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Ohio IT 2023
Instructions for Allocating
and Apportioning Income
Solely for Purposes of
Computing the Nonresident
Credit and the Part-Year
Resident Credit for
Individuals and Estates
Rev. 1/15
Department of
hio Taxation
tax. hio.gov
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IT 2023
Rev. 1/15
Ohio form IT 2023 is solely for use in determining the numerator of the fraction used to calculate
the nonresident or part-year resident tax credit available for individuals and estates.
See Ohio Revised Code sections (R.C.) 5747.20 through 5747.231.
Do not use this form to compute Ohio adjusted gross income. pass-through entity income and gain is business income, which, in
The form and instructions apply to nonresidents who have business accordance with R.C. 5747.21, is apportioned rather than allocated.
and/or nonbusiness income within and without Ohio. Use Ohio form
IT 2023 solely for determining the numerator of the fraction used to R.C. 5747.22(B) and (C) Apportionment and Allocation of
calculate the nonresident tax credit. If your only source of Ohio Income and Deductions of Pass-Through Entities
income is wages paid by an unrelated employer, you do not
have to use this form. Apportionment of Pass-Through Entity Business
Income and Deductions for Purposes of the Nonresident
Important: This form assumes that the taxpayer has a distribu- Credit and the Part-Year Resident Credit
tive share of income/ gain from either a sole proprietorship or only With respect to a pass-through entity where one or more of the
one pass-through entity. Taxpayers who have income/gain from a nonresident or part-year resident investors are subject to the Ohio
sole proprietorship and/or more than one entity should complete a income tax, the business income and deductions of the pass-through
separate Part I and Part II for each entity. entity shall be apportioned to Ohio in the hands of the pass-through
entity according to the instructions for apportioning business income.
Trusts should not use this form. Instead, trusts should com- Such business income and deductions thus apportioned to Ohio are
plete Schedules F, G, H and I on Ohio form IT 1041. then allocated to the investors in proportion to their right to share
in such business income.
Note: All net income shown on page 1 of the federal 1040 return
must be shown on the Ohio IT 2023 worksheet. Allocation of Pass-Through Entity Nonbusiness Income and
Deductions for Purposes of the Nonresident Credit and the
Definitions Part-Year Resident Credit
With respect to a pass-through entity where one or more of the
Business Income and Nonbusiness Income
nonresident or part-year resident investors are subject to the Ohio
“Business income” means income, including gain or loss, arising
income tax, the nonbusiness income and deductions of the pass-
from transactions, activities and sources in the regular course of
through entity shall be allocated to the investors in propor- tion to
a trade or business and includes income from real, tangible, and
their right to share in such nonbusiness income. Then such pass-
intangible property if the acquisition, rental, management and dispo-
through entity shares of nonbusiness income shall be allocated
sition of the property constitute integral parts of the regular course
within and without this state in the hands of the investors according
of a trade or business operation. Also, “business income” consists
to the instructions, below, for allocating nonbusiness income by
of income, including gain or loss, from a partial or complete liquida-
individuals.
tion of a business, including, but not limited to, gain or loss from the
sale or other disposition of goodwill. R.C. 5747.01(B) R.C. 5747.23(A) and (B)
In general, income, deductions, gains and losses recognized by a Taxation of Trust Income Received by Benefi ciaries for
sole proprietorship or a pass-through entity are items of business Purposes of the Nonresident Credit
income that the nonresident and part-year resident taxpayer must Apportionment of Trust Business Income and Deductions With
apportion (rather than allocate) using Part I on page 1 of Ohio form respect to each estate and each trust where one or more of the
IT 2023. benefi ciaries are subject to the Ohio income tax, the trust’s busi-
“Nonbusiness income” means all income other than business in- ness income (net of deductions) received by such beneficiaries
come and may include, but is not limited to, compensation, rents shall be apportioned to Ohio in the hands of the trust according to
and royalties from real or tangible personal property, capital gains, the above instructions for apportioning business income by indi-
interest, dividends, distributions, patent or copyright royalties, and viduals. Such trust business income and deductions shall then be
lottery winnings, prizes and awards, R.C. 5747.01(C). Show non- allocated to such benefi ciaries in proportion to their right to share
business income, if any, in Part III on page 2 of Ohio form IT 2023. in the business income of such trust to the extent of the distribution
made to such benefi ciary.
