In a last-minute move, Governor Kasich’s InvestOhio plan was dropped into H.B. 153, the biennial budget bill, shortly before an agreement was reached by the conference committee to reconcile the different versions of the bill passed by the two chambers. The provision permits a nonrefundable credit of up to $1,000,000 for investments in certain small business enterprises operating in Ohio. Unused credits may be carried forward up to seven (7) additional taxable years.
Newly-enacted R.C. 122.86 includes a number of definitions and outlines the procedure for obtaining a “small business investment certificate.” A “small business enterprise” means a corporation, pass-through entity, or other person meeting the following requirements:
- At the time of the investment, either total assets do not exceed $50,000,000, or annual sales do not exceed $10,000,000;
- Has at least 50 full-time equivalent employees, or more than one-half of its total full-time equivalent U.S. employees, in Ohio and subject to withholding of Ohio income tax;
Within six months of the qualifying investment, the enterprise invests or incurs cost for one or more of the following in an amount at least equal to the amount of the qualifying investment:
- Tangible personal property, other than motor vehicles, used in business and located in this state;
- Motor vehicles purchased, registered, and used primarily for business purposes in this state;
- Real property located and used in business in Ohio;
- Intangible personal property used in business primarily in Ohio; and
- Compensation for newly-hired or retained employees (excluding increased compensation for owners, officers, or managers) for whom the enterprise is required to withhold Ohio income tax.
In each case, the property must be held and used in business, or the compensation paid, from the date the property is acquired until the end of the holding period.
A “qualifying investment” is one made after July 1, 2011, to acquire an equity interest in a small business enterprise. It does not include an investment of money derived, directly or indirectly, from a grant or loan from a governmental entity.
An “eligible investor” is a person subject to the income tax imposed by R.C. 5747.02, and includes a pass-through entity in which such an individual holds a direct or indirect equity interest.
“Holding period” means, for investments made after July 1, 2011 and before July 1, 2013, two years. For investments made after June 30, 2013, it means five years.
If an eligible investor makes a qualifying investment in a small business enterprise, the investor may apply to the director of development for a small business investment certificate. In order to obtain the certificate, the investor must:
- Make the qualifying investment on or after July 1, 2011; and
- Pledge not to dispose of the investment before the end of the holding period.
The maximum total amount invested for any investor eligible for a certificate during a fiscal biennium is $10,000,000. Investment certificates are to be issued in the order in which applications are received. During any fiscal biennium, certificates cannot be issued that would cause the credits claimed for any biennium to exceed $100,000,000.
The director of development may adopt rules for the administration of the program. The director may also require each enterprise in which a qualifying investment was made to produce such information as the director deems necessary to insure the enterprise is a small business for purposes of the credit.
Newly enacted R.C. 5747.81 provides for a nonrefundable credit equal to 10% of the amount of the investment for any qualifying investor who disposes of the qualifying investment after the end of the applicable holding period. The credit is to be claimed for the taxable year that includes the last day of the holding period. There is a $1,000,000 cap for each individual, which rises to $2,000,000 in the case of married individuals filing jointly. Any unused portion of the credit may be carried forward for seven (7) succeeding taxable years.
Owners of pass-through entities that hold a certificate are entitled to claim a credit based on their distributive or proportionate share of the equity in the entity.
The provision is included in H.B. 153 to be signed by the Governor on June 30, 2011.