Ohio has a new Tax Credit program called InvestOhio. This 10% Ohio Income Tax Credit is one part of the Ohio budget bill passed during the summer of 2011. In July, we sent a Client Alert to describe this program. We promised to follow-up with you as soon as the Ohio Department of Development announced how to qualify for an InvestOhio Tax Credit. The InvestOhio Tax Credit must be requested because the program is limited. The new program only permits a total of $100,000,000 in credits during a 2-year period, divided among all the requesting individual taxpayers on a first-come, first-served basis. There are now procedures published to implement the first-come, first-served rule.

The InvestOhio Tax Credit can only be claimed by individuals, estates, trusts, non-resident individuals (who file Ohio Income Tax Returns) and so-called "Pass-Through Entities." There is a credit limit of $1,000,000 per individual.

There are several conditions to qualify for the InvestOhio Tax Credit. The individual investor must make an equity investment in a "Small Business Enterprise." The Small Business Enterprise must spend that investment on tangible personal property, motor vehicles, real property and/or intellectual property assets (such as patents, copyrights and trademarks) which are primarily used for business purposes in Ohio. To be a Small Business Enterprise, the recipient of the investment must have $50,000,000 or less in assets OR $10,000,000 or less in sales AND must either have 50 or more employees in Ohio OR more than half of all of its employees in Ohio. The investment recipient must have at least one employee. In other words, passive real estate holding companies will not qualify.

The newly-released procedures outline a six-step process to become eligible to receive an InvestOhio Tax Credit. Eligibility is the key word, because the total amount of InvestOhio Tax Credits is limited to $100,000,000 within this 2-year period. Eligibility is limited based on the "ladder" which is created by the first-come, first-served rule.

Below is a brief outline of the six-step process:

  • Step One is Registration. Both the proposed investor and the proposed investment recipient must obtain an InvestOhio User ID. That ID is obtained by registering with the Ohio Department of Development on its Ohio Business Gateway website ( http://business.ohio.gov).
  • Step Two is the agreement between the investor and the investment recipient on the terms of the investment. The investment must be cash or a cash-equivalent. An investment of tangible property will not qualify.
  • Step Three is the filing of an Application for the Credit with the Ohio Department of Development. The Application can be filed on or after December 1, 2011. It can be filed by either the investor or the investment recipient. The Application must identify the investor, the investment recipient, the proposed investment and the date the investment is to be made.
  • Step Four is the investment. The making of that investment must be reported to the Department of Development within 30 days after it is made. If the investor is one of those Pass-Through Entities, all of the ultimate individual investors must be identified to the Department of Development and making of the actual investment must be confirmed.
  • Step Five is the expenditure of the investment moneys by the investment recipient. That expenditure must occur within six months after the investment. The expenditure must be made for one of the Ohio business uses underlined in the third paragraph of this Alert.
  • Step Six is the issuance of a Certificate by the Department of Development to those investors whose investments have been identified under the first-come, first-served rule.

The first-come, first-served rule creates a strong incentive for any individual taxpayer who is interested in obtaining an InvestOhio Tax Credit. The popularity of this program is unknown at this early stage. Until there is a better gauge of the race to get on that "ladder," it is best for interested individuals to give immediate attention to qualifying under these new procedures. If you have questions or seek advice on qualification for the InvestOhio Tax Credit, please call us.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.