its true value in money or be construed as an authorization for any parcel of real property in any class in any county to be valued for tax purposes at any other value than its "taxable value" as set out in nde 5705-3-01 of

Appx.249 5705-3-06 TO BE RESCINDED 9

Effeotive: 09/18/2003

R.C. 119.032 review dates: Exempt

Certification

Date

Promulgated Under: 5703.14 Statutory Authority: 5703.05 Rule Amplifies: 5713.041 Prior Effective Dates: 12/28/73, 11/1/77, 10/20/81, 9/14/84 (Emer.), 12/11/84

Appx.250 5703-25-10 Classification of real ^ropertv and coding of records.

(A) As required by section 5713.041 of the Revised Code the counV auditor shall classifyc each-ua.r.c.el of taxahle real Bmgertv in the cnuntx i foliowini classihcations which are:

(1) Residential and amicultural land and improvements•

(2) All other taxable land and improvements including comrnercial industrial mineral and vublic utility land and impmvements

^B) Each separate parcel of real property with improvements shall be classified according to its principal and current use and each yacant parcel of land shall be classified in accordance with its location and its hiehest and best probable legal use. In the case where a singk narcel has multiple uses the principal use shall be the use to which the greatest percen @e of the value of the parcel is devoted. The following definitions shall be used by the county auditor to determine the nrooer classification of each such parcel of real proper[v:

(1) "Agricultural land and improvements" - The land and i provements to land used for agricultural pumoses including but not limited to general crop farming airy^ag animal and poultry husbandrX market and vegetable gardening floriculture nurseries, fruit and nut orchards. vineyards and re .

(2) "Mineral land and improvement" - Land, and the buildings and improvements thereon used for mining coal and other minerals as well as the production of oil and eas including the rights to mine and produce such minerals whether separated from the fee or not.

(3) "Industrial land and improvements" - The land and improvements to land used for manufacturingnrocessing or refining foods and materials and warehouses used in connection therewith.

(4) "Commercial land and imnrovements" - The land and improvements to land which are owned or occupied for general commercial and income producine pumoses and where production of income is a factor to be considered in arriving at true value including but not limited to, apartment houses hotels, motels, theaters, office buildings. warehouses, retail and wholesale stores, bank buildings_ commercial earatzes commercial nar i g lots, and shopRine centers.

(5) "Residential land and imnrovements" - The land and improvements to the land used and .occunied by one, two, or three families_

(C) Each propertv record of taxable real ^ro e^rty shall be coded in accordance with the code groups provided for in this 12aragVh Each pronerty record of exempt pronettshall also be coded in accordance with the code gronps for exempt

Irp:YrMernJr..-+!Ll3,ualn.w;aW:!41:.6.t}v9,?tNR,{L, <.+,p:93iq,w:lU332.m;4'ii?1, d4':43J) prtwde^ 09!IN?,M1tali::SPhI

Appx. 251 5703-25-10 2

oroperry The county auditor shall annually fiLrnish to the tax com_m'ssioner an abstract of taxable values in which is set out in senarate columns the ag¢regatP

------ma or code u oided £ o r in t h i aad a stract eicem values m wich- is set out m s paratee columns the aggmgate exemPt values of 1an^ and jWrovements in each taxing district for each of the major exemnt code grnps provided for in this 12arMranh.

Maior Use and Codes

Code No. Grouu Use

100 to 199 Incl. Taxable aericultural real pronerty

200 to 299 Incl. Taxable mineral lands and righ^t

300 to 399 Incl. Taxable industrial real pronertv

400 to 499 Inel. Taxable commercial real pLop=

500 to 599 Incl. Taxable residential real pron

600 to 699 Incl. Exemnt real pronertv

700 to 799 hicl. Snecial tax abatements for improvements

800 to 899 Public Utilities

The first digit identifies the major use and the last two digits the sub-use or groug Parcels, other than exempt pronertv. that are vacant (no structures or improvements nresent) shall be coded 100 200 300 400 or 500 depending on the respective class unless part of an existing unit_ Certain numbers are left blank to grovide for future exnansion.

use

100 Agricultural vacant land

101 Cash - grain or general farm

102 Livestock farms other than dairy and poultry

OQ^3 Dairy farms

104 Poultry farms

005 Fruit and nut farms

Appx.252 5703-25-10 3

106 Vegetable farms

---___:-_-__- _ --- 108 urseries

109 Caeen houses, vegetables and floraculture

110 Agricultural vacant land "qualified for current at.rsicultural use value"

111 Cash - ain or general farm "qualified for current agricultural use value"

112 Livestock farms other than dairy and poultry "qualified for current agricultural use value"

113 Dairy farms "dualified for current agriculturai use value"

114 Poultry farms "qualified for current agricultural use value"

115 Fruit and nut farms "qualified for current apricultural use value"

1 Vegetable farms "qualified for current agricultural use value"

117 Tobacco Farms "qualified for current agricultural use value"

120 Timber or forest lands

121 Timber "qualified for current agricultural use value"

190 Other aeticultural use

199 Other agricultural use "qualified for current use value"

2JO Coal lands - surface and ri ehts

22 Coal rights - working intere

230 Coal rights - senarate royalty interest

240 Oil and ga.rights working interest

250 Oil and gas ri ts - separate royalty interest

260 Other minerals

300 Industrial - vacant land

310 Food and drink nrocessing plants and storage

Appx.253 5703-25-10 4

20 Foundries and heavv manufacturing 1 n c _ Y- 340 Manufacturing and assembly, light

320 Industrial warehouses

360 Industrial truck terminals

370 Small shops achine tool & die. etc J

380 Mines and uarries

390 Grain elevators

399 Other industrial structures

4(^ Commercial - vacant land

401 Apartrnents - 4 to 19 rental units

402 Apartments - 20 to 39 rental units

^03 Aparlments - 40 or more rental uni ts

410 Motels and tourist cabins

411 Hotels

412 Nursing homes and orivate hospitals

415 Trailer or mobile home park

416 Commercial campgr ounds

41 Other commercial housine

420 Small (under 10.000 sq. ft.) detached retail storee

421 Spu ermarkets

422 Discount stores and junior department stores

424 Full line department stores

425 Neighborhood sho'ing center

42 Community shopping center

Appx.254 5703-25-10 5

427 Reeionalshopping center ' ^ -... .._._

430 Restaurant. cafeteria and/or bar

gu Drive-in restaurant or food service facili^ 439 Other food service structures

44Q pp+ cleaning plants and laundries

441 Funeral homes

442 Medical clinics and offices

444 Full service banks

445 Savings and loans

447 Office buildines -1 and 2 stories

448 Office buildinps - 3 or more stories - walk up

449 Office buildings - 3 or more stories - elevator

450 Condominium office units

452 Automotive service station

453 Car washes

^54 Automobile car sales and services

455 Commercial garages

456 Parkinggar^ge. structures and lots

460 Th-eaters

461 Drive-in theaters

462 Golf driving ranges and miniature golf courses

463 Golf courses

^64 Bowling alley..,s 465 Lodp_e balls and amusement parks

Appx.255 5703-25-10 6

400 Commercial warehouses _ __._.__ ... • .

490 Marine service facilities

496 Marina (small boa^

499 Other commercial structures

5Q_0• Residential vacant land

510 Single family dwelling

520 Two family dwelline

530 Three family dwelling

550 Condominium residential u_niit

560 House trailers or mobile homes affixed to real estate

599 Other residential structures

In the residential coding the third or last digit indicates the size of tract used for residential gropertv.

0 Platted Lot j Unplatted -0 to 9.99 acres

2 10 to 19.99 acres

3 20 to 29.99 acres

4 30 to 39.99 acres

5 40 or more acres

600 Exempt property owned by United States of America

¢bQ Exempt ropgM owned by state of Ohio

620 Exemt prol2ga owned by counties

630 Exempt propg!y owned by townships

L4Q Exempt properly owned by munici alitie

Appx.256 5703-25-10 7

645 Exempt propertv owned or acquiredy metrolitan b op housing authorities

- F t *^t^ard nf exlrmatmrr _ _

660 Exempt prooertv owned by park districts (public)

¢ZQ Exempt proper[y owned by colleges, academies (private)

680 Charitable exemntions - hospitals - homes for aged etc.

6$5 Churches. etc., pmblic worshin

690 Gravevards. monuments. and cemeteries

700 Communitv urban redevelopment cornoratiostax abatements t$:C. 1728.10)

710 Communitv reinvestment area tax abatements fR.C. 3735.611

2^0 Municipal improvement tax abatements (R.C. 5709.41)

L Municipal urban redevelopment tax abatements (R.C. 725.02)

740 Other tax abatements (R.C. 165.01 and 303.52)

800 Agricultural land and improvements owned by a nublic utilitv other than a railroad

810 Mineral land and immrovements owned by a public utility other than a railroad

820 Industrial land and imnrovements owned by a public utility other than a railroad

830 Commercial land and improvements (including all residential prouerty) owned by a nublic utility other than a railroad

840 Railroad real property used in operations

50 Railroad real property not used in onerations

860 Railroad personal pm^erty used in operations

870 Railroad personal propga not used in operations

880 Public Utility personal property other than rail-roads

^D The coding system provided in this rule shall be effective for tax ygar 1985.

Appx.257 5703-25-10 8

fEl Nothin¢ contained in this rule however, shall cause the valuation of any parcel of real pronertv to be other than itc true value in m nev or he oncnnPd a +horiz *' ----- 1or anv Pazcel P 1?^^X--Y-^Yaf reai ro in ari county ciass toTse valnecTToi tax nurooses at anv other va ue t an ^ts ta a e va e as set o t '-1^TQ3-n ru -23-D3 of- the Administrative Code.

Appx.258 5703-25-10 9

_Replour_....------5705=3^06

Effective: 09/18/2003

R.C. 119.032 review dates: 09/18/2008

CERTIFIED ELECTRONICALLY

Certification

09/08/2003

Date

Promulgated Under: 5703.14 Statutory Authority: 5703.05 Rule Amplifies: 5713.041 PriorEffective Dates: 12/28l73, 11/1/77, 10/20/81, 9/14/84 (Emer.), 12/11/84

Appx.259 5703-25-10 Classification of real property and coding of records.

(A) As required by section 5713.041 of the Revised Code, the county auditor shall classify-$ash-pA^1 af taxable-real propert}` in the-cotmtg-int.o-one•-of-tate two -- --followiug-slassificatimnsivhislr,ar^ -...------

(1) Residential and agricultural land and improvements;

(2) All other taxable land and improvements, including commercial, industrial, mineral and public utility land and impmvements.

(B) Each separate parcel of real property with improvements shall be classified according to its principal and current use, and each vacant parcel of land shall be classified in accordance with its location and its highest and best probable legal use. In the case wbere a single parcel has multiple uses the principal use shall be the use to which the greatest percentage of the value of the parcel is devoted. The following defmitions shall be used by the county auditor to determine the proper classification of each such parcel of real property:

(1) "Agricultural land and improvements" - The land and improvements to land used for agricultural purposes, including, but not limited to, general crop famung, dairying, animal and poultry husbandry, market and vegetable gardening, floriculture, nurseries, fruit and nut orchards, vineyards and forestry.

(3) "Industrial land and improvements" - The land and improvements to land used for manufacturing, processing, or refining foods and materials, and warehouses used in connection therewith-

(5) "Residential land and improvements" - The land and improvements to the land

I.ia.:n:iwrin;woCi

Appx.260 5703-25-10 2

used and occupied by one, two, or three families.

( --p--p .^y .__ p _P _ Eh ro e re^8r$ of'taxalile"Yeal to e^y. sfia-Il"lie ao^ed "m'acoordauce vcdth the _ __. groups provt or m uins paragrap . c propetty record ol"ex - property shall also be coded in accordance with the code groups for exempt property. The county auditor shall annually fiunish to the tax commissioner an abstract of taxable values in which is set out in separate columns the aggregate taxable values of land and improvements in each taxing district for each of the major code groups provided for in this paragraph, and an abstract of exempt values in which is set out in separate columns the aggregate exempt values of land and improvements in each taxing district for each of the major exempt code groups provided for in this paragraph.

Major Use and Codes

Code No. Group Use

100 to 1991nc1. Taxable agricultural real property

200 to 299 Incl. Taxable mineral lands and rights

300 to 399 Incl. Taxable industrial real property

400 to 499 Incl. Taxable commercial real property

500 to 599 Incl. Taxable residential real property

600 to 6991nc1. Exempt real property

700 to 799 Incl. Special tax abatements for improvements

800 to 899 Public Utilities

Use

100 Agricultural vacant land

101 Cash - grain or general farm

102 Livestock farms other than dairy and poultry

Appx.261 5703-25-10 3

1U003 Dairy fartns

104.. P ^ fulas . ... 105005 Fruit and nut farms

106 Vegetable farms

107007 Tobacco farms

108 Nurseries

109 Green houses, vegetables and floraculture

110 Agricultural vacant land "qualified for current agricultural use value"

111 Cash - grain or general farm "qualified for current agricultural use value"

112 Livestock farms other than dairy and poultry "qualified for current agricultural use value"

113 Dairy farms "qualified for current agricultural use value"

114 Poultry farrns "qualified for current agricultural use value"

115 Fruit and nut farms "qualified for current agricultural use value"

116 Vegetable farms "qualified for current agricultural use value"

117 Tobacco farms "qualified for current agricultural use value"

120 Timber or forest lands not qualified for the rrent Agricultural Use Value pro am pursuant to section 571 3,3 1 of the Revised Code or the Forest Land Tax nro¢ram nursuant to section 5713 .23 of the Revised Code

121 Timber land taxed at its"quafi§ed faf current agricultural use value" as land used for the zmwth of noncommercial timber pLrsuant to section 5713 30(©)(1) of the Revised Code

,122 Timber land taxed at its "current aericultural use value" as land used for the commercial erowth of timber

123 Forest land qualified for and taxed under the Forest Land Tax ^rogram in comnliance with the yroeram requirements ino l aee nrior to November 7. 1994

Appx.262 5703-25-10 4

124 Forest land qualified for and taxed under the Forest L nd Tax proeram in comnliance with the pro^ram requirements in place on . -Or-after-Nojemh.er_t.4994.... - -....------

190 Other agricul tural use

199 Other agricultural use "qualified for current use value" 210 Coal lands - surface and rights

220 Coal rights - working interest

230 Coal rights - separate royalty interest

240 Oil and gas rights - working interest

250 Oil and gas rights - separate royalty interest 260 Other minerals

300 Industrial - vacant land

310 Food and drink processing plants and storage

320 Foundries and heavy manufacturing plants

330 Manufacturing and assembly, medium

340 Manufacturing and assembly, ligbt

350 Industrial warehouses

360 Industrial truck terminals

370 Small shops (machine, tool & die, etc.)

380 Mines and quarries

390 Grain elevators

399 Other industrial structures

400 Commercial - vacant land

401 Apartrnents - 4 to 19 rental units

402 Apartments - 20 to 39 rental units

403 Apartments - 40 or more rental units

Appx.263 5703-25-10 5

410 Motels and tourist cabins

411. _...... _.. _ I^el€ - ....--.. 412 Nursing homes and private hospitals

415 Trailer or mobile home park

416 Commercial camp grounds

419 Other commercial housing

420 Small (under 10,000 sq. ft.) detached retail stores

421 Supermarkets

422 Discount stores and junior department stores

424 Full line department stores

425 Neighborhood shopping center

426 Community shopping center

427 Regional shopping center

429 Other retail structures

430 Restaurant, cafeteria and/or bar

435 Drive-in restaurant or food service facility

439 Other food service structures

440 Dry cleaning plants and laundries

441 Funeral homes

442 Medical clinics and offices

444 Full service banks

445 Savings and loans

447 Office buildings - 1 and 2 stories

448 Office buildings - 3 or more stories - walk up

449 Office buildings - 3 or more stories - elevator

Appx.264 5703-25-10 6

450 Condominium office units

452 .._... . . i- _ ipn......

453 Car washes

454 Automobile car sales and services

455 Commercial garages

456 Parking garage,structm-es and lots

460 Theaters

461 Drive-in theaters

462 Golf driving ranges and miniature golf courses

463 Golf courses

464 Bowling alleys

465 Lodge halls and amusement parks

480 Commercial warehouses

482 Commercial truck terminals

490 Marine service facilities

496 Marina (small boat)

499 Other commercial structures

500 Residential vacant land

510 . Single family dwelling

520 Two family dwelling

530 Three fanrily dwelling

550 Condominium residential unit

560 House trailers or mobile homes affixed to real estate 599 Other residential structures

In the residential coding the third or last digit indicates the size of tract used for

Appx.265 5703-25-10 7

residential property.

0 Platted Lot

1 Unplatted -0 to 9.99 acres

2 10 to 19.99 acres

3 20 to 29.99 acres

4 " 30 to 39.99 acres

5 " 40 or more acres

600 Exempt property owned by United States of America

610 Exempt property owned by state of Ohio

620 Exempt property owned by counties

630 Exempt property owned by townships

640 Exempt property owned by municipalities

645 Exempt property owned or acquired by metropolitan housing authorities

650 Exempt property owned by board of education

660 Exempt property owned by park districts (public)

670 Exempt property owned by colleges, academies (private)

680 Charitable exemptions - hospitals - homes for aged, etc.

685 Churches, etc., public worship

690 Graveyards, monuments, and cemeteries

700 Community urban redevelopment corporation tax abatements (R.C. 1728.10)

710 Community reinvestment area tax abatements (R.C. 3735.61)

720 Municipal improvement tax abatements (R.C. 5709.41)

730 Municipal urban redevelopment tax abatements (R.C. 725.02)

740 Other tax abatements (R.C. 165.01 and 303.52)

Appx.266 5703-25-10 8

800 Agricultural land and improvements owned by a public utility other than a railroad

810 ineral.la.nd and i rnvements owned by a public utility other than a railroad

820 lndustrial land and improvements owned by a public utility other than a railroad

830 Commercial land and improvements (including all residential property) owned by a public utility other than a railroad

840 Railroad real property used in operations

850 Railroad real property not used in operations

860 Railroad personal property used in operations

870 Railroad personal property not used in operations

880 Public Utility personal property other than rail-roads

(D) The coding system provided in this rule shall be effective for tax year 1985.

(E) Nothing contained in this rule however, shall cause the valuation of any parcel of real property to be other than its true value in money or be constmed as an authorization for any parcel of real property in any class in any county to be valued for tax purposes at any other value than its "taxable value" as set out in rule 5703-25-05 of the Administrative Code.

Appx.267 5703-25-10 9

EReehve: - - I27E5T2W5 _

R.C. 119.032 review dates: Exempt

Certification

Date

Promulgated Under: 5703.14 Statutory Authority: 5703.05 Rule Amplifies: 5713.041 Prior Effective Dates: I2/28/1973, 11/1/1977, 10/20/1981, 9/14/1984 (Emer.), 12/11/1984, 9/18/03

Appx.268 LEXSTAT OHIO ADM.CODE 5703-25-10

*** THIS DOCUMENT IS CURRE't PC THROUGH OHIO REGISTER DATED OCTOEER 15, 2007 ***

5703 Deparunent of Taxation Chapter 5703-25 Public Utility Property Tax

OAC Ann. 5703-25-10 (2007)

5703-25-10. Classification of real property and coding of records.

(A) As required by section 5713_041 ofthe Revised Code, the county auditor shall classify each parcel of taxable real property in the county into one of the two following classifications, which are: (1) Residential and agricultural land and improvements; (2) All other taxable land and improvements, including commercial, industrial, mineral and public utility land and improvements. (B) Each separate parcel of real property with improvements shall be classified according to its principal and current use, and each vacant parcel of land shall be classified in accordance with its location and its highest and best probable legal use. In the case where a single parcel has multiple uses the principal use shall be the use to which the greatest percentage of the value of the parcel is devoted. The following definitions shall be used by the county auditor to determine the proper classification of each such parcel of real property: (I) "Agricultural land and improvements" - The land and improvements to land used for agricultural purposes, including, but not limited to, general crop farming, dairying, anitnal and poultry husbandry, market and vegetable gardening, floriculture, nurseries, fruit and nut orchards, vineyards and forestry.

(3) "Industrial land and improvements" - The land and improvements to land used for manufacturing, processing, or refining foods and materials, and warehouses used in connection therewith.

(4) "Commercial land and improvements" - The land and improvements to land which are owned or occupied for general commercial and income producing purposes and where production of income is a factor to be considered in arriving at true value, including, but not limited to, aparhnent houses, hotels, motels, theaters, office buildings, warehouses, retail and wholesale stores, bank buildings, commercial garages, commercial parking lots, and shopping centers.

(5) "Residential land and improvements" - The land and improvements to the land used and occupied by one, two, or three families.

(C) Each property record of taxable real property shall be coded in accordance with the code groups provided for in this paragraph. Each property record of exempt property shall also be coded in accordance with the code groups for exempt property. The county auditor shall annually furnish to the tax commissioner an abstract of taxable values in which is set out in separate columns the aggregate taxable values of land and improvements in each taxing district for each of the major code groups provided for in this paragraph, and an abstract of exempt values in which is set out in separate columns the aggregate exempt values of land and improvements in each taxing district for each of the major exempt code groups provided for in this paragraph. Click here to view image. Click here to view image. Click here to view image. (D) The coding system provided in this rule shall be effective for tax year 1985.

Appx.269 OAC Ann. 5703-25-10

(E) Alothing contained in this rule however, shall cause the valuation of any parcel .of real property to be other than its true value in money or be construed as an authorization for any parcel of real property in any class in any county to be valued for tax purposes at any other value than its "taxable vahie" as set out in rule 5703-25-05 of the Administrative Code.

History:Ptior Effective Dates: 12128/1973,11/1/1977,10/20/1981, 9/14/T984 (Emec), 12/11/1984, 9/18/03, Effective:

RC. 119.032 review dates: Exempt Promulgated Under: 5703.14 Statutory Authority: 5703.05 Rule Amplifies: 5713.041.

Appx.270 Get a Document - by Citation - 1978 Ohio Tax LEXIS 192 Page 1 of 10

1978 Ohio Tax LEXIS 192, ^

Atlas Crankshaft Corporation 1000 Fifth Avenue Columbus, Indiana 47201, Appellant, vs. Edgar L. Lindley, Tax Commissioner of Ohio, Appellee.

CASE NO. E-1816 (FRANCHISE TAX)

STATE OF OHIO -- BOARD OF TAX APPEALS

1978 Ohio Tax LEXIS 192

August 15, 1978

[*i]

APPEARANCES

For the Appellant - Vorys, Sater, Seymour & Pease, By: Kenneth D. Beck, 52 East Gay Street, Columbus, Ohio 43215

For the Appellee - William J. Brown, Attorney General of Ohio, By: J. Elaine Bialczak, Assistant, State Office Tower - 15th Floor, 30 East Broad Street, Columbus, Ohio 43215

OPINION: ENTRY

This cause and matter came on to be considered by the Board of Tax Appeals upon a notice of appeal filed herein on October 14, 1976, by the above named appellant, from a final order of the Tax Commissioner dated September 17, 1976, concerning an application for refund of corporation tax paid to the State of Ohio for the year 1972, the body of which final order reads as follows:

"This proceeding, being the application of Atlas Crankshaft Corporation, Columbus, Indiana, a foreign corporation subject to the Ohio franchise tax, for refund of corporation'franchise tax paid for the year 1972, after being duty heard, came on to be considered for final determination.

"The applicant timely filed its 1972 Corporation Franchise Tax Report, pursuant to Sections 5733.02, 5733.021 and 5733.13 of the Revised Code, therein computing the value of its issued and outstanding shares of stock [*2] on the net Income basis, with a stated franchise tax liability of $274,063.36 and indicating an overpayment of $51,936.64, based on estimated payments made. Subsequent thereto, the applicant filed an 'amended retum' wherein the applicant recomputed the franchise tax liability on the net income valuation method to be $234,960.96 indicating therein an overpayment or $91,039.04. In Schedule B Deductions of the 'amended return', the applicant reported deductions for: Excess Tax Over Book Depreciation Reserve of $1,564,113.00 (said reserve consisting of the difference between depreciation on its assets using the straight line method for book purpose and accelerated depreciation for federal income tax purposes); and Deferred Income Investment Credits of $80,056.00.

