Tax Incentives: Calculating Taxes

In Ohio, real property (building and land) is assessed at 35% of its actual value and tangible personal property (machinery, equipment, furniture, inventory, etc.) is assessed at 25% of its actual value. An example of calculating real property taxes is below; the same method can be used for personal property taxes.

Sample Real Property Tax Calculation

• A building valued at $100,000 in the Village of Woodlawn
• 2000 real property tax rate is 51.89

Tax Incentives: Enterprise Zone

The Enterprise Zone tax incentive program allows a growing company to receive an exemption on a percentage of the real or personal property investment it makes. In Ohio, the maximum abatement allowed for real and/or personal property is 75% for a 10 year period in incorporated areas (cities and villages), and 60% for a 10 year period in unincorporated areas (townships). Below is an example of calculating the first year of an abatement on a building.

Sample Calculation (one year only)

• A building valued at $100,000 in the Village of Woodlawn
• 2000 real property tax rate is 51.89
• 75% abatement on the value of the building

The amount of tax exemption is negotiated on an individual project basis and varies according to the size of the investment, jobs created and other factors. An agreement must be in place between the company and Hamilton County before a project commences. A project will fall into one of two categories, "new" or "expansion":

• A "new" project is the construction of a new building or the purchase/lease of an existing facility that has been vacant for at least 90 days. The full value of a newly constructed building, building additions or renovation is eligible for the incentive, as is the full value of new tangible personal property. The value of existing buildings cannot be abated.
• An "expansion" project would involve the construction of an addition or renovation to an existing facility that is owned by the company, has been vacant for less than 90 days, or consists of just the purchase of new machinery, equipment or inventory. Any improvements to an existing building that are at least 10% of the fair market value of the existing assets (building, machinery/equipment) are eligible for exemption.

Tax Incentives: Community Reinvestment Area

The Community Reinvestment Area (CRA) program is very similar to the EZ; their maximum terms and percentages are identical. However, only the valuation of real property (new building construction or major renovation) can be abated with a CRA. In many circumstances the Enterprise Zone is more beneficial to a company, especially if an existing building or a large amount of machinery and equipment is being purchased.

Some CRA areas, however, were created with a previous law that allows for a longer term and higher percentage of abatement. These "old CRA's" allow for up to 100% of the value of real property to be abated for up to 15 years. To a company making a large investment in a new building, and a minimal purchase of new machinery and equipment, this program can be more beneficial than the Enterprise Zone. Furthermore, areas designated as CRA's and areas designated as Enterprise Zones can overlap, and the benefits of the "old CRA's" can be combined with the personal property benefits of an Enterprise Zone.

Our office will work with your company in determining if any sites or buildings you are considering fall within a "new" CRA, "old" CRA, or one that overlaps with an Enterprise Zone.

Tax Incentives: M&E Tax Credit

The Machinery and Equipment (M&E) Tax Credit is designed for businesses that purchase new or retooled qualified machinery and equipment used in manufacturing. "Manufacturing machinery and equipment" is defined as engines, machinery, tools and implements of every kind used, or deigned to be used, in refining and manufacturing.

To be considered "new" manufacturing machinery and equipment, the original use in Ohio has to commence with the manufacturer; machinery or equipment used outside Ohio but purchased during the qualifying period (more on that below) and brought into Ohio qualifies as new despite its prior use outside of Ohio. Finally, the cost of retooling manufacturing machinery and equipment qualify if such costs are capitalized for federal tax depreciation purposes.

Manufacturing machinery and equipment purchased or retooled in the year 2001, that exceeds the average investment in machinery and equipment for the years 1995-1997, is eligible for a 7.5% corporate franchise or state income tax credit.

Sample Calculation

Year 2001 New Equipment/Retooling Cost Average Annual Investment (1995-96-97) Net eligible for tax credit Tax Credit TOTAL TAX CREDIT Divided by 7 for Annual Credit

$10,000,000 6,000,000 4,000,000          x .75 $300,000 $42,857

Please note that the tax credit is divided equally and taken over seven years.

Tax Incentives: Job Creation Tax Credit

The program provides a refundable tax credit against a company's Ohio corporate franchise tax or an individual's Ohio personal income tax. The tax credit ranges from 50% to 75% for 5 to 10 years, and is granted by Ohio Job Creation Tax Credit Authority. A company must create at least 25 new full-time jobs to be eligible to receive the tax credit, which is based on the state income tax withheld from the new employees.

Sample Calculation

• 135 new full-time employees
• $10.58 per hour average hourly wage
• 2080 hours worked per year
• $22,000 annual payroll per employee
• 60% credit for 5 years

* The withholding amount was taken from the Ohio Department of Taxation's 1996 Ohio Withholding Tax Schedule.

Whether the JCTC is a tax credit or a rebate depends on how much state business tax the company owes. If the business tax is greater than the tax credit, then the incentive is in the form of a tax credit. If the business tax is less than the tax credit, then the incentive is a rebate, i.e. the amount of the difference is given to the company as a grant.