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1. What is corporation franchise tax?
For tax years 2009 and prior, the Ohio corporation franchise tax was an excise tax imposed on corporations (other than nonprofit corporations) for the privilege of exercising their corporation franchise in Ohio. The tax applied to both domestic corporations (those incorporated in Ohio) and foreign corporations (those incorporated outside of Ohio) for the privilege of doing business in Ohio, owning capital or property in Ohio, holding a charter or certificate of compliance authorizing the corporation to do business in Ohio, or otherwise having a presence (nexus) in Ohio during a calendar year. Unless an exemption applied, a corporation that had nexus in or with Ohio under the Constitution of the United States was subject to the corporation franchise tax. Please refer to FAQ #3 and #4 regarding the phase-out of the franchise tax.
Note: For most taxpayers, the corporation franchise tax was ratably phased out over the franchise tax years 2006 through 2010 (taxable years ending in 2005 through 2009). During this same period Ohio’s commercial activity tax (CAT) phased in. Please refer to FAQ #3 and #4 regarding the phase-out of the franchise tax, and the informational release, CFT 2010-01 which can be located on our Web site. In addition, there are no franchise tax payments or filing obligations for report year 2010 and thereafter for most taxpayers.
For those corporations still subject to the franchise tax, prior filing and payment requirements apply. Financial institutions file form FT 1120FI; all other corporations still subject to the franchise tax must file form FT 1120.
2. Who must file and pay the corporation franchise tax?
For tax years 2009 and prior, the following applies. For tax years 2010 and thereafter, please refer to FAQ #3.
Unless an exemption applies, a corporation organized for profit is subject to the corporation franchise tax for each calendar year (tax year) that on the first day of January of that calendar year the corporation:
To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
3. What corporations are not subject to the franchise tax phase-out and remain subject to the franchise tax?
The following corporations remain subject to the franchise tax after the phase-out: (i) financial holding companies; (ii) bank holding companies; (iii) savings and loan holding companies; (iv) corporations directly or indirectly owned by one or more corporations described in (i) through (iii) when such subsidiary corporations are engaged in activities permissible for a financial holding company, (v) corporations directly or indirectly owned by one or more financial institutions that pay the franchise tax charged by R.C. 5733.06(D) when such subsidiary corporations are engaged in activities permissible for a financial holding company and such corporations are not already described in (iv) above, (vi) corporations directly or indirectly owned by one or more insurance companies when such subsidiary corporations are engaged in insurance-type activities, and (vii) "securitization " companies described in R.C. 5751.01(E)(10). See R.C. 5733.01(G) and 5751.01(E).
4. What is the franchise tax phase-out?
For most taxpayers the franchise tax was ratably phased out over the franchise tax years 2006 through 2010 (taxable years ending 2005 through 2009). During this same period Ohio’s new commercial activity tax (CAT) was ratably phased in for most franchise taxpayers. For those taxpayers subjected to the franchise tax phase-out, the phase-out applied to the 2006 report even if the taxpayer’s taxable year ended prior to the June 30, 2005 effective date of the new law.
For report years 2006, 2007, 2008, 2009 and 2010 franchise taxpayers subject to the phase-out paid 80 percent, 60 percent, 40 percent, 20 percent and 0 percent, respectively, of the franchise tax due after nonrefundable credits but not less than the minimum fee of either $50 or $1,000.
Corporations not subject to the franchise tax for tax years 2010 (based on the taxable year ending in 2009) and thereafter were not subject to the minimum fee and had no franchise tax payment or filing obligation for those report years. Please refer to our informational release CFT 2010-01 which can be located on our Web site.
Credits for taxes paid by qualifying pass-through entities was not subject to the phase-out factor pursuant to R.C. 5733.0611. Please refer to FAQ #5 regarding how the phase-out affected the nonrefundable credit for taxes paid by qualifying pass-through entities.
