If you’re a tax payer who’s invested in a small business through the InvestOhio program, or if you’re a business owner who’s received a credited investment, you could find yourself impacted by new program changes or fees.
Recently, Ohio passed Senate Bill Number 134, making modifications to the InvestOhio program, administered by former Ohio Department of Development (now renamed the Development Services Agency). The governor has until Monday, July 2, 2012, to sign the bill into law.
Among other things, the law makes changes to the Invest Ohio credit, including:
- Narrowing the class of possible participants
- Increasing compliance filings
- Imposing a new up front application fee.
It’s not yet clear when these changes will go live, and if the changes will impact previously filed InvestOhio applications or only those submitted after the law’s signing or its effective date (late September 2012). But, regardless of date, the bill will have potentially big impacts on Ohio’s investor and small business communities.
What does this mean for investors?
First, the new law generally means that fewer business and taxpayers will be eligible for the credit. A new requirement is that, at the time of the investment, both the small business and the investor need to be in good standing with the state. “Good Standing” means that the business must be registered with the Secretary of State, if required, and that neither the business nor the investor is involved in illegal activities or delinquent on their state taxes.
Investors must also pay a new fee with their initial InvestOhio application. The application fee will be the greater of $100 or 0.1% of the investment amount. For example, on a $1,000,000 investment (the possible tax credit for which is $100,000) the investor will have to pay a $1,000 application fee, which will go to support the administration of the program. Currently, there are no details as to if this fee will be retroactively required for those applications which have already been filed or if they will be “grandfathered” in.
One other change that will impact investors is the order in which certificates, and thus credit funds, are issued. Previously, certificates were required to be issued on a first come, first serve basis, being processed in the order in which they were received. Now, certificates will be issued in the order in which the applications are completed (an application is complete after the small business buys the Ohio based property or payroll within 6 months of the investment). This change incentivizes people to make their investments earlier, with the hoping of jump starting Ohio’s economy even faster. As there is a limited amount of tax credits available for the InvestOhio program, investors who applied early for future investments in 2013 may find that the program runs out of funds before their applications are processed.
What does this mean for businesses?
Some businesses which had previously been eligible to receive credited investments may find that they no longer are. The asset and sales caps, which limit the size of eligible businesses, have been modified to included “related or affiliated entities.” Although the state has not yet specifically defined these terms, it is clear that this new regulation could push many businesses above the upper limits of eligibility. Additionally, business and investors are now required to meet all eligibility requirements, including asset and sales caps, at two different points in time: on the day of the initial investments and six months after that time (whenever the certificate is to be issued).
Another requirement is that businesses will now be obliged to report on the number of Ohio jobs which the investment allowed them to create or retain. They will need to annually report this information for the investment’s two year holding period.
Contact our Ohio State and Local Tax Team
Have you invested in Ohio or has your business received a credited investment? Wondering how these changes will impact you? Were you planning on making an InvestOhio application, but not sure if you’re in compliance with the new regulations? Contact Rea & Associates. Our Ohio state and local tax team will stay on top of this developing story, making sure to keep you informed of changing InvestOhio regulations and how they impact your application.