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Multistate Tax: InvestOhio offers up to $100 million in tax credits

The State of Ohio is now offering a non-refundable personal income tax credit for investing in small businesses in Ohio. Interested investors must act quickly for a share of the limited amount of tax credits, which will be awarded on a first come, first served basis. Registration begins Monday, November 14, 2011.

To encourage investment in the more than 900,000 small businesses in Ohio, the State has launched InvestOhio, a program which could allow a non-refundable personal income tax credit of 10 percent to investors who acquire an ownership interest in an Ohio small business. To be eligible, the Ohio-based business in which the investor invests must have no more than $50 million in assets or no more than $10 million in annual sales. The business must also have at least 50 Ohio-based employees that are subject to Ohio personal income tax withholding OR have more than half of its employees be Ohio-based employees that are subject to Ohio personal income tax withholding. The small business must reinvest the cash that was invested (into one of five categories of allowable expenses) within six months. Furthermore, the investor must retain his or her ownership interest for two years before claiming the tax credit. (We issued an alert on this subject in September 2011, InvestOhio: New Ohio tax credit enacted to encourage investment in Ohio).

The registration/application process

Both parties — eligible companies and investors — must register for the InvestOhio program through Ohio Business Gateway starting at 8:00 a.m. on November 14, 2011. At the end of registration, each registrant will receive a User ID.

Then, beginning the first week of December 2011, only one party (eligible small business or eligible investor) needs to apply to the InvestOhioprogram through the Ohio Business Gateway. The registering party will need the User IDs of both parties to the transaction in which the investor acquired equity from the small business, along with the amount and date of the transaction.  When the registration is complete, a Transaction ID will be given.  The InvestOhio Transaction ID number is key because it determines the priority for being an eligible recipient of the pool of tax credits. Again, this is a first come, first served program so the sooner you apply during the first week of December, the better your chance to get a share of the up to $100 million in available tax credits.

Investment

The small business that receives the investment must ensure that it spends the cash within the six month period after receiving it.  The small business must also ensure that the cash is spent for certain eligible Ohio purposes.  The small business has certain recordkeeping requirements in this regard and should maintain such records to prove that the InvestOhio parameters are met.  Also, recall that the investor cannot dispose of the equity interest that the investor acquired in the small business until after the two-year holding period or the investor will lose the ability to claim the credit. The earliest a taxpayer can claim the credit is for the tax year 2013 (returns filed in 2014). The Ohio Department of Development, which is administering InvestOhio, expects the new program to generate about $1 billion in small business investment.

The timing of the application in the first week of December is critical in “getting in line” to potentially be able to claim the credit.  Those interested should ensure that they are ready to apply as soon as the program begins to accept applications on the Ohio Business Gateway.

Because the timing of this is so crucial, McDonald Hopkins is capable of helping you navigate through this relatively short time frame. For more information, please contact:

Stephen K. Hall
614.458.0026
shall@mcdonaldhopkins.com

or any of our Multistate Tax attorneys by clicking on the link below:

Multistate Tax

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. This can be a daunting task. We provide a broad range of state and local tax services to our clients, including tax planning, tax controversy, real estate tax abatement and exemption, and tax policy advocacy. With attorneys who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience for the benefit of our clients.

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IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments), was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding any penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction matter addressed herein.

© 2011 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.