5. How does the phase-out affect the nonrefundable credit for taxes paid by a qualifying pass-through entity?
Beginning with the 2006 report year, franchise taxpayers subject to the phase-out multiplied their franchise tax after nonrefundable credits (other than the nonrefundable credit for tax paid by a qualifying pass-through entity) by the phase-out factor. The nonrefundable credit for taxes paid by a qualifying pass-through entity was not subject to the phase-out factor. Rather than applying the phase-out factor to this credit, the new law phased out the tax that a pass-through entity paid on its Ohio income passing through to qualifying investors that were subject to the franchise tax phase-out. See table below.
Pass-Through Entity’s Taxable Year Ending in: |
Pass-Through Entity’s Tax Rate on its Ohio Income Passing Through to Qualifying Investors Subject to the Franchise Tax Phase-Out |
2005 |
6.8% (80% x 8.5%) |
2006 |
5.1% (60% x 8.5%) |
2007 |
3.4% (40% x 8.5%) |
2008 |
1.7% (20% x 8.5%) |
2009 and thereafter |
0% (0% x 8.5%) |
6. Is Form FT 1120S (Notice of S Corporation Status) required for tax year 2012?
No. The Office of the Tax Commissioner issued an administrative journal entry, dated October 12, 2011, waiving the filing requirement for S corporations for tax year 2012, based on taxable year ending 2011.
Accordingly, S corporations do not need to file Form FT 1120S for tax year 2012, as the administrative journal entry overrides the filing requirements in R.C. 5733.09(B) for S corporations. Investor information previously reported on the FT 1120S will now be reported on either the (a) IT 4708 – Composite Income Tax Return for Certain Investors in a Pass-Through Entity or (b) IT 1140 – Pass-Through Entity and Trust Withholding Tax Return. These forms are available on our Web site at Tax Forms by searching pass-through entity tax.
7. Did the nonrefundable franchise tax credits convert to credits against the commercial activity tax (CAT) after the franchise tax phase-out?
Most nonrefundable franchise tax credits were not recoverable against the CAT and therefore taxpayers could not claim their unused nonrefundable franchise tax credit carry forward as a credit against the CAT. However, three nonrefundable credits converted to nonrefundable CAT credits following the 2008 franchise tax report, which was the last report year that these three credits could have been claimed against the franchise tax (for those taxpayer’s subject to the franchise tax phase-out).
For those taxpayers not subject to the franchise tax phase-out and the CAT phase-in, these credits continue under the franchise tax.
Please refer to the corporation franchise tax instructions which can be located on our Tax Forms home page for more detailed information.
8. How is the corporation franchise tax computed?
Taxpayers generally must compute the tax on both the net income base and the net worth base and pay the tax on the base that produces the greater tax. The maximum net worth base tax liability is $150,000. However, different rules apply to financial institutions and qualifying holding companies. Financial institutions are not subject to the tax on the net income base, but financial institutions are subject to the net worth base tax at a higher rate than other corporations, and the $150,000 net worth tax limit does not apply to financial institutions. Qualifying holding companies are not subject to the tax on the net worth base, but are subject to the tax on the net income base.
For those taxpayers subject to the franchise tax phase-out, the tax is multiplied by the phase-out factor. Please refer to FAQ #4 regarding the franchise tax phase-out.
To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
9. What is the difference between business and nonbusiness income?
For taxable years ending on or after June 26, 2003, Ohio franchise tax law distinguishes business income from nonbusiness income and defines those terms as follows:
10. What is the minimum fee for corporation franchise tax?
For taxable years ending on or after June 26, 2003, the minimum franchise tax fee is $1,000 if (i) the sum of the taxpayer’s gross receipts from its activities within and without Ohio during the taxable year equals or exceeds $5 million, or (ii) the total number of the taxpayer’s employees within and without Ohio at any time during the taxable year equals or exceeds 300. In determining whether or not the taxpayer’s gross receipts and number of employees equal or exceed those thresholds, the taxpayer must include its proportionate share of the gross receipts of any pass-through entity in which the taxpayer has a direct or indirect ownership interest and its proportionate share of the number of employees of the pass-through entity.
