State of Ohio Issues Guidance on InvestOhio Tax Credit Program– November 11, 2011

The InvestOhio Program, created by the state’s FY 2012-2013 budget, is an initiative aimed at creating jobs and expanding business in Ohio. The program allows for a nonrefundable individual income tax credit for equity investments made in Ohio’s small businesses. The state has just issued guidance on the registration process, which begins November 14, 2011, and on the application process, which will open the first week of December.

How Does the Program Work?

  • The credit is equal to 10% of the qualifying investment and any unused credits may be carried forward up to seven years.

  • Taxpayers are limited to $1 million in credits for qualifying investments made in any fiscal biennium.

  • A maximum of $100 million in credits will be given out every two years. This cap means credits will be awarded on a first come, first served basis.

  • The credit applies to equity investments made on or after July 1, 2011 but is not available until the end of the applicable holding period. The holding period is two years for investments made on or after July 1, 2011 and five years for investments made after December 31, 2013. Note that this holding period applies to both investors and businesses; investors must hold their investment for the required period of time, and businesses must hold the property purchased for the same duration.

  • Both the investor and the small business must first register for the credit through the Ohio Business Gateway website.

  • Either the investor or the small business may apply for the actual credit.

  • The InvestOhio credit and the Technology Investment credit cannot be claimed on the same investment funds.

Who Qualifies?

The credit is available to individuals, estates, trusts and certain pass-through entities (resident or nonresident) that make an equity investment in certain Ohio businesses. The credit can benefit new and existing investors. For example, an existing investor who wishes to contribute additional cash to his or her own business could receive the credit, if the business qualifies.

A business will meet the credit’s criteria if:

  • At the time of the qualifying investment, the entity’s assets do not exceed $50 million OR its annual sales do not exceed $10 million.

  • At the time of the qualifying investment, the business employs:

    • at least 50 full-time equivalent (FTE) employees in Ohio who are subject to income tax withholding; or

    • more than half of the business’s total FTEs employed in the United States are employed in Ohio and subject to income tax withholding.

  • If a business only has one employee, the test will be met if the employee is located in Ohio and is subject to income tax withholding.

  • Within six months of receiving the investment, the business must use that investment for one or more qualifying purposes.

What Can Businesses Use the Investment For?

A qualifying business that receives an investment via the InvestOhio Program can use the funds in the following ways:

  • Tangible personal property (other than motor vehicles operated on public roads and highways) used in business and physically located in Ohio from the time of acquisition by the business until the end of the holding period.

  • Motor vehicles, operated on public roads, purchased and registered in Ohio and used primarily for business purposes and necessary for the operation on the business enterprise. The purchase and use must remain in Ohio until the end of the holding period.

  • Real property located in Ohio used in business from the time of acquisition through the required holding period.

  • Intangible personal property, including patents, copyrights, trademarks, service marks or licenses used in business primarily in Ohio from the time of acquisition until the end of the holding period.

  • Compensation for new employees of the enterprise for whom the enterprise is required to withhold income tax, not including increased compensation for owners, officers or managers of the enterprise. This includes compensation for newly hired or retained employees.

Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.