R.C. 5747.20, .21 and .221
Allocation of Trust Nonbusiness Income and Deductions for
Allocation of Nonbusiness Income or Deduction;
Purposes of the Nonresident Credit
Apportionment of Business Income or Deductions;
With respect to each estate and each trust where one or more of
and Items and Deductions Not to Be Allocated or
the nonresident or part-year resident benefi ciaries are subject to
Apportioned for Purposes of the Nonresident Tax Credit
the Ohio income tax, the trust’s nonbusiness income (net of de-
The amount of business income and deductions apportioned to ductions) received by such beneficiaries shall be allocated to such
Ohio is determined by multiplying the net business income by an benefi ciaries in proportion to their right to share in such income (net
Ohio apportionment ratio, which is the sum of the property, pay- of deductions) of the trust. Then the share of nonbusiness income
roll and sales factors (please refer to the Part II business income shall be allocated to Ohio in the hands of such benefi ciary pursuant
worksheet on page 1 of Ohio form IT 2023). Please note that the to R.C. 5747.20. The benefi ciary is subject to Ohio income tax for
net business income consists only of those items of income and the taxable year in which such benefi ciary recognizes income with
deduction included in Ohio adjusted gross income (Ohio form IT respect to trust distributions.
1040, line 3) or Ohio taxable income (Ohio form IT 1041, line 3).
Part-year Residents
Nonbusiness income and deductions, if any, are allocable only For the portion of the taxable year that the taxpayer was not a resi-
as provided by R.C. 5747.20 and 5747.221. However, in general, all dent of Ohio, the taxpayer should allocate entirely outside Ohio the
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IT 2023
Rev. 1/15
taxpayer’s non-Ohio wages paid either (i) by any unrelated party share of income was earned during the seven-month period prior
or (ii) by a related party C corporation. For purposes of this form, to the taxpayer becoming a resident of Ohio: 7/12 X $12,000. Upon
“non-Ohio wages” are those wages which the taxpayer earned and examination of the taxpayer’s tax return, the tax commissioner
received for services performed outside Ohio while a nonresident. ascertains that $9,600 of the taxpayer’s $12,000 distributive share
was earned on and after Aug. 1, the date on which the taxpayer
For the portion of the taxable year that the taxpayer was not a became a resident of Ohio. As such, the tax commissioner will
resident of Ohio, the taxpayer should also allocate entirely outside recompute and reduce the nonresident credit by allocating outside
Ohio (i) items of nonbusiness income (defi ned below) not allocated Ohio only $2,400 (recall that the pass-through entity has no nexus
to Ohio and (ii) all items of income, gain, expenses and losses if with Ohio). As a result, the taxpayer will owe additional Ohio income
such items do not represent items of business income (defi ned at tax and related interest, but the tax commissioner will not impose
right) which are apportioned in and out of Ohio. any failure-to-pay penalty on that tax due or related interest penalty.
Examples of nonbusiness income amounts entirely allocated outside Business Income
Ohio for the portion of the year during which the taxpayer was a (Part I, A)
nonresident include the following: interest income, dividend income,
and gains (losses) from the sale, exchange, or other disposition of Line 1b – Compensation Received from a Pass-Through Entity
assets not having an Ohio situs. Examples of nonbusiness income With respect to the guaranteed payments and/or compensation
that the individual must entirely allocate to Ohio – even for the por- received by pass-through entities (S corporations, partnerships,
tion of the year during which the individual was not a resident of limited liability companies treated as partnerships for income tax
Ohio – include the following: (i) gain (loss) from the sale, exchange purposes, etc.) the “reciprocity agreements” between Ohio and
or other disposition of Ohio real estate and prizes and (ii) awards neighboring states do not apply to those nonresidents directly
that the individual receives from the Ohio Lottery Commission. or indirectly owning at least 20% of the stock or other equity
of the pass-through entity. That is, these nonresidents cannot
Examples of business income amounts that a part-year resident use the “reciprocity agreements” in order to deduct, as non-Ohio
must apportion in and out of the state – even for the portion of the income, any guaranteed payments or compensation received from
year during which the individual was not a resident of Ohio – include such pass-through entities. Rather, the guaranteed payments or
the following: (i) wages and guaranteed payments that the taxpayer compensation are included in Ohio taxable income and are treated
receives from a related member pass-through entity having nexus as business income which is subject to apportionment for purposes
with Ohio (see Ohio form IT 2023, page 1, Part I, A, line 1b), (ii) of computing the individual’s nonresident credit. R.C. 5733.40(A) (7)
distributive shares of income from each pass-through entity having
nexus with Ohio, and (iii) the profi t from a sole proprietorship having Line 2 – Related Member Add-back
nexus with Ohio. R.C. 5733.40(A) (3) and (4) disallow expenses and losses incurred
in connection with all direct and indirect transactions be- tween each
Pro-rating Amounts Recognized by a Part-Year Resident pass-through entity and its related members. “Related member”
Part-year nonresidents and full-year nonresidents use the same is defi ned in R.C. 5733.042(A) (6) and 5733.40(P). As such, you
methods to apportion and allocate within and without Ohio the fol- must add back on Part I, line 2 your distributive/proportionate share
lowing: (i) those items of nonbusiness income, gain, expenses, and of such expenses and losses. However, do not add (i) amounts
losses sitused to Ohio and (ii) those items of business income, gain, shown on line 1b or (ii) expenses or losses incurred in connection
expenses, and losses from pass-through entities having nexus with with sales of inventory to the extent that the cost of the inventory
Ohio (with respect to items not described above, the taxpayer should and the loss incurred were calculated in accordance with Internal
apportion/allocate entirely outside Ohio those amounts recognized Revenue Code sections (I.R.C.) 263A and 482.