"Upon audit, the assessor disallowed both of the aforementioned deductions claimed by the applicant. The assessor further determined that the applicant's apportionment ratio should be increased from 67.6171% as reported, to 68.0522% - the increase due to an increase of the applicant's sales percentage in the apportionment formula from 2.8512%, as reported, to

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4.1567%. On the basis of the aforementioned correction and adjustments [*3] by the assessor, the applicant's franchise tax liability was determined to be $325,990.16. The applicant filed an application for corporation franchise tax refund in the amount of $91,039.04. The applicant's refund request was granted, in part, per letter of the income tax division in the amount of $9.84, the same being the difference between the amount paid by the applicant ($326,000.00) and that as computed by the assessor ($325,990.16). The applicant requested a hearing in further consideration of the refund claimed, specificaliy Involving the deduction for Excess Tax Over Book Depreciation. At the duly scheduled hearing, the applicant reiterated its objections concerning the disallowance of the aforementioned deduction; additionally, the applicant maintained that the disallowance of same resulted in double taxation to the applicant, because of the use of differing methods of depreciation for book and federal income tax purposes. Subsequent to the duly scheduled hearing, the applicant submitted additional information, including a memorandum, conceming this contention. Additionally, the applicant maintained that in accordance with the Ohio Supreme Court decision in Lakengren [*4] v. Kosydar, 44 Ohio St. 2d 199 (December 31, 1975), the applicant should be granted a refund of the difference between the franchise tax payment as computed for the period January 1, 1971 to December 20, 1971, on the net worth basis, and as computed for that period on the net income basis.

"Upon consideration of the information submitted at and subsequent to the refund hearing, and under the authority of Section 5733.11, Revised Code, the Tax Commissioner finds the applicant's contention to be not well taken.

"The applicant specifically cited Section 5733.04 (I)(5), Revised Code, in support of its contention. The provisions of Section 5733.04 (I)(5), Revised Code, provide that:

'(5) Taxpayers using the installment or completed contract method of accounting, or other acceptable methods of accounting, for federal income tax purposes for the first taxable year on which the tax provided for in Section 5733.06 of the Revised Code is computed on the corporation's net income, shall exclude from net income that amount that originated prior to such first taxable year and that was included as part of surplus at the time of origination as shown by the books of the corporation.'

As promulgated [*5] by the Tax Commissioner, Special Instruction Number 3, issued June 1, 1972, specifically delineates the application and interpretation of Section 5733.04 (I)(5), Revised Code. Said section explicitly involves adjustments to net income for taxpayers using the installment or completed contracts method of accounting; the phrase 'other acceptable methods of accounting' which the applicant contends covers this instant matter, pertains only to variations of •the completed contracts method of accounting, of which, the percentage of completion method would be included, for example.

"It is the finding of the Tax Commissioner that the applicant's contention regarding the deduction of the Excess Tax Over Book Depreciation Reserve is not well taken due to the fact that such adjustment or deduction is not provided for in Chapter 5733, Ohio Revised Code; Kroger Co. v. Bowers (1965), 3 Ohio St. 2d 76.

"Upon consideration of the information and evidence at hand, Section 5733.06, Revised Code, the decision in Lakengren v. Kosydar (supra), the provisions of Am Sub. H.B. 475 of the 109th General Assembly, effective December 20, 1971, the Tax Commissioner finds that the applicant's [*6] contention is not well taken in that the taxable year of the applicant for the 1972 franchise tax report terminated on December 31, 1971, which is subsequent to the effective date, December 20, 1971, of the legislation in question. Also, the tax report in question is that for 1972, the liability for which is determined by the existence of the corporation as of January 1, 1972. As stated in the syllabus in Lakengren, supra;

'Insofaras it increases the franchise tax obligation of a corporation for an accounting year

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already closed at the time of enactment, the amendment to R.C. 5733.05, adopted December 20, 1971, is void as a retroactive law in violation of Section 28, Article II of the Ohio Constitution.' (emphasis added)

"Finding no merit in the refund claim here under review, it is the order of the Tax Commissioner that such refund claim be, and the same hereby is, denied. Pursuant to the provisions of Section 5733.12, Revised Code, the Tax Commissioner hereby issues this certificate of final determination which is his final order in regard to the refund claim here under review.

"Upon the expiration of thirty days from the giving of notice of this final determination [*7] to the applicant, unless an appeal is filed in conformity with the provisions of Section 5717.02, Revised Code, this matter will be concluded and the files appropriately closed."

From this final order the appellant's notice of appeal was prepared and filed. In pertinent part said notice of appeal provides certain daimed errors and requested relief as follows:

"1. The Tax Commissioner erred in determining that the phrase 'other acceptable methods of accounting' contained in R.C. 5733.04(I)(5) pertains only to variations of the completed contracts methods of accounting.

"2. The Tax Commissioner erred in determining that the excess of the amount of tax over book depreciation is not an appropriate item for deduction and adjustment under R.C. 5733.04(I)(5).

"3. The Tax Commissioner erred in refusing to permit the taxpayer to exclude from net income for the first taxable year on which the tax provided for In R.C. 5733.06 was computed on the taxpayer's net income, such portion of its net income, which as shown by the books of the taxpayer, had or^ginated in prior taxable years and had been included as part of surplus in the computation and payment of the Ohio corporate franchise [*8] tax for such earlier years.

"4. The Tax Commissioner erred in failing to find that all franchise taxes for 1972 required to be paid in excess of taxes provided for in R.C. 5733.05 and R.C. 5733.06 prior to their amendment on December 20, 1971, are void as being in violation of Section 28, Article II of the Ohio Constitution, and as such must be refunded."

The matter was submitted to the Board of Tax Appeals upon the notice of appeal, the statutory transcript furnished by the Tax Commissioner, the testimony and evidence presented at a record hearing before the Board of Tax Appeats in Columbus, Ohio, on March 8, 1977, and the briefs filed by counsel.

The appellant is an Indiana Corporation licensed to do business in Ohio. It is a major manufacturer of crankShafts, valves, piston pins, cap screws, camshafts and gears at its facilities in Fostoria, Ohio, where it employs over 1,400 persons. There is no major fluctuation in the flow of business activities of appellant and the testimony was clear that there was no major increase or decrease in the appellant's business during the last 11 days of 1971.

The appellant maintains its books and records in accord with generally accepted [*9] accounting principles. It computes its depreciation using the straight line method fnr its general books of account, but depreciates these same assets using an accelerated method of depreciation for federal income tax purposes.

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depreciable assets than the net worth for federal income tax purposes for the same period of time.

In appellant's case, as of December 31, 1970, the net difference in the amount of depreciation computed under the two methods of depreciation was $1,564,113.00.

This would have made no difference in appellant's situation except that the Legislature of Ohio enacted an additional and alternate method of computing franchise tax payable to the State of Ohio.

The appellant does not engage in long-term contracts which require the use of the completed contract or percentage of completion methods of accounting for additions to income.

It is appellant's contention that a corporate taxpayer using an acceptable method of accounting for federal income tax purposes may, for the first taxable year for [*10] which the Ohio franchise tax is computed on the corporation's net income, exclude from such net income that amount of net income that originated prior to such first year if the net income so excluded was included as part of surplus at the time of its origination as shown by the books of the corporation.

And secondly that insofar as it increases the franchise tax obligation of a corporation for that portion of an accounting year already closed at the time of enactment, the amendment to Revised Code Section 5733.05 adopted December 20, 1971, is void as a retroactive law in violation of Section 28, Article II of the Ohio Constitution.

The appellant paid $326,000 on an estimated basis toward its 1972 Corporate Franchise Tax liability and subsequent thereto filed an amended return claiming an overpayment of $91,039.14. Still later appellant filed a refund claim for the same amount, namely $91,039.14. The refund claim and the amended return ciaimed as deductions two amounts, the $1,564,113 labeled on the amended return as "1-1-71 excess tax over book depreciation-reserve" and $80,056 designated as "1-1-71 deferred income-investment credit."

Subsequent to the date on which appellant [*11] filed its amended return, the Tax Commissioner's agent determined that the appellant's apportionment ratios reflected on its franchise tax reports for 1972 should be increased from 67.6171% to 68.0522%. The appellant now agrees with said change in the apportionment ratios and concedes that the deduction of $80,056 referred to supra is not proper.

It is now therefore the appellant's contention that it should be entitled to the depreciation difference as a deduction of $1,564,113 which if applied as a deduction to appeilant's franchise tax report for the year 1972, when coupled with the revised apportionment ratio of 68.0522%, would result in overpayment of 1972 franchise tax in the amount of $85,163 which is the amount now claimed by appellant on this appeal.

Revised Code Section 5733.04(I)(5) provides:

"(5) Taxpayers using the installment or completed contract method of accounting, or other acceptable methods of accounting, for federal income tax purposes for the first taxable year on which the tax provided for in section 5733.06 of the Revised Code is computed on the corporation's net income, shall exclude from net income that amount that originated prior to such first [*12] taxable year and that was included as part of surplus at the time of origination, as shown by the books of the corporation." (Underscoring by BTA)

To clarify Revised Code Section 5733.04(I)(5) the Tax Commissioner issued his Special Instruction 3 dated June 1, 1972, which reads as follows:

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"Completed Contract Method or Percentage of Completion Contract Method:

"This section of the Revised Code is limited to building, installation and construction contracts.

'That amount of income to the extent that the contract was completed prior to the first day of the taxable year which ends in 1971 shall be excluded from income in the taxable year in which that contract Is fully completed. No other income from that contract may be excluded.

"Installment Method:

"All income from installment sales shall be excluded from net income for sales made prior to the first day of the first taxable year, upon which year the franchise tax is computed on the net income alternative basis, to the extent such deferred income was included in surplus and taxed on the net worth alternative basis in prior franchise tax reports.

"The computation Is to be made in accordance with Section 453 of the Internal [*13] Revenue Code of 1954 as amended."

When reading all of Revised Code Section 5733.04(I)(5), it is obvious that it provides only for an exclusion from net income of items of income which originated in some earlier year. Items of income originate in one year on financial books and flow through to tax books in later years only in situations where taxpayers use the percentage of completion method for accounting for recognition of income for financial books and some other method of accounting for recognition of income for tax books. Revised Code Section 5733.04(i)(5) nowhere provides that differences between methods of depreciation can be deducted from net income. Because it does not provide for such a deduction, one cannot be taken.

Not only must the Board consider the entire statute, it must also strictly construe this statute against the taxpayer. Exclusions from income, like deductions and exemptions, are a matter of legislative grace. A taxpayer must not be allowed the privilege of a deduction or exemption unless the statute specifically allows it.

Deductions and exemptions are privileges bestowed by the legislature. The Ohio Supreme Court has frequently stated that exemptions [*14] must be strictly construed and taxpayers must "affirmatively establish" that they are entitled to the privilege. National Tube Co. v. Glander (1952), 157 Ohio St. 407; Celina Mutual Ins. Co. v. Bowers (1965), 5 Ohio St. 2d 12; and the cases cited therein. Exemption, though constitutional, grants some taxpayers economic advantages. Granting an unwarranted exemption or exception places a greater tax burden on all the citizens of the State.

Deductions afford taxpayers the same kind of economic advantage. Like exemptions, deductions are a tax "break" and must not be freely distributed.

The United States Supreme Court has historically taken a strict view of the applicability of deductions. In New Colonial Ice Co. v. Helvering, (1934), 292 U.S. 435, at 440, the Court stated:

"* * * Whether and to what extent deductions shall be allowed depends upon legislative grace; and only as there is clear provision therefor can any particular deduction be allowed."

Similar expressions of this point of view can be found in White v. United States (1938), 305 U.S. 281, and Deputy v. Dupont (1940), 308 U.S. 488.

The Ohio Supreme Court has conservatively [*15] approached deductions when dealing

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with the franchise tax. In Kroger Co. v. Bowers (1965), 3 Ohio St. 2d 76, Kroger sought to deduct deferred income taxes from its surplus in computing the value of its reserves pursuant to Revised Code Section 5733.05(A). The Court held that, because the statute allowed the deduction of taxes currently payable, only those taxes could be deducted. Deferred Income taxes could not be deducted because the statute did not provide for their deduction. The Court refused to broaden the priviiege bestowed by the legislature, essentially because the taxpayer could not point to a specific statute allowing the deduction it wished to take.

The correct approach to deductions is the same conservative approach to exemptions. A taxpayer should unequivocally prove that it is entitled to the privilege by pointing to language in a statute that specifically provides for the claimed privilege. Revised Code Section 5733.04 (I)(5) does not specifically provide for the deduction from net income of the difference between methods of depreciation. If the legislature had wished to create such a deduction, it most certainly would have done so in specific terms. [*16]

The taxpayer also argues that if this Board does not accept its interpretation of Revised Code Section 5733.04(I)(5), double taxation will result because the same amount of income will be taxed twice. The taxpayer is mistaken conceming the nature of the tax in issue. The franchise tax is not a tax on income.

Revised Code Section 5733.06 provides, in pertinent part:

"The tax charged to corporations under this chapter for the privilege of engaging in business in this state, which is an excise tax levied on the value of the issued and outstanding shares of stock, shall in no manner be construed as prohibiting or otherwise limiting the powers of municipal corporations in this state to impose an income tax on the income of such corporation."

(Emphasis added)

Revised Code Section 5733.06 sets the amount of tax as:

"(A) Four per cent upon the first twenty-five thousand dollars of the value of the taxpayer's issued and outstanding shares of stock as, determined under division (B) of section 5733.05 of the Revised Code; [net income]

"(B) Eight per cent upon the value so determined in excess of twenty-five thousand dollars; or

"(C) Five mills times that portion of the [*17] value of the issued and outstanding shares of stock as determined under division (A) of section 5733.05 of the Revised Code."

(Emphasis and parenthetical matter added)

The franchise tax, then, is not a tax on income, but a tax on the value of the issued and outstanding shares of stock of a corporation. The tax is exacted for the privilege of doing business in this State. According to Revised Code Section 5733.05, the value of the outstanding shares of stock is determined by either the net worth of the company or the net income. The corporation's net income is nothing more than a measure of the value of the issued and outstanding shares of stock of the corporation. Net income is not the object of taxation, but oniy a scale for the value of the object. Double taxation does not occur because income is not being taxed.

The Board of Tax Appeals has considered, as it did consider in Beckwith and Associates, Inc., v. Kosydar, BTA Case No. C-228, decided February 25, 1975, aff d March 23, 1977, at 49

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Ohio St. 2d 277, the Commissioner's broad grant of rule-making power with respect to the franchise tax based on net income. The Tax Commissioner, of course, has general authority [*18] to promulgate rules to facilitate the enforcement of tax statutes. However, the introduction of the net income method of calculating franchise tax posed substantial administrative difficulties. The General Assembly, anticipating these problems, could have relied on the Tax Commissioner and his general rule-making power to provide the essential administrative interpretations necessary for the implementation of the "new" tax system. That general rule-making power resides in Revised Code Section 5703.05 which provides in pertinent part:

"All powers, duties, and functions of the department of taxation are vested in and shall be performed by the tax commissioner, which powers, duties, and functions shall incfude,. but shall not be limited to the following:

11* * * * * * * * *

"(M) Adopting and promulgating, in the manner provided by section 5703.14 of the Revised Code, all rules of the department;

(Eff. 10/11/76)

However, recognizing the particular kinds of problems which would emerge from this entirely now legislation, the General Assembly provided the Tax Commissioner with additional rule- making authority in Revised Code Section 5733.07. This section which [* 19] is specifically directed to the administration of the corporate franchise tax provides in pertinent part:

"The tax commissioner shalt enforce and administer this chapter. In addition to any other powers conferred upon him by law, the commissioner may:

"(A)*********

"(B) Promulgate such rules and regulations as he finds necessary to carry out this chapter;

"* * *.Y'.*ri^***n

(Emphasis added)

The Board of Tax Appeals upheld the Tax Commissioner in its opinion in Beckwith and described the rule-making authority in Revised Code Section 5733.07 as follows:

"* * * R.C. 5733.07 is a particularly broad grant as it commands the Tax Commissioner'to carry out this [corporate franchise] chapter' rather than to merely make rules of the Department as provided in R.C. 5703.05. The use of such active language indicates that the legislature has directed the Tax Commissioner to take an active role in implementing that statutes. Of special note is the fact that this grant of rule-making power was added at the same time the net income method of computing franchise tax became effective, December 20, 1971.

"This grant of rule-making power was directly related to the [*20] institution of the new method of computation. The General Assembly, realizing that the net income method could not emerge from legislative chambers without creating some uncertainties and ambiguities, directed the Tax Commissioner to cushion the impact of the new tax by providing rules which would ease the corporation sector into the new system without subjecting taxpayers or the State to continuous litigation."

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(BTA Entry, at 11, 12; emphasis by BTA)

This description of the Tax Commissioner's rule-making authority illuminates two critical factors: first, that the Tax Commissioner is dealing with entirely new and untested legislation; second, that the legislature has directed the Tax Commissioner to make rules which would "carry out" the intentions of the legislature as expressed in each and every word of Chapter 5733, Revised Code. In Beckwith, this Board and the Supreme Court recognized the broad nature of the Commissioner's authority with respect to Chapter 5733. And, as with the Commissioner's rule in Beckwith, the Commissioner through his Special Instruction in this case, is merely "carrying out" the intention of the legislature to apply the "new" net income [*21] method of computing franchise tax to all taxpayers and providing tax "breaks" only as specifically written in the statute. In so doing, the Tax Commissioner has acted reasonably and lawfully.

Revised Code Section 5733.04 (I)(5) does not provide a deduction for the difference between accelerated and straight-line depreciation. This section applies only when a taxpayer's method of accounting for recognition of income dictates the origination of income in the income account in some year prior to the first year on which the franchise tax is computed using the net income method. The statute does not provide for the deduction of depreciation, but only for the exclusion from net income of this previously originated income. The Tax Commissioner's Special Instruction No. 3, issued pursuant to the broad grant of authority contained in Revised Code Section 5733.07, is only an expression of this logical reading of the entire Revised Code Section 5733.04 (I)(5). Special Instruction No. 3 is also consistent with the Court's and the Board's long-standing practice of strictly interpreting exception and exemption statutes. Deductions, like exceptions and exemptions, provide taxpayers with a[*22] tax "break," and should not be liberaily construed.

It is therefore the finding of the Board of Tax Appeals that Special Instruction No. 3 is proper and within the powers of the Tax Commissioner to promulgate.

The second issue presented by this case is whether the amendment to Revised Code Section 5733.05, adopted December 20, 1971, is retroactive in that income eamed by a corporation before the enactment of the statute is included in computing the franchise tax based on the net income method. The taxpayer is a calendar year taxpayer, and, therefnre, its accounting year ends on December 31, of each year. Because the taxpayer's accounting year was not closed at the time of the enactment of the amendment to Revised Code Section 5733.05, the statute is not retroactive with respect to the taxpayer.

The Ohio Supreme Court clearly stated in Lakengren v. Kosydar (1975), 44 Ohio St. 2d 199, that the net income method for determining franchise tax is retroactive only as it applies to accounting years already closed before the statute was enacted. The syllabus of the case states:

"Insofar as it increases the franchise tax obligation of a corporation for an accounting year [*23] already closed at the time of enactment, the amendment to R.C. 5733.05, adopted December 20, 1971, Is void as a retroactive law in violation of Section 28, Article II of the Ohio Constitution."

(Emphasis added)

The rationale underlying the Court's decision was that, once an accounting year is closed, no further obligations can be imposed on the income for that year.

As the Court stated at 44 Ohio St. 2d 202-203:

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"In this case, the appellant used a permissible period of accounting (R.C. 5733.031), and at the conclusion of that period was subject to tax obligation under existing law of $3,557.55, payable a year later if the appellant wished to continue doing business in Ohio. Under the accepted systems of accounting approved by the Revised Code, appellant was entitled to distribute or invest the profit it had earned, and need not retain some part of those profits in anticipation of a subsequent tax based upon the income eamed in that year, income which might or might not be related to the actual business activity of the corporation in the following year. Appellant was entitled to consider that the money was finally its own. When the accounting year closed for the taxpayer, [*24] it closed for the taxing authority as well; * * * As of February 28, 1971, the tax obligation of the appellant was calculable under existing statutes. A subsequent increase of that obligation whether by an increase in the rate or by the enactment of an alternative method of calculation based upon the income eamed in the preceding year is retroactive in effect and is prohibited by the Ohio Constitution."

(Emphasis added)

The net income method was. retroactive with respect to Lakengren, Inc., because its accounting year was closed before the statute was enacted. As far as the Court is concerned, a closed accounting year cannot be reopened by the legislature.

The taxpayer in the instant case stands in a different place. This taxpayer is a calendar year taxpayer. Its accounting year had not ended by December 20, 1971, the date the net income method was enacted. Rather, this taxpayer's accounting year ended December 31, 1971, eleven days after the enactment of the statute. Because the accounting year was not closed, the taxpayer could not consider the income yet its own, and the legislature could Impose a higher obligation on that income. Obligations and income for [*25] the taxpayer's entire accounting year were not finally determined on December 20, 1971. The application of the net income method to this taxpayer is not a retroactive application of a law.

The Supreme Court left no doubt concerning the application of the net income method to taxpayers whose accounting years ended after December 20, 1971. The Court stated at 44 Ohio St. 2d 204:

"* * * This in no way prevents the General Assembly from levying a tax payable in the future, based upon the income of periods ending after the enactment of the levy. ***."

(Emphasis added)

Clearly, the amendment to Revised Code Section 5733.05, enacted December 20, 1971, is not retroactive with respect to caiendar year taxpayers.

Giving consideration to the facts, the statutes, the case law and the findings of the Board of Tax Appeals, it is the decision of the Board of Tax Appeals that the final order of the Tax Commissioner must be and hereby is, affirmed.

Legal Topics:

For related research and practice materials, see the following legal topics: Tax Law > Federal Income Tax Computation > Deductions for Amortization, Depletion & Depreciation > Investment Tax Credit (IRC secs. 38, 39, 46-50) Tax Law > State & Local Taxes > Administration & Proceedings > Judicial Review Tax Law > State & Local Taxes > Franchise Tax > Imposition of Tax

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CitaUon: 1978 Ohio Tax LEiXIS 192 Yew: Full DateTme: Friday, March 27, 2009 - 11:47 AM EDT

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L'GX1sN+4xis`

LEXSEE 1993 OHIO TAX LEXIS 1330

Mary L. Baxla, Appellant, v. Roger W. Tracy, Tax Commissioner of Ohio, Appellee.

CASE NO. 91-M-1242 (REVIEW OF RULE)

STATE OF OHIO - BOARD OF TAX APPEALS

1993 Ohio Tca LE'XIS 1330

July 30, 1993 [*1] APPEARANCES: For the Appellant - Hamlin C. King, Feinstein and Mulligan, 3478 North High Street, Columbus, Ohio 43214 For the Appellee - Lee I. Fisher, Attomey General of Ohio, By: Janyce C. Katz, Assistant Attomey General, State Office Tower- 16th Flr:, 30 East Broad Street, Columbus, Ohio 43215

OPINION: DECISION AND ORDER This cause and matter comes on to be considered by the Board of Tax Appeals pursuant to an application fded on September 13, 1991. In that application, this Board has been asked to review Ohio Adm. Code 5703-1-10, pursuant to the powers vested by B.C. 5703.14. The request for review of Ohio Adm. Code Rule 5703-1-10 before the Board arises from the following factual record. The appellant, Mary Baxla, is the president of Baxla Oil, Inc. On April 1, 1988, appellant received a motor vehicle fuel dealer's license from the state of Ohio. Prior to the receipt of that license, Baxla Oil Inc. had been selling motor vehicle fuel, but state taxes had been collected and remitted by its supplier. After Mrs. Baxla received the license, Baxla Oil Inc.'s supplier discontinued charging state tax. However, Mrs. Baxla received no specific notice of the dis- continuation from the [*2] supplier, and therefore, was unaware that taxes to the state of Ohio were not being remitted. Mrs. Baxla first noticed taxes were not being remitted to the state of Ohio sometime in 1989. She notified the state by submitting amended fuel dealer's returns. When the state received the amended retums, the tax department commenced an audit of Baxla Oil Inc. The auditor confirmed the self-assessment prepared by Mrs. Baxla. Thereafter, Mrs. Baxla received an assessment for unpaid motor vehicle fuel tax for the period of August, 1988 through June 1989. The tax due equaled $ 177,859.00. The penalty thereon totaled $ 53,357.70. The total assessment equaled $ 231,216.70. (Joint Stipulation, Exh. "B"). After receipt of the assessment, Mrs. Baxla filed what she denominated a "Petition for Reassessment of Penalty." (Joint Stipulation Exh. "C"). In that document, Mrs. Baxla stated, in pertinent part, as follows: "THIS PETITION IS A REQUEST FOR REASSESSMENT OF THE PENALTY ON THE ABOVE NOTED AS- SESSMENT. WE AGREE WITH THE AMOUNT OF MOTOR FUEL TAX DUE BUT ARE ASKING FOR RELIEF OF THE EXCESSIVE PENALTY."

