InvestOhio: Tax Credit for Small Business Investments

Ohio House Bill 153 established the InvestOhio program to promote investment in small businesses in Ohio and drive job creation in the state through a nonrefundable tax credit. An eligible investor that makes a qualifying investment in a small business enterprise on or after July 1, 2011 may apply to the Ohio Department of Development to obtain a small business investment certificate. Applications are going to be reviewed in the order in which received and will be capped at $100 million every fiscal biennium. It is necessary to act fast as the application process will begin the first week of December. 

A small business enterprise is a corporation, pass-through entity or a person that meets the following requirements: 

  • The enterprise’s total assets cannot exceed $50 million or its annual sales cannot exceed $10 million at the time of the qualifying investment;
  • The enterprise must employ at least 50 full-time equivalent employees in Ohio who are subject to withholding, or more than half of the enterprise’s total full-time equivalent employees in the United States are employed in Ohio; and
  • Within six months after a qualifying investment is made, 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 used in business and physically located in Ohio;
    • Motor vehicles purchages, registered and primarily used for business in Ohio;
    • Real property located and used in business in Ohio;
    • Intangible personal property used in business in Ohio; and
    • Compensation for newly hired or retained employees who are subject to withholding.

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 an investment of money made on or after July 1, 2011 to acquire capital stock or other equity interest in a small business enterprise. It does not include money derived from a grant or loan from the federal or state government. An eligible investor is an individual, estate, or trust subject to Ohio personal income tax or a pass-through entity in which such an individual holds a direct or indirect equity interest.  For investments made between July 1, 2011 and June 30, 2013, there is a required holding period of two years beginning the day the investment was made. For investments made on or after July 1, 2013, the holding period is five years. Investors must pledge to not sell or otherwise dispose of qualifying investments before the conclusion of the applicable holding period.

The credit is a non-refundable Ohio income tax credit which is equal to 10 percent of the total qualifying investment made. An investor cannot apply for small business investment certificates in excess of $10 million in any fiscal biennium. Total credits cannot exceed $1 million per taxpayer or $2 million if a joint return is filed. The credit is claimed on the tax return for the year that includes the last day of the holding period of the qualifying investment. Unused credits can carry forward for up to seven years.

The investor and small business must register for InvestOhio through the Ohio Business Gateway (Gateway) beginning on November 14, 2011. The investor and small business must decide then who will apply for the credit and do so starting the first week of December on the Gateway. The credits are awarded on a first come, first serve basis so we encourage all applicants to register the first day available.

The Ohio Department of Development has issued a listing of frequently asked questions which address some of the common questions taxpayers have. Although frequently asked questions do not always have the final authority and could change, they do provide some of the latest guidance available at this time. Please see the following link for the listing of questions: 

http://www.development.ohio.gov/InvestOhio/InvestOhio.htm 

Meaden & Moore is continuing to monitor new developments relating in this area.  Please contact your Meaden & Moore representative, or Leslie Kasten at 216-241-3272 or lkasten@meadenmoore.com if you have any questions regarding this Alert or any other state and local tax matters.