or incurred during the year or during the portion of the year that the
taxpayer was a nonresident). Line 6 – Depreciation Adjustments
Add 5/6 of Internal Revenue Code section 168(k) bonus depreciation
For ease of administration, part-year resident taxpayers investing in allowed under the Internal Revenue Code in effect on Dec. 15, 2010.
pass-through entities having no nexus with Ohio can, for the portion Also add 5/6 of the excess of the Internal Revenue Code section 179
of the taxable year during which the individual was not an Ohio depreciation expense allowed under the Internal Revenue Code in
resident, apportion/allocate outside Ohio such items by using a daily effect on Dec. 15, 2010 over the amount of section 179 deprecia-
or monthly pro-rata factor. If the tax commissioner examines the tax tion expense that would have been allowed based upon Internal
return and determines that an “actual, year-to-date” method more Revenue Code section 179 in effect on Dec. 31, 2002. Replace
accurately reflects the tax due and, if as a result of that determina- “5/6” with “2/3” for employers who increased their Ohio income
tion, the taxpayer owes more tax (and interest on the tax) the tax taxes withheld by an amount equal to or greater than 10 percent
commissioner will not impose any failure to pay penalty or interest over the previous year. Replace “5/6” with “6/6” for taxpayers who
penalty with respect to that increased tax.
incur a net operating loss for federal income tax purposes if the loss
The following example illustrates the application of this requirement: was a result of the 168(k) and/or 179 depreciation expenses. No
A taxpayer is a resident of Ohio for only the last fi ve months of the add-back is required for employers who increased their Ohio income
taxable year. During the entire taxable year the taxpayer was an taxes withheld over the previous year by an amount greater than or
equity investor in a pass-through entity having no nexus with Ohio. equal to the sum of the 168(k) or 179 depreciation expenses. No
The pass-through entity’s business operations result in a significant add-back is required for 168(k) and/or 179 depreciation amounts
portion of the profit being earned during November and December related to a pass-through entity in which the taxpayer has less than
of each year. The individual’s distributive share of profi t from the 5% ownership. See Ohio Revised Code section 5747.01(A)(20)
pass-through entity was $12,000 for the taxable year. as amended by the 129th General assembly in HB 365 and our
information release IT 2002-02 entitled “Ohio Bonus Depreciation
For ease of tax compliance, the taxpayer can compute the part- Adjustments” which is available on our Web site at tax.ohio.gov.
year credit by assuming that $7,000 of the taxpayer’s distributive
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IT 2023
Rev. 1/15
Under I.R.C. 179, as that section existed on Dec. 31, 2002, the eral net operating loss carryback or carry forward. If a deduction
maximum amount that could be expensed was $25,000, and the is not available for this reason, you may carry forward the amount
phase-out began once the cost of purchases of I.R.C. 179 property not deducted for Ohio purposes and deduct it during a future year.
during the year exceeded $200,000. So, under the prior law the See Ohio Revised Code section 5747.01(A)(20) as amended by
taxpayer could not claim any I.R.C. 179 expense if the taxpayer’s the 129th General assembly in HB 365 and our information release
purchases during the year of I.R.C. 179 property, as defi ned on IT 2002-02 entitled “Ohio Bonus Depreciation Adjustments” which
Dec. 31, 2002, were $225,000 or more. is available on our Web site at tax.ohio.gov.