The Conunissioner considered the denominated "Petition for Reassessment of Penalty" [*3] as a "Request for Remis- sion of Penalty Only." Pursuant to Ohio Adm. Code 5703-1-10, the Commissioner informed Mrs. Baxla that she would review the penalty only if the entire assessment, including penalty, was paid. Pursuant to the above-cited nile, the Commissioner extended the time for payment of the entire assessment for twenty days.

Appx. 281 Page 2 1993 Ohio Tax LEXIS 1330, *

It appears from the record that no payment was made on the assessment during the time period allotted by Ohio Adm. Code 5703-1-10. On or about October 23, 1990, the Commissioner issued the following Order: "The Tax Commissioner came this day to consider the above styled matter at Columbus, Ohio, and, being fully advised thereon, finds that: "The above captioned assessment had not been timely paid in its entirety, including penalty, as required by Ohio Administrative Code Rule 5703-1-10. Therefore, the Tax Commissioner is without jurisdiction to consider the request for remission of penalty. "It is therefore ordered that the request for remission of the penalty be, and hereby is, dismissed."

Mrs. Baxla has directly appealed the Commissioner's dismissal order. nl That appeal, however, is not before this Board today. After the original appeal [*4] was filed, the appellant filed the instant appeal, challenging the reasonableness of Ohio Adm. Code 5703-1-10.

nl The appeal, filed November 29, 1990, is carried on our docket as Case No. 90-M-1606. The matter is considered by the Board of Tax Appeals upon the Application for Review, the evidentiary hearing held before the Board on Apri122, 1993, the stipulation of the parties, entered on March 5, 1993, and the briefs submitted by counsel. At the hearing before the Board, Mary Baxla testified on behalf of the appellant. Mr. Richard O. Beckner and Mr. William A. Riesenberger testified on behalf of the appellee. W. Beckner is the Administrator of the Excise and Motor Fuel Tax Division of the Ohio Department of Taxation. Mr. Riesenberger is a supervisor with the Ohio Deparhnent of Taxation, Legal Division. In his present position, Mr. Riesenberger is responsible for filing Department of Taxation rules with the Joint Committee on Agency Rule Review, the Legislative Service Commissioner and the Secretary of State. (H.T. p. 103). Mr. Riesenberger was responsible for the final draft of the rule in issue today. (H.T. p. 104). The appellee has raised two procedural issues [*5] which must be addressed prior to reviewing the rule in issue. Counsel for the appellee argues that this Board should dismiss this appeal because the appellant has not placed the reasonableness of the rule into issue. The appellee argues that the appellant has not claimed the unreasonableness of the rule in general, but merely the unreasonableness of the rule as applied to the specific facts of her case. In her brief, counsel claims: "To allow a taxpayer to challenge the application of a rule on the particular facts in that taxpayer's case in an action separate from an administrative appeal of the taxpayer would be to encourage the taxpayer to attempt to circumvent the administrative appeal should the decision prove to be unpleasant to the taxpayer. At best, this would delay the due process of law. At worse, (sic) it would violate the doctrine of collateral estoppel, because the taxpayer would be attempting to try the same issue at the same time or at a later time to avoid an unfavorable decision through the means of the rule review process." This Board finds this position directly inapposite to R.C. 5703.14(C). The Tax Commissioner, either through a general power provided in [*6] R.C. 5703.05(M), or more specific legislative grants, has the power to promulgate rules for the administration of the tax laws. The Board of Tax Appeals, through R.C. 5703.14, has the power to review rules promulgated by the Tax Commissioner. R.C. 5703.14(C) provides, in pertinent part: "(C) Applications for review of any rule adopted and promulgated by the commissioner may be filed with the board by any person who has been or may be injured by the operation of the rule. The appeal may be taken at any time afler the rule is filed with the secretary of the state, ***. Failure to file an appeal does not preclude any person from seeking any other remedy against the application of the rale to him. The applications (sic) shall set forth, or have attached thereto and incorporated by reference, a true copy of the rule, and shall allege that the rule complained of is unreasonable and shall state the grounds upon which the allegation is based. Upon the filing of the application, the board shall notify the commissioner of the filing of the application, fix a time for hearing the application, notify the commissioner and the appficant of the time for the hearing, and afford both an opportunity [*7] to be heard. The appellant, the tax commissioner, and any other interested persons that the board permits, may introduce evidence. The burden of proof to show that the rule is unreasonable shall be upon the appellant. After the hearing, the board shall determine whether the rule complained of is reasonable or unreasonable. A determination that the rule complained of is unreasonable shall

Appx.282 Page 3 1993 Ohio Tax LEXIS 1330, * require a majority vote of the three members of the board, and the reasons for the determination shall be entered on the journal of the board." The General Assembly has given wide latitude to a taxpayer who wishes to challenge a rule promulgated by the Tax Commissioner. R.C. 5703.14(C) pemaits any taxpayer who has been or may be affected by such a rule the ability to challenge the reasonableness of that rule. The legislature allows a taxpayer to challenge a rule as a separate appeal, or within an appeal of an underlying assessment if the rule appears to be in issue. Had the appellant in this case paid the assessment in full and, years later, decided it was her civic duty to challenge the rule, her standing in such a case would have been proper. Therefore, we find the issue of reasonableness [*8] properly before this Board. Moreover, we fmd the appellant has produced credible evidence that the rule has unfairly impacted upon her individual situation. Mani- festly, this Board finds appellant is a proper party to pursue this appeal. Our finding in this case, however, will not directly affect the appellant's underlying assessment, as that assessment appeal is a separate appeal before this Board. Additionally, the appellee seeks to limit this Board's ability to review the grounds under which the appellant claims the rule to be unreasonable. Appellee states that "the only question before the Board when the Board is asked to review a rule is whether or not the rule is reasonable and whether the appellant has met the statutory burden of proof." (Appel- lee's Brief p. 21). We note that while the appellee has stated our duty as a two-step process, we understand our duty in a rule review to be more in the nature of logical reasoning - that is, if the appellant has carried her burden of proof, then we must find that rule unreasonable. We agree with appellee that the issue before this Board is the reasonableness of the rule. While RC. 5705.14 requires the taxpayer to list the reasons [*9] he believes a rule is unreasonable, we are not disposed to be hypertechnical in this area. We note that appellant, in her memorandum attached to her appfication for review, identified the Commis- sioner's actions as being legislative as opposed to ministerial.(Appellants notice of appeal p. 7) Moreover, if the taxpayer has brought forth sufficient evidence to prove the rule unreasonable, it would be error on our part to overlook a valid rationale for unreasonableness because the taxpayer did not label it as such. Cf. Howard Gas & oil Company v. Limbach (Tracy) (May 21, 1993), Lucas App. No. L92-128, unreported. A review of prior case law dealing with rules promulgated by the Tax Commissioner is instructive. In The Kroger Grocery & Baking Co. v. Glander (1948), 149 Ohio St. 121, the Ohio Supreme Court considered a rule promulgated by the Tax Commissioner under a direct grant of statutory authority. Therein the Court stated: "Sections 1464-3, 5546-5 and 5546-31, General Code, authorize and direct the Tax Commissioner to adopt for the administration of the Sales Tax Act such rules and regulations as he may deem necessary to carry out the provisions of the act. [* 10] Such rules and regulations are necessary because of the infinite detail essential in the consideration of an application and the interpretation of the law to concrete and specific circumstances and situations, the incorporation of which in the statute itself would be impracticable or impossible."

The Court cited the specific Tax Commissioner's rule in issue in that case, and, thereafter, set a standard for review of similar rules: "This rule, like those of other administrative agencies, issued pursuant to statutory authority, has the force and effect of law unless it is unreasonable or is in clear conflict with statutory enactment governing in the same subject matter." hi a later case, the Court distinguished between rules which administer jurisdictional requirements and rules which administer procedural requirements. In NuCorp, Inc. v. Bd ofRevision (1980), 64 Ohio St. 2d 20, the Court stated: "While this court has never encouraged or condoned disregard of procedural schemes logically attendant to the pur- suit of a substantive legal right, it has also been unwilling to fmd or enforce jurisdictional barriers not clearly statutorily or constitutionally mandated, [* 11] which deprive a supplicant of a fair review of his complaint on the merits." (Emphasis added) More directly on point, the Court, in Jemo v. Lindley (1980), 64 Ohio St. 2d 365, found that an administrative regulation promulgated by this Board requiring that a notice of appeal be executed by an officer of the appellant corporation or an attorney, exceeded this Board's powers to promulgate such a rule. The Court held that the failure to comply with a signature requirement in the Board's rules was insufficient grounds for an appellant to lose its right to appeal.

Appx.283 Page 4 1993 Ohio Tax LEXIS 1330, *

We have also reviewed prior decisions of this Board wherein rules promulgated by the Tax Commissioner have been considered under R.C. 5705.14(C). Rules have been found reasonable when they carry out the intent of the legislature, Atlas Crankshaft Corp. v. Lindley (August 15, 1978), B.T.A. Case No. 3-1816, affirmed on other grounds, 58 Ohio St. 2d 299; Roosevelt Properties, et al. v. Kinney (January 11, 1983), B.T.A. Case No. 81-F-666, 667, unreported, affumed,12 Ohio St. 3d 7. Rules have been found to be unreasonable when they have not been properly promulgated, or are in conflict with [* 12] legislative enactments. William J. Stone, et al. v. Limbach (June 30, 1988), B.T.A. Case No. 85-C-931, unreported. Having reviewed the prior law, we now tutn to the rule in issue. In order to determine whether the Commissioner acted within his authority we must look to the Commissioner's enabling statute. R.C. 5735.12 sets forth the Commis- sioner's power to promulgate rules dealing with remission of motor vehicle fuel penalties: "A penalty of thirly percent shall be added to the amount of every assessment made under this section. The tax commissioner shall have the power to adopt rules providing for the remission of penalties added to assessments made under this section." Pursuant to above-cited grant of authority, the Commissioner promulgated Ohio Adm. Code 5703-1-10. The section, in its entirety, provides: "5703-1-10 Remission of penalties on excise tax assessments "(A) A person assessed cigarette excise tax, highway use tax, horse racing tax, motor vehicle fuel tax, motor vehicle fuel use tax, beer tax, brewers' wort or malt tax, or wine and mixed beverages tax may request of the tax commissioner remission of the statutory penalty. Such a request must be in writing [*13] and filed with the commissioner personally or by express, registered, or certified mail of the United States postal service within thirty days of the receipt of the notice of assessment. If the request for remission of penalty is the only relief sought, the entire assessment, including all charges and penalties, must be paid in full before such request will be considered. In the event that a request solely for remission of penalty has been filed timely in writing, but payment in full has not been received at the expiration of the thirty-day period, the commissioner shall send a letter by regular mail to the person assessed notifying him of this prepayment requirement. If payment in full is received by the commissioner within twenty days after the mailing of such letter, the request for remission of penalty will be considered. In the event the request for remission is not filed timely or payment in full is not received within the time allowed, the request shall be dismissed. "(B) In the event that a petition for reassessment is filed timely contesting the validity or legality of the assessment, the request for remission of penalty may be included as part of the petition or [* 14] may be filed separately. The commissioner may, in the final determination on the petition for reassessment, remit such part of the penalty as he deems proper. Such remission may be conditioned upon payment of the full amount, as finally determined, within thir[y days of the receipt of the final detennination of the commissioner or the date of decision of the board of tax appeals or other court of appellate jurisdiction. "Where an appeal of the final determination of the commissioner is dismissed on the motion of the person assessed, the thirty-day period shall begin to run from the date the person assessed received the final determination from which said appeal was perfected. "(C) If a petition for reassessment form is filed which does not specifically contest the validity or legality of any portion of the assessment but requests only remission of the penalty, it will be treated as a request for remission only and will be treated in the manner described in paragraph (A) of this rule. "(D) A hearing on a request for remission of penalty will not be scheduled unless a hearing is specifically requested in writing by the person filing the request for remission." (BmphasisAdded) [•15] As noted above, this Board must determine, based upon the facts before us, if the above-cited rnle is reasonable. n2 We find it necessary to articulate that the Tax Commissioner's discretion to remit a penalty is not in issue. In Interstate Motor Freight System v. Bowers (1960), 170 Ohio St. 483, the Ohio Supreme Court held that determinations with respect to penalty remissions were wholly within the province of the Tax Commissioner: "The statutory power to adopt rules and regulations for the remission of penalties creates a discretionary power in the Tax Commissioner. Thus, the remission of the penalty under Section 5728.10, Revised Code, differs from the ordi-

Appx.284 Page 5 1993 Ohio Tax LEXIS 1330, * nary assessment of taxes in that the remission of the penalty, unlike the assessment of a tax is in the fffst instance left to the discretion of the Tax Commissioner."

n2 We also have the ability to determine whether the rule is properly promulgated. However, the appellant has not alleged any infirmity in the promulgation of said rule. Therefore, the issue is not properly before us.

The Tax Commissioner's discretion in remitting a penalty has been upheld on numerous occasions. Jennings & Churella Constr. [* 16] Co. v. Lindley (1984), 10 Ohio St. 3d 67; Servomation Corp v. Kosydar (1976), 46 Ohio St 2d 67. The issue in this appeal is not the Tax Commissioner's authority to determine penalty remissions. The issue is his refusal to make such a determination. Requirements of prepaying tax assessments or posting bond assuring the payment of assessments when finally determined prior to review by the Commissioner, are common to many taxes. R.C. 5733.11(D)(1); R.C. 5743.082; R.C. 5747.13(E)(1). The requirement of making payment in full prior to review of an assessment has recently been removed from R.C. 5749.07 (effective January 15, 1993). Similarly, the requirement for posting bond has been removed from R.C. 5728.10 (effective October 15, 1987). However, the requirement of prepayment or posting bond prior to review has withstood constitutional attacks, both in this state, Niemeyer v. Collins (1976), 45 Ohio St. 2d 63 (cigarette tax jeop- ardy assessment under R.C. 5743.082) Pre-Fab Transit Co. v. Bowers (1964), 176 Ohio St. 163 (highway use tax assessment pursuant to R.C. 5728.10); and federally: Phillips v. Commissioner (1931), 283 U.S. 589; Cohen [* 17] v. United States (1962), 297 F. 2d 760. In every case, however, the constitutionally upheld requirement of prepayment or posting bond was a jurisdictional requirement imposed by the state or federal legislature. Such ajurisdictional requirement is properly a legislative mandate. Riss & Co. v. Bowers (1961), 114 Ohio App. 429. In the case before this Board, however, the requirement of prepayment is not statutorily imposed but administra- tively imposed. The General Assembly delegated to the Tax Commissioner the power to promulgate rules which would assist in the remission of motor fuel tax penalties. Bearing in mind that "administrative agency rules are an administrative means for the accomplishment of a legislative end," Carroll v. Dept ofAdmin. Services (1983), 10 Ohio App. 3d 108, this Board finds the Commissioner has offered no reasonable explanation for liniiting the jurisdictional grounds upon which a taxpayer may request remission. Jurisdiction is clearly the province of the legislature -- administrative regulations are promulgated to implement legislative policy, not to create it. In this regard, we find Ohio Adm. Code 5703-1-10 in conflict with [* 18] the legislative direction to the Tax Commissioner to promulgate rules relating to the remission of said penalties. By promulgating a rule which excludes those unable to pay assessments from the pool of candidates able to request remission, the Commissioner has in effect promulgated a rule which has erected a procedural roadblock to such remission, thereby exceeding the mandate given to him by the legislature. Such a limitation is in conflict with the Commissioner's obligation under RC. 5735.12. The appellant has also attacked Ohio Adm. Code 5703-1-10 on constitutional gounds. Interestingly, appellant's attacks have been based, not upon the ability of the Tax Commissioner to require prepayment prior to review, but upon the ability of the Tax Commissioner to divide those able to pay assessments in full, from those unable to pay such assessments. It is axiomatic that tltis Board is without jurisdiction to determine the constitutional validity of a given statute or rule. S.S. Kresge Co. v. Bowers (1960), 170 Ohio St. 405; Roosevelt Properties Co., supra. Our obligation is to receive evidence on constitutional issues. Cleveland Gear Co. v. Limbach (1988), [* 19] 35 Ohio St 3d 229. In this case, we take the opportunity to cornrnent on appellant's constitutional claim as it affects her individual claim. Appellant argues that requiring prepayment of an assessment has the effect of classifying on the basis of wealth because those fmancially unable to pay are effectively foreclosed from penalty review. Appellant argues, without citation, that wealth is an irrational basis to deny remission of a penalty. However, as stated earlier, courts have consistently held that statutes requiring prepayment prior to review are constitutionally sound. In such cases, legislatures have classified on the basis of wealth. Secondly, the appellant has argued vociferously that taxpayers unable to pay should be afforded an opportunity to prove their inability to pay. If the Tax Commissioner is convinced that the taxpayer is unable to pay, appellant argues, the prepayment requirements should be waived and the Commissioner should review the equities of the individual case. However, we can find no legislative grant which authorizes this Board to fashion administrative procedure for the Comnussioner. Pursuant to R.C. 5703.14, our obligation is to detemiine whether [*20] the rule presently before us is

Appx.285 Page 6 1993 Ohio Tax LEXIS 1330, * unreasonable. The Commissioner is free to impose any procedural burdens on a taxpayer that the legislature so man- dates. Based on the foregoing, it is the decision of the Board of Tax Appeals that Ohio Adm. Code 5703-1-10 is unreasonable on the basis that it extends powers to the Tax Commissioner that were not legislatively mandated. It is the Or- der of the Board of Tax Appeals that notice of this decision shall be delivered in accordance with RC. 5703.14. Pursuant to RC. 5703.14(C), it is further ordered that certified copies of this Decision shall be filed as follows: (1) two certified copies of this Decision shall be filed with both the Secretary of State and the director of the legislative service cotnmission. (2) two certified copies of this Decision shall be filed with the joint conunittee on agency rule review.

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Appx.286 Page I

LexisNexis'

2 of 2 DOCUMENTS

MCI Telecommunications Corporation, Appellant, vs. Joanne Limbach, Tax Commis- sioner of Ohio, Appellee.

CASE NOS. 88-Z-1 133; 88-Z-1 134; 88-Z-1 135; 88-Z-1 136 (PUBLIC UTILITY EXCISE TAX)

STATE OF OHIO -- BOARD OF TAX APPEALS

1992 Ohio Tax LEXlS 684

June 19, 1992 [*1] APPEARANCES: For the Appellant - John C. Duffy, Jr., Jones, Day, Reavis and Pogue,.North Point, 901 Lakeside Avenue, Cleve- land, Ohio 44114, Walter Nagel, Douglas A. Richards, MCI Telecommunications Corporation, 1133 19th Street, N.W., Washington, D.C. 20036 For the Appellee - Lee I. Fisher, Attorney General of Ohio, By: Barton A. Hubbard, Assistant Attorney General, State Office Tower, 30 East Broad Street, Columbus, Ohio 43266-0410

OPINION: DECISION AND ORDER This matter came on to be considered by the Board of Tax Appeals upon four notices of appeal filed by MCI Tele- communications Corporation. The appeals are taken from four final orders of the Tax Commissioner wherein that official affumed public utility excise tax assessments issued for the 1983, 1985, 1986 and 1987 report years. The appeals have previously been consolidated by order of the Board dated October 13, 1989. MCI Telecommunications Corporation (MCI) is a public utility which provides long distance telecommunications services to customers in Ohio. As a telephone company, it is subject to the special public utility tax provisions of R.C. Chapter 5727. In accordance with R.C. 5727.31, MCI filed annual statements for the [*2] report years to enable the Tax Commissioner to assess the excise tax imposed on gross receipts. On each annual statement, MCI deducted from its total gross receipts the amounts due local telephone companies for the provision of access to their facilities. Pursuant to her responsibility under R.C. 5727.33, the Tax Commissioner ascertained and determined the entire gross receipts actually received by MCI by adding back the amounts due local telephone companies. The Commis- sioner then used her determination of gross receipts (the tax base) in the equation specified by RC. 5727.38, for purposes of determining the excise tax. Following receipt of the certificates of public utility excise tax issued by the Commissioner, MCI filed applications for review and redetermination. Objections on two grounds were made to the inclusion of the amounts due local telephone companies in the gross receipts tax base. nl Upon consideration of the applications, the Tax Commissioner denied the objections based on the provisions of R.C. 5727.32(H), and the decision of the Supreme Court in Sandusky Gas & Electric Co. v. State (1926), 114 Ohio St. 479.

nl MCI also objected to the inclusion in its taxable gross receipts the amounts received from sales of telephone services to other public utilities where such services were purchased for resale. The Tax Commissioner

Appx.287 Page 2 1992 Ohio Tax LEXIS 684, *

denied the objection based on the specific language of R.C. 5727.32(J), as it then read. MCI no longer contests the inclusion of those amounts in its tax base. (MCI legal brief, at page 3) [*3] From the final actions of the Tax Conunissioner, timely notices of appeal were filed with the Board of Tax Ap- peals. Since MCI has since conceded its argutnent concerning sales made for purposes of resale, the remaining errors specified in the notice of appeal are as follows: "1. The Cotnmissioner has illegally and erroneously included in MCPs 1983 (1985, 1986, 1987) tax base as taxable gross receipts amounts collected on behalf of other telephone companies as carrier access charges.

