Ohio R&D Tax Credit Summary

OHIO R&D TAX CREDIT SUMMARY

Ohio State Edison Center for R&D Investors Tax Credit

Investors in certain Ohio entities engaged in a qualified trade or business are eligible for a nonrefundable credit against their corporate franchise tax. The credit is an amount equal to either:

30% of the investment in an Encouraging Diversity, Growth, and Equity (EDGE) business enterprise or in an Ohio entity located in a distressed area; or
25% of the investment in an Ohio entity other than an EDGE business enterprise

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“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))

To Qualify for the Credit:

The investment must be in an unrelated Ohio entity engaged in a qualified trade or business, which entity has less than $2.5 (formerly, $1) million gross income or net book value
The investment of not over $250,000 ($300,000 if the investment is in an EDGE business enterprise or an Ohio entity located in a distressed area) in the form of the purchase of common or preferred stock, membership or partnership interest or any other ownership interest is entirely at risk of loss
No repayment of principal invested may be made within three years from the date of investment, and the annual combined amount of dividend or interest payments made to the investor must not exceed 10% of the amount of investment for at least three years firm the date the investment is made
The investor may not be an employee with proprietary decision-making authority of the Ohio entity in which the investment of money is proposed, or a spouse, parent, child, or sibling of such an individual
The investor also may not be an “insider” (an individual who owns, controls, or holds the power to vote 5% or more of the outstanding securities of a business)

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)]

How to Obtain the Credit?

The investor files an application for a tax credit and a $200 fee with the Edison Center, which initially determines the investor’s eligibility. The industrial technology and enterprise advisory council committee issues the approval, and the tax credit certificate, after the investment is made.

Refundable/Transferable Tax Credit – No

Carryforward

Excess credits may be carried over to the next 15 years. The credit is nonrefundable and nontransferable. But pass-through treatment of a pass-through entity’s income, deductions, or credits is allowed.

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

Carryforward

The credit is nonrefundable, but any unused credit can be carried over for seven years.

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Ohio R&D Tax Credit Summary