Taxes:

Following is an explanation, in general terms, of the tax structure in Ohio and its effect on companies and employees locating in Northwest Ohio. The main taxes that may apply to business in Ohio are as follows: taxes on real property (land, buildings); corporation franchise tax; corporate activity tax (CAT) and municipal income tax.

Businesses in Northwest Ohio may take advantage of various tax incentives to help offset tax burdens. Detailed information on available incentives can be found in the incentive chapter.

Tax Reform in Ohio

Sweeping Tax Reform Makes Ohio Companies More Competitive in Global Economy

Major Components of Tax Reform Plan

On July 1, 2005, the State of Ohio instituted a sweeping change in the state tax code, eliminating all personal property and inventory taxes, in stages, by 2009 for existing Ohio companies.  For companies new to Ohio, the new Commercial Activates Tax will be applied exclusively, with zero personal property or inventory taxes assessed.

Personal Income Tax
The state personal income tax - an adjusted net income tax on individuals, small businesses, estates, and trusts - was first enacted in 1971 as a state revenue source. When first enacted in 1971, the tax had a rate schedule comprised of six brackets, with a bottom rate of 1.0-percent on income under $5,000 and a top rate of 3.5-percent on income over $40,000. By 2005, this rate schedule had grown to encompass nine brackets, with a bottom rate of 0.712-percent on income under $5,000 and a top rate of 7.5-percent on income over $200,000.

The Ohio tax reform plan calls for a reduction and restructuring of the state’s personal income tax. The main feature of the tax reform plan is a 21 percent reduction in the Ohio income tax rate schedule. This reduction, phased-in over five years at 4.2 percent per year, will result in a new top rate of 5.95 percent, which is a 21 percent reduction from the current top rate of 7.5-percent. In addition, the tax reform plan calls for the re-establishment of an accumulated trust income tax, the development of a new higher education grant program and the implementation of a new low-income tax exemption program.

STANDARD PERSONAL EXEMPTION AND CREDIT
Personal exemptions of $650 per person are allowed. Credits against tax due of $20 per personal exemption are allowed.

RECIPROCITY
An individual who is a resident of Ohio or one of the five surrounding states and whose income consists solely of compensation from any of those states need only file with the state of residence.

RESIDENT/NONRESIDENT INCOME CREDITS
Taxpayers who earn income while living in another state or have income taxed by another state receive a credit for that portion of income.

Commercial Activity Tax
The Ohio tax reform plan calls for the implementation of a replacement business tax to help replace forgone state and local revenue resulting from the elimination of the tangible personal property tax on general businesses. This new tax – the commercial activity tax, or CAT– is an annual tax on the net gross receipts of a businesses’ activity within the state of Ohio. The CAT possesses a low rate (0.26 percent of gross receipts), a broad base (corporations and small business), and limited exemptions/credits (only four tax credits). As designed and structured, the CAT will not unfairly shift the tax burden to either businesses or individuals or unduly burden any one business sector or size of business within the state.

Under the tax reform plan, the CAT became effective beginning July 1, 2005. However, the full weight of the tax will be phased-in over a five-year period, at approximately 20 percent per year, with full implementation by April 1, 2009.

Foreign Trade Zone Exemption
If a facility is located in a foreign trade zone that was established prior to January 1, 1990 all inventories in the zone are completely exempt from property taxes. If the foreign trade zone was established after January 1, 1990, only those inventories exempt under federal law are exempt from property taxes. The foreign trade zone for the Toledo area was established in 1960, and is located at the Port of Toledo and at Toledo Express Airport.

Real Property Taxes
All industrial and commercial property owners in Ohio must remit at least 1/2 of the Ohio Real Property Tax on December 31st of each year, with the balance due on June 20th.

Real property, defined as land and buildings, is valued for tax purposes at 35% of market value, where market value is based upon the highest and best use of the property. Market value is reappraised by county officials every six years with updated adjustments every third year.

The tax rates on this real estate vary with each taxing jurisdiction. The total rate includes 10 mills of non-voted property tax and all levies approved by the voters.

Businesses in Ohio benefit from two direct tax credits. These include a 10 percent rollback in the real property tax and a tax-reduction factor designed to eliminate increases in voted taxes caused by inflation, which occur when existing real property is reappraised or updated.