,1* * *

"3. MCI has been denied due process and equal protection of the laws in violation of both the United States Consti- tution and the Ohio Constitution in that the Commissioner has illegally and erroneously included in MCI's 1983 (1985, 1986, 1987) tax base as taxable gross receipts catrier access charges. These amounts were actually collected on behalf of other telecommunications companies for business done by such companies in Ohio and these amounts were subject to tax in Ohio as receipts for business done by such companies in Ohio." At the evidentiary hearing before the Board of Tax Appeals, the testimony of three witnesses was presented. Mr. James Witzel, who serves as Administrator of the [*4] Public Utilities Tax Division for the Ohio Department of Taxa- tion, testified conceming the Commissioner's determination of MCI's gross receipts tax liability for the report years. Dr. Gerald Brock, currently a Professor of Telecommunications at George Washington University, and at one time a Bureau Chief with the Federal Communications Commission (FCC), presented expert testimony to describe the history, nature and operation of the two compensation methods.for the carriage of long distance telephone traffic. Mr. William McConnell, who serves as Senior Tax Manager for Consumer Taxes at MCI's business headquarters in Washington D.C., identified the exclusions or deductions that were reported on MCI's annual statements. This matter is now before the Board of Tax Appeals for resolution upon the notices of appeal, the statutory transcripts fumished by the Tax Commissioner, the evidence presented at the hearing before the Board, and the legal briefs of counsel. During its early operations, MCI originally qualified as a "specialized common carrier" which operated a transcon- tinental point-to-point microwave system known as Execunet. n2 MCI first became subject to Ohio excise tax liability [*5] for the 1983 report year. At that time, the telecommunications industry was undergoing reconfiguration due to the 1982 court-ordered divestiture of American Telephone & Telegraph Company (AT&T).

n2 See: MCI Telecommunications Corp. v. FCC (D.C. Cir. 1977), 561 F. 2d 365, at 367, cert. denied (1978), 434 U.S. 1040. In United States v. American Telephone & Telegraph Co. (D.D.C. 1982), 552 F Supp. 131, AfJ'rrmed sub. nom. (1983), 460 U.S. 1001, the United States District Court for the District of Columbia ordered that AT&T divest itself of Bell Operating Companies (local telephone companies). The Court also ordered the local companies to provide nondis- criminatory equal access services to all interexchange (long distance) telephone carriers. In return, the local companies were authorized to impose appropriate charges for such access services. The District Court further ordered the setting of the access service charges to be the responsibility of the FCC for interstate services, and the state regulatory commissions for intrastate services. Pursuant to such order, the FCC subsequently adopted a uniform plan for interstate access charges. In the Matter [*6] ofMTS and WATS Market Structure (1983), 93 RC.C. 2d 241. Following suit, the Public Utilities Conunission of Ohio issued an order for intrastate access charges which "mirrored" the method developed by the FCC. MCI Telecommunications Corp. v. Pub. Util. Comm. (1987), 32 Ohio St. 3d 306. An access service charge, also known as a carrier access charge, is the amount owed by an interexchange (long distance) carrier to a local telephone company for the local's part in carrying a long distance call. The local company is entitled to compensation for allowing access to its customers, and for its efforts, property, and facilities used in the making of a long distance call. What is referred to today as "carrier access charges" basically came into being with the court-ordered divestiture of AT&T. Prior to divestiture, local telephone companies were compensated through a "Division of Revenues and Settle-

Appx.288 Page 3 1992 Ohio Tax LEXIS 684, * ments" arrangement. That is, the local companies were allocated a share of long distance revenue by AT&T. The arrangement was referred to as "Division of Revenues" if the revenue was shared between AT&T and its affiliated local companies; and as "settlements" if the revenue was [*7] shared with an unaffdiated, independent company. The predivestiture payments under the Division of Revenues and Settlements system were identical in nature to the postdivestiture carrier access charges, but the method for determining compensation was different. The 1983 report year was a predivestiture year, and MCI deducted from gross receipts the amounts due to other telephone companies as settlements. However, for the 1984 report year, MCI did not deduct access charges from gross receipts due to an "Informational Release" issued by the Tax Commissioner which directed that "(f)or purposes of filing the Annual Statement of Gross Receipts * * * (c)arrier or network access charges paid to other companies shall not be deducted." (Case No. 88-Z-1 136, Statutory Transcript at 11) Nevertheless, MCI again deducted access charges from gross receipts for the 1985, 1986, and 1987 report years. n3 None of the annual statements filed by MCI contain any information or supporting documentation to explain how the specific amounts deducted were derived.

n3 For the report years 1988 and forward, legislative amendments to Sections 5727.32, 5727.33 and 5739.01, of the Revised Code, completely changed the status of MCI's tax liability. Currently, MCI is no longer subject to an excise tax on its gross receipts but is required to charge and collect sales tax on calls which originate or terminate in Ohio. For the telephone utilities which remain subject to the excise tax, receipts of carrier access charges are excluded from the gross receipts tax base. [*g] The practical effect of the deductions taken by MCI was, of course, to reduce its tax base. On review, the Tax Conunissioner basically found that the tax base of gossreceipts could not be reduced, in the absence of specific statutory authorization, by costs or expenses incurred in doing business. On appeal to this Board, the question presented is whether MCI may, for the years in question, reduce its gross receipts tax base by the amounts paid to local telephone companies as settlements or carrier access charges. For the reasons detailed more fully below, we answer that question in the negative. RC. 5727.30 imposes an excise tax on each public utility for the privilege of doing business or owning property in this state. During the report years, RC. 5727.33 provided that for purposes of the excise tax "(t)he Tax Commissioner shall ascertain and determine the entire gross receipts actually received from all sources *** for business done in this state." (emphasis added) For the report years, R.C. 5727.32 required that a telephone company's annual statement contain: "(1-I) In the case of telegraph and telephone companies: "(I) The gross receipts from all sources, whether [*9] messages, telephone tolls, rentals, or otherwise, for business done within this state, including all sums earned or charged, whether actually received or not, for the year ending the thirtieth day of June, and the company's proportion of gross receipts for business done by it within this state in connection with other companies, firms, corporations, persons, or associations, but excluding all receipts derived wholly from interstate business or business done for the federal government; "(2) The total gross receipts for such period from business done within this state." The Supreme Court was called on to examine the General Code predecessors of the above-quoted statutes, as applied to a factual pattem which closely resembles MCI's case today. In Sandusky Gas & Electric Co. v. State of Ohio (1926), 114 Ohio St. 479, the Court considered a gas company's attempt to exclude from its gross receipts tax base the amounts paid to another gas company for the sale of natural gas. The Court found that the amounts paid were not deductible from gross receipts, and stated the law of the case in the syllabus as follows: "1. The words 'entire gross receipts; as used in Sections 5417, [* 10] 5474, 5475 and 5483, General Code, providing for the imposition of an excise tax upon public utility companies, mean and include the entire receipts of such company from the intrastate business done by it under the exercise of its corporate powers, whether from the operation of the utility itself or from any other business done by it. "2. Where a distributing gas company purchases the gas which it furnishes and delivers to its consumers from a producing company under a contract requiring payment for all gas delivered to its lines through the measuring station of the producing company at a stipulated price per thousand cubic feet, upon statements presented monthly by the produc-

Appx.289 Page 4 1992 Ohio Tax LEXIS 684, *

ing company to the distributing company, the funds realized from the resale of such gas to its customers by the distributing company belong to it and constitute gross receipts, upon which it is required to pay such excise tax without deduction of the amount paid for gas so purchased."

In Bradley Light, Heating & Power Co. v. Evatt (1942), 140 Ohio St. 85, the Court again reviewed the statutes and found that "gross receipts" are clearly defined. It also found that any exceptions or exclusions from [*11] the gross receipts tax base must be first delineated by statute, and will not be originated by the courts. In the present matter, MCI seeks to characterize carrier access charges as "amounts collected on behalf of other telephone companies." (MCI's notices of appeal, first specification of error) However, this characterization runs contrary to the evidence and to the law. Rather, carrier access charges are compensation payments made for the provision of access to a local carrier's facilities. As such, they constitute costs or expenses incurred in doing business. Based on the evidence, the statutes and case law, the Board of Tax Appeals finds that MCI's tax base includes its entire receipts from intrastate business done under the exercise of its corporate powers. No deductions from gross receipts are available unless first authorized by statute. For the report years here, there is no statutory authorization for any public utility to reduce its gross receipts by any costs or expenses incurred for provision of access to another's facilities. We therefore fmd that the Tax Commissioner's redetennination of MCI's tax base so as to include settlements and access charges is correct [* 12] and must be affirmed. The primary argument advanced by MCI today is that carrier access charges must be deductible since the business relationship MCI has with local companies is one ofjoint venture. The argument is made due to the statutory requirement that gross receipts from all sources must also include the taxpayer's "proportion of gross receipts for business done by it within the state in connection with other companies." R.C. 5727.32(H)(1). The joint venture argument was also presented to the Supreme Court in Sandusky Gas & Electric Co. v. State, supra. The Court held that a joint venture must be proven in fact; that is, by the terms of a contract to show that profits, expenses, liabilities and losses are to be jointly shared by the parties. At page 487 of the decision in Sandusky, the Court found that a contract for the purchase and sale of natural gas "was no more a joint enterprise orjoint undertaking than that involved in the sale by a wholesale to a retail grocer." Here, MCI has presented absolutely no evidence that it is involved in a joint enterprise with local telephone companies. MCI has also cited no statute, court decision or regulatory commission [* 13] order as authority or support for such a proposition. Regarding payments made for provision of access, the Tax Commissioner found that the business relationship between MCI and local carriers is one of debtor-creditor. The evidence and related law bears this out. Just as the Court in Sandusky Gas, this Board likewise fmds that the joint venture argument here lacks merit. At this juncture, the Board acknowledges an argument made by the Tax Commissioner which we find to be well taken. Specifically, MCI has provided no evidence to establish the extent of the error claimed. In regards to the specific amounts of the deductions taken, there is no supporting documentation or testimony to enable the Board to readily identify the accuracy of those amounts. All that is before us is the unsubstantiated figures reported on the annual statements. We are asked to accept these figures at face value without explanation as to how they were derived. MCI has the burden of affirmatively showing the manner and the extent of the claimed error. CNG Dev. Co. v. Limbach (1992), 63 Ohio St. 3d 28; National Tube v. Glander (1952), 157 Ohio St. 407; Hatchadorian v. Lindley [* 14] (1986), 21 Ohio St. 3d 66. The Board therefore finds that MCI has failed to prove the right to, and the extent of, the deduction claimed. The next argument advanced by MCI centers on the Tax Conunissioner's 1984 Informational Release. The Release served to notify all telephone utilities, in the first postdivestiture year, as to the treatment of carrier access charges. It is argued that the Release is invalid for the reason that it was not promulgated as a rule according to the Administrative Procedure Act. Initially, the Board recognizes that any error claimed with respect to the hiformational Release has not been specified in MCI's notices of appeal. This particular error is raised and argued for the fust time by way of post-hearing legal brief. The requirement that a notice of appeal to this Board specifically state a claim of error is ajurisdictional prerequisite, and the failure to comply results in the failure to invoke our jurisdiction over the subject matter. R.C. 5717.02; Moraine Hts. Baptist Church v. Kinney (1984), 12 Ohio St. 3d 134; Cleveland Electric Illuminating Co. v. Lindley (1982), 69 Ohio St. 2d 71; MidAmerican Machine Tools, Inc. v. [*15] Lindley (1981), 68 Ohio St. 2d 91.

Appx.290 Page 5 1992 Ohio Tax LEXIS 684, *

In any event, assuming that the Board had been conferred jurisdiction over the argument, we would nonetheless find that it is not well taken. The testimony before the Board shows that the Informational Release was issued in response to the many individual inquiries received by the Tax Commissioner during the AT&T divestiture process. R.C. 5703.141 authorizes the Com- missioner to issue any directive, bulletin, or informational document which is of general application and affects the liability of a taxpayer. The Release was not intended to have the force and effect of an administrative rule, and did not operate as one. The only purpose served by the Release was to notify all telephone companies, during the reconfiguration of the industry, of the administrative construction to be given to the statutes. Additionally, MCI has not shown that it was harmed in any way by the Release. See, e.g. , R.C. 5703.14(C). MCI's 1984 report year is not at issue here, and no penalties or other charges were added to MCI's basic tax liability for the pertinent years. In any case, the increase of MCI's tax base by the inclusion of access payments resulted [* 16] from the application of the unambiguous language of the statutes, not the information contained in the Release. The final argument put forward by MCI is one of constitutional application. For the 1983 report year, MCI maintains that the statutes were applied differently and preferentially to Ohio Telephone and Telegraph (OT&T) so as to permit discriminatory treatment between taxpayers in violation of equal protection guarantees. Prior to 1984, OT&T was a subsidiary and operating company of AT&T. It is MCI's position that disparate treatment resulted when MCI was required to include in its gross receipts tax base the payments made as settlements, but OT&T was not likewise required to include in its tax base the payments made under the Division of Revenues. In Cleveland Gear Co. v. Limbach (1988), 35 Ohio St. 3d 229, the Court decided that the question of constitutionality as applied to a particular set of facts must be raised before this Board so as to accommodate the Court's need for ex- trinsic evidence, and to conform with the Board's statutory responsibility as trier of fact. In the matter at hand, the Board finds that MCI has failed to present probative, competent [* 17] or reliable evidence to factually establish un- equal treatment. Initially, MCI compares itself to OT&T without any showing that the two were similarly situated taxpayers. Since 1983 was a predivestiture year, this Board has no knowledge of the legal relationships which existed between AT&T, OT&T, and the local carriers. Secondly, there is no definitive evidence conceming whether the gross receipts tax base of OT&T included or excluded Division of Revenue payments. This Board cannot fmd that MCI was unequally treated when we have no knowledge as to how OT&T was treated. Finally, there has been no showing that the Tax Commis- sioner engaged in intentional or systematic discrimination. See: Meyer v. Bd of Revision (1979), 58 Ohio St. 2d 328. In the absence of an evidentiary framework, the Board is unable to fmd that the statutes were applied to pemiit dif- ferential treatment between taxpayers. Thus, we fmd that MCI's final argument is not well taken. Therefore, for the foregoing reasons, it is the decision of the Board of Tax Appeals that the final determinations of the Tax Commissioner must be, and hereby are, affirmed in their entirety.

Legal Topics:

For related research and practice materials, see the following legal topics: Tax LawExcise TaxesCommunications (IRC secs. 4251-4254)Tax LawState & Local TaxesAdministration & Proceed- ingsJudicial ReviewTax LawState & Local TaxesPublic Utilities Taxlmposition of Tax

Appx.291 BOARD OF TAX APPEALS

STATE OF OHIO

R^osevelt Properties Co., et al., and Apartment and Hotae Owners CASE NDS.1 -F-6 Association, et al., ) 81-A-667 ) Appellants, ) j (RULE) vs. ) Robert R. Kinney, ) DECISION AND ORD..? Commissioner of Tax Equalization, ) ) Appellee. )

APPEARANCES:

For the Appellant Roosevelt ,Propertles, et al., - Henry J. DuLaurence 615 Hanna Building Cleveland, Ohio 44115

For the Appellant Apartment & Home Owners Assoc., et al.-Mary Beth Ballard Fred Siegel 1100 Citizens Building Cleveland, Ohio 441!4

For theAppellee -tdilliam J. Brown Attorney General By: James C. Sauer Assistant Attorney General State Office Tower 30 East Broad Street Columbus, Ohio 43215

These causes and matters came on to be considered by the Board of Tax Appeals upon two notices of appeal filed

R.E^^1VE D ^AN 1 3 1983

Affth°& G^t i Appx.292 with the Board of Tax Appeals under date of November 6, 1981, concerning O.A.C. Rule 5705-3-06 promulgated by the Commis- sioner of Tax Equalization.

The matter is before the Board on the applications of the parties, the transcript of the Commissioner of Tax

Equalizatlon, the briefs of counsel and the record of a hearing in Columbus, Ohio, on April 22, 1982.

The Application for Review filed by the appellants in Case No. 81-F-666 reads, in pertinent part:

"Pursuant to Ohio Revised Code, §5715.61 and 5703.14, Appellants, Roosevelt Properties Company, Royal American Corporation, both Ohio Corporations, Harvey Oppmann, dba Oppmann Properties, Xenophen Zapis, and Henry DuLaurence, all owners and operators of single and multiple dwellings in the State of Ohio, make this application for review by the Board of Tax Appeals of Rule 5705-3- 06adopted and promulgat-edby Appellee, Rob"ert R. Kinney, Commissioner of Tax Equalization.. A true copy of Rule 5705-3-06, which rule became effective on Oetober 20, 1981, is attached hereto and incorporated herein as if fully set forth.

"Appellants are all persons adversely affected by said Rule.

"Appellants allege that said Rule is unreasonable in that Rule 5705-3-06: "1.) Authorizes the use of a 'production of income' standard in classifying real property In accordance with the enabling legislation, said standard not authorizedor mandated by O.R.C. 55713.041 or Article XII, Section 2a of the Ohio Constitution.

"2.) Arbitrarily and discriminately defines and classifies apartment houses under commercial land and improvements while classifying one, two, three, and four-dwelling units, one of which is owner occupied, as residential land and improvements.

€ "3.) Discriminates between buildings containing different numbers of rental units and between various types of real property, contrary to Article I, Section 2 of the Ohio Constitution.

"4.) Places a tax burden on all other classes of real prop- ertyto make up the tax reductions given residential land and improvements, especiallyon commercial land and iinprovements located in primarily residential communities. Under such circumstances, property will not be taxed by uniform rule, as required by Article XII, Sec. 2 of the Ohio Constitu- tion and the Fourteenth Amend- ment of the U. S. Constitution.

-3-

Appx.294 ^5.) Ps a discriminatory rule con- ferring benefits upon residents of one, two, three or four- unit dwellings, one of which is owner occupied, and denying the.same benefits to residents ofone, two, three or four- unit dwellings, one of whihh is not owner occupied and other residents of multiple- family dwellings, all such residents being in the same class of persons. There is no reasonable distinction between those within the class ;designated to receive benefits and those outside the designated class. i ^6.) Discriminates in favor of single-family residential owners (one-unit dwelling owner-occupied) to the detriment of residents of multiple dwellings, in that the reduction in taxes given to single- family residential owners will shift the tax burden onto the residents of multiple-dwellings, who are typically the least able to bear the increased tax burden.

^7.) Discriminatesagainst residents . of multiple-dwelling units;`in view of the fact that the taxes raised on the tax duplicate are iased largely for schools attended by the children of the owners of residential property as opposed to the paucity of chdldren from emong residents of multiple-dwellings, who are made up largely of young people without children and retired.persons whose families are grown and have moved into their own homes."

-4- The Application for Review in.Case No..$1-A-667 reads as follows:

"Notice is hereby given that the above-named Applicants, by and through their counsel, Benesch, Friedlander, .Coplan & Aronoff, apply to the.Board of Tax Appeals pursuant to Ohio Revised Code Section 5703.14 for review of Rule 5705-3-06 of the Department of Tax Equalization, which rule was filed wi,th the Secretary of State of Ohio on October 9, 1981, a certified copy of which rule is attached hereto and incorporated herein by reference.as Exhibit W.

"Applicants seek a ruling from. theBoard of Tax Appeals that Rule 5705-3-06 is unlawful and unreasonable insofar as it does not classify certain residential rental property as 'Residential Land and Improvements', contrary to the law of Ohio, the intent of the voters of the State of Ohio in passing Article XII, Section 2a of the Ohio Constitution, and the common.- meaning of the term 'residential'.. Applicants further contend that the authority granted by the Ohio Legis- lature to the Commissioner of Tax Equalization in Ohio Revised Code I Section 5713.041, to '... adopt rules governing the classification of.pxop- erty under this section', was improperly and unlawfully exercised in the classification of 'apartment houses' as 'Commercial Land and Improvements', Since Ohio Revised Code Sectioti 5713.041 specifically provides that '... lands and improvements thereon used for residential or agricultural purposes shall he classified as residential/agricultural real property . . .'

-5-

Appx.296 "Applicants, Apartment. & Home Owners Assn. and Columbus Apartment Assn., are trade associations whose membership con- Q sists. of owners and managers of all types of residential property. Applicants, Melvin S. Ross, dba United Properties, Maryland Park Apartments, Inc. and B. G. R. Associates, a Limited Partnership; dba The Chesterfield, are owners of residential properties which are classified as 'Commercial Laiid and Improvements' in Ru2e.5705-3-06 of the Department of Tax Equaliyation. All applicants allege that they may be injured by the operation of Rule 5705-3-06."

The historical basis of the present controversy in-

volve the adoption of Rule 5705-3=06 of the Department of Tax

Equalization. This rule was adopted by the appellee on October

7, 1981, and became effective October 20, 1981. The rule was

adopted pursuant to Revised Code section 5713.041.

Revised Code section 5713.041 reads as follows:

"Each separate parcel of real property shall be classified by the county auditor accordingto'its principal, current use. Vacant lots and tracts of land upon which there are no structures:or ifaprovements shall be classified::in accordance with their location and their highest and best probable legal use..In,the case of lands containing or producing:minerals, the minerals or`any rights to the minerals that are listed and.taxed separately from such lands shall be separate2y classified if the.;iands are aiso used for agricultural purposes, whether or not the fee of

-6-

Appx4297 the soil and the right to the.minerals are owned by the assessed for taxation against the same person. For purposes of this section, lands andimprovements thereon used for residential or a rieul- tural purposes shall be claSsifie as res en.iala_ricuturA property,, and all other lands and impro_vemen s thereon and mlnerals or rights to minerals shall be classified as nonresidential/ agricultural real property. Each year the auditor shall reclassifyeach parcel of real; property whose prineipal,current use has changed from the preceding year to a use appropriate to classification in the other elass. The classification required by this section is solely for the purpose of making the reductions in taxes required by section 319.301 1319.30.1] of the Revised Code, and this section shall not apply for purposes of classifying real property for.any other purpose authorized or required by law or by rule of the commissioner of tax equalization.

"The commissioner shall adopt rules governing the elassificationpfproperty under this section, and no roperty shall be so classified except. in accordance w th.such rules." [Emphasis added]

Pursuant to the directive contained in the above quoted statute, the Commissioner of Tax Equalization promulgated O.A.C. 5705-3-06 for the purpose of classifying property. These definitions are set out as follows with new language in capitals and eliminated language from the old rule crossed out:

-7-

Appx.298 "(1) Agricultural LAND AND IMPRGVgMENTS- The lartd and improvements to land used_Por agricultural purposes, including; but not limited to, general crop farming; dairing,.animal and poultry'husbandry, siafket and vegetable gardening, floriculture; nurseries, fruit and nut orchards, vineyards and forestry."

"(2) Mineral land andF#gkSs IMPROVEMENT- Land, andthe buildings and improvements thereon, used pi-#mar#}y for mining coal andother minerals as well as the production of oil and gas including the rights to mine and pro- dpce such minerals whether separated from the fee or not."

°(3) Industrial LAND AND IMPRGVEMENTS- The land and improvements to land used er#mari}y for manufacturing, processing, ore refining foods and materials; AND WAREHOUSES USED IN CONNECTI6N THEREWITH."

"(4) Commercial LAND:..-AND IMPROVEMENTS- The .land and improvements to land which are ased OWNED or occupied for general commercial AND INCGME PRqtJUCING purposes and where pro- duetion of income is a factor to be considered in arriving at true va:lue, INCLUDING, BOT NOT LIMITED TO:, (apartment houses, hotels, motels, theaters, office buildings, warehouses, retail and wholesale stores; bank buildings, commercial garage.s; commercial parking lots, AND shopping centers, Tra#leps, ete.).

°(5) Residential LAND AND IMPRGVEMENTS- The kand and improvements.to the land used-aRd-eeexa#ed-ea-&-dwe###atg

-8- b3 CONSISTING OF one, two, or three, OR FOUR g2.m#l4es DWELLING UNITS, ONE OF WRICH IS OOCUPIEI3 BY THE OWNER OF THE PROPERTY."

Theapplications for review of the ru2eofthe

Commissioner of Tax Equalization present two basic issues.

The first issue questions whether the appellee's rule is

consistent and reasonable with Revised Code section 5713.041.

The second issue is whether the rule is consistent with, and not a violation of, the provisions of Article XII, Section

2a, Ohio Constitution. ( Application Case Na. 81-F=6^6 at p. 1& 2; Application, Case No. 81-A-667 at p. 2 & 3.; R. 8,

As to the assertion that the.consb,ruction of the

statute as embodied in the rule in question is unconstitutional under Article XII, Section 2a, supra, it should be noted that it is not within the authority of the Board of Tax Appeals, as an administrative body, to rule on the eonstitutionaiity of a statute. Herrick v. %osydar (1975), 44 Ohio St. 2d 128;

State ex rel. Park Investment Co. v. BTA C1972), 32 Ohio St.

2d 28; S. S. Kresge Co. v. Bowers (1960), 170 Ohio St. 405.

In the absenoe of ;jurisdiction to consider the issue, the

Board must, therefore, defer to the courts.

-9-

Appx.300 With respect to the former issue, that of reason-

ableness, the Board of Tax Appeals notes that the following

sentence is found at, page 3 of the brief filed in Case No. 81-F-666:

"The owner (living on the premises) of a single, two, three, or four-family dwelling is given a tax break which the tenants in other properties do not have." (emphasis added)

The following sentence is found at page 10 of the appellants' brief in Case No. 81-A-667:

"Implementation of Rule 5705-3-06 will penalize some apartment dwellers in favor of bome owners and other apartment dwellers." (emphasis added)

The Board of Tax Appeals further notes that the

following language was proposed as an addition to Am. H.B.

No. 1238 which enacted Revised Code section 5713.041:

"A SEPARATE PARCEL OF REAL PROPERTY THE PRINCIPAL, CURRENT USE OF WHICH IS FOR MULTI-UNIT RESIDENTIAL PURPOSES SHALL BE CLASSIFIED AS RESIDENTIAL/AGRICULTURAL REAL PROPERTY."

This proposal was defeated by a vote of 24 to B. See: 1980

Senate Journal, pp. 2407, 2408.

-10-

Appx. 3 q1 In the recent case of State, ex rel. Swetland, v.

Kinney (1982), 69 Ohio St. 2d 567, the Court observed in its opinion that the "Argument for the Progos:ed Amendment" stated that:

"The paSsage of Issue I will ensure fairer property tax relief for Ohio's homeowners and farmers. Without Issue I, business and.industry in Ohio will continue to accrue unjustified tax relief at the expense of residential and farm property owners.

"Issue I will alter Ohio's Constitu- tion to create two classes of property: 1) residential and agricultural property, and 2) all other property (to include commercialandindustriaTproperty)_ ' Creating these classes, most importantly, will permit residential and agricultural -tax relief to increase proportionately to inflationary increases in residential and agricultural real estate. [emphasis sicj

"* * * Because the present Ohio Constitution requires uniform application of tax laws, general prbperty tax.relief is granted across the board to all property owners•, includ'ing business landholders.

"When general property tax relief is granted uniformly to all property without respect to what inflation has meantto rising residential and agricultural taX bills, the residential property taxpayer ends up, unfairly, shouldering a greater share of the property tax burdens than does business. Issue I h correct this * * *. [Emphasis added.wi

Appx.302 "Issue I will bring much needed reform in Ohio's system of property tax relief."