This “add-back and subsequent deduction” law also covers (i) Line 9d – Miscellaneous Federal Income Tax Adjustments
depreciable assets acquired by the taxpayer’s disregarded entities Because of a recent amendment to R.C. section 5701.11, there are
and (ii) depreciable assets that are owned by pass-through entities no miscellaneous federal tax adjustments on this return. See Sub.
in which the taxpayer directly or indirectly owns at least 5% (see House Bill 58, 129th General Assembly. However, you must make
R.C. 5747.01(A)(20)(a)). all other required adjustments for this line.
In addition, the pass-through entity can defer making all or some of Net Business Income, Apportionment (Part I, C) Line 11 –
the add-back under the following circumstances: Gain Described in R.C. 5747.212
Each nonresident taxpayer who sells, exchanges or otherwise dis-
(i) the pass-through equity is an equity investor in another pass- poses of his/her direct or indirect interest in a closely held business
through entity that has generated I.R.C. 168(k) bonus depreciation having property, payroll and/or sales in Ohio must situs to Ohio a
and/or I.R.C. 179 depreciation; and portion of the gain (loss) recognized from that sale, exchange or
other disposition. For additional information, see R.C. 5747.212.
(ii) because of either the federal passive activity loss limitation rules
or the federal at-risk limitation rules, this investor pass- through Apportionment Formula for Business Income (Part II)
entity is unable to deduct fully a loss passing through from the other Note: When calculating the fraction used to compute the non-
pass-through entity to this investor pass-through entity. resident credit, a taxpayer who has invested in a partnership, an
S corporation or a limited liability company treated as a partner-
In such circumstances, to the extent that this investor pass- through
ship for federal income tax purposes must apply the “aggregate”
entity does not deduct the loss passing through, this investor pass-
(conduit) theory of taxation. That is, the character of all income and
through entity can defer making the “2/3 or 5/6 add- back” until the
deductions (and adjustments to income and deductions) realized
taxable year or years for which this investor pass- through entity
by a pass-through entity in which the taxpayer has invested retains
does deduct the investee pass-through entity’s loss and does re-
that character when recognized by the taxpayer. Furthermore, the
ceive a federal tax benefi t from the bonus depreciation amount and/
taxpayer’s factors must include the proportionate share of each
or the I.R.C. 179 amount generated by the investee pass-through
lower-tiered pass-through entity’s property, payroll and sales. See
entity. Of course, this investor pass-through entity cannot begin
R.C. 5733.057 and 5747.231.
claiming the related two- or fi ve-subsequent years deduction until
the fi rst taxable year immediately following the taxable year for which Each factor is weighted: The property and payroll factors are
this investor pass-through entity makes the 2/3 or 5/6 add-back. weighted at 20% each and the sales factor at 60%, for a total
of100%. If any factor has a denominator (total everywhere fi gure) of
For detailed information and examples regarding this adjustment,
zero, the weight given to the other factors must be proportionately
see ORC 5747.01(A)(20) as amended by the 129th General as-
increased so that the total weight given to the combined factors is
sembly in HB 365 and the department’s information release entitled
100%. For example: If the business entity has no payroll everywhere,
“Recently Enacted Ohio Legislation Affects Depreciation Deductions
then the property and sales factors are weighted at 25% and 75%,
for Taxable Years Ending 2001 and Thereafter” by visiting tax.ohio.
respectively, to total 100%.
gov. The department posted this release on July 31, 2002, and
revised the release in July 2005 and June 2009. Property Factor
The property factor is a fraction the numerator of which is the aver-
Line 7 – Miscellaneous Federal Income Tax Adjustments
age value of the sole proprietor’s or pass-through entity’s includable
Because of a recent amendment to R.C. section 5701.11, there are
real and tangible personal property owned or rented, and used in
no miscellaneous federal tax adjustments on this return. See Sub.
the trade or business in this state during the taxable year, and the
House Bill 58, 129th General Assembly. However, you must make
denominator of which is the average value of all the sole proprietor’s
all other required adjustments for this line.
or pass-through entity’s includable real and tangible personal prop-
Deductions From Business Income (Part I, B) erty owned or rented, and used in the trade or business everywhere
during such year.