The following table shows actual and effective tax rates which apply to the different taxing districts. The actual rates are used in the computation of tangible personal property taxes (machinery and equipment, inventories, furniture and fixtures). The effective rates are used in the computation of real commercial and industrial property taxes. The rates are expressed in dollars and cents on each one thousand dollars of valuation.

RANGES OF REAL & PERSONAL PROPERTY TAX RATE

2008 Tax Rate Sheets by County

Business Incentive Tax Credits

Program Description	Rate/Terms	Benefits	Eligibility
Ohio Job Creation Tax Credit Provides corporate franchise or state income tax credit for businesses that expand or locate in Ohio. The program will provide a tax credit against the Commercial Activity Tax (CAT) beginning on July 1, 2008. Insurance companies that pay the annual franchise tax are eligible for the tax credit beginning July 1, 2005.	Ohio Tax Credit Authority determines eligibility and terms Business must demonstrate to the Authority that the tax credit is a major factor in its decision to go forward with the project Local community must also provide financial support for the project	Refundable state franchise or income tax credits that minimize expenditures to encourage business expansion and/or location projects in Ohio.The tax credit will apply against the corporate franchise tax through 6/30/08, and transfer to cover the Commercial Activity Tax (CAT) liabilities for tax period beginning July 1, 2008. The program will continue to be refundable.	Businesses that create at least 25 net new full-time positions at a facility in Ohio and pay a minimum of 150% of federal minimum wage In special circumstances, a company could create as few as 10 new full-time positions paying at least 400% of the federal minimum wage
Program Description	Rate/Terms	Benefits	Eligibility
Ohio Job Retention Tax Credit Provides corporate franchise or state income tax credit for businesses that commit to retain a significant number of full-time jobs. Program will provide a tax credit against the Commercial Activity Tax (CAT) beginning on July 1, 2008.	Ohio Tax Credit Authority determines eligibility and terms Credits awarded to companies that are engaged at the project site primarily as a manufacturer or providing significant corporate administrative functions and can demonstrate the tax credit is a major factor in its decision to retain jobs in Ohio Local community must also provide financial support for the project.	Nonrefundable corporate franchise or state income tax credits for corporations, partnerships, limited liability companies and other pass-through entities to minimize the costs of maintaining an operation in the state. The tax credit will transfer to cover the Commercial Activity Tax (CAT) liabilities for tax period beginning July 1, 2008. The program will continue to be non-refundable.	Businesses that currently employ at least 1,000 full-time employees and make a capital asset investment of at least $200 million In special circumstances, a company could invest at least $100 million if the retained positions pay, and will continue to pay, at least 400% of the federal minimum wage.
Program Description	Rate/Terms	Benefits	Eligibility
Ohio Research and Development Investment Tax Credit Provides a nonrefundable tax credit against the corporate franchise tax and is designed to encourage Ohio’s corporations to invest in increased research and development activities.	The credit equals 7% of the excess amount of Qualified Research Expenses.	Nonrefundable tax credit. The tax credit currently is applied against a company’s corporate franchise tax. The tax credit will transfer to cover the Commercial Activity Tax (CAT) for corporations after tax year 2008. Any excess credit not used in the taxable year in which it is earned by be carried forward for up to 7 years.	Only those taxpayers subject to the franchise tax provision or those subject to division (G)(2) of section 5733.01 under CAT tax are eligible for the credit. Taxpayer must invest in “Qualified Research Expenses”, defined within Section 41 of the Internal Revenue Code and includes both in-house research expenses (wages and supplies) and contract research expenses. New investment in a taxable year must exceed business' annual average investment in Qualifying Research Expenses for the tree previous taxable years.
Program Description	Rate/Terms	Benefits	Eligibility
Training Tax Credit Provides tax credits for employers that train existing employees who are at risk of losing their jobs primarily due to skill deficiencies.	$20 million in credits available annually with no single business receiving more than $100,000 per year Tax credit available in tax year 2004, 2005, and 2006.	Nonrefundable tax credits to help businesses offset costs of training incumbent workers and improving the business' competitive position	Businesses must conduct an eligible training program to correct identified skill deficiencies in its existing workforce Training for management personnel is generally prohibited
Program Description	Rate/Terms	Benefits	Eligibility