ISingle underlining indicates Court's emphasis, double underlining indicates additional emphasis added]

The Commissioner of Tax Equalization asserts that

Rule 5705-3-06, in limiting the definition of "Residential

Land and Improvements" to structures of four or fewer dwelling units one of which is owner occupied, better achieves the objective of providing relief to homeowners and farmers.

(see: State, ex rel. Swetland v. Kinney (1982), 69 Ohio St.

2d 567.) The Commissioner additionally emphasizes that '

"multifamily" apartment structures (which herein are considered those structures with more than four dwelling units) can take advantage of the depreciation rules of 26 USC §167 (A) for the purposes of Federal Income Tax. The appellee does not explain why an owner of 4, 3, or 2 dwelling units would not take advantage of this same statute with respect to the 3,

2 or 1 unit or units he does not reside in.

Nonetheless, this Board does find persuasive the fact that the General Assembly could have easily drafted

Revised Code section 5713.041 in a manner that would make it unequivocal that favored real estate tax treatment was to be afforded all real property and improvements thereto

-12- the use of which is residential. This conclusion is founded

upon two bases: 1) that an attempt to amend the proposed

statute to achieve broader tax relief was defeated and 2)

that the General Assembly_, in action 5 of Am. H. B. 1238 pro-

vided that for the first year•,of calculating a separate reduction factor for residential/agricultural land, prior to the promulgation of a new rule. As the above quoted amendment of O.A.C. 5705-3-06 reveais, the earlier form of the rule excluded multi-unit apartment buildings housing more than three families.

Rohert E. Boyd, Chairman, has not participated in this determination having a conflict of interest. Walter

L. White,'Vice Chairman, finds that O.A.C. 5705-3-06 has not been shown by the appellants to be unreasonable, while Russell

T. Adrine, Member, would respectfully find otherwise.

For a rule to be determined unreasonable, a majority of the Board is necessary. R. C. 5703.14. Since the two qualified Board members are divided in opinion as to the reasonableness•of O.A.C. 5705-3-06, the Board is constrained to determine that the rule is reasonable.

I hereby certify the foregoing to be a true and correct"copy of,^.:the action of the Board of Tax Appeals oft ^eth of Ohio, this day : taken t^ respec^to^ above; ma

PlY Chairman

Appx:304 1Ma BOARD OF TAX APPEALS STATE OF OHIO

William J. Stone, Adams County Auditor CASE NO. 85-C-931 and

Ohio Valley Local (PUBLIC UTILITY TAX) School District,

Appellants, DECISION AND ORDER

Vs.

Joanne Limbach, Tax Commissioner of Ohio, et al.,

Appellees.

APPEARANCES:

For the Appellants - Kevin L. Shoemaker Price, Berry & Shoemaker One Capital Square 175 South Third Street Columbus, Ohio 43215

For the Appellee - Baker & Hostetler Ronald K. Canady, Joseph J. Van Heyde, III Gallia County Auditor Edward J. Bernert Richard W. Siehl 65 East State Street Suite 2200 Columbus, Ohio 43215

and

Joseph L. Cain Gallia County Prosecutor 19 1/2 Locust Street Gallipolis, Ohio 45631

Appx.305 For the Appellee - Baker & Hostetler James R. Rymer, Joseph J. Van Heyde, III Clermont County Edward J. Bernert Auditor Richard W. Siehl 65 East State Street Suite 2200 Columbus, Ohio 43215

and

George Patterson Clermont County Prosecutor 462 East Main Street Batavia, Ohio 45103

For the Appellee - Anthony J. Celebrezze, Jr. Joanne Limbach, Tax Ohio Attorney General Commissioner of Ohio By: James C. Sauer Assistant Attorney General 30 East Broad Street Columbus, Ohio 43215

For the Appellee - Taft, Stettinius & Hollister Cincinnat Gas & James H. Brun Electric Co. Gregory L. Hilbrich 1800 First National Bank Center Fountain Square Cincinnati, Ohio 45202

and

Joan T. Ehas Cincinnati Gas & Electric Co. P. O. Box 960 Cincinnati, Ohio 45202

For the Appellee - Earl Goldhammer Columbus & Southern Tax Counsel Ohio Electric Co. American Electric Power Service Corp. 1 Riverside Plaza Columbus, Ohio 43216

and

James L. Reeves General Attorney Columbus & Southern Ohio Electric Co. 215 North Front Street Columbus, Ohio 43215

Appx.306 For the Appellee - James L. Flannery Warren County Warren County Prosecutor Auditor By: Timothy A. Oliver Assistant Prosecutor 313 East Warren Street Lebanon, Ohio 45036

For the Appellee - Ellen S. Leffak Dayton Power & Dayton Power & Light Co. Light Co. P. O. Box 1247 Dayton, Ohio 45401

and

Jones, Day, Reavis & Pogue By: Maryann B. Gall 1900 Huntington Center 41 South High Street Columbus, Ohio 43215

For all Other Appellee County Auditors - No Appearances

On November 5, 1985, a single notice of appeal was filed with the Board of Tax Appeals (Board) on behalf of

William J. Stone, Auditor of Adams County, and the Ohio Valley

Local School District (Ohio Valley), the appellants herein.

The notice of appeal reads, in pertinent part, as follows:

"1. The Appellants, William J. Stone, Adams County Auditor, and Ohio Valley Local School District, pursuant to Sections 5717.02 and 5703.14, Ohio Revised Code, hereby give notice of appeal to the Board of Tax Appeals from the Certificates of Public Utility Taxable Values ('Certificates of Value'), dated October 7, 1985, issued to the Adams County Auditor, Cincinnati Gas and Electric Company,. Columbus and Southern Ohio Electric

Appx.307 Company and Dayton Power and Light Company, by Joanne Limbach, Tax Commissioner, and hereby seek review of the Tax Commissioner's Rule 5703-25-01, Ohio Administrative Code ('The Rule'). A true and complete copy of said Certificates of Value are annexed hereto as Exhibits A through C and a true and complete copy of The Rule is annexed hereto as Exhibit D.

"2. The Certificates of Value represent certifications from the Tax Commissioner of Ohio that she has fixed the value of the personal property of Dayton Power and Light Company, Columbus and Southern Ohio Electric Company and Cincinnati Gas and Electric Company listed on the Certificates of Value, and that she has distributed such property to the taxing distri.cts indicated on the Certificates of Value.

"3. Each of the Certificates of Value and The Rule are erroneous and the errors are more specifically set forth in the following paragraphs.

"4. The Tax Commissioner erroneously failed to include in the Certificates of Value issued to Adams County, taxable value of public utility personal property of the Dayton Power and Light Company, Columbus and Southern Ohio Electric Company and Cincinnati Gas and Electric Company that is located in Adams County and the Ohio Valley Local School District, therefore, required by Sections 5727.15(D) and 5727.10, Ohio Revised Code, to be apportioned to Adams County and included in its Certificates of Value. The Tax Commissioner erroneously failed to include such taxable value because she incorrectly valued and apportioned the public utility personal property of

Appx.308 Dayton Power and Light Company, Columbus and Southern Ohio Electric Company and Cincinnati Gas and Electric Company.

"5. The Tax Commissioner's distinction between 'situsable' and 'nonsitusable' personal property of Appellees, Dayton Power and Light Company, Columbus and Southern Electric Company and Cincinnati Gas and Electric Company is a rule as defined in Chapter 119 and Section 5703.14, Ohio Revised Code. Such rule is void because it was not promulgated in accordance with the mandatory provisions of the Ohio Administrative Procedure Act (Chapter 119) and Section 5703.14, Ohio Revised Code, and, as applied, The Rule is unreasonable because it conflicts with Section 5727.15(D),..Ohio.Revised Code.

"6. The formula employed by the Tax Commissioner to value and apportion the taxable value of 'nonsitusable' personal property of Appellees, Dayton Power and Light Company, Columbus and Southern Ohio Electric Company and Cincinnati Gas and Electric Company, is a rule as defined in Chapter 119 and Section 5703.14, Ohio Revised Code. The Rule is void because it was not promulgated in accordance with the mandatory provisions of the Ohio Administrative Procedure Act (Chapter 119) and Section 5703.14, Ohio Revised Code, and, as applied, The Rule is unreasonable because it conflicts with Section 5727.15(D), Ohio Revised Code.

"7. The Rule promulgated by the Tax Commissioner is injurious to Appellants and unreasonable because it does not require the allocation of the

Appx.309 taxable value of all personal property of an electric company to the taxing district in which the property is located."

Hence, this appeal is purportedly taken by appellants to this Board pursuant to R. C. Sections 5717.02 and 5703.14.

Appellants seek review of Certificates of Public Utility

Taxable Values (Certificates) which were issued on October 7,

1985 for tax year 1985 by the Tax Commissioner (Commissioner) regarding the taxable tangible personal property owned by three electric public utility companies, to wit: Dayton Power and

Light Company (DP&L), Columbus and Southern Ohio Electric

Company (C&SOE) and Cincinnati Gas and Electric Company (CG&E)

(hereinafter, DP&L, C&SOE and CG&E sometimes are collectively referred to as the "Affected Companies"). By the Certificates, the Commissioner certified the taxable values of the tangible personal property owned by the Affected Companies as apportioned to Adams County, Ohio and its taxing districts.

Adams County was apportioned taxable value of $175,296,190,

$56,943,300 and $126,897,270 for DP&L, C&SOE and CG&E, respectively.

The appellants challenge the propriety of the

Commissioner's valuation of the taxable tangible personal property owned by the Affected Companies and the Commissioner's apportionment of the tax value to the counties and their taxing districts. Particularly, the appellants challenge the validity

Appx. 310 of the Commissioner's informal administrative policy whereby she classifies the Affected Companies' taxable property and apportions the tax value based on such classifications. The appellants dispute that her policy (sometimes referred to as

"apportionment methodology" and "apportionment method") complies with R. C. Section 5727.15. Finally, the appellants challenge the reasonableness of Ohio Administrative Code

(O.A.C.) Rule 5703-25-01.

We observe that while the appellants have named the remaining 87 county auditors as appellees herein, the appellants and the auditors, in fact, share common interests in the outcome of this appeal. Particularly, if we determine a higher value for the property owned by the Affected Companies than that found by the Commissioner, the increased valuation would necessarily result in additional taxes for certain counties. Most importantly, however, if we determine that the

Commissioner has improperly apportionedthe taxable value of the Affected Companies` taxable property, we necessarily will order that such value be reapportioned. Any such reapportiornment may result in a tax benefit for some counties and a tax detriment for other counties. in other words,

certain counties may sustain an increase in public utility tax

revenues while other counties may sustain a loss of public utility tax revenues.

Appx. 311 For the reasons above discussed, the Auditors of

Gallia, Clermont and Warren Counties appeared and participated in this action. Clearly, they recognized their respective stakes in the outcome of this appeal. In fact, the Auditors of

Gallia and Clermont Counties filed legal briefs in this matter.

In their briefs, they raise issues and arguments similar to those raised by the appellants herein. Also, they seek relief from this Board which is similar to that prayed for by the appellants.

In May and June, 1986, as prescribed by R. C. Section

5717.02, the Commissioner certified to this Board transcripts of the record of proceedings held before her regarding the

Affected Companies. The transcripts contain all of the evidence and exhibits which were received in connection with the proceedings. Hereinafter, the Commissioner's transcripts regarding DP&L, C&SOE and CG&E sometimes are referred to as

"DP&L TR.", "C&SOE TR." and "CG&E TR.", respectively.

This Board has expended considerable time and resources in considering this.appeal. In fact,..three hearings were held in this matter. Hearings were held on July 15,

August 4, and September 8, 1986. The hearings held on July 15 and August 4, 1986 concerned preliminary matters. The hearing held on September 8, 1986 was for the receipt of additional evidence as prescribed by R. C. Section 5717.02. Hereinafter, the transcripts of the record of proceedings of the three

Appx. 312 hearings sometimes are referred to as "Jul. R.", "Aug. R." and

"Sept. R.".

At the September 8, 1986 additional evidence hearing, counsel appeared on behalf of the appellants, the Affected

Companies, the Auditors of Gallia, Clermont and Warren Counties and the Commissioner. No one appeared on behalf of the other county auditors. Mr. James Witzel, Administrator of the Public

Utilities Tax Division of the Department of Taxation

(Department) was the sole witness. Further, we received into evidence several exhibits including a document entitled

"Stipulation" (Stip.) which has been marked as "Board of Tax

Appeals Exhibit A". Also, we received into evidence the

Department's 1958 Bulletin No. 130 (Bulletin 130) which has been marked as "Tax Commissioner's Exhibit A". Legal briefs have been provided by counsel for some of the parties.

Prior to our reaching the essential facts and merits of this appeal, the Board must address three preliminary matters. Our discussion is as follows.

At the September 8, 1986 additional evidence hearing, this Board considered and orally sustained previously filed motions of the Commissioner and the Affected Companies seeking the dismissal of Ohio Valley as a party in this action. We

formalize for the record our prior oral ruling and hereby Order that Ohio Valley is dismissed as an appellant in this action.

Appx. 313 We dismissed Ohio Valley as an appellant herein with full knowledge of our decision in Avon Lake City School

District v. Limbach (June 10, 1986), 85-G-937. in Avon Lake, the school district filed an appeal with this Board challenging the validity of an administrative rule of the Commissioner and

Certificates which had been issued pursuant to R. C. Section

5727.23. Certain appellees had moved this Board to dismiss the school district as a party on the basis that school districts are not authorized by any statute to effect an appeal to this

Board either to challenge a rule or the Certificates. We held that school districts are authorized by R. C. Section 5703.14 to effect an appeal to this Board to challenge an administrative rule of the Commissioner. However, we further found that school districts are not authorized by any statute to effect an appeal to this Board from Certificates issued by the Commissioner pursuant to R. C. Section 5727.23.

Aocordingly, we did not dismiss the school district but we did limit the scope of its appeal to merely challenging an administrative rule of the Commissioner.

The school district appealed this Board's decision to the Ohio Supreme Court (Court) and challenged our holding that it could not appeal to this Board from Certificates issued by the Commissioner pursuant to R. C. Section 5727.23. Our ruling that a school district can challenge an administrative rule of the Commissioner was not appealed. The Court affirmed

Appx. 314 our ruling. See: Avon Lake Local School District v. Limbach

(1988), 35 Ohio St. 3d 118.

Clearly, in this instance, application for our

decision in Avon Lake, supra, would not result in the dismissal

of Ohio Valley. in accordance with Avon Lake, Ohio Valley is

authorized by R. C. Section 5703.14 to challenge an

administrative rule of the Commissioner by effecting an appeal

with this Board. We do not retreat from our decision in Avon

Lake. However, in this instance, we are concerned with the

propriety of Auditor Stone and Ohio Valley effecting an appeal

to this Board by filing a single notice of appeal. Further, we

observe that Auditor Stone and Ohio Valley raise identical

issues and are represented by the same attorney. As such, we

find that Ohio Valley's interests are protected and that it

will not be prejudiced by having been dismissed as a party

herein. Hereinafter, all references to "appellant" shall mean

Auditor Stone.

The second preliminary matter relates to the motion

for leave to file an amicus curiae brief, same having been

filed herein on September 25, 1986 by the Carlisle Local School

District (Carlisle). In fact, without waiting for this Board

to rule on its motion, Carlisle filed its brief herein on

October 1, 1986. Thereafter, on October 23, 1986, DP&L filed a

memorandum opposing Carlisle's motion for leave to file an

amicus curiae brief. Carlisle filed a responding memorandum on

..October 27, 1986.

Appx. 315 In consideration of the record before this Board, we hereby deny Carlisle's motion for leave to file an amicus curiae brief in this matter. Carlisle's brief is hereby stricken from the record. We find that the parties herein are represented by competent counsel and that such counsel have sufficiently addressed the facts, issues and law involved in this appeal. Carlisle's brief is merely a duplication of effort. However, we commend Carlisle for its offer of assistance.

The final preliminary matter concerns the parties'

"Stipulation" which was filed herein on September 8, 1986. The

Stipulation represents the agreement of the parties therein named and the Auditors of Gallia and Clermont Counties that the facts therein set forth are true. During the September 8, 1986 evidentiary hearing, we reviewed the Stipulation and accepted it as evidence in this matter. We formalize for the record our prior oral ruling and hereby order that the Stipulation is evidence in this matter.

The Stipulation reads, in pertinent part, as follows:

"Appellant, William Stone, Adams County Auditor ('Appellant') and Appellees, Joanne Limbach, Tax Commissioner of Ohio, Columbus & Southern Ohio Electric Co. ('C&SOE`), Cincinnati Gas & Electric ('CG&E'), and Dayton Power & Light ('DP&L'), hereby agree and stipulate by and through their respective counsel as follows:

Appx. 316 "1. William Stone is the duly elected auditor of Adams County, Ohio and, in his capacity as auditor, he filed the above-captioned matter within the time limits prescribed by O.R.C. Section 5717.02.

"2. On December 31, 1984, C&SOE, CG&E and DP&L each owned tangible personal property physically located in Adams County.

"3. On December 31, 1984, C&SOE, CG&E and DP&L each owned tangible personal property physically located in Ohio counties other than Adams County.

"4. On December 31, 1984, and continuing throughout 1985, there were two electric power plants owned by one or more Appellees operating within Adams County Killen Electric Generating Station and JM Stuart Electric Generating Station.

"5. On December 31, 1984 and throughout 1985, the Killen Electric Generating Station was owned by CG&E and DP&L as tenants in common. Their respective ownership interests in the Killen Electric Generating Station as of December 31, 1984 were as follows:

"CG&E ...... 33$

"DP&L ...... 67%

"6. On December 31, 1984 and throughout 1985, the JM Stuart Electric Generating Station was owned by C&SOE, CG&E and DP&L as tenants in common. Their respective ownership interests in the JM Stuart Electric Generating Station as of December 31, 1984 were as follows:

"C&SOE ...... 26$

"CG&E ...... 39g

"DP&L ...... 355

Appx. 317 "7. The cost of the fuel stock ('fuel') and plant materials and operating supplies ("PM&S') physically located within Adams County, Ohio as of December 31, 1984 for each of the electric company Appellees was as follows:

C&SOE CG&E DP&L

Fuel $11,061,630 $18,955,020 $19,687,398

PM&S $ 2,932,169 $ 5,972,383 $ 7,339,948

"8. Situsable personal property in Adams County, as listed in Column (4) of the 1985 County and Taxing District Recaps in the statutory transcripts certified to the Board of Tax Appeals in. this case, represents property in Adams County accounted for in the following Federal Eneray Regulatory Commission (FERC) Electric P.lant Chart of Accounts. Inconsistencies in accounts listed for each company may reflect the fact that the list does not include accounts for which a company does not have property in Adams County.

C&SOE

FERC Account No. Description

154 Plant Materials and Operating Supplies 312 Boiler Plant Equipment 314 Turbogenerator Units 315 Accessory Electric Equipment 316 Miscellaneous Power Plant Equipment 353 Station Equipment 362 Station Equipment 391 Office Furniture and Equipment 394 Tools, Shop and Garage Equipment 397 Communication Equipment 398 Miscellaneous Equipment

14 Appx.318 CG&E

312 Boiler Plant Equipment 314 Turbogenerator Units 315 Accessory Electric Equipment 316 Miscellaneous Power Plant Equipment 353 Station Equipment (Transmission) 391 Office Furniture and Equipment

DP&L

312 Boiler Plant Equipment 314 Turbogenerator Units 315 Accessory Electric Equipment 316 Miscellaneous Power Plant Equipment 353 Station Equipment

"9. Personal property distribution base in Adams County, as listed in Column (3) of the 1985 County and Taxing District Recaps in the statutory transcripts certified to the Board of Tax Appeals in this case, represents property in Adams County and accounted for in the following FERC Electric Plant Chart of Accounts. Inconsistencies in accounts listed for each company may reflect the fact that the list does not include accounts for which a company does not have property in Adams County.

Appx. 319 C&SOE

FERC Account No. Description

354 Towers and Fixtures 355 Poles and Fixtures 356 Overhead Conductors and Devices 357 Underground Conduit 358 Underground Conductors and Devices 364 Poles, Towers and Fixtures 365 Overhead Conductors and Devices 366 Underground Conduit 367 Underground Conductors and Devices 368 Line Transformers 369 Services 370 Meters 371 Installations on Customer Premises 373 Street Lighting and Signal Systems

CG&E

354 Towers and Fixtures 355 Poles and Fixtures 356 Overhead Conductors and Devices 376 Mains (Gas) 380 Services (Gas) 381 Meters (Gas) 382 Meter Installation (Gas) 383 House Regulators (Gas) 384 House Regulator Installations (Gas)

DP&L

354 Towers and Fixtures 355 Poles and Fixtures 356 Overhead Conductors and Devices 391 Office Furniture and Equipment 392 Store Equipment 394 Tools, Shop and Garage Equipment 396 Power Operated Equipment 397 Communications Equipment

"10. In addition to the property in Stipulation 9, property in Adams County which is subject to distribution includes the property in the following FERC Electric Plant Chart of Accounts.

Appx.320 C&SOE

FERC Account No. Description

151 Fuel Stock

CG&E

151 Fuel Stock 154 Plant Materials and Operating Supplies 397 Communications Equipment The cost of CG&E communications equipment in Adams County as of December 31, 1984 was $284,981.

DP&L

151 Fuel Stock 154 Plant Materials and Operating Supplies

"il. Prior to 1986, the Department of Taxation has no record of sending any written instructions to C&SOE, CG&E or DP&L which define or distinguish property as situsable personal property, non-situsable personal property and personal property distribution base for purposes of the apportionment statute. C&SOE, CG&E and DP&L have historically distinguished between such types of property for purposes of apportionment pursuant to communications from the Department of Taxation, and such historical distinction has existed in a similar form as far back as 1958, as evidenced by the attached Tax Commissioner's Bulletin No. 130 [Omitted By Board] to the county auditors."

Appx. 321 - This matter is submitted to the Board of Tax Appeals upon the notice of appeal, the statutory transcripts provided by the Commissioner and the evidence and exhibits presented during the three hearings before this Board. Also, we have the

Stipulation of the parties. Further, we have the legal briefs which were submitted by the parties. The Board acknowledges its appreciation of the thoroughness and clearness with which the facts, issues and legal principles were addressed in the legal briefs which were submitted in behalf of the Auditors of

Gallia and Clermont Counties.

The Affected Companies are three of the eleven or so electric public utility companies which provide electricity to

Ohio consumers (Sept. R. 95-96). All electric companies are subject to Ohio Revised Code Chapter 5727. Pursuant to Chapter

5727, the Commissioner is granted exclusive authority and responsibility to value and assess electric companies' property

(real and personal) and apportion the taxable value of such property to the appropriate counties and their taxing districts for public utility tax purposes. Toledo Edison Co. v. Gavin

(1974), 38 Ohio St. 2d 210; R. C. Sections 5727.10 and 5727.15.

The value and apportionment of the Affected Companies' real property is not in issue in this appeal.

Appx.322 The arguments raised herein by appellant and the

Auditors of Clermont and Gallia Counties coincide with one another. It is contended that the Commissioner failed to correctly determine the true value of the tangible personal property owned by the Affected Companies for tax year 1985. It is asserted that such property had a higher value than that determined by the Commissioner. Also, it is contended that the

Commissioner improperly apportioned the taxable value of the

Affected Companies' property for tax year 1985. For example, the appellant alleges that at least $31,650,680 in taxable value was improperly apportioned away from Adams County to other counties. The disputed apportionment concerns the

Commissioner's informal administrative policy whereby she employed an apportionment methodology based upon the distinction she draws between the electric companies' so-called

"situsable" property and "non-situsable" property. Finally, it is contended that O.A.C. Rule 5703-25-01 (which provides for apportionment of "situsable" property) is an unreasonable administrative rule.

For the reasons which are fully discussed in the paragraphs below, we hereby affirm, in part, and reverse, in part, the Commissioner's Certificates. We accept, and

Appx.323 therefore affirm, the Commissioner's determination of the true and taxable value of the Affected Companies' taxable tangible personal property located in Ohio for tax year 1985. However, we take issue with and hereby reverse the Commissioner's

Certificates in respect to the apportionment of the taxable value of the Affected Companies' property to Adams County and its taxing districts. We expressly find that the

Commissioner's informal administrative policy classifying electric companies' taxable property as either "situsable" or

"non-situsable" and apportioning the taxable value thereon pursuant to her distinction drawn between the two classes of property constitutes a rule; as such, the rule is void because it was not properly promulgated pursuant to the procedures set forth in R. C. Chapter 119 and R. C. Section 5703.14; and further, we find that the rule conflicts with R. C. Section

5727.15 and the Ohio Supreme Court's (Court) decision in Condee v. Lindley (1984), 12 Ohio St. 3d 90, affirming Condee v.