Line 9b – Depreciation Adjustments
Deduct 1/5, 1/2 or 1/6 of the Internal Revenue Code sections Ohio law includes in the property factor real property and tangible
168(k) and 179 depreciation adjustments that you added back on personal property that the sole proprietor or pass-through entity
your previous Ohio income tax returns. The fraction used depends rents, subrents, leases or subleases to others if the income or loss
on the fraction used when the add-back took place. Deduct 1/5 of from such rentals, subrentals, leases or subleases is business
amounts that resulted from a 5/6 add-back. Deduct 1/2 of amounts income. Ohio law specifi cally excludes from the factor all property
that resulted from a 2/3 add-back. Deduct 1/6 of amounts that relating to, or used in connection with, the production of nonbusiness
resulted from a 6/6 add-back. You can take this deduction even if income allocated under R.C. 5733.051. Generally, all sole proprietor-
you no longer directly or indirectly own the asset. ship and pass-through entity income and gain is business income.
Note: These deductions cannot be taken to the extent that your Property owned by the sole proprietor or pass-through entity is val-
sections 168(k) and 179 depreciation expenses increased a fed- ued at its original cost average value. Average value is determined
by adding the cost values at the beginning and at the end of the
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IT 2023
Rev. 1/15
taxable year and dividing the total by two. The tax commissioner Line 1(c), Column 5 – Weighted Property Ratio
may require the use of monthly values during the taxable year if Multiply the property ratio on line 1(c), column 3 by the property
such values more reasonably refl ect the average value of the sole factor weighting of 20%.
proprietor’s or pass-through entity’s property.
Payroll Factor
Exclusions The payroll factor is a fraction, the numerator of which is the total
Exclude from column 1 (within Ohio) and column 2 (total every- compensation paid in this state during the taxable year by the sole
where) the following: proprietor or pass-through entity, and the denominator of which is the
total compensation paid both within and without this state during the
• Construction in progress. taxable year by the sole proprietor or pass-through entity. As used
below, the term “compensation” means any form of remuneration
• Property relating to, or used in connection with, the production of paid to an employee for personal services.
nonbusiness income. See R.C. 5733.05(B) (2) as amended by
Amended Substitute House Bill 95, 125th General Assembly. Exclusions
Exclude from column 1 (within Ohio) and column 2 (total every-
• The numerator and the denominator of the property factor includes where) the following:
real property and tangible personal property that the sole propri-
etor or pass-through entity rents, subrents, leases or subleases to • Guaranteed payments made to partners;
others if the income or loss from such rentals, subrentals, leases
or subleases is business income. See R.C. 5733.05(B)(2)(a) as • Compensation that the S corporation paid to any shareholder if
amended by Amended Substitute House Bill 95, 125th General the shareholder directly or indirectly owned at least 20% of the
Assembly. Property owned by the sole proprietor or pass-through S corporation at any time during the year. R.C. 5733.40(A) (7);
entity and leased to others is excluded from the property factor
only if the property generates nonbusiness income. • Compensation paid in Ohio to employees who are primarily en-
gaged in qualifi ed research; AND
• The original cost of property within Ohio with respect to the air
pollution, noise pollution or industrial water pollution control cer- • Compensation paid to employees to the extent that the compen-
tificates issued by the state of Ohio. See R.C. 5733.05(B) (2) (a). sation relates to the production of nonbusiness income allocable
under R.C 5733.051 (see R.C. 5733.05(B) (2)).
• The original cost of real property and tangible property (or in the
case of property that the sole proprietor or pass-through entity is Do not include in column 1 but do include in column 2 compensa-
renting from others, eight times its net annual rental rate) within tion paid in Ohio to certain specifi ed new employees at an urban
Ohio that is used exclusively during the taxable year for qualified job and enterprise zone facility for which the pass-through entity
research. has received a Tax Incentive Qualifi cation Certifi cate issued by the
Ohio Development Services Agency.
