Ohio Budget Bill Contains Numerous Tax Provisions

Ohio’s latest budget bill contains a number of new tax breaks and extensions for existing tax breaks while enacting no new tax rate increases for Ohio businesses.

There is a lot to learn about the 2012-2013 budget bill, however, to assure business owners are able to fully leverage the tax benefits that are provided. State officials are hoping that the package of tax incentives will stimulate business activity that will help bolster the entire state economy.

For business owners, the most critical provisions include a nonrefundable jobs retention tax credit for businesses that meet any of several different criteria for carrying a healthy payroll. Companies can earn credits of up to $25 million between July 1, 2011, and June 30, 2013, if they retain at least 500 full-time employees and an annual payroll of at least $20 million, or if they maintain an annual payroll of $30 million with no minimum headcount.

Business owners also can earn credits by investing at least $5 million at a project site in the same jurisdiction where the business is based, or if they meet other jobs retention criteria described in the bill. The Legislature has also signaled it may authorize an additional $25 million in annual credits for the next budget cycle beginning in 2014.

The bill also provides for a nonrefundable personal income tax credit for individual taxpayers who invest in a small business enterprise with an operating presence in Ohio. For purposes of this particular tax rule, a “small business enterprise” is one with assets of less than $50 million or annual revenue of less than $10 million. When individuals make an eligible investment to acquire an equity interest in the enterprise, it may lead to a 10-percent credit of the amount invested. There are limits on the investment amount that will be eligible for the credit, but unused credits can be carried forward seven taxable years to offset future income.

Taxpayers also can investigate whether they want to take advantage of a general tax amnesty program that will be in effect from May 1 to June 15, 2012 for most state taxes, except use tax, which is addressed under a separate amnesty provision. A tax amnesty program is meant to clear up any historical tax compliance problems and bring taxpayers current in their tax bills, with more focus on collection and less focus on punitive consequences. Taxpayers who might consider entering a tax amnesty program need to consult with tax experts who can carefully assess their historical compliance and navigate the amnesty process.

Many other provisions in the bill may prove to be of interest to a more limited population of taxpayers. For example, the bill makes some special allowances for certain transactions involving uranium, for insurance companies that may have incurred some research expenses, for taxpayers who want to contribute a portion of their income tax refund to the Ohio Historical Society, and for certain alternative energy projects. Retail businesses with loyalty or rewards programs can take advantage of a sales tax exemption related to certain transactions, and anyone rehabilitating a historic building can benefit from a temporary tax credit becoming permanent.

If you have any questions on this topic or any other reporting requirements, please contact your Meaden & Moore representative at (216) 241-3272.