Lindley (November 30, 1983), ETA Case No. 81-F-652.

Hereinafter, this Board's decision in Condee is referred to as

Condee I while the Court's decision in Condee is referred to as

Condee II.

Appx.324 Additionally, we hereby find that while O.A.C. Rule

5703-25-01 was properly promulgated, it is unreasonable as it conflicts with R. C. Section 5727.15. Therefore, we hereby invalidate the rule.

in the paragraphs below, we discuss the facts, statutes and cases which form the basis of our foregoing findings. Except as otherwise noted, our discussion (which sometimes is couched in the present tense) is limited to the facts and statutes as they existed in 1985.

For the 1985 tax year, the Ohio public utility tangible personal property taxes for electric companies were based upon the value and location of the electric companies' property on December 31, 1984. R. C. Section 5727.06. On

December 31, 1984, each of the Affected Companies owned taxable

tangible personal property (taxable property) which was physically located in Adams County (Stip. 2). Also, on

December 31, 1984 each of the Affected Companies owned taxable property which was physically located in Ohio counties other

than Adams County (Stip. 3). On December 31, 1984, the

Affected Companies jointly owned certain taxable property which was located in Adams County (Stip. 4-6).

In 1985, the process of valuing and assessing

electric companies' taxable property and apportioning the

taxable value thereof between the counties and their taxing

districts began with the filing of an annual report with the

Appx.325 Commissioner by the electric companies on or before the first day of March, 1985 (or by any authorized extension date), pursuant to R. C. Section 5727.08. The annual reports are required to contain such information as the Commissioner

requires to enable her to make any assessment or apportionment required under Chapter 5727. Here, the Affected Companies

timely filed their annual reports with the Commissioner. See:

CG&E TR. 3; C&SOE TR. 3; and DP&L TR. 3.

R. C. Section 5727.10 provides for the assessment of

the electric companies' property. On or before the first

Monday of September, annually, the Commissioner must ascertain

and assess all taxable property of the electric companies at

its true value. in determining true value, the Commissioner

must consider the information included in the annual reports

and such other evidence and rules as would enable her to

determine true value. In practice, the Commissioner determines

true value by applying a fifty percent (50%) obsolescence

factor to the actual cost, as set forth by the electric

companies in their annual reports, of the property (DP&L TR.

374). Thereafter, the Commissioner must apply the statutory

listing percentage to determine the taxable value of the

property. For electric companies, the statutory listing

percentage is one hundred percent (100%) of the true value.

Accordingly, "true value" and "taxable value" are synonymous

for electric public utility tax purposes (Sept. R. 26-27).

Appx.326 Ever since at least 1910, for purposes of valuing public utility property, Ohio has been a "unit" valuation state. Floyd v. The Manufacturers Light & Heat Co. (1924), 111

Ohio St. 57. All taxable property of a public utility is valued as one "piece" or "unit" of property (Bulletin 130).

That is, the taxable property of each company is valued as a

"whole" instead of on an "item by item" basis (Sept. R. 111).

Upon her determination of the value of the electric companies' taxable property, the Commissioner, on or before the first Monday of September, annually, must notify the electric companies of her determination of value. R. C. Section

5727.10. The electric companies are afforded the right to contest the Commissioner's determination of value. Here, the notification requirement was accomplished by the Commissioner

for tax year 1985 by her mailing a "Valuation Notice" to each electric company. See: CG&E TR. 458; C&SOE TR. 309 and DP&L

TR. 374. We observe that none of the Affected Companies contested the Commissioner's Valuation Notices.

Upon her determination of the taxable value of the taxable property owned by the electric companies, the

Commissioner must apportion the taxable value to the appropriate counties and their taxing districts in accordance with R. C. Section 5727.15. Thereafter, on or before the first

Monday of October, the Commissioner must certify to each county

auditor the value of the taxable property apportioned to each

Appx.327 taxing district in his respective county, as determined pursuant to R. C. Section 5727.15. Here, the certification was accomplished by the Commissioner by her mailing Certificates to the appellant on October 7, 1985. See: DP&L TR. 390; C&SOE

TR. 354-355; and CG&E TR 485.

For their part, the county auditors must place the apportioned valuation and assessment on the proper tax lists and duplicates. Taxes are levied and collected on the apportioned property at the same rates and in the same manner as taxes are levied and collected on real property in the various taxing districts. R. C. Section 5727.23.

Here, the correctness of the Commissioner's determination of the value of the taxable property owned by the

Affected Companies for tax year 1985 is no longer in issue.

The valuation issue has been resolved by stipulation of the parties. At the August 4, 1986 hearing before this Board, the parties stipulated that the Commissioner's determination of value is correct. Hence, the parties agree and we so find that the taxable value of the Affected Companies' taxable property located in Ohio for the 1985 tax year was as follows:

CG&E: $797,176,000

C&SOE: $573,454,100

DP&L: $623,975,000

(Aug. R. 21-22)

Accordingly, we hereby affirm the Certificates with respect to the Commissioner's determination of value.

Appx.328 Once the Commissioner has determined the taxable value of electric companies' taxable property, she must apportion that value to and between the appropriate counties and their taxing districts in accordance with R. C. Section

5727.15. This section (effective December 31, 1982 and applicable to tax year 1985) read, in part, as follows:

"When all the taxable property of a public utility, except the kind mentioned in section 5709.02 (this is a reference to intangible personal property which is not in issue herein) of the Revised Code, is located in one taxing district, the tax commissioner shall apportion the total value thereof to that taxing district.

"When taxable property of a public utility, except the kind mentioned in section 5709.02 of the Revised Code, is located in more than one taxing district, the commissioner shall apportion the total value thereof between the taxing districts as follows: "* * * ^ ^ * * * *

"(D) In the case of all other public utilities (including electric companies), the value of the property to be apportioned shall be apportioned to each taxing district in proportion to the entire value of such property within this state."

(Emphasis and parenthetical material added by Board of Tax Appeals)

Appx.329 Hence, the foregoing portion of R. C. Section 5727.15 separates the taxable tangible personal property of electric companies into two location-based classifications. One classification includes property (hereinafter referred to as

"single-district property") which is located in only one taxing district. The other classification includes property

(hereinafter referred to as "multi-district property") which is located in two or more taxing districts. Each classification is based upon the location of the property without regard to the type or kind of the property.

R. C. Section 5727.15 further provides that the

Commissioner must apportion the total value of single-district property to the taxing district in which it is located. Thus, one hundred percent (100%) of the tax value of single-district property belongs to the taxing district in which it is located.

R. C. Section 5727.15(D) prescribes a different tax treatment for multi-district property. The Commissioner must apportion the total value of multi-district property to each taxing district in proportion to the entire value of such property within the State of Ohio. Hence, the tax value of multi-district property is spread among taxing districts in accordance with the formula set forth in R. C. Section

5727.15(D).

Appx.330 The Commissioner has properly promulgated only one formal rule expressly pertaining to R. C. Section 5727.15. The

Commissioner has promulgated O.A.C. Rule 5703-25-01 (effective

November 26, 1984 and applicable to the 1985 tax year) which reads as follows:

"5703-25-01 Public utility property tax; apportionment of the taxable value of personal property of electric light companies.

"Commencing with the 1984 tax year, and as a result of the Ohio supreme court decision in 'Condee v. Lindley,' 12 Ohio St. 3d 90 (1984), no portion of the taxable value of the situsable personal property of any electric light company shall be assigned to a taxing district other than that in which such property is physically located."

This rule expressly provides that one hundred percent (100%) of the taxable value of the situsable personal property of electric companies shall be assigned to the taxing district in which such property is physically located. We observe that the

rule fails to define "situsable" property. Also, we observe

that the term "situsable" is not used in R. C. Section 5727.15.

Additionally, the Commissioner has adopted an

informal administrative policy expressly pertaining to R. C.

Section 5727.15. She employs an apportionment method whereby

the taxable value of electric companies' taxable property is

apportioned to taxing districts based upon the Commissioner's

Appx. 331 classification of such property as either "situsable" or

"non-situsable" property. Non-situsable property is further subdivided between "personal property distribution base"

(distribution base) and "other distributable property." As is apparent from our discussion below, the Commissioner's classifications are based on the type or kind of property rather than on the location of the property. Again, R. C.

Section 5727.15 is a location-based apportionment statute.

The Commissioner defines situsable property as including the electric companies' production plant equipment, generating production plant equipment, generating plant equipment and station equipment (Sept. R. 44). Turbines and generators inside electric generating plants are examples of this type of property.

Non-situsable property is everything that is not

situsable property and includes transmission and distribution property (except station equipment), general plant equipment,

fuel stock (mainly coal piles), and plant materials and operating supplies (Sept. R. 54, 56-57, 109). Distribution base includes transmission and distribution property (except

station equipment) (Sept. R. 54). Examples of distribution

base are poles, wires and transformers that conduct

electricity. "Other distributable property" includes all other

non-situsable property which is not distribution base (Sept. R.

54, 56-57). Examples of other distributable property are coal

piles, plant materials and plant operating supplies.

Appx.332 Prior to 1986, the Commissioner had not defined situsable property or non-situsable property either in writing or by a rule, properly promulgated pursuant to Chapter 119,

Ohio Revised Code, for purposes of apportionment pursuant to

R. C. Section 5727.15 (Sept. R. 44, 54; Stip. 11). In fact, the Commissioner has never sent written instructions to the electric companies or the auditors wherein she either defines or distinguishes between situsable and non-situsable taxable property for purposes of public utility tax classification and apportionment (Stip. 11). According to Mr. Witzel, the

Commissioner neither promulgated a rule nor provided the electric companies or auditors with written instructions regarding situsable and non-situsable property because: (1) there are only eleven or so electric companies in Ohio; (2) the

Commissioner's apportionment methodology had been communicated informally to the electric companies; and (3) the Department concluded that the electric companies completely understood the apportionment methodology as the Department was not aware of any evidence to the contrary (Sept. R. 95-96).

We observe that the terms situsable and non-situsable

are neither used in nor defined by any statute for purposes of

apportionment pursuant to R. C. Section 5727.15. Further, we

are not aware of any case wherein either of these terms are

defined for purposes of apportionment pursuant to R. C. Section

5727.15.

Appx.333 While neither situsable nor non-situsable are themselves defined in any dictionary, their root, "situs", is defined. The definition of situs is contained in Webster's New

World Dictionary of the American Language (2d College Ed. 1976)

1332: "situs * * * position or location ***". Also, the word "situate" is similarly defined in Webster's, 1332:

"situate *** to put in a certain place or position; place; locate". Hence, the term "situs" denotes a fixed location while the term "non-situs" denotes the absence of a fixed location. Accordingly, it is logical to assume that electric companies' situsable property would include all property which has a fixed location while non-situsable property would include all property which does not have a fixed location. In fact, this Board and the Court made such an assumption in the past.l

lIn Condee v. Lindley (1984), 12 Ohio St. 3d 90, affirming BTA Case No. 81-F-652 (November 30, 1983), the Supreme Court and this Board considered the propriety of the Tax Commissioner's so-called "seventy-thirty split" used to apportion electric companies "situsable" property. The definitions of "situsable" property and "non-situsable" property were not in issue as the parties agreed on the property which was included in the two classifications. This Board as well as the Court erroneously assumed that the Tax Commissioner defined these terms within the scope of the normal dictionary definition of "situs". For example, while addressing the Tax Commissioner's "seventy-thirty split" formula, this Board stated at page 13 of its Decision in Condee:

"For purposes of apportionment, a separation between property that has a 'fixed' situs or location and that which is subject to taxation, but has no 'fixed' situs, appears reasonable. However, having established a (Footnote Continued) 30

Appx.334 However, for the reasons set forth below, we find that such assumption was erroneous.

Mr. Witzel stated that the Department does not define

"situs" within the normal scope of its dictionary definition.

Oddly, the Department does not distinguish between situsable and non-situsable property on the basis of whether the property

(Footnote Continued) separation between 'fixed situs' and 'non-fixed situs' tangible personal property, it seems unreasonable to apportion a portion of the assessed value of 'fixed' situs property the same as or as if it were 'non-fixed' situs property.

"Without doubt, if the 'situsable' property were owned by other than a public utility, there is no question as to such property being reportable and taxable in and by the county and taxing districts therein where such property is physically located. We see no logical justification to allocate a portion of the value of personal property physically located exclusively in one county to other counties to the financial detriment of the county in which the subject property is located."

Like this Board, the Court assumed that the Tax Commissioner defined "situsable" property and "non-situsable" property within the scope of the normal dictionary definition of "situs". At page 91 in its decision in Condee, the Court stated:

"The disputed apportionment involved the distinction drawn by the commissioner between the 'situsable' (having a fixed location) and non-situsable personal property of the electric companies."

(Underlining added by the Board) 31

Appx.335 has a fixed location (Sept. R. 89). Mr. Witzel testified that these terms are nothing more than labels arbitrarily used by the Department to classify (without regard to location) the different kinds or types of taxable property owned by the electric companies (Sept. R. 90). Clearly, the record before this Board includes evidence that certain types of property which have fixed locations are classified as non-situsable property by the Department. For example, coal piles, plant materials, and operating supplies all have fixed locations but the Commissioner classifies them as non-situsable property for purposes of apportionment pursuant to R. C. Section 5727.15 and

O.A.C. Rule 5703-25-01.

For the 1985 tax year, pursuant to her understanding and application of R. C. Section 5727.15 and her application of

O.A.C. Rule 5703-25-01, the Commissioner uniformly apportioned one hundred percent (100%) of the taxable value of all situsable taxable property owned by electric companies to the counties and taxing districts in which such property was physically located (Sept. R. 33-34, 43). Further, the

Commissioner uniformly apportioned the taxable value of all non-situsable taxable property owned by each electric company to each county or taxing district using the relationship between the cost of the distribution base of the electric company in a county or taxing district to the total cost of the

Appx.336 distribution base of the electric company in the State of Ohio

(Sept. R. 43, 109).

One tax effect of the Commissioner's method of apportionment was that counties and taxing districts received one hundred percent (100%) of the taxable value of all

situsable property and distribution base physically located within their territorial boundaries (Sept. R. 56). The appellant and the Auditors of Clermont and Gallia Counties do not take issue with this effect of the Commissioner's apportionment methodology.

A second tax effect of the Commissioner's method of

apportionment (which appellant and the Auditors of Clermont and

Gallia Counties do take exception to) was that those counties

and taxing districts that had distribution base received an

allocation of a portion of the taxable value of all other

distributable property even if the other distributable property

was not physically located in such counties or taxing

districts. This effect of the Commissioner's apportionment

methodology is illuminated by the Auditors of Clermont and

Gallia Counties at page five (5) of their brief:

"An example of this is that for every dollar ($1.00) of distribution base of CG&E located in a county or taxing district, that county or taxing district is also allocated an additional fourteen cents ($.14) of other nonsitusable property. See CG&E

Appx.337 TR. 465. The bottom line of this method of allocation is that counties such as Adams that had an electric generating plant, coal piles, plant materials and operating supplies and other nonsitusable property located in them, were being denied the full value of other nonsitusable property physically located at such plants, and counties with distribution base were being allocated such value."

The foregoing apportionment methodology of the

Commissioner has existed as an informal administrative policy in one form or another ever since at least 1958 (Stip. 11;

Bulletin 130). Evenso, Mr. Witzel, as Administrator of the

Public Utility Tax Division, could not articulate either the origin of the policy or why the policy was employed for tax year 1985 (Sept. R. 77-79). He simply stated that under his supervision, the policy was uniformly and mechanically applied by the Department without regard to its propriety.

Further, Mr. Witzel advised this Board that the policy was only informally (by word of mouth) communicated to the electric companies and the county auditors (Sept. R. 59).

He did, however, state that the policy may have been discussed in certain unidentified papers which he presented to a meeting of auditors. The papers were not presented to this Board for our consideration.

Appx.338 Mr. witzel stated that the policy was designed and intended for uniform application by and to all electric companies for purposes of the apportionment of their taxable property pursuant to R. C. Section 5727.15 (Sept. R. 90-91).

Obviously, the Department intended to enforce the policy uniformly.

The record before this Board evidences that neither the auditors nor the electric companies understood the

Commissioner's apportionment methodology. A clear point of confusion concerns the distinction drawn between situsable and non-situsable property by the Commissioner. Here, the Affected

Companies' confusion is illustrated by C&SOE having reported plant materials and operating supplies as situsable property while CG&E and DP&L reported such property as non-situsable property. Although C&SOE's classification of plant materials and operating supplies clearly conflicts with the Department's definition of situsable property, the Department did not correct C&SOE's 1985 return. Mr. Witzel explained the

Department's failure in this regard by indicating that it is the Department's practice to accept electric companies' determinations regarding the classification of their property

(Sept. R. 92-93). Such a practice added to the electric companies' and auditors' confusion regarding the Commissioner's apportionment methodology.

Appx.339 Additionally, a comparison of C&SOE's listing of situsable property to the listings of CG&E and DP&L as set forth in Stipulation eight (8) evidences additional conflicts in the way the electric companies classified and reported their taxable property. The results of this comparison further supports this Board's finding that the electric companies did not understand the Commissioner's apportionment methodology.

In the paragraphs below we examine the issues raised by appellant in his notice of appeal and briefs and the

Auditors of Clermont and Gallia Counties in their briefs. As they raise similar issues and arguments, we hereinafter sometimes refer to the appellant and the Auditors of Gallia and

Clermont Counties as the "Affected Auditors". We begin with the Affected Auditors' challenge to the Commissioner's informal administrative policy comprising her apportionment methodology on the basis that it is an improperly promulgated rule.

Again, the Commissioner's policy herein in question is comprised of an apportionment methodology whereunder the

Commissioner:

1. classifies electric companies' taxable

property as either situsable or non-situsable

property;

2. subdivides non-situsable property between

distribution base and other distributable

property;

Appx.340 3. allocates one hundred percent (100%) of

all situsable property to the county and

taxing districts in which such property

is physically located; and

4. allocates one hundred percent (100%) of

all non-situsable property of an electric

company to each county or taxing district

using the relationship between the cost

of the distribution base of the electric

company in a county or taxing district to

the total cost of the distribution base

of the electric company in Ohio.

The Affected Auditors urge that the policy is an improperly

adopted rule and therefore is invalid. We agree with the

Affected Auditors in this regard.

The Commissioner responds to the Affected Auditors'

challenge to her apportionment methodology by advancing

arguments which are familiar to this Board. The Commissioner

made similar arguments in defense of her "seventy-thirty split"

apportionment methodology which was invalidated as an

improperly promulgated rule by this Board and the Court in

Condee I, supra, and Condee II, supra, respectively.

Particularly, the Commissioner contends that her apportionment

methodology is not a rule and that she was not required to

promulgate a rule to validate her apportionment methodology.

In this regard, she directs this Board's attention to her "302"

computation which is used to determine the true value of

Appx.341 personal property pursuant to R. C. Section 5711.18. We acknowledge that the "302" computation is valid and that it has never been formally promulgated as a rule. Westinghouse

Electric Corp. v. Lindley (1980), 64 Ohio St. 2d 31. Also, the

Commissioner argues that her apportionment methodology meets the statutory mandate of R. C. Section 5727.15 and therefore, it is a valid administrative policy. The Commissioner also infers that since the questioned apportionment methodology has been applied for many years it should be upheld on that basis alone.

In Condee I, supra, and Condee II, supra, the Gallia

County Auditor challenged the Commissioner's so-called

"seventy-thirty split" used to apportion the tax value of personal property owned by the Ohio Power Company and the Ohio

Valley Electric Company for tax year 1981 pursuant to R. C.

Section 5727.15(B)2. Ever since at least 1969, the

2R. C. Section 5727.15(B) provided in pertinent part:

"When the property of such public utility is located in more than one county in this state, the assessed value of such property, except that mentioned in section 5709.02 of the Revised Code, shall be apportioned by the commissioner between the several counties and the taxing districts therein in the proportion which the property located in such county and taxing district bears to the entire value of the property of such public utility, valued as provided in sections 5727.01 to 5727.62 of the Revised Code, so that to each county and each taxing district therein there (Footnote Continued) 38 Appx.342 Commissioner had employed the "seventy-thirty split" formula as an informal administrative policy of the Department. Under the the policy, upon the informal instruction of the Commissioner, all electric companies had reported the value of situsable property at seventy percent (70%) of its true taxable value while reporting the remaining thirty percent (30%) of the situsable property value as part of the total non-situsable property value. The tax effect of the "seventy-thirty split" formula was that only seventy percent (70%) of the taxable value of electric companies' situsable property in Gallia

County was included in the certificate of valuation issued by the Commissioner to Gallia County. The remainin;g thirty percent (30%) of the value of the Gallia County situsable property was placed into the so-called "pool" of non-situsable property value, which "pool" of non-situsable property value was apportioned by formula among the taxing districts or counties wherein the electric companies' non-situsable property was located.

The Gallia County Auditor appealed the 1981 certificates of valuation to this Board. The Auditor contended that the "seventy-thirty split" formula used for the reporting

(Footnote Continued) shall be apportioned such part of the entire valuation as will fairly equalize the relative value of the property therein located to the whole value of the property. * * *" 39

Appx.343 of situsable property value by electric companies deprived

Gallia County of a dollar-for-dollar apportionment of tax attributable to property located within its boundaries and distorted the computation used to apportion non-situsable property values. Also, the Auditor asserted that the

"seventy-thirty split" formula constituted a rule, and, as such, it was void because it had not properly been promulgated pursuant to the procedures set forth in R. C. Chapter 119 and

R. C. Section 5703.14.3

In our decision in Condee I. supra, we favorably embraced each of the Auditor's contentions. First, we found that the Commissioner had never promulgated a rule regarding the "seventy-thirty spl-it" formula. In particular, we focused on the Commissioner's failure to promulgate a rule regarding the policy of allocating thirty percent (30%) of situsable property value to non-situsable property value. We held that the formula was a rule and that it should have been properly

3R. C. 5703.14 provided, in relevant part:

"(A) Any rule adopted by the board of tax appeals and any rule of the department of taxation adopted by the tax commissioner shall be effective on the tenth day on which two certified copies of the rule in final form and in compliance with this division are filed by the board or the commissioner with both the secretary of state and the director of the (Footnote Continued)

Appx.344 promulgated pursuant to the procedures set forth in R. C.

Chapter 119. In that the formula was not properly promulgated as a rule, we held that it was unreasonable and arbitrary and, therefore, invalid.

Further, this Board considered the propriety of the

"seventy-thirty split" formula aside from its deficiency as a rule. The definition of the term "situsable" was not in issue.

Accordingly, we defined "situsable" within the scope of the normal dictionary definition of "situs" and assumed

(erroneously) that the Commissioner defined situsable property as property having a fixed location. Operating under that assumption, we agreed that the Commissioner's separation between property having a fixed location and property not having a fixed location was reasonable. However, we further stated that it was unreasonable to apportion a portion of the assessed value of the fixed location property the same or as if it were non-fixed location property. Hence, we invalidated the

"seventy-thirty split" formula on that basis. Therefore, we

(Footnote Continued) legislative service commission. * * *

"(B) The board and commissioner shall file the rule in compliance with the following standards and procedures:

"* * * * * * * * *,f

41 Appx.345 reversed and remanded the Certificates to the Commissioner with instructions to apportion one hundred percent (100%) of the fixed location property owned by electric companies to the counties and taxing districts in which it was physically located.

The Commissioner appealed our decision in Condee I, supra, to the Court. In Condee II, supra, the Court affirmed our decision. in doing so, the Court considered and rejected the arguments that the Commissioner made in Condee II. The

Commissioner's best argument was that the "seventy-thirty split" formula complied with the requirements for apportionment set forth in R. C. Section 5727.15(B) and, therefore, should be upheld as a valid administrative policy of the Department. The

Court dismissed this argument because it found that whether the

"seventy-thirty split" formula complied with R. C. Section

5727.15(B) and constituted a valid administrative policy was not the pivotal question presented by the appeal. At page 92

of its decision in Condee II, the Court stated that:

"* * *, the question presented is whether the Department of Taxation may employ such a policy (the 'seventy-thirty split' formula) without the benefit of a formally promulgated rule. We find that it may not."

