New “InvestOhio” Small Business Tax Credit Program

December 12, 2011 By Tax and Entrepreneurial Business Practice Group
Legal Update

Ohio established InvestOhio as part of the new budget that became effective this year.  InvestOhio offers a non-refundable 10% tax credit to "Eligible Investors" for "Qualifying Investments" in "Small Business Enterprises."  The purpose of this program is to encourage investment in Ohio small businesses, giving small businesses access to capital needed to grow and create jobs.

Defined Terms

"Eligible Investors" include individuals, estates or trusts subject to Ohio personal income tax, or a pass-through entity in which the aforementioned holds a direct or indirect ownership or other equity interest.

"Small Business Enterprise"means a business with less than $50 million in assets or less than $10 million in annual sales at the time of the investment.  The business must employ at least 50 full-time equivalent employees for which withholding tax is withheld or have more than half of its total full-time equivalent U.S. employees employed in Ohio.

"Qualifying Investments" are investments of money made on or after July 1, 2011, to acquire an equity interest in a Small Business Enterprise.  Eligible Investors may invest up to $10 million for the fiscal biennium (the current biennium is the 2-year period ending June 30, 2013), which equates to a credit of $1 million per biennium ($2 million if married and filing jointly). 

Utilization of Investment Capital Requirement

Within six months after a Small Business Enterprise has received the Qualifying Investment, it must invest an amount at least equal to the Qualifying Investment received in Ohio-based tangible or intangible personal property, real property located in Ohio, motor vehicles purchased and registered in Ohio and/or compensation for new Ohio employees.  The Small Business Enterprise must use or hold the property until the end of the Eligible Investor's holding period and the credit can only be taken by the Eligible Investor after the applicable holding period has elapsed (two years for investments made before June 30, 2013, and five years for investments made thereafter). 

Application Process

In order to obtain the credits, a small business investment certificate must be obtained from the Ohio Department of Development (DOD).  The certificates are not transferable.  The DOD will issue the certificates on a first-come, first-serve basis and cannot issue more than $100 million in credits for the fiscal biennium.  On the program's first day, Monday, December 5, 2011, it received 731 applications for $183.9 million in investments—giving those investments an $18.4 million tax credit.  Assuming that all of these applications are approved, the DOD is left with $81.6 million in credits available for issuance for the fiscal biennium.

The steps required to apply for a small business investment certificate (an InvestOhio tax credit) are outlined on the InvestOhio website.  Frost Brown Todd is available to assist with the process.

For more information regarding InvestOhio, please contact Jeremy Hayden, Bill Kirkham, or any other lawyer in Frost Brown Todd's Tax and Entrepreneurial Business Practice Group.