Furthermore, the term “gross receipts” as used here, includes receipts that generate nonbusiness income and receipts from the sale of capital assets and IRC section 1231 assets whether those sales generate business income or nonbusiness income. The minimum fee is $50 for taxable years ending before June 26, 2003 and for taxpayers whose taxable year ended on or after June 26, 2003, but whose gross receipts and number of employees are less than the thresholds discussed above. Please refer to R.C. 5733.06(E) as amended by House Bill 95.
The minimum fee is not subject to the franchise tax phase-out factor. Please refer to FAQ #4 regarding the franchise tax phase-out.
11. When are payments and reports due?
The filing and payment of the Ohio corporation franchise tax for those entities still subject to the corporation franchise tax is due between Jan. 1 and March 31 of the tax year. However, if by Jan. 31 the taxpayer did not file the Ohio corporation franchise tax report and did not make full payment of the tax, then by Jan. 31 the taxpayer must file form FT 1120E, Declaration of Estimated Corporation Franchise Tax, and must pay 1/3 of the estimated tax, but not less than the minimum fee.
If the due date of the report or the due date of an extension or payment falls on a Saturday, Sunday or legal holiday, then the report, extension or payment may be made on the next succeeding day which is not a Saturday, Sunday or legal holiday. If a franchise tax estimated payment or the franchise tax report is mailed on or before the due date but delivered after the due date, as extended, the postmark date is deemed the date of delivery. Certain large taxpayers must pay by electronic funds transfer.
The table below lists the latest possible due dates for filing the corporation franchise tax report for the various taxable year ends. The table assumes the following:
Taxable Year Ending in 2011 |
Latest Possible Due Date for Filing the 2012 Franchise Tax Report |
01/31/11 through 07/31/11 |
05/31/2012 |
08/31/2011 |
06/15/2012 |
09/30/2011 |
07/15/2012 |
10/31/2011 |
08/15/2012 |
11/30/2011 |
09/15/2012 |
12/31/2011 |
10/15/2012 |
Note: Each member of a combined franchise tax report must file its own separate forms FT 1120E, FT 1120ER and FT 1120EX. Payment of all franchise tax is due by May 31st, even if the taxpayer has an extension to file after that date.
To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
An exiting corporation is subject to an income-based exit tax on the corporation’s unreported Ohio net income that was earned in the two calendar years prior to the tax year to the extent that such income was not included on a previous corporation franchise tax report. An exiting corporation is a corporation which previously had nexus with Ohio, but as of Jan. 1 of the tax year no longer has nexus (because, for example, prior to Jan. 1 of the tax year the corporation merged out of existence, dissolved its Ohio charter or surrendered its license to conduct business in Ohio). The exit tax does not apply to an exiting financial institution. The same deduction, apportionment, allocation and credit provisions that apply to the corporation franchise tax also apply to the exit tax. However, an exiting corporation is not subject to tax on the net worth base and is not subject to the minimum fee. See R.C. 5733.06(H).
13. What is the difference between a "tax year" and "taxable year"?
Tax year is the calendar year for which the tax is paid. The tax year is also referred to as the "report year."
Taxable year is the taxpayer's accounting period on which the corporation franchise tax is based. The Ohio corporation franchise tax report (form FT 1120) is based on the taxpayer's accounting period ending prior to Jan. 1 of the tax year. Exception: A corporation having a 52/53 week calendar year end would file the 2012 franchise tax report. (Example: taxable year ending 01/03/2012 is filed on the 2012 franchise tax report.)
A corporation's franchise tax taxable year is generally the same as its federal taxable year. However, a corporation's franchise tax taxable year may consist of an aggregation of two or more federal taxable years and can exceed one year in length.
