Key Notes:

  • SB 235, signed into law by Ohio Governor John Kasich in December 2016, allows local governments to exempt certain property taxes in connection with commercial and industrial real estate development.
  • Permits property owners to apply for six years’ exemption from taxation on improvements during construction or reconstruction.

Substitute Senate Bill 235 creates new authority for municipalities to grant a tax exemption for certain commercial and industrial construction projects. Ohio Governor John Kasich signed the bill into law (with line-item vetoes) on December 22, 2016.

Under Sub. SB 235, the owner of certain development or redevelopment property where construction or reconstruction of industrial or commercial buildings is planned may apply to the applicable municipal corporation, county or township for a property tax exemption. The application must be consistent with O.R.C. § 5715.27.

Once the application process is complete, the exemption can only be finalized if the political subdivision declares by ordinance or resolution that the development or redevelopment has a public purpose, similar to how a TIF is created. Upon enactment of the ordinance or resolution, the development/redevelopment property is exempt from taxation on any increase in its taxable value during the exemption period.

Exemptions created under this program will last for six years (i.e., tax year of the ordinance/resolution and five years thereafter), except in the case of early termination, which is automatically triggered by any of the following:

  • Certificate of occupancy is obtained for a commercial or industrial building on the property.
  • Owner transfers property title to another person.
  • Zoning is changed to prohibit commercial or industrial use of the property.
  • An application for subdivision is presented that includes the property (although, in certain instances, the exemption may carry over to remnant parcels proportionally).
  • Occurrence of any commercial, industrial, or agricultural operations on the property.

Furthermore, Sub. SB 235 seeks to recoup amounts that would have been paid absent the exemption if either of the following occurs:

  • Owner transfers title to another person without having made any improvements on the parcel between the application date and the transfer date.
  • Before the certificate of occupancy is obtained, commercial, industrial or agricultural operations are conducted on the property.

This recoupment charge is limited to the amount of taxes that would have been paid during the prior three tax years if the exemption was not in place.

The new tax exemption Sub. SB 235 provides should be attractive to real estate developers who intend to construct or reconstruct industrial or commercial buildings in Ohio within a six-year timeframe, and it is an important addition to the project finance toolbox of incentive programs for property owners and economic development tools for local governments.