“Distressed area” means a county of less than 125,000 in population that meets two of the following criteria:
- Its average unemployment rate is equal to 125% of the U.S. average unemployment rate
- Its per capita income is equal to or below 80% of the median county per capita income of the U.S.
- In intercensal years, the county has a ratio of transfer payment income to total county income equal to or greater than 25% (See Ohio Rev. Code Ann. §122.15(M))
Qualified Trade or Business
A “qualified trade or business” is any trade primarily involved in research and development, biotechnology, information technology, technology transfer or the application of new technology developed through research and development or acquired through technology transfer. It excludes, banking, insurance, financing, leasing, investing or similar business; farming business; a business involving the production or extraction of products of a character in which a deduction is allowed by the IRC; or any business operating a hotel, motel, restaurant or similar business. [Ohio Rev. Code Ann. §122.15(C)]
Ohio State Credit for Qualified Research Expenses
A nonrefundable credit against the corporation franchise tax is allowed for increases in qualified research expenses. The credit is available commencing with tax year 2004, and, in the case of non-financial corporations, ending with tax year 2008.
- The amount of the credit equals 7% of the amount by which the qualified research expenses incurred in-state for a tax year exceed the three-year average of those expenses
- The three-year average is measured over the three taxable years that precede the taxable year for which the credit is claimed
Credit against CAT
A taxpayer may begin accumulating credit for qualified research expenses toward its Commercial Activity Tax (CAT) liability in the tax year (calendar year) 2008.
- Regardless of a taxpayer’s CAT filing frequency, a taxpayer must compute the credit for qualified research expenses based on expenses incurred during the calendar year
- Fiscal year corporation franchise taxpayers claiming the CAT credit need not compute the credit for the short period beginning on the day following the end of its taxable year ending in 2007 and ending December 31, 2007, because the credit does not apply for that period
- For calendar years 2008 and thereafter, eligible taxpayers may calculate the available nonrefundable credit by multiplying 7% by the difference between the taxpayer’s research and development expenses incurred in Ohio during the calendar year and the taxpayer’s average annual research and development expenses incurred in Ohio during the three preceding calendar years. [Ohio Rev. Code Ann. §5733.351(C)]
How to Obtain the Credit?
There is not a special application or approval process for this credit. The credit may be claimed on a tax return, subject to audit by the Department of Taxation.
Refundable/Transferable Tax Credit – No
The credit is nonrefundable, but any unused credit can be carried over for seven years.