The franchise tax for tax year 2012 is paid in 2012 for the privilege of doing business in Ohio during the calendar year 2012. The 2012 franchise tax report (form FT 1120) is based on the corporation's taxable year ending in 2011. Thus, if a corporation has a calendar year end, its 2012 franchise tax report will be based on the corporation's income and activity during the calendar year 2011 and the corporation's net worth as of Dec. 31, 2011. If the corporation has a fiscal year end, its 2012 franchise tax report will be based on the corporation's income and activity during the fiscal year beginning in 2010 and ending in 2011.
Unlike the federal income tax return year (federal form 1120), which is based on the beginning of the taxpayer's accounting period, the Ohio corporation franchise tax report year is the privilege year for which the tax is paid. For example, income earned during a taxpayer's fiscal year beginning July 1, 2010 and ending June 30, 2011 will be reported on the taxpayer's 2010 federal income tax return. However, the taxpayer's income for that same period will be reported on the taxpayer's 2012 Ohio corporation franchise tax report.
14. When must a taxpayer pay by electronic funds transfer (EFT)?
A taxpayer must pay by EFT for the current tax year if the taxpayer's total corporation franchise tax liability after reduction for non-refundable credits exceeded $50,000 for the second preceding tax year. Each transmission can only include information for one taxpayer, one tax type and one period.
If the EFT payment relates to either the FT 1120E, FT 1120ER or FT 1120EX report, you do not have to file the paper document. You must properly complete the addenda record. See “Important EFT Notice” dated Dec. 2, 2002 on the department’s Web site.
For further EFT information see the department's informational release CF 1994-01, issued July 31, 1994 and entitled "Recently Enacted Legislation Revises the Requirements for Corporations Paying Corporate Franchise Tax by Electronic Funds Transfer (EFT)." Please direct questions regarding the EFT payment program to the Treasurer of State's office at 30 East Broad Street, 9th floor, Columbus, OH 43266-0421 or telephone that office toll free at (877) EFT-Ohio (338-6446).
15. What is the interest rate for underpayments and overpayments of the tax?
The interest rate on underpayments and overpayments is the same. During calendar year 2012 interest will accrue at the rate of 3 percent per annum.
For a detailed schedule of the interest rates for all tax years please click here.
16. When are interest and penalty charged and how are they computed?
Interest on Underpayments and Overpayments:
If a corporation fails to pay the tax due by the due date, interest accrues on the unpaid tax. The period of the underpayment runs from the date the payment was due to the date the payment is made. There is no safe-harbor from interest on the underpayment of the estimated tax.
Interest on franchise tax overpayments runs from whichever of the following dates is the latest until the date the refund is paid:
Interest on an overpayment resulting from a net capital loss carry back is payable from the due date plus extensions for the report in which the loss arises (rather than from the report year to which the loss is carried back).
Penalties for Late Payment, Failure to File or Late Filing:
Penalty Safe-Harbor for Estimated Payments:
The following safe-harbor applies to penalty (but not interest) on underpayment of estimated tax.
17. When should federal changes be reported to Ohio?
Taxpayers must file an amended corporation franchise tax report if the taxpayer or the Internal Revenue Service recomputes the taxpayer’s federal taxable income or the taxpayer’s federal income tax liability. An amended corporation franchise tax report (check the amended return box at the top of page 1 of form FT 1120) must be filed by the earliest of the following dates:
The above provision applies even if the three-year statute of limitations has passed and applies to amended reports which reflect overpayments as well as amended reports which reflect underpayments. If the amended report reflects an underpayment, the amended report must be accompanied by payment of any additional tax and interest. If the amended report reflects an overpayment, the amended report must be accompanied by form FT REF, Application for Refund, or a letter that requests the refund and explains the adjustments.
Upon completing an amended report, please check the amended report box on the front of the report. Please do not send an amended report to PO Box 27 (the address on the form). Please send the amended report along with the payment and/or the appropriate attachments to:
Ohio Department of Taxation, Corporation Franchise Tax Unit, PO Box 2476, Columbus, OH 43216-2476
Please note that taxpayers may not apply an overpayment reflected on an amended report to another year.
