In Steven and Pamela Bowser v. Harris, Case No. 2025 — 1436 (July 9, 2026), the Ohio Board of Tax Appeals (BTA), allowed a taxpayer to claim the Business Income Deduction (BID) on the sale of an equity interest in a C corporation in which the taxpayer had materially participated.

The BID allows taxpayers to deduct the first $250,000 ($125,000 for spouses filing separately) of business income from their Ohio adjusted gross income.¹ Ohio law defines "business income" as "income, including gain or loss, from a partial or complete liquidation of a business, including, but not limited to, gain or loss from the sale or other disposition of goodwill or the sale of an equity or ownership interest in a business."² In 2022, the Ohio legislature clarified the definition of business income in House Bill 515 (HB 515). Specifically, HB 515 clarified that income from a sale of an equity interest qualifies as business income when the sale is treated for federal income tax purposes as the sale of assets, or the seller materially participated in the business activities during the year of sale or any of the five preceding years applying the rules in 26 C.F.R. 1.469-5T.³

The taxpayers filed an amended 2018 Ohio individual income tax return seeking a refund resulting from claiming a BID related to capital gains from the sale of an equity interest in a closely held C corporation in which they actively participated in for more than 500 hours during the relevant period. The Ohio Department of Taxation (Department) denied the refund, asserting that capital gains realized from the sale of C corporation stock constitute nonbusiness income excluded from the BID.

The BTA rejected the Commissioner's argument that capital gains are expressly excluded from the BID, observing that the definition of "nonbusiness income"⁴ begins with "all income other than business income" and that nonbusiness income "may" include capital gains. The BTA concluded that such a reading does not create internal inconsistency, as capital gains that do not meet the business income criteria remain excluded. The BTA then turned to the Department's argument that the 2022 legislative clarification adding language regarding "sale of an equity or ownership interest in a business" did not expand the BID to C corporation stock sales. The BTA disagreed, concluding that the statutory language was unambiguous and did not distinguish between pass-through entities and C corporations. Finally, the BTA concluded that the statutory reference to 26 C.F.R. 1.469-5T, while generally excluding corporations, did include an exception for closely held corporations in 26 C.F.R. 1.469-1T. Accordingly, the BTA reversed the Commissioner's final determination and held that the capital gains from the sale of the equity interest in the closely held C corporation in which a taxpayer materially participated qualified for the BID.

Implications

It is unknown at this time whether the Department will appeal the BTA's decision. Taxpayers who have sold stock in a closely held C corporation in which they materially participated may want to consider filing amended returns seeking a BID within the four-year statute of limitations for refunds. Owners of closely held C corporations planning to sell stock should consider documenting their material participation to support BID claims.