Do not include in column 1 but do include in column 2 the original cost
of qualifying improvements to land or tangible personal property in an Line 2, Column 1 – Payroll Within Ohio
enterprise zone for which the taxpayer holds a Tax Incentive Qualifi- Enter the total amount of the sole proprietor’s or pass-through
cation Certifi cate issued by the Ohio Development Services Agency. entity’s compensation paid in Ohio during the taxable year. Com-
pensation is paid in Ohio if any of the following apply:
Line 1(a), Column 1 – Property Owned Within Ohio
Enter the average value of the sole proprietor’s or pass-through • The recipient’s service is performed entirely within Ohio; or
entity’s real property and tangible personal property, including
leasehold improvements, owned and used in the trade or business • The recipient’s service is performed both within and outside Ohio,
in Ohio during the taxable year. but the service performed outside Ohio is incidental to the recipi-
ent’s service within Ohio; OR
Line 1(a), Column 2 – Property Owned – Total Everywhere
Enter the average value of all the sole proprietor’s or pass-through • Some of the recipient’s service is performed within Ohio and
entity’s real property and tangible personal property, including either the recipient’s base of operations, or if there is no base of
leasehold improvements, owned and used in the trade or business operations, the place from which the recipient’s service is directed
everywhere during the taxable year. or controlled is within Ohio, or the base of operations or the place
from which the service is directed or controlled is not in any state
Line 1(b) – Property Rented in which some part of the service is performed, but the recipient’s
Enter the value of the sole proprietor’s or pass-through entity’s real residence is in Ohio.
property and tangible personal property rented and used in the
trade or business in Ohio (column 1) and everywhere (column 2) Compensation is paid in Ohio to any employee of a common or con-
during the taxable year. Property rented by the sole proprietor or tract motor carrier corporation who performs his regularly assigned
pass-through entity is valued at eight times the annual rental rate duties on a motor vehicle in more than one state in the same ratio
(annual rental expense less subrental receipts). by which the mileage traveled by such employee within Ohio bears
to the total mileage traveled by such employee everywhere during
Line 1(c) – Property Total Within Ohio and Everywhere the taxable year. The statutorily required mileage ratio applies only
Add lines 1(a) and 1(b) for column 1 (within Ohio) and column 2 to contract or common carriers. Thus, without approval by the tax
(total everywhere). commissioner a manufacturer or merchant who operates its own
fleet of delivery trucks cannot use the ratio of miles traveled in Ohio
Line 1(c), Column 3 – Property Ratio to miles traveled everywhere to situs driver payroll. See Cooper Tire
Enter the ratio of property within Ohio to total everywhere by divid- and Rubber Co. v. Limbach (1994), 70 Ohio St. 3d 347.
ing column 1 by column 2.
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IT 2023
Rev. 1/15
Line 2, Column 2 – Payroll Total Everywhere (vi) receipt from the sale of services and other receipts not expressly
Enter the total amount of the sole proprietor’s or pass-through excluded from the factor. These amounts are situsable to Ohio as
entity’s compensation paid everywhere during the taxable year. set forth below.
Line 2, Column 3 – Payroll Ratio Line 3, Column 1 – Sales Within Ohio
Enter the ratio of payroll within Ohio to total everywhere by dividing Enter the total of gross receipts from sales not excludable from the
column 1 by column 2. numerator and the denominator of the sales factor, to the extent
the includable gross receipts refl ect business done in Ohio. Sales
Line 2, Column 5 – Weighted Payroll Ratio within Ohio include the following:
Multiply the property ratio on line 2, column 3 by the payroll factor
weighting of 20%. • Receipts from sales of tangible personal property, less
returns and allowances, received by the purchaser in Ohio.
Sales Factor In the case of delivery of tangible personal property by common
The sales factor is a fraction whose numerator is the sole proprietor’s carrier or by other means of transportation, the place at which
or pass-through entity’s includable business income receipts in Ohio such property is ultimately received after all transportation has
during the taxable year and whose denominator is the sum of the been completed is considered as the place at which such property
sole proprietor’s or pass-through entity’s within Ohio and without is received by the purchaser. Direct delivery in Ohio, other than
Ohio includable business income receipts during the taxable year. for purposes of transportation, to a person or firm designated by
The sales factor specifi cally excludes receipts attributable to a purchaser constitutes delivery to the purchaser in Ohio, and
nonbusiness income allocable under R.C. 5733.051 (see R.C. direct delivery outside Ohio to a person or fi rm designated by a
5733.05(B)(2) and the tax commissioner’s April 2004 information purchaser does not constitute delivery to the purchaser in Ohio,
release entitled “Sales Factor Situsing Revisions”). regardless of where title passes or other conditions of sale.