Amounts reported on federal form 1120 or 1120A, as well as Ohio adjustments and allocations, are subject to verification and audit by the Ohio Department of Taxation.
To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
18. What is the procedure for requesting a refund?
If the corporation erroneously made franchise tax payments for the 2010 tax year or after, the corporation can obtain a refund by filing the appropriate corporation franchise tax report and (i) completing the taxpayer identification information at the top of page 1 and check the sixth (6th) box in the upper right corner of page 1; (ii) completing lines 23 through 31 on page 1; (iii) completing the declaration on page 8; and (iv) filing this form with supporting documentation, if needed. Please do not check the box if the corporation remains subject to the franchise tax after the phase-out and the taxpayer is claiming any refundable credits.
To request a refund in connection with an amended Ohio corporation franchise tax report, corporations should file an amended report along with an Application for Corporation Franchise Tax Refund (prescribed form FT REF) (the preferred method). However, a letter accompanying the amended report detailing the reasons for the overpayment may be accepted in lieu of form FT REF if the letter contains a statement which sets forth the full and complete reason for the overpayment (see Abitibi-Price Corporation and Subsidiaries v Tracy, BTA No. 98-N-401(3-12-01)). The filing of an amended report without an application for refund or without a letter detailing the reason for the claim is not sufficient and does not constitute an application for refund.
Note: An application for refund is not required when the claimed overpayment is indicated on the originally filed corporation franchise tax report.
Form FT REF applies to claimed overpayments by a taxpayer, whether payment was made voluntarily or as the result of an assessment issued by the Ohio Department of Taxation. If the claimed overpayment is not the result of an IRS adjustment and the statute of limitations has not been extended by form FT WAIVER (the prescribed form by which the Department of Taxation and the taxpayer agree to extend the statute of limitations for the period of time set forth in the FT WAIVER agreement), then the department must receive the application for refund within three years of the date of the illegal, erroneous, or excessive payment.
If the claimed overpayment is the result of a change in federal taxable income, then the department must receive the application for refund within the later of the following: (a) the three-year time period set forth above or (b) the one-year period described under "When should federal changes be reported to Ohio?" However, if the refund claim is filed after the three year refund statute of limitations has expired and the statute of limitations has not been extended by form FT WAIVER, then the refund claim can include only the effects of the federal adjustments.
A franchise tax refund claim that is based on a capital loss carryback is timely filed if the refund claim is filed within three years from the due date of the franchise tax report (including extensions thereof) for the taxable year in which the capital loss arose. To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
19. How do I register my corporation to do business in Ohio?
You will need to register your corporation with the Ohio Secretary of State's office in order to obtain your charter/license to conduct business in Ohio. You may download the registration forms from their Web site at: www.sos.state.oh.us/SOS/Businesses/businessServices.aspx
If you need to speak to someone in that office, the phone number is (877) 767-3453 or (614) 466-3910.
Once you register with the Ohio Secretary of State's office that information is provided to the Ohio Department of Taxation so that a corporation franchise tax account can be added to our system.
A corporation may be required to register for the commercial activity tax (CAT). For more detailed information, please refer to the section for commercial activity tax and its FAQs on the department’s Web site.
20. How do I obtain a Certificate of Good Standing from the Ohio Secretary of State's office?
You obtain that information from the Ohio Secretary of State’s office. The following link will take you to that topic on their Web site: www.sos.state.oh.us/SOS/businessServices.aspx
If you need to speak to someone in that office, the phone number is (877) 767-3453 or (614) 466-3910.
21. I still have an active charter with the Ohio Secretary of State's office, but have not been in business for years. Am I still required to file the corporation franchise tax reports in Ohio?