(Parenthetical material added by the Board)

Appx.346 At pages 92 and 93 in Condee II, supra, the Court set forth the basis of the foregoing determination. The Court reviewed the rule making requirements of R. C. Chapter 119 and stated:

"R.C. 119.01(C) defines a 'rule as '* * * any rule, regulation, or standard, having a general and uniform operation, adopted, promulgated, and enforced by any agency under the authority of the laws governing such agency, but it does not include regulations concerning internal management of the agency which do not affect private rights.' Inasmuch as the policy at issue herein is uniformlv applied regarding apportionment of public utility E ty, it falls with this tion.

"R.C. 119.02 provides:

'Every agency authorized by law to adopt, amend, or rescind rules shall comply with the procedure prescribed in sections 119.01 to 119.13, inclusive, of the Revised Code, for the adoption, amendment, or rescission of rules. Unless. otherwise specifically provided by law, the failure of any agency to comply with such procedure shall invalidate any rule or amendment adopted, or the rescission of any rule.'

"We recently held in McLean Trucking Co. v. Lindley (1982), 70 Ohio St. 2d 106, 116 [24 0.0. 3d 1871, that the Tax Commissioner's adoption of a 'special instruction' of uniform

43 Appx.347 application without compliance with R.C. Chapter 119 rendered the instruction invalid. This holding is applicable to the instant case. As in McLean, the commissioner's policy herein was adopted in lieu of a case-by-case analysis of each taxpayer's liability. R.C. 5727.15(B) defines an apportionment that should be applied to each individual utility when determining the value of that utility's property for tax purposes. Although it is possible that a rule of uniform application to all utilities might comply with the apportionment requirement in R.C. 5727.15(B), we are not in a position today to so hold.

"The rulemaking requirements set forth in R.C. Chapter 119 are designed to permit a full and fair analysis of the impact and validity of a proposed rule. We cannot determine in good faith, solely on the basis of the appellant commissioner's briefs in the instant case, that the 'seventy-thirty' formula is an equitable and valid rule. If the commissioner desires to continue application of the policy in question, only compliance with R.C. Chapter 119 and R.C. 5703.14 [footnote omitted by Board] may permit him to do so."

(Emphasis added by the Board)

We, also, note that the Commissioner argued that the

"seventy-thirty split" formula should have been upheld merely because it had been employed for at least eleven years. The

Court rejected this argument and pointed out that the

Commissioner had failed to show that any county auditor ever was aware of the policy. The Court noted that the policy was communicated to the utilities on an informal basis.

44 Appx.348 We find that Condee I, supra, and Condee II, supra, are controlling in the instant case. The Court's observations and analysis as set forth at pages 92 and 93 are equally applicable to the within situation. That is, whether the

Commissioner's apportionment methodology meets the statutory classifications for electric companies' taxable property as well as the statutory apportionment requirements of R. C.

Section 5727.15` is not material to the resolution of this aspect of the Affected Auditors' challenge to the

Commissioner's apportionment methodology. Rather, the essential question is whether the Department may employ such an apportionment methodology without the benefit of a formally promulgated rule. We find that it may not for the reasons set forth below.

R. C. Sections 5703.14 and 119.01 (C) have been amended since the issuance of the decisions in Condee I, supra, and Condee II, supra. However, the amendments4 to these

4R. C. Section 119.01 (C) (effective 7-1-85) provided, in part, as follows:

"(C) 'Rule' means any rule, regulation, or standard, having a general and uniform operation, adopted, promulgated, and enforced by any agency under the authority of the laws governing such agency, and includes any appendix to a rule. 'Rule' does not include any internal management rule of an agency unless the internal management rule affects private rights. (Footnote Continued) 45

Appx.349 statutes are neither material to the resolution of the Affected

Auditors' challenge to the apportionment methodology nor do they vitiate the soundness of the Court's analysis set forth in

Condee II.

Again, R. C. Section 119.01 (C) defines a "rule" as

"* ** any rule, regulation, or standard, having a general and uniform operation, adopted, promulgated, and enforced by any

agency under the authority of the laws governing such agency, but does not include regulations concerning internal management of the agency which do not affect private rights". Clearly,

the policy at issue herein was uniformly applied regarding the

classification of electric companies' taxable property and the

(Footnote Continued)

R. C. Section 5703.14 (effective 7-4-84) provided, in part, as follows:

"(A) Any rule adopted by the board of tax appeals and any rule of the department of taxation adopted by the tax commissioner shall be effective on the tenth day after the day on which the rule in final form and in compliance with division (B) of this section is filed by the board or the commissioner as follows: * * *

"(B) The board and commissioner shall file the rule in compliance with the following standards and procedures: * * *"

Appx.350 apportionment of the tax value of such property. Accordingly, we hereby find that the policy is a rule within the definition set forth in R. C. Section 119.01.

The Department is authorized by law to adopt rules.

R. C. Section 5703.14. However, R. C. Section 119.02 provides that every agency authorized to adopt a rule shall comply with the procedures set forth in R. C. Section 119.01 to 119.13, inclusive, for the adoption of rules. R. C. Section 119.02 further provides that "* * * the failure of any agency to comply with such procedure shall invalidate any rule * * * adopted * * *."

In this situation, the Commissioner's informal administrative policy is perforce denuded of the essential qualification under R. C. Section 119.02 to avoid invalidation.

The Commissioner failed to qualify her policy as a properly promulgated rule by failing to comply with the procedures set forth in R. C. Sections 119.01 to 119.13, inclusive, and R. C.

Section 5703.14 for the adoption of the policy as a rule.

Accordingly, pursuant to R. C. Section 119.02, we hereby invalidate the Commissioner's policy inasmuch as it is an improperly promulgated rule.

Appx. 351 In Condee II, supra, the Court emphasized the purpose of the rulemaking requirements set forth in R. C. Chapter 119.

The Court indicated that the requirements are designed to permit a full and fair analysis of the impact and validity of a proposed rule. In this situation, the impact of the

application of the rule (apportionment methodology) is clear.

The electric companies and auditors were confused about the

scope and application of the rule. The rule was misapplied by the electric companies. The misapplication resulted in the misapportionment of the tax value of the electric companies' taxable property. Some taxing districts received a tax windfall while others sustained a loss of tax revenues.

Further, as will be made clear in the paragraphs below, the

validity of the rule (apart from its not having been properly

promulgated) is a valid issue in this appeal.. The point made

by the Board is that had the Commissioner followed the

procedures regarding the proper promulgation of her policy as a

rule, the matters comprising this appeal may have been resolved

during the course of the rulemaking hearings.

In light of the foregoing discussion, we find that

the Commissioner's stated reasons for her failure to comply

with the statutory rulemaking procedures are unacceptable. We

reject each of her reasons.

Appx.352 Inasmuch as we have concluded that the Commissioner's apportionment methodology is an improperly promulgated rule, we do not find it necessary to consider the Commissioner's argument that such policy is like her "302" computation and, therefore, it was not necessary to promulgate it as a rule. We summarily reject the Commissioner's argument in this regard in light of our foregoing discussion.

In Condee II, supra, the Commissioner argued that the seventy-thirty split formula should have been upheld on the basis that it had been applied for many years. The Court rejected the Commissioner's argument because it found that the

Commissioner failed to show that the auditors ever were aware of the policy and the Commissioner did not advance any acceptable reasons for the Department's failure to comply with the statutory rulemaking procedures. The Commissioner makes the same argument in this appeal. We reject said argument for the same reasons that the Court rejected it in Condee II.

Apart from the preceding analysis relative to the

Commissioner's failure.. to comply. with the rulemaking requirements set forth in R. C. Chapter 119 and R. C. Section

5703.14, we, also, find that the Commissioner's apportionment policy conflicts with R. C. 5727.15. Our discussion follows below.

Early on in this Decision and Order, we analyzed the apportionment formula prescribed by R. C. Section 5727.15.

Appx.353 This statute requires the separation of electric companies' taxable property into two location-based classifications, to wit: single-district and multi-district property. The

Commissioner is required to apportion the total value of single-district property to the county or taxing district in which it is located. R. C. Section 5727.15 (D) requires the

Commissioner to apportion the total value of multi-district property to each taxing district in which it is located in proportion to the entire value of such property within Ohio.

Notwithstanding, the foregoing clear statutory directive regarding the classification and apportionment of the electric companies' taxable property, the Commissioner employed a policy which was not authorized by R. C. Section 5727.15.

One obvious problem with the Commissioner's policy was that it separated the electric companies' taxable property into type-based classifications (situsable and non-situsable property) rather than the statutory prescribed location-based classifications (single-district and multi-district property).

The Commissioner's . classifications each included single-district and multi-district property in conflict with

R. C. Section 5727.15.

A second problem with the Commissioner's policy was that its application did not always-result in the apportionment of the total value of electric companies' single-district property to the taxing district in which it was located.

Admittedly, the application of the Commissioner's policy

resulted in counties and taxing districts receiving one hundred

50 Appx.354 percent (100%) of the total value of situsable property and distribution base physically located within their boundaries.

This result appears to achieve the end intended by R. C.

Section 5727.15 even though the methodology employed by the

Commissioner is neither authorized nor contemplated by R. C.

Section 5727.15. The shortcoming of the Commissioner's apportionment method evidences itself when it is applied to what the Commissioner calls the electric companies' "other situsable property" which is comprised of coal piles, plant materials and operating supplies. Clearly, other situsable property is mostly comprised of property which has a fixed location in one county or taxing district. Under R. C. Section

5727.15, other situsable property would be considered single-district property and, as such, the total value of the property would be apportioned to the county or taxing district in which it is located. The Commissioner, however, employed a formula whereby only a portion of the total value of "other distributable property" was apportioned to the county or taxing district wherein it was located. The balance of the tax value was then apportioned to other counties or taxing districts just because distribution base was located within their boundaries.

Another problem with the Commissioner's policy was that it escaped the understanding of the electric companies and the auditors. Apparently, only the Department understood its

Appx.355 policy. While the policy may have been informally communicated to the electric companies, the inconsistencies in the Affected

Companies' 1985 annual reports manifests their keen lack of appreciation of such policy. Obviously, the electric companies did not understand the Commissioner's definition of situsable and non-situsable (distribution base and other distributable property) property. This is not surprising in consideration of the Commissioner's failure to define situsable and non-situsable within the scope of the normal dictionary definition of "situs". The electric companies' confusion about the Commissioner's policy was enhanced by the Commissioner's failure to correct returns which classified electric companies' property in a manner which conflicted with the Commissioner's own policy regarding the classification of electric companies' property.

In consideration of the foregoing discussion, we hereby find that the Commissioner's policy is unreasonable and invalid as it conflicts with the clear statutory directive of

R. C. Section 5727.15 regarding the classification of electric companies' taxable property and the apportionment of the tax value related thereto. The application of the Commissioner's policy to the electric companies' 1985 taxable property vitiated the mandate of R. C. Section 5727.15 and such application was neither salutary nor rational.

Appx.356 The Board notes that R. C. Section 5727.15 was amended, effective December 31, 1985, by the Ohio General

Assembly. Of course, the amendment applies to tax year 1986 and thereafter and cannot be retroactively applied to tax year

1985, the year herein in issue. We further observe that the amendment clearly adopts the Commissioner's policy which we have herein invalidated. Most importantly, however, this legislative action has cleared up the confusion which properly led to Condee I, supra, Condee II, supra and, of course, the instant appeal. In light of the 1985 amendment to R. C.

Section 5727.15 this Decision and Order is limited to the tax year 1985.

The final issue presented to this Board by the

instant appeal concerns the propriety of O.A.C. Rule 5703-25-01

(hereinafter, the Condee Rule). In paragraph seven (7) at page

14 of the notice of appeal, the appellant alleges that the

Condee Rule is "injurious to Appellants and unreasonable because it does not require the allocation of the taxable value

of all personal property of an electric company to the taxing

district in which the property is located."

An administrative rule of the Commissioner is subject

to two independent challenges. A rule may be challenged on the

basis that it had not been properly promulgated pursuant to

Appx.357 R. C. Chapter 119 and R. C. Section 5703.14. Also, pursuant to

R. C. Section 5703.14, a rule may be challenged on the basis that it is unreasonable.

In this instance, the Affected Auditors concede that the Condee Rule was properly promulgated.' Their challenge to the Condee Rule is based upon the contention that it is unreasonable because it does not comply with R. C. Section

5727.15.

R. C. Section 5703.14 (C), in part, provided as

follows:

"(C) Applications for review of any rule adopted by the Commissioner may be filed with the board ***. The applications shall set forth, or have attached thereto and incorporated by reference, a true copy of the rule, and shall allege that the rule complained of is unreasonable and shall state the grounds upon which the allegation is based. * * * The burden of proof to show that the rule is unreasonable shall be upon the appellant. * * *, the board shall determine whether the rule complained of is reasonable or unreasonable. ***, and the reasons for the determination shall be entered on the journal of the board."

The Condee Rule was the only rule ever properly

promulgated by the Commissioner which pertained to R. C.

Section 5727.15 as applicable to tax year 1985. Mr. Witzel

testified that the rule was promulgated to give effect to the

Court's decision in Condee II, supra. The rule, itself, makes

Appx.358 reference to Condee 11. The rule provides that one hundred percent (100%) of the tax value of electric companies' situsable property must be assigned to the taxing districts in which the property is physically located. Although the rule does not define, situsable property, Mr. Witzel testified that the Commissioner defined situsable property as used in the

Condee Rule in the same fashion as she defined the term under her now invalid apportionment methodology. That is, situsable property was defined to include the electric companies' production plant equipment, generating plant equipment and station equipment.

The Condee Rule embodies a major shortcoming of the

Commissioner's apportionment methodology. Like the apportionment methodology, the Condee Rule separates electric companies' property into the so-called situsable classification which is a statutorily unauthorized type-based classification.

Again, R. C. Section 5727.15 requires that electric companies' property must be classified as either single-district property or multi-district property, each classification being

location-based. The Condee Rule is unreasonable as it

conflicts with the classification requirements of R. C. Section

5727.15.

Additionally, we find that the Condee Rule is

unreasonable because its application was limited to only a

Appx.359 portion of the electric companies' fixed location property.

Again, it was applied only to the electric companies' situsable property which did not include all of the electric companies' fixed location property. Inasmuch as the Condee Rule was the only rule properly promulgated which was designed to implement

R. C. Section 5727.15 it should have provided for the classification and apportionment of all property of the electric companies in conformity with R. C. Section 5727.15.

The Board of Tax Appeals, having fully considered the matters presented by this appeal, finds and determines, upon the existing record and as a matter of law, that appellant's specifications of error are meritorious to the extent hereinabove determined.

It is the Decision and Order of the Board of Tax

Appeals that the Tax Commissioner's final determination, rendered by the various Certificates of Public Utility Taxable

Values pertaining to the tax year 1985, relating to the Dayton

Power and Light Company, Columbus and Southern Ohio Electric

Company.and Cincinnati Gas and Electric Company, be, and hereby are affirmed relative to the Tax Commissioner's determination of the true and taxable values of the electric companies' taxable property for the tax year 1985 and reversed relative to the Commissioner's apportionment of such tax value to Adams

County and its various taxing districts. It is Ordered that this cause is remanded to the Tax Commissioner to give effect

Appx.360 to this Decision and Order. On remand, the Commissioner is instructed to reapportion the tax value of the electric companies' taxable property in conformity with this Board's interpretation of R. C. Section 5727.15 as hereinabove set forth.

It is further Ordered that certified copies of this

Decision and Order be sent to the Tax Commissioner, each party hereto, or their respective counsel, if any, and each of the 88 county auditors.

Pursuant to R. C. Section 5703.14 (C), it is further

Ordered that certified copies of this Decision and Order shall be filed as follows:

(1) two certified copies of this Decision

.and Order shall be filed with both the

secretary of state and the director of

the legislative service commission;

(2) two certified copies of this Decision

and Order shall be filed with the joint

committee on agency rule review.

I hereby certify the foregoing to be a true and correct copy of the action of the Board of Tax Appeals of the State of Ohio, this day taken, with respect to the above matter

JWW,Jr./dlc

0 Appx. 361 Page 1

LEXSEE

FERLAND CORPORATION, ET AL v. ARTHUR BOUCHARD

C.A. No. 98-4165

SUPERIOR COURT OF RHODE ISLAND, PROVIDENCE

I999ILL Super. LEXIS 49

June 3,1999, Filed

DISPOSITION: [* 1] Counsel shall submit an appro- which contain fewer than ten apartments and others priate order and judgment for entry consistent with the which contain ten or more apartments. Defendant, Arthur provisionsthereoE Bouchard, is the Tax Assessor of the City of Woon- socket.

JUDGES: SILVERSTEIN, J. Prior to the fiscal year commencing on July 1, 1997, all of plaintiffs' residential real estate, located in Woon- OPINION BY: SILVERSTEIN socket, was entitled to a homestead exception pursuant to Chapter 482 of the 1988 Rhode Island Public Laws and OPINION Section 2-14 of Woonsocket's Code of Ordinances ("Sec- tion 2-14"). In 1994, Cbapter 482 was amended by Chap- SILVERSTEIN, J., This matter is before the Court ter 241 of the Rhode Island Public Laws. This amended in a suit brought by various apartment house owners Chapter 241 was approved by the qualified electors of against the tax assessor of the City of Woonsocket seek- Woonsocket on November 8, 1994. Pursuant to Chapter ing injunctive relief in order to enjoin the implementa- 241, the legislature gave the City of Woonsocket the tion of specific modifications to Woonsocket's Home- discretion to define residential real property in the con- stead Exemption Ordinance. Jurisdiction is pursuant to text of granting homestead exemptions. [*3] Chapter G.L. § 8-2-13. 241 stated that "'residential realproperty shall be defined from time to time by ordinance of the city council." Sub- Facts/Travel sequently, on or about April 16, 1997, Section 2-14 was Plaintift Ferland Corporation ("Ferland"), is a cor- amended. The 1997 version of Section 2-14, which im- poration existing under the laws of Rhode Island. Feriand plemented Chapter 241 of the 1994 Rhode Island Public owns various residential apartment complexes in the City Laws, Branted a homestead exemption for "residential of Woonsocket, Rhode Island: Four Seasons North real property that does not exceed (10) aparttnents." This Apartments located at 2491 Diamond Hill Road, Rhode exception took effect with the commencement of the July Island Apartments located at 127 Mendon Road, and 1, 1997 fiscal year. Diamond Hill Road Apartments also located at 127 After the 1997 Amendment to Section 2-14, plain- Mendon Road. Ferland is a general partner of Plaza Vil- tiffs commenced an action in the Providence Superior lage Group, a Rhode Island limited partnership, and is Court (P.C. No. 97-3404) challenging the City of Woon- also an owner of the Plaza Village Apartments, located at socket's failure to apply the homestead exception to cer- 104 Village Road, Woonsocket, Rhode lsland. Plaintiff, tain properties of the plaintiffs. On or about May 19, Armand A. Ferland, is a general partner of the Walnut 1998, this Court rendered a written decision finding Hill. Group, also a Rhode Island liniited [*2] partnership, "Chapter 241 of the 1994 Rhode Island Public Laws ... and is an owner of the Walnut Hill Apartments, with a an unconstitutional delegation of legislative power to the main office located at 2305 Diamond Hill Road, Woon- City of Woonsocket." This Court granted plaintiffs' re- socket, Rhode Island. Ferland is a limited partner in the quest for injunctive relief precluding the City from en- Walnut Hill Group. All of the aforementioned properties forcing Section 2-14. Judgment was entered in the 1997 have in excess of ten residential units with the exception case on June 8, 1998. ' of the Walnut Hill Apartments. The Walnut Hill Apart- ments are situated on eleven parcels of land, some of

Appx.362 Page 2 1999 R.I. Super. LEXIS 49, *

1 The June 8, 1998 judgment provided as fol- dwelling or dwellings containing less than lows: ten (10) dwelling units. Residential real estate is defined as real property used or "1. Chapter 24 of the 1994 held for human habitation containing [*5] Rhode Island Public Laws is an one or more dweliing units, including unconstitutional delegation of leg- rooming houses, and mobile homes with islative power to the City of facilities designed and used for fiving, Woonsocket; sleeping, cooking and eating on a non- transient basis. The property includes ac- 2. If said Chapter 241 were to be held constitutional, the City cessory land; buildings or improvements Council in Ordinance 2-14 as incidental to such habitation and used exclusively by the residents of the property amended on Apt91 6, 1997 goes and their guests. The property does not beyond the authority granted. by the Genetal Assembly in that the include a hotel or motel. In order to de- legislative action of the Council termine compliance with the homestead exemption outlined above, the city coun- represents an impermissible classi- cil shall provide by resolution or ordi- fication within, rather than, a definition of "residential real prop- nance rules and regulations goveming eli- erty." Therefore, plaintiffs are en- gibility for the exemption established by titled to the injunctive relief this section." sought including precluding the City of Woonsocket from enforcing Ordinance 2-14. On or about July 7, 1998, Ord'mance 6518 ("1998 3. Plaintiffs shall be entitled Ordinance") was signed and approved by the Mayor of to the same homestead exemption Woonsocket. This Ordinance was to once again amend Section 2-14. Pursuant to the 1998 Act and Ordinance, as that accorded in Ordinance 2-14 only those residential apartments, in the City of Woon- to all other owners of residential socket, with fewer than 10 units were entitled to a dwelling units." twenty-five (25%) homestead exemption. No homestead exemption was provided for residential apartments with ten or more units. f*4] On or about May 27, 1998, the Woonsocket City Council passed a Resolution petitioning the Rhode On or about November 25, 1998, this Court heard oral argument from the respective parties. ' The parties Island General Assembly to enact legislation "relating to the exemption and assessment of real and ratable tangi- have submitted post-hearing memoranda [*6] discussing ble personal property in the City of Woonsocket." On issues addressed at the hearing. This case is now ready July 9, 1998, Chapter 250 of the Rhode Island Public for decision on plaintiffs' request for injunctive reGe£ Plaintifts argue that the 1998 Ordinance, amending Seo- Laws ("1998 Act") was stamped effective by the Secre- tary of State. In pertinent part, the 1998 Act provided: tion 2-14, is invalid because it was passed prior to the effective date of the statute authorizing its adoption. Fur- "Sec. 1. Homestead exemption for the ther, in their complaint, plaintiffs argue constitutional city of Woonsocket. Notwithstanding any violations. Plaintiffs contend that the homestead excep- other provisions of the general or special tion, which was authorized by the 1998 Act, constitutes laws to the contrary, the city of Woon- an unreasonable and irrational classification among resi- socket is hereby authorized to fix a home- dential properties which is violative of the equal protec- stead exemption with respect to assessed tion clauses contained in Artide I, Section 2 of the Rhode value from local taxation on taxable real Island Constitution and the Fourteenth Amendment to the United States Constitutfon. Further, plaintiffs contend property used for residential purposes in that the 1998 Act denies the right of all taxpayers to have the city of Woonsocket and to grant taxation burdens fairly distributed. Finally, plaintiffs homestead exemptions to the owners of argue that the 1998 Ordinance is void having resulted in such real property in an amount of twenty-five percent (25%) of the assessed a discriminatory and selective application of the homestead exception forbidden by the Rhode Island Supreme value. Any such homestead exemption Court in shall only apply to real property used for Picerne v. DiPrete, 542 A.2d 1101 (RL 1988) residential purposes and improved with a Appx.363 Page 3 1999 RI. Super. LEXIS 49, *

("Piceme II") and Picerne v. DiPrete, 428 A.2d 1074 The Woonsocket Home Rule Charter, Chapter III, (RL 1981) ("Picerne I"). [*7] Section 9 provides:

