Summary
In Eaton v. Limbach (1992), 65 Ohio St.3d 305, 603 N.E.2d 992, we limited the exclusion from Ohio adjusted gross income of Subchapter S corporation income to income as netted with losses from Subchapter S corporations.
Summary of this case from Mandel v. LimbachOpinion
No. 92-225
Submitted October 13, 1992 —
Decided December 14, 1992.
APPEAL from the Board of Tax Appeals, No. 90-J-421.
Lawrence S. and Vivian Eaton, appellants, challenge the amount of Subchapter S income excluded from their 1984 Ohio income tax return.
The Eatons were shareholders of two Subchapter S corporations, Eaton Oil Company and JRP, Inc. They were credited with $258,555 in income from Eaton Oil and $124,163 in loss from JRP. In their 1984 federal income tax return, they netted the income from Eaton Oil with the loss from JRP and reported $134,392 in income. They included this amount in their adjusted gross income ("AGI").
However, in their 1984 Ohio income tax return, they excluded $258,555 in income, apparently excluding only the income from Eaton Oil. The Tax Commissioner, appellee, audited this return and decreased the exclusion by the loss from JRP. This action increased the Eatons' Ohio AGI from $242,961 to $367,874 and their tax liability, including penalty, by $13,586.70. On appeal, the Board of Tax Appeals affirmed.
This matter is before this court upon an appeal as a matter of right.
Millet Sprague, Madelon Sprague and Paul L. Millet, for appellants.
Lee I. Fisher, Attorney General, and Barton A. Hubbard, Assistant Attorney General, for appellee.
R.C. 5747.01(A), during the audit period, defined "adjusted gross income," on which the Ohio income tax is levied (see R.C. 5747.02), as follows:
"`Adjusted gross income' means adjusted gross income as that term is defined and used in the Internal Revenue Code * * *, and excludes any amounts of income included in adjusted gross income by reason of Subchapter S, Chapter 1, Subtitle A, of the Internal Revenue Code, 26 U.S.C. § 1371. * * *"
The Eatons argue that the statute allows them to deduct all Subchapter S income allocated to them and that this prevents double taxation of Subchapter S income. The commissioner contends that the statute limits the exclusion of Subchapter S income to only that amount included in federal AGI and that double taxation does not occur.
R.C. 5747.01(A) excludes from Ohio AGI only the amount of Subchapter S income included in federal AGI. Since the Eatons included only the net amount in federal AGI, netting income and losses from the two Subchapter S corporations for federal tax purposes, they may only exclude this net amount from Ohio AGI. See Gibson v. Limbach (Nov. 19, 1990), Trumbull App. No. 89-T-4270, unreported, 1990 WL 178944; compare Westinghouse Elec. Corp. v. Lindley (1979), 58 Ohio St.2d 137, 140-142, 12 O.O.3d 158, 160-161, 389 N.E.2d 473, 475-476 (taxpayer may only deduct net foreign royalties from franchise tax income because only this amount was included in federal net income), and Pancake House v. Lindley (1980), 61 Ohio St.2d 151, 15 O.O.3d 180, 399 N.E.2d 1249 (taxpayer may only deduct net technical assistance fees from franchise tax income because only this amount was included in federal net income).
As to the double-taxation argument, the Eatons failed to present the franchise tax returns for the two corporations to illustrate any double taxation. Thus, we have no factual basis on which to address this argument.
Accordingly, we affirm the decision of the board because it is reasonable and lawful.
Decision affirmed.
MOYER, C.J., SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.