Yes, if you have an active charter/license with the Ohio Secretary of State’s office you are required to file and/or pay Ohio corporation franchise taxes until that charter or license has been dissolved through that agency. However, pursuant to the franchise tax phase-out, reports may not be required after the 2009 tax year (taxable year end 2008). Please refer to FAQ #3 and #4.
Section 5733.17 of the Ohio Revised Code states that the mere retirement from business or voluntary dissolution of a domestic or foreign corporation without filing the certificate provided for in Section 1701.86 of the Ohio Revised Code shall not exempt it from the requirements to make reports and pay excise or franchise taxes in accordance with Ohio law until this certificate is filed with the Ohio Secretary of State.
In addition, any corporation that exits Ohio by dissolution or withdrawal in 1998 or thereafter, may be required to file an income-based exit tax on its unreported net income for the taxable year through the effective date in which the dissolution/withdrawal is recorded with the Ohio Secretary of State. The report and payment is due by May 31 of the year following the calendar year in which the dissolution or withdrawal takes place.
The Web site and telephone number for the Ohio Secretary of State is:
www.sos.state.oh.us/SOS/businessServices.aspx
(877) 767-3453 or (614) 466-3910
22. How do I obtain a D1 Certificate of Good Standing from the Ohio Department of Taxation?
You should contact the Taxpayer Services Division at (614) 995-4422. Please be prepared to provide the following information:
In order to issue the certificate, all corporation franchise taxes must be filed and paid up to date. These requests are handled on a first come, first served basis and for that reason may require several days to research. Once you have provided the above information, we ask that you allow 5-7 business days to receive either the certificate (if all taxes are found to be current) or correspondence with request for further information.
To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
23. How do I dissolve a corporation with Ohio?
You should obtain a dissolution packet from the Ohio Secretary of State's office. That office handles the dissolution process.
You can download the packet from their Web site at: www.sos.state.oh.us/SOS/businessServices.aspx
If you need to speak to someone in that office, the phone number is (877) 767-3453 or (614) 466-3910.
In addition, it is necessary for all corporations that are dissolving or surrendering their license (Non-Profit included) to complete form D5 Notification of Dissolution or Surrender. The D5 should be mailed to the address on that form.
To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
24. How do I obtain a Certificate of Dissolution (D2) from the Ohio Department of Taxation?
You will need to submit a properly completed D5 - Notification of Dissolution or Surrender to the Taxpayer Services Division at the Ohio Department of Taxation. In order to obtain the tax clearance, Part 1 and Part 2 of the D5 must be completed.
To download Ohio corporation franchise tax forms, visit our Tax Forms home page.
Ohio Dept of Taxation
Taxpayer Services Division
Corporate Resolution Unit
PO Box 182382
Columbus, OH 43218-2382
(614) 995-4422
In addition you will need to obtain the dissolution/surrender packet from the Ohio Secretary of State’s Web site. The actual dissolution is handled by that office. You can download the packet from their Web site at: www.sos.state.oh.us/SOS/businessServices.aspx
If you need to speak to someone in that office, the phone number is (877) 767-3453 or (614) 466-3910.
25. How do I obtain a D3 Certificate of Reinstatement?
You should contact the Taxpayer Services Division at (614) 995-4422. Please be prepared to provide the following information:
In order to issue the certificate, all corporation franchise taxes must be filed and paid up to date. These requests are handled on a first come, first served basis and for that reason may require several days to research. Once you have provided the above information, we ask that you allow 5-7 business days to receive either the certificate (if all taxes are found to be current) or correspondence with request for further information.
26. How do I obtain a D4 Certificate of Operations?
You should contact the Taxpayer Services Division at (614) 995-4422. Please be prepared to provide the following information:
In order to issue the certificate, all corporation franchise taxes must be filed and paid up to date. These requests are handled on a first come, first served basis and for that reason may require several days to research. Once you have provided the above information, we ask that you allow 5-7 business days to receive either the certificate (if all taxes are found to be current) or correspondence with request for further information.
To download forms for any Ohio taxes, visit our Tax Forms home page.