Ohio Manufacturing Machinery & Equipment Grant/Ohio Manufacturing Machinery & Equipment Investment Tax Credit Provides a nonrefundable corporate franchise or state income tax credit for manufacturer located in Ohio that purchases qualified new or retooled machinery and equipment that is used in manufacturing. As of July 1, 2005, the M&E Equipment Grant replaced the M&E Investment Tax Credit as the mechanism for companies to take the incentive. The M&E Equipment Investment Grant Program incentive values are calculated in the same manner at the M&E Investment Tax Credit, and therefore the annual incentive amounts previously calculated through the tax credit program will apply to the grant program. The M&E Equipment Grant program will require companies /individuals intending on taking the incentive (again – the same amounts as the annual values calculated through the M&E Investment Tax Credit program on the Notice of Intents) must file a grant request form with their tax return.	Manufacturer receives a 7.5% tax credit on the excess investment, credit of 13.5% is available in "priority investment areas" Total value of credit is divided equally over 7 years and manufacturer is permitted to carry forward any unused credit for up to 3 years Purchases must be made by June 30, 2005 and installation must occur before June 30, 2006. Credit exceeding $1 million must meet special requirements Notice of Intents must still be filed with ODOD for investment made in calendar years 1995 through 6/30/05. A company’s deadline to file a Notice of Intent for any investment year is determined by the required filing date of its tax return (see the M&E Investment Credit website under “Notice of Intent Due Dates” for the deadlines).	Substantial state franchise or income tax reductions which minimize capital expenditures to encourage business expansions and locations in Ohio For state franchise tax filers, the incentive is applicable to the corporate franchise tax credit during the tax’s phase out period. After the tax is eliminated, the incentive is eliminated. For state income tax filers, the incentive can be taken against the state income tax until the term of the incentive is completed.	Corporations, partnerships, limited liability companies or proprietorships New investment must exceed business' annual average county investment in machinery and equipment determined by the filing year Machinery and equipment must be new to Ohio Retooling qualifies if costs are capitalized for federal tax depreciation purposes
Program Description	Rate/Terms	Benefits	Eligibility
Technology Investment Tax Credit Offers a variety of benefits to Ohio taxpayers who invest in small, research and development and technology-oriented forms.	Provides a tax credit for taxpayers that invest in small, Ohio-based technology companies. The amount of the tax credit is 25% (or 30% in some limited cases) of the amount invested by the taxpayer. The maximum investment to which this credit may be applied is $250,000 (or $300,000). The credit may be claimed against personal income tax, corporate franchise tax, public utility excise tax or the dealers in intangibles tax. To be eligible, the company must have its principal place of business located in Ohio and must also have less than $2.5 million in revenue or less than $2.5 million in net assets for the most recently completed fiscal year. Finally, the entity must be engaged in a business that primarily involves R&D and/or technology transfer.	Investors may reduce their state taxes by up to 25% of amount invested	Businesses primarily focused on research and development, technology transfer, or the application of a new technology Business must have gross revenues less than $1 million, or net book value of less than $1 million, at the end of most recent fiscal year Principal place of business and 1/2 of its gross assets and employees must be in Ohio Business must have received less than $1 million in investments that have qualified for the tax credit
Program Description	Rate/Terms	Benefits	Eligibility
Research and Development Sales Tax Exemption Provides an exemption from the usual state and county sales tax for companies that purchase equipment for research and development activities. Vendor needs a blanket exemption certificate, available on-line at the Department of Taxation’s website (http://tax.ohio.gov/) under Business, Tax Forms.	Exempts business from entire state and county sales tax for purchases of machinery and equipment used primarily for research and development	Provides significant tax savings for companies undertaking research and development activities in Ohio	Includes research and development activity in both direct and pure research Direct research refers to research conducted to design, create or formulate new or better products, equipment or processes Pure research refers to scientific or technological inquiry and experimentation in the physical sciences
Program Description	Rate/Terms	Benefits	Eligibility
Manufacturing Machinery & Equipment Sales Tax Exemption Provides an exemption from state and county sales tax for companies that purchase machinery and equipment for manufacturing activities. Vendor needs a blanket exemption certificate, available on-line at the Department of Taxation’s website (http://tax.ohio.gov/) under Business, Tax Forms	Exempts business