Exclusions Customer pick-up sales are situsable to the fi nal destination after
The following receipts are not includable in either the numerator or all transportation (including customer transportation) has been
the denominator of the sales factor even if the receipts arise from completed. See Dupps Co. v. Lindley (1980), 62 Ohio St. 2d 305.
transactions, activities and sources in the regular course of a trade Revenue from servicing, processing, or modifying tangible personal
or business (see R.C. 5733.05(B)(2)(c) as amended by Substitute property is sitused to the destination state as a sale of tangible
House Bill 127, 125th General Assembly): personal property. See Custom Deco, Inc. v. Limbach, BTA Case
No. 86-C-1024, June 2, 1989.
• Interest or similar amounts received for the use of, or for the
forbearance of the use of, money; • Receipts from sales of real property inventory in Ohio.
• Dividends; • Rents and royalties from tangible personal property to the extent
the property was used in Ohio.
• Receipts and any related gains or losses from the sale or other
disposal of intangible property other than trademarks, trade • Rents and royalties from real property located in Ohio.
names, patents, copyrights and similar intellectual property;
• Receipts from the sale, exchange, disposition or other grant of
• Receipts and any related gains and losses from the sale or other the right to use trademarks, trade names, patents, copyrights, and
disposal of tangible personal property or real property where that similar intellectual property are sitused to Ohio to the extent that
property is a capital asset or an asset described in I.R.C. 1231. the receipts are based on the amount of use of that property in
For purposes of this provision the determination of whether or Ohio. If the receipts are not based on the amount of use of that
not an asset is a capital asset or a 1231 asset is made without property, but rather on the right to use the property and the payor
regard to the holding period specifi ed in the I.R.C.; AND has the right to use the property in Ohio, then the receipts from
the sale, exchange, disposition, or other grant of the right to use
• Receipts from sales to (a) an at-least-80%-owned public utility
such property are sitused to Ohio to the extent the receipts are
other than an electric company, combined electric company, or
based on the right to use the property in Ohio.
telephone company, (b) an at-least-80%-owned insurance com-
pany, or (c) an at-least-25%-owned fi nancial institution. • Receipts from the performance of services and receipts from any
Note: Income and gain from receipts excluded from the sales factor other sales not excluded from the sales factor and not otherwise
is not presumed to be nonbusiness income. All income, gain, loss, sitused within or without Ohio under the above situsing provisions
and expense is presumed to be apportionable business income are situsable to Ohio in proportion to the purchaser’s benefit,
– even if the related receipts are excluded from the sales factor. with respect to the sale, in Ohio to the purchaser’s benefi t, with
respect to the sale, everywhere. The physical location where
The law specifically includes in the sales factor the following the purchaser ultimately uses or receives the benefi t of what
amounts when arising from transactions, activities and sources in was purchased is paramount in determining the proportion of
the regular course of a trade or business: (i) receipts from sales of the benefi t in Ohio to the benefit everywhere. Note: For taxable
tangible personal property, (ii) receipts from the sale of real property years ending on or after Dec. 11, 2003, the “cost of performance”
inventory (such as lots developed and sold by a real estate devel- provision is no longer the law.
oper), (iii) rents and royalties from tangible personal property, (iv)
rents and royalties from real property, (v) receipts from the sale, Line 3, Column 2 – Sales Everywhere
exchange, disposition or other grant of the right to use trademarks, Enter the total of such includable gross receipts, less returns and
trade names, patents, copyrights and similar intellectual property, allowances, from sales everywhere.
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Line 3, Column 3 – Sales Ratio See the note on page 2 of the form regarding compensation paid
Enter the ratio of sales within Ohio to total everywhere by dividing by pass-through entities to certain shareholders and members of
column 1 by column 2. shareholders’ families.
Line 3, Column 5 – Weighted Sales Ratio Line 5
Multiply the sales ratio on line 3, column 3 by the sales factor Income from alimony payments is allocated based on the residency
weighting of 60%. of the recipient, not the residency of the payor. Allocate to Ohio any
alimony payments received while a resident of Ohio.
Line 4, Column 5 – Total Weighted Apportionment Ratio (add
column (5), lines 1 (c), 2 and 3). Deductions from Nonbusiness Income (Part III, B)
Nonbusiness Income (Part III, A) Generally, deductions are allocated based on residency at the time
the expense was paid. Allocate to Ohio any expenses that were
Generally, nonresidents must allocate to Ohio all items of nonbusi- paid while a resident of Ohio.
ness income earned in Ohio. Part-year residents must allocate to
Ohio all items of nonbusiness income earned in Ohio and all items Line 15
of nonbusiness income received while a resident of Ohio. See Part-year residents who moved from Ohio to another state must
items #8 and #9 on page 7 of the instructions regarding lottery and allocate all moving expenses to non-Ohio. Part-year residents
gambling winnings. who moved to Ohio from another state must allocate all moving
expenses to Ohio.
