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Ohio modifies existing and enacts new tax incentive programs
July 2021
In brief
Enacted on June 30, H.B. 110, the fiscal year 2022-23 budget bill, includes several tax credit and incentive changes that create new programs and enhance existing programs.
Changes to the state’s Job Creation Tax Credit (JCTC) allow work-from-home employees to qualify for the credit. Taxpayers that qualify for “megaprojects” may receive enhanced Commercial Activity Tax (CAT), JCTC, and other tax benefits. H.B. 110 also provides Brownfield and redevelopment grants and new or improved incentive offerings for certain key industries affected by COVID.
The takeaway: Taxpayers applying for JCTC awards must commit to a certain level of increased Ohio headcount. Accordingly, taxpayers need to plan ahead and seek JCTC awards before expected headcount increases and not wait until employees are actually hired.
H.B. 110 provides welcome work-from-home relief as taxpayers shift working models in the post-COVID era. Taxpayers using home-based employees should review their JCTC agreements to assess the impact for tax years 2022 and later. Taxpayers with growth in Ohio should continue to look for ways to benefit from the JCTC program.
In detail
Ohio Job Creation Tax Credit allows work-from-home payroll
The JCTC is a refundable credit available against the CAT measured by a percentage of qualified payroll. Taxpayers must apply for and be awarded the credit.
For reporting periods ending in or after calendar year 2020, H.B. 110 allows taxpayers to include payroll of qualifying work-from-home employees as Ohio employee payroll, thus allowing taxpayers to claim credit for these employees. The bill extends the authorization to employers whose JCTC applications were approved prior to September 29, 2017.
Ohio Rev. Code Ann. § 122.17(A)(8) defines a qualifying work-from-home employee as “an employee who is a resident of this state and whose services are supervised from the employer’s project location and performed primarily from a residence of the employee located in this state.” Qualifying work-from-home employees are distinguished from home-based employees, and the applications and reporting must separate only the home-based employees. Note the relocation of an Ohio resident between two tax jurisdictions will not be considered relocation by means of the incentives. In addition, state work-from-home incentive exceptions may not apply to local incentives that have not published exceptions to their requirements.
Ohio Job Retention Tax Credit - Application priorities
Priority will be given to JRTC applications that satisfy one or more of the following criteria:
- applicants that have not received JRTC or JCTC in the last five years at the same project site
- applicants that are not currently receiving either the JRTC or JCTC
- applicants that have operated at the project site for at least 10 years
- the project will involve a significant project site update (not just routine maintenance)
- applicants that intend to use machinery, equipment, and materials supplied by Ohio businesses when possible.
Various benefits for Ohio megaprojects
H.B. 110 creates various tax benefits for “megaprojects,” which are projects with at least $1 billion in investment or the creation of at least $75 million in new Ohio payroll. The benefits afforded to a “megaproject” include:
- the maximum JCTC term is extended from 15 to 30 years for both the operator and suppliers
- the exclusion of receipts from sales of tangible personal property made by a megaproject supplier to a megaproject operator from the CAT
- enterprise Zone and CRA property tax abatements may be extended from 15 to 30 years.
Suppliers are defined as businesses that sell tangible personal property to a megaproject operator, but also make at least $100 million of fixed asset investment and create Ohio payroll of at least $10 million.
Industry-specific incentives
H.B. 110 creates incentives for industries in meat processing, sporting events, residential broadband expansion, rural business growth, and transformational mixed-use development. Minority and women-owned business loan programs will be funded with a combined $20 million from the state.
Small business relief is available totaling $100 million for individual business grants of up to $30,000 based on the 2020 loss of revenue for businesses affected by the pandemic, focusing on bars and restaurants, entertainment venues, lodging, and new businesses for the 2020 fiscal time period.
New site selection grants
H.B. 110 introduces two new site selection grants with opportunities for grantees to receive award grants for up to 75% of the total project cost: (1) a new brownfields remediation program (BRP) with $300 million of funding and (2) for sites that are not brownfields, a building demolition and site revitalization program (BDSRP) with $150 million of funding. Eligibility will be defined by the Department of Development, and funds will be awarded to qualifying projects on a first-come-first-serve basis, with reserves of $1 million for BRP and $500,000 for BDSRP in each of Ohio’s 88 counties.
Venture capital operating companies
H.B. 110 adds a new income tax deduction for Ohio venture capital operating companies (VCOC) that manage at least $50 million in active assets and have Ohio residents as two-thirds of their general and managing partners. The deduction equals 100% of the capital gain received attributable to investments in Ohio businesses and 50% received attributable to a qualified VCOC’s other investments.
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