5703-3-32. Dealer in intangibles tax definition of primarily

(A)

(1) Division (B)(1) of section 5725.01 of the Revised Code defines "dealer in intangibles." Paragraphs (B) through (D) of this rule define "primarily" as used in section 5725.01 of the Revised Code. In addition to the primarily requirement defined in this rule, a person must meet all other legal requirements in order to meet the definition of "dealer in intangibles."

(2) As used in this rule:

(a) "Affiliated group" means two or more persons related in such a way that one person owns or controls the business operation of another member of the group. In the case of corporations with stock, one corporation owns or controls another if it owns more than fifty per cent of the other corporation's common stock with voting rights.

(b) "Dealer activities" means lending money, or discounting, buying, or selling bills of exchange, drafts, acceptances, notes, mortgages, or other evidences of indebtedness, or buying or selling bonds, stocks, or other investment securities, whether on the person's own account with a view to profit, or as agent or broker for others, with a view to profit or personal earnings. "Dealer activities" includes the servicing of loans originated or purchased by or on behalf of the person or another member of the person's affiliated group.

(c) "Gross income," except as otherwise provided in this rule, has the same meaning as in section 61 of the Internal Revenue Code, as amended. In no event shall "gross income" include the recovery of basis from the sale, exchange, or other disposition of an asset.

(d) "Hedging transactions" means transactions engaged in for the purpose of reducing exposure to risk from market fluctuations in price or availability.

(B)

(1) As used in division (B)(1) of section 5725.01 of the Revised Code, and except as otherwise provided in this rule, a person's business consists primarily of dealer activities if either paragraph (B)(1)(a) or (B)(1)(b) of this rule applies:

(a) For a person that had an office or other place of business in Ohio at the end of each of the three preceding calendar years, such person's gross income from one or more dealer activities exceeds fifty per cent of the person's total gross income in at least two of the three preceding calendar years; or

(b) For a person that had an office or other place of business in Ohio at the end of the immediately preceding calendar year but did not have an office or other place of business in Ohio at the end of one or both of the other two of the three preceding calendar years, such person's gross income from one or more dealer activities exceeds fifty per cent of the person's total gross income in the immediately preceding calendar year.

(2) For purposes of paragraph (B)(1) of this rule, the computation of the applicable percentages shall not include, in the numerator or the denominator, any gross income from hedging transactions.

(C)

(1) A person whose business does not meet the percentage test in paragraph (B) of this rule may show that such person's business nonetheless consists primarily of dealer activities. Paragraph (C)(1) of this rule applies only if the person files a written notice with the tax commissioner, in person or by certified mail, of the person's intent to apply such paragraph to the tax year no later than the later of the following:

(a) The due date, without extension, for filing the dealer in intangibles tax return for that tax year;

(b) Sixty days from the date the person receives written notice from the tax commissioner that it appears that the person does not meet the percentage test in paragraph (B) of this rule for that tax year.

(2) The tax commissioner may show that a person's business that meets the percentage test in paragraph (B) of this rule nonetheless does not consist primarily of dealer activities. Paragraph (C)(2) of this rule applies only if the tax commissioner sends to the person a written notice, in person or by certified mail, of the tax commissioner's intent to apply such paragraph no later than two years after the date the person files a dealer in intangibles tax return for the tax year to which the commissioner seeks to apply such paragraph.

(3) Whoever seeks to apply paragraph (C) of this rule bears the burden of showing, based on the totality of the circumstances, that the person's business consists primarily of activities other than as shown by the percentage test in paragraph (B) of this rule. Factors to consider in addition to the person's gross income from dealer activities include, but are not limited to, the proportion of the person's assets related to dealer activities, the proportion of time the person or the person's employees spend engaging in dealer activities, the proportion of costs incurred in performing dealer activities, and substantial changes in the character of the person's business.

(D) As used in division (B)(1) of section 5725.01 of the Revised Code, the determination of whether a person winding up a dealer business conducted on the person's own account remains in business primarily for the purpose of realizing upon the assets of the business is based on the totality of the circumstances.

(E)

(1) In accordance with division (A)(1) of section 5733.09 of the Revised Code, a corporation is exempt from the corporation franchise tax for a tax year if it is a dealer in intangibles for that tax year. The commissioner will waive any penalty for late filing or payment of the corporation franchise tax for a tax year if the corporation files all delinquent corporation franchise tax reports, including estimated reports, and pays all delinquent corporation franchise taxes, including estimated taxes, together with any applicable interest thereon, not later than sixty days after it learns or should have learned that it did not qualify as a dealer in intangibles for the tax year.

(2) In accordance with division (E)(4) of section 5751.01 of the Revised Code, a person is exempt from the commercial activity tax levied under Chapter 5751. of the Revised Code for a tax period if it is a dealer in intangibles based on one or more measurement periods that include that entire tax period. The commissioner will waive any penalty for late filing or payment of the commercial activity tax for a tax period if the person files all delinquent commercial activity tax returns, and pays all delinquent commercial activity taxes, including estimated taxes, together with any applicable interest thereon, not later than sixty days after it learns or should have learned that it did not qualify as a dealer in intangibles based on one or more measurement periods included in whole or part in the tax period.

(3) The commissioner will waive any penalty for late filing or payment of the dealer in intangibles tax for a tax period if a person having in error filed a corporation franchise tax report or commercial activity tax return files all delinquent dealer in intangibles tax returns and pays all delinquent dealer in intangibles taxes, together with any applicable interest thereon, not later than sixty days after it learns or should have learned that it qualified as a dealer in intangibles for the tax year.

(F) This rule is not intended to address whether a person meeting the definition of "dealer in intangibles" may be a "dual capacity" enterprise in accordance with Gen. American Transp. Corp. v. Limbach (1984), 15 Ohio St.3d 302.

Replaces: 5703-3-32

Effective: 04/06/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5725.01(B)(1)
Prior Effective Dates: 12/28/2005 (Emer.)