Line 1
All items of compensation paid for services performed in Ohio must Line 17
be allocated to Ohio. All items of compensation received while a Deductions of alimony payments are allocated based on the resi-
resident of Ohio must be allocated to Ohio. dency of the payor, not the recipient. Allocate to Ohio any alimony
payments made while a resident of Ohio.
Compensation earned while a resident of Ohio but not received
until the individual is a nonresident must still be allocated to Ohio. Line 21
Enter the total of lines 13 through 20 on this line. If you have any
Compensation includes wages, salaries, tips, incentive pay, sever- write-in adjustments that are included on line 36 of your federal
ance pay, bonus pay, and may include all or a portion of income form 1040, include those amounts in this total. On the line below
related to the exercise of stock options received on account of line 21, identify and enter the amount of the write-in adjustments.
employment in Ohio.
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Summary of Ohio Tax Treatment of Income and Deductions
Note: Except for lottery prizes and awards, all income and gain is presumed to be business income/gain.
Type of Income and Deductions Ohio Tax Treatment
1. Guaranteed payments and com- Allocate to Ohio to the extent earned in Ohio. However, if the individual directly or indirectly
pensation paid to an individual for owns at least 20% of the business, the individual must show the guaranteed payments and
services performed compensation on Part II, A, line 16.
2. Gains or losses from the sale or Apportion if gain constitutes business income; otherwise, allocate to Ohio if the property is
transfer of real property physically located in Ohio.
3. Gains or losses from the sale or Apportion if gain constitutes business income. Nonbusiness gains and losses are allocated to
transfer of tangible personal prop- Ohio if the property is physically located in Ohio.
erty
4. Gains or losses from the sale or Apportion if gain or loss constitutes business income. If the gain or loss is from the sale, exchange
transfer of intangible personal or other disposition of a closely held business, special apportionment provisions apply. See
property R.C. 5747.212. All other nonbusiness gains and losses are allocated to Ohio if the nonresident
was domiciled in Ohio at the time of sale or transfer.
5. Rents or royalties from real prop- Apportion if gain constitutes business income; otherwise allocate to Ohio if the property is
erty physically located in Ohio.
6. Rents or royalties from tangible Apportion if the rents or royalties constitute business income; otherwise, allocate to Ohio to the
personal property extent the property is used in Ohio. Extent the property is used in Ohio =
Number of days of physical location of property in Ohio
during rental or royalty periods in the taxable year
Number of days of physical location of property everywhere
during all rental or royalty periods in the taxable year.
If the physical location of the property during the rental or royalty period is unknown or unascer-
tainable by the nonresident, and if the rents and royalties do not constitute business income,
tangible personal property is used in the state in which the property was located at the time the
rental or royalty payor obtained possession.
7. Patent and copyright royalties Apportion if the rents or royalties constitute business income; otherwise, allocate to Ohio to the
extent used by the payor in Ohio.
• Apatent is used in Ohio to the extent it is employed in production, fabrication, manufacturing
or other processing in Ohio or to the extent that a patented product is produced in Ohio. If
the basis of receipts or accounting procedures do not refl ect this, then the patent is used in
Ohio if the business has its commercial domicile in Ohio.
• Acopyright is used in Ohio to the extent that printing or other publication originates in Ohio.
If the basis of receipts or accounting procedures do not refl ect this, then the copyright is
used in Ohio if the business had its commercial domicile in Ohio.
8. Lottery prize awards Allocate to Ohio if the award was paid by the Ohio State Lottery Commission.
9. Depreciation expense add-back/ If the depreciation relates to nonbusiness property, the 1/2, 5/6 or 6/6 add-back and correspond-
deduction ing 1/2, 1/5 or 1/6 deductions are allocated as items of nonbusiness income and deductions
using the Part IV nonbusiness income worksheet. Otherwise, these depreciation adjustments
are apportioned as items of business income and deduction using the Part II business income
worksheet.
Federal Privacy Act Notice
Because we require you to provide us with a social security ac-
count number, the Federal Privacy Act of 1974 requires us to
inform you that your providing us your Social Security number
is mandatory. Ohio Revised Code sections 5703.05, 5703.057
and 5747.08 authorize us to request this information. We need
your Social Security number in order to administer this tax.
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