2 At the November 1998 hearing, plaintiffs "The effective date of any ordinance, withdrew their argument that the 1998 Act vio- except that relating to the appropriation of lates the Home Rule Charter Provisions of the moneys or the levying of taxes, shall be Rhode Island Constitution. See Amended Com- the eleventh consecutive day following its plaint Count 1. passage or approval by the council unless a subsequent date be prescribed therein. A L Standard For Granting Injunctive Relief resolution shall take effect inunediately upon its adoption."' The decision to grant or deny injunctive relief falls within the sound discretion of the trial justice. Brown v. Amaral, 460 A.2d 7, 10 (R L 1983). An injunction is an An ordinance speaks only from the time it becomes ef- extraordinary remedy requiring a party to either do or fective. Detroit v. General refrain from doing a particular act. Id. The standard for Foods Co., 39 Mich App. 180, 197 NW.2d 315, 320 (Mich Ct. App. 1972) ("Stat- granting injunctive relief is well settled. "fhe main pre- utes [and ordinances] passed to take effect at a fotme requisite to obtaining injunctive relief is a fmding that date are to be understood as speaking from the time they the plaintiff is being threatened by some hrepareble injury for wbich he has no adequate legal remedy. Id.; (cit- go into operation and not from the time of passage."); State ex rel. Thorp v. Devin, 26 Wn2d 333, 173 P.2d ing Rhode Island Turnpike & Bridge Authorfty Y. Cohen, 994, 998 (Wash 1946). [*10] "Where a definite time is 433 A.2d 179, 182 (RL 1981)). To satisfy the irreparable prescribed before an ordinance shall take effect or go injury element, the moving party must demonstrate that into force, the ordinance is effective from the expiration the irreparable harm is "presently threatened" or "iromi- of the time prescribed, which may be called the 'effective nent. [*8] " Cohen, 433 A.2d at 182. Injuries which are date' or the 'date of operation,' and not from the date of prospective only and might never occur cannot serve as its passage." 5 McQuillin Mun Corp § 15.39 (3rd Ed). the basis for a permanent injunction. Id.; (citing Ashland Oil, Inc. Y. F.ZC., 409R Supp. 297, 309 (D.D.C1976), 3 The 1998 Ordinance acknowledges the effec- alPd, 179 U.S. App. D.C. 22, 548 F.2d 977 tive date provision of the Woonsocket Charter. (D.CCir.1977)). Furthermore, a moving party must also Section 2 of that Ordinance provides: show that it has a reasonable likelihood of succeeding on the merits of its claim. In re State Employees' Unions, "This ordinance shall take effect 587 A.2d 919, 925 (RI. 1991). Finally, the trial justice on the eleventh consecutive day performs a type of equitable balancing test The judge is following its passage by the City required to weigh the relief sought against the harm Council as provided in Chapter IIl, which would be visited upon the other party if an injunc- Section 9 of the Woonsocket tion were to be granted. Id. Upon performing the balanc- Home Rule Charter and all ordi- ing equation, the court is obligated to consider, as an nances inconsistent herewith are essential factor, the pubtic interest involved. Id. hereby repealed." H. Enactment of Ordinance Plaintiffs argue that the 1998 Ordinance, amending An ordinance not validly enacted in compliance with Section 2-14, is invalid because it was passed prior to the the law is not enforceable. Claiborne Country Club v. effective date of the legislation wbich authorized its City of Tazewell, 782 S.TV.2d 476 (Tenn. 1990). Particu- adoption. Defendant disagrees with plaintiffs' position larly noteworthy is the Rhode Island Supreme Court's contending that the 1998 Ordinance is effective [*9] and decision in Langevin. In Langevin, the Providence City in accordance with the 1998 Act and general legal prin- Council voted in favor of a resolution [*11] to have a ciples. SpeciScally, defendants argue that pursuant to question regarding a proposed gambling facility and/or G.L. § 43-3-25, the 1998 Act became effective on July 1, activity placed on the ballot 683 A.2d at 357. The 1998. Further, defendants cite Langevin v. Begiq 683 Mayor of Providence vetoed the proposal and the city A.2d 357 (RL 1996) in support of their position that "all clerk refused to submit the resolution to the Secretary of steps under a City Charter must be completed before an State for placement on the ballot Id. At some point, an ordinance or resolution is 'adopted' or becomes 'effec- unauthenticated version of the resolution was sent to the tive: " Secretary of State who refused to place it on the ballot 683 A.2d at 358. The issue before the court was whether

Appx.364 Page 4 1999 R.I. Super. LEXIS 49, *

the resolution was adopted, within the meaning of G.L. § on July 6, 1998. See Agreed Statement of Facts, Exhibit 41-9-4, when all the requirements contained in the 1. The ordinance was signed and approved by the mayor Providence Home Rule Charter had not been satisfied. on July 7,1998.' Id. Id. Section 41-9-4 of the Rhode Island General Laws ' permits a town or city council, by '"adopting a resolu- 5 Chapter 4, Sections 9 and 10 of the Woon- tion;" to place the question of establishing a gambling socket Home Rule Charter provide respectively: facility in the city or town before local and state voters. Id. Section 9. Approval of ordintmces. Every ordinance passed by the council shall be submitted to the mayor, who within ten (10) consecutive 4 The text of the cutrent version of G.L. § 41-9- 4 is identical to the earlier version in effect at the days, either shall approve the ordinance by affix- time of Langevin. ing his signatnre or shall return the ordinance to the council by transmitting it to the city clerk In its decision, [* 12] the court noted the procedure with a statement setting forth his objections. outlined in the Providence Home Rule Charter. Section 10. Taking effect of ordinances; "Under the charter any resolution or or- overriding veto. No ordinance shatl take effect dinance passed by the council is to be without the approval of the mayor unless (a) the transmitted by the city clerk to the mayor mayor shall fail either to sign the ordinance or to for his approval or veto. Section 412. retum it to the council within ten (10) consecu- Upon final passage (signature by the tive days after passage, or (b) the council, upon mayor, override of his veto, or the passage reconsideration at its next regular meeting after of time without veto) the ordinance or its return by the mayor shall approve the ordi- resolution is finally authenticated by the nance by vote of five (5) of its members, notwith- signature of the president and the city standing the disapproval of the mayor, in which clerk and is recorded by the city clerk. case the ordinance shall take effect immediately. Section 414. Only upon completion of this [*14] After a review of the facts and law, this final step has a resolution been formally Court fmds that the 1998 Ordinance, amending Section 'adopted' under the procodures required by 2-14, is effective and is in accordance with generally the city charter." Id.; (emphasis added). accepted legal principles. Although the Ordinaace was signed by the mayor on July 7, 1998, in accordance with the Woonsocket Home Rule Charter it could not have The court concluded that the resolution was not properly become effective until at least July 17, 1998, a time after adopted, adding that "in the City of Providence, the which Woonsocket had clearly received legislative au- phmse 'adopting a resolution' was intended to include all thority to pass the Ordinance. Under the rationale es- the provisions under the Providence Home Rule Charter poused in Langevin, the Ordinance had no effect until it that would be required in order to achieve fmal passage was in complete compliance with the timing provisions of such resolution." Id. of the Woonsocket Home Rule Charter, which required With respect to the controversy at bar, a more de- an eleven day waiting period. This Court need not ad- tailed review of the facts is warranted. On May 27, 1998, dress the issue concetning the effective date of the 1998 the Woonsocket City Council passed a Resolution peti- Act. Plaintiffs do not disagree that the Act became effec- tioning the Rhode Island General Assembly to enact leg- tive on July 9, 1998. See Plaintiffs' Post-Hearing Reply islabion [* 13] "relating to the exemption and assessment Memorandum dated February 8, 1999 at 2. of real and ratable tan.gtble personal property in the City of Woonsocket" The 1998 Act, authorizing the amend- IILConstitutional Violations ment to Section 2-14, passed the Rhode Island Senate on In their complaint, plaintifls azgue that the home- or about June 18, 1998; the Act passed the State House stead exception, which was authorized by the 1998 Act, of Representatives on or about June 30, 1998. See constitutes an unreasonable and.irrational classification Agreed Statement of Facts, Exhibit H. On or about July among residential properties which is violative of the 1, 1998, the 1998 Aot was transmitted to the govemor. equal protection clauses [*15] contained in Article I, No action was taken by the governor and on July 9, Section 2 of the Rhode Island Constitution and the Four- 1998, the 1998 Act was stamped "effective" by the Sec- teenth Amendmertt ofthe United States Constitution. Fur- retary of State_ The 1998 Ordinance, amending Section ther, plaintiffs contend that the 1998 Act denies the right 2-14, was read and passed for the first time before the of all taxpayers to have taxation burdens fairly distrib- City Council on June 15, 1998 and for the second time uted pursuant to Article I, Section 2 of the Rhode Island

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Constitutiotz Further, plaintiffs argue that the 1998 Ordi- "The granting of exemptions when not nance is void having resulted in a discriminatory and outrageously subversive is as thoroughly selective application of the homestead exception forbid- an attribute of sovereignty as is the intpo- den by the Rhode Island Supreme Court in Picerne I and sition of the tax to which the exemption Piceme H. Defendant disagrees with plaintiffs' position relates. Ltkewise it is not for this court to arguing that the homestead exemption does not create an question the wisdom of the policy pursued arbitrary or irrational classification. ` Defendant further by the general assembly when in the exer- contends that the Piceme cases are distinguishable from cise of its exclusive power it enacted the the case at bar. exemptions [in controversy]." General Finance Corp. v. Archetto, 93 RL 392, 6 With respect to the arbitrary and irrational 396,176 A.2d 73, .77 (RL 1961). [* 18] classification issue, defendant incorporates the argmnents made in the 1997 case. See Defen- dant's Post-Hearing Memorandum dated January "It has been held that a homestead exemption is not a 29, 1999. vested right that cannot be impaired by legislation after it has been acquired, but is a mere statutory privilege, de- A. Acts of the General Assembly pending upon the will of the state." 40 Am. Jur.2d Home- [* 16] At the onset, this Court reviews the law with stead § 8 (1999). respect to legislative enactments. The Rhode Island Su- preme Court has stated that "all laws regularly enacted 1. Equal Protection and Taxation by the legislature are presumed to be constitutional and Article 1, Section 2 of the Rhode Island Constitution valid." Ciry of Pawtucket v. Sundlun, 662 A.2d 40, 45 provides: "nor shall any person be denied equal protec- (RL. 1995). The Court will undoubtedly "'make every tion of the laws."' Tax exemptions have long been held reasonable intendment in favor of the constitutionality of as not violative of the due process and equal protection a legislative act, and so far as any presumption exists it is clauses of the federal constitution. Archetto, 176 A.2d at in favor of so holdittg."' Id.; (quoting State Y. Garnetto, 76 (citation omitted). In Archetto, the court, quoting 75 AL 86, 94, 63 A.2d 777, 781 (1949)). The party at- Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, tempting to invalidate a legislative act has a heavy bur- 57 S. Ct. 868, 81 L. Ed. 1245 (1937), provided: den. The Court will not annul a legislative enactment unless the challenging party can prove "beyond a reason- "'It is inherent in the exercise of the able doubt" that the statute in controversy is repugnant to power to tax that a state be free to select a constitutional provision. Id.; (citing Gorham v. Robin- the subjects of taxation and grant exemp- son, 57 RL 1, 7,186 A. 832, 837 (1936)_ tions_ Neither due process nor equal protection imposes upon a state any rigid rule B. Power to Tax-Overview of equality of taxation."' 176A.2d at 76. It is well settled that the state's power to tax is ple- nary. In re Opinion to the Governor, 93 RI. 28, 30, 170 A.2d 908, 909 (R.L 1961); See also Capitol Bldg. Co. v. Langton, 101 RL 131,135,221 A.2d 99, 102 (RI. 1966). 7 Since the Fourteenth Amendment to the [*17] "The validity of tax legislation derives 'from the United States Constitution and Article 1, Section inherent power of the State to impose taxes.'" Opinion to 2, of the Rhode Island Constitution provides for the Governor, 170 A.2d at 909 (quoting Manning v. similar protections, only one analysis is neces- Board of Tax Comm'rs, 46R.L. 400, 413, 127A. 865, 871 sary. See Rhode Island Insurer's Insolvency Fund (RL 1925). The state's power to tax is not parleyed; it v. Leviton Mfg. Co., Ina 716 A.2d 730, 734 (RL. rests in the sovereignty. Id. The imposition or levy of a 1998). tax is an exercise of the state's legislative power. Id. In the absence of an express constitutional circumscription, [*19] the power to tax may be exercised by the legislature in its Our state Supreme Court has recognized the legisla- entirety. Id. The General Assembly has complete control over taxation and may decide what will be taxed, the ture's broad powers to select and classify property and amount, and what wiU be exempt. Id. With respect to persons for taxation purposes. Gott v. Norberg, 417 A.2d 1352, 1358 (RI. 1980) granting exemptions, the Rhode Island Supreme Court (citing Allen v. Bonded Municipal has said: Corp., 62 RI. 101, 4 A.2d 249 (1938); Manning v. Board of Tax Commissioners, supra; Burrillville Racing Asso- ciation v. State, 118 RI. 154, 159-60, 372 A.2d 979, 983

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(1977)). The power of classification; for tax purposes, is and Uniformity Clause of Missouri Constitution). In incidental to the state's power to tax. Opinion to the Gov- Hegenes v. State, 328 N. A'.2d 719 (M'mn. 1983), involv- ernor, 170 A.2d at 909 (citation omitted). "Any classifi- ing a classification of non-homestead properties into cation of taxation is pennissible which bas a reasonable those of three units or less and those with four or more relation to a legitimate end of govemmental action." 170 units, the court found said classification did not violate A.2d at 910-11. As stated in Manufacttnets' Mut. Ins. Co. the state Uniformity Clause or Federal Equal Protection Y. Clarke, 41 RI. 277, 103 A. 931(B.L 1918): Clause. After observing the differences between properties of three units or less. to large [*22] residential prop- "It is within the power of the Legislature erties, the Hegenes Court noted that said classifications to classify persons and property for the could be "sustained on a number of logical bases." Id at purpose of taxation, and to impose differ- 721. Hypothetically, such bases may include the need for ent burdens upon different classes, pro- "more expensive fue and police protection." Id. Further, vided such classification is not unreason- "smaller units may have propotionately more tax attrib- able nor arbitrary, but is based upon dif- uted to land value as compared to building value." Id. In ferences indicating 'a reasonable [*20] the case at bar, there is a distinction between all proper- and just relation to the act in respect to ties containing fewer than ten dwellings and those con- which the classification is proposed.' The taining ten or more dwellings. As pointed out by Justice authority of the Legislature in the exercise Holmes: of its police power and its power of taxation to make classification of persons and ,"men a legal distinction is determined, property has frequently been considered as no one doubts that it may be, between in cases involving alleged violations of night and day, childhood and maturity, or the Fourteenth Amendment to the Consti- any other extremes, a point has to be fixed tution oj'the United States. 1he growing or a line has to be drawn, or gradually tendency is apparent on the part of the picked out by successive decisions, to state and federal courts to hold that where mark where the change takes place. a difference appears it need not be great Looked at by itself without regard to the nor conspicuous to warrant classification necessity behind it the line or point seems by the Legislature." arbitrary. It might as well or nearly as well be a little more to one side or the other. But when it is seen that a line or Id at 933 (holding that the imposition of a tax on the point there must be, and that there is no intangible personalty of a mutual insurance or surety mathematical or logical way of.fixing it company, while exempting stoclc rosurance companies, precisely, the decision of the Legislature who pay a tax on premiums, was not violative of the must be [*23] accepted unless we can say Rhode Island Constitutton, Artic% 1, Section 2, and the that it is very wide of any reasonable United States Constitution, Amendment 14). In any equal mark."' Id at 722 (quoting Louisville Gas protection analysis not involving a fun8amental right or & Electric Co. v. Coleman, 277 U.S. 32, suspect classification, the proper standard of review is 41, 48 S. Ct. 423, 426. 72 L. Ed 770 minimal scrutiny. Sundlun, 662 A.2d at 60. Minimal (1928) (IJohnes, J., dissenting). scrutiny necessitates a showing that the legislative classification is "rationally related to a legitimate [*21] state interest." Id. (citation omitted); see also, Burrillville Rac- After reviewing the 1998 Act, this Court finds that plain- ing Association, 372 A.2d at 981. tiffs have not met their burdens demonstrating that the After a review of the pertinent law, this Court finds classification lacked any rational basis. that the 1998 Act does not create an itmtional or unrea- 2. Fair Distribution and Taaation sonable classification in violation of the equal protection clauses of the United States and Rhode Island Constitu- In pertinent part, Article 1, Section 2 of our state's tions. "Classifications based on numbers have often been constitution provides as follows: sustained." Associated Indu.stries v. State Tax Com n, 722 S. W.2d 916, 918 (Mo. Bana 1987) (statute classifying as "All free governments are instituted for residential, all real property having been improved by a the protection, safety and happiness of the structure and containing not more than four units for people. All laws, therefore, should be purpose of assessment at lower rate is not violative of the made for the good of the whole; and the Equal Protection Clause of United States Constitution

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burdens of the state ought to be fairly dis- provision of the Rhode Island Constitution. Plaintiffs tributed among its citizens." have not demonstrated to this Court that the homestead exemption is so outrageously subversive as to offend notions of faimess. Although the homestead exemption While it is generally recognized that taxes should be dis- may not be completely "equal," this Court believes that tributed fairly among state citizens, it is also recognized the 1998 Act is fair and does not amount to oppression that absolute faimess and equality cannot be attained. on the part of the general assembly. This Court will not, Manufacturers' Mut. Ins. Co. 103 A. at 933 (R.I. 1918). in this case, use the our state's fair distribution provision In the Matter of Dorrance-Street, 4 RL 230, 249 (R.L [*26] in order to restra'nm the Act of the legislature. 1856), the Rhode Island Supreme Court said: "We will not stop to notice [*24] the C. Picerne I and II very general language and declaratory form of this clause; setting forth princi- Plaintiffs cite Picerne I and Piceme II arguing that ples of legislation rather than rules of con- the 1998 Ordinance is void having resulted in a discrimi- stitutional law-addressed rather to the natory and selective application of the homestead excep- general assembly by way of advice and tion. Defendant disagrees with plaintiffs' position arguing direction, than to the courts, by way of en- that the situation at bar is distinguishable from that in forcing restraint upon the lawmaking Piceme I and Picerne II. A review of the facts of these power. We do not mean to say that a law, cases is warranted. Both cases, Piceme I and Piceme II purporting to impose a tax or burden of involve administrative selective revaluation. some sort upon the citizen, may not be in In Piceme I, the Mayor of Cranston inswcted the its distribution of the burden, both in de- city Director of Administration to chair a committee in sign and effect, so outrageously subver- order to raise an additional S 1,200,000 in tax revenue. sive of all the rules of fairness, as not to 428 A.2d at 1075. The committee ultimately performed come so far within the purview of this this task by revaluating 114 properties out of more than general clause, as to enable the court to 28,000 parcels of real estate. 428 A.2d at 1076. Plain- save the citizen from oppression by de- tiffs, a group of taxpayers, commenced an action, seek- claring it to be void. But evidently a wide ing equitable and injunctive reliet contending that the discretion with regard to the distribmion defendants had made selective and discriminatory re- of the burdens of state amongst the citi- valuations of their property for the 1979 tax year. zens was intended to be reposed in the general assembly by the will of the peo- The trial court found that the Mayor, along with his pIe, as signified in this clause of the con- committee had selected the [*27] properties, which were stitution. The form is 'ought to be,' the held by 114 of approximately 28,000 taxpayers, solely as word is 'fairly' distributed, not 'equally' a means of balancing the budget Rejecting the Mayor's even--unless equality be fair, which it is explanation that the assessments were an attempt to rem- not always in any sense, and never is in edy past assessment inequities, the trial judge concluded some senses * * *:' that the purpose behind selecting the plaintiffs' property for reassessment was merely to satisfy a $ 1,600,000 revenue gap. 428 A.2d at 1076. The trial judge found Unless a proposed distribution is so outrageously subver- that the "defendants had made a conscious effort to avoid sive of all rules of faimess so as to equate [*25] to op- a general revaluation and instead had targeted the small- pression, Article 1, Section 2 is by way of advice and est number of parcels that could yield the needed reve- direction to the law making power, rather than to the nue." Id. Accordingly, the trial judge concluded that the courts by way of restraining such power. Kalian v. 1979 revaluations were arbitrary and discriminatory re- Langton, 96 RI. 367, 372, 192 A.2d 12, 15 (Rl. 1963); sulting in disapropriate assessments in violation of the see also, Archetto, 176A.2d at 76 (stating that Article I, Fair Distribution Clause, found in Article 1, Section 2 of Section 2 has been described as "advisory only and not a the Rhode Island Constitution, and the Equal Protection limitation upon the legislative power of the general as- Clause found in the Fourteenth Amendment to the United sembly," and holding that statutes which grant tax ex- States Constitution. Id. emptions for religious putposes were not invalid for not On appeal, the Rhode Island Supreme Court noted subserving a public purpose and for creating an inequal- that "a knowing or intentional assessment that is made ity in sharing of burdens of govenunent). discriminatorily would be unlawful." 428 A. 2d at 1077. After a review of the pertinent law this Court finds The court added that before it could grant the relief re- that the 1998 Act is not violative of the fair distribution quested, [*28] it was necessary for plaintiffs to demon-

Appx.368 Page 8 1999 RI. Super. LF.XIS 49, *

strate that they had been "intentionally sifted ... out for After a review of both Piceme cases, this Court finds reassessment" Id. Although the court acknowledged that that plaintiffs' reGance on Picerne I and Piceme II is mis- "correcting past inequities without a general revaluation placed. The Piceme cases, involviag administrative se- is not illegal per se or violative of constitutional uniform- lective revaluation, are clearly distingnisbable from the ity or equal protection provisions," the court held that legislatively granted tax [*30] exemption case currently "when the tax authorities act out of improper or dis- before the CourL There is no evidence that any proper- crintinatory motives, the legitimacy of the revaluation ties in Woonsocket, let alone plairtiffs', were revaluated process ends." 428 A.2d at 1078. In finding evidence to for the 1998 tax year, bringing this case into the ambit of support the trial court's factual findings, the court af- Picerne I & U. Additionally, althougb plaintiffs have firmed the trial judges decision holding that the plaintiffs' referred to statements made by the City's Finance Direc- property was illegally assessed for the 1979 tax year. Id. tor and the Mayor, in an attempt to demonsnate that the In 1980, while the Piceme I appeal was pending, the City Council of Woonsocket had targeted a small num- defendants in Piceme II again revaluated and reassessed ber of properties to raise necessary revenue as in Picerne, the very same real estate of the plaintiffs as in the previ- this Court believes that those statements are irrelevant. This case involves the constitutionality of an act of the ous controversy. Picerne II, 542 A.2d at 1103. This time, the assessor used an improper commercial schedule Legislature. The Legislature, not the City, set the demar- and arbitrarily assigned grade values. 542 A.2d at 1104. cation line for the homestead exception at less than ten The result was a revaluation of only 16 parcels owned by units. Whatever motives, if any, legislators may have had the plaintiffs (out of 29,000 parcels). 542 A.2d at 1104. in enacting the 1998 Act are irrelevant. See Holmes v. The trial [*29] judge found that once again; the defen- Farmer, 475 A:2d 976, 989 (RL 1984) (Kelleher, L, conowring); see also, dants, in assessing the plaintiffs' properties "'had the In re Advisory Opinion to the House ofRepresentatives, 485 A.2d 550, 552 (RI. 1984). same natrow aim as [in] their 1979 actions."' 542 A.2d at 1104. That was, "'deriving revenue from the smallest Conclusion number of parcels to produce needed revenues."' Id. The trial judge concluded that the reassessments were "'con- In conclusion, plaintiffs are not entitled to injunction sciously selective, arbitrary, patently discriminatory relief. In fmding that the 1998 Ordinance is effective and [and] improperly motivated, resulting in disproportionate that the 1998 Act is not [*31] violative of the rights in taxation to the plaintiffs."' Id. Article 1, Section 2 of the Rhode Island Constitution, On appeal, the Supreme Court once again applied mainly the right of all taxpayers to have taxation burdens the holding in Picerne I. 542 A.2d at 1105. That being, fairly distributed and the guarantee of equal protection, "in iastances in which 'taxing authorities' act out of im- this Court concludes that plaintiffs have not sufficiently proper or discriminatory motives, the legitimacy of the demonshated a reasonable likelihood of succeeding on revaluation process ends."' Id. (quoting Picerne I, 428 the merits of their claim at trial. Defendant's additional A.2d at 1078). The court again agreed with the trial arguments need not be addressed. judge's conclusion that the reassessments were selective Counsel shall submit an appropriate order and and unlawfuL Id. judgment for entry consistent with the provisions thereof

Appx.369 CERTIFICATE OF SERVICE

The undersigned hereby certifies that a copy of the foregoing Appendix to the Merit Brief of the Tax Connnissioner was served by regular U.S. mail, postage prepaid, this 15` day of May, 2009, upon the following:

Mark I. Wallach, Esq. James F. Lang. Esq. Laura C. McBride, Esq. Calfee, Halter & Griswold, LLP 1400 KeyBank Center 800 Superior Avenue Cleveland, Ohio 44114-2688

Attorneys for Appellants

PRATT Assistant Attorney General