On the eve of Ohio’s new fiscal year, Governor John Kasich signed a two-year budget into law on June 30, 2011. The budget includes several provisions aimed at making Ohio a more taxpayer- and business-friendly state. Significantly, the new InvestOhio program provides a nonrefundable tax credit for investments in certain Ohio-based small businesses, previously enacted income tax cuts were preserved and the Ohio estate tax has been repealed (effective in 2013).
In an effort to encourage residents to invest in Ohio-based small businesses, taxpayers may benefit from a nonrefundable state income tax credit equal to 10 percent of certain “qualifying investments” in a “small business enterprise” made on or after July 1, 2011. A small business enterprise is one that:
- Has less than either $50 million in assets or $10 million in annual sales;
- Employs at least 50 full-time employees in Ohio or has more than half of its full-time employees in Ohio; and
- Within six months of the time the qualifying investment is made, invests in or incurs costs for certain approved property or expenditures (including certain payroll increases) in an amount equal to the qualifying investment.
The credits will be claimed on the investor’s Ohio income tax return by attaching a certificate issued by the Ohio Director of Development upon approval of applications. There are periodic limits on the amount of credits that may be issued per applicant as well as statewide. Credits become available two years after investors make qualifying investments, if the qualifying investments are made after July 1, 2011, and before July 1, 2013. If the qualifying investments are made on or after July 1, 2013, the credits become available five years after the investments are made. The total amount of credits claimed by a taxpayer cannot exceed $1 million ($2 million for spouses filing jointly). Any unused credits are permitted to be carried forward for up to seven years. The certificates (and therefore, the credits) cannot be transferred.
Ohio Income Tax Cuts Preserved
Prior legislation enacted across-the-board reductions in Ohio’s individual income tax rates that were phased in over a number of years. The final step of the reductions was to have taken place in 2009, but was delayed until 2011. There was concern that the budget bill would further delay the effectiveness of the final incremental decrease in individual income tax rates. Because the budget bill did not do this, the final step-down in rates, including a decrease of the top rate from 6.24 percent to 5.925 percent, remains effective for 2011 and later years.
Repeal of Ohio Estate Tax
The Ohio estate tax has been repealed for decedents dying on or after January 1, 2013. Calfee’s Estate Planning Group will be sending a more complete First Alert addressing this repeal.
Tax Planning Tips
- Coordinate expenditures, investments and employment to fit within requirements so that investors may apply for InvestOhio tax credit certificates.
- Apply early for InvestOhio tax credit certificates before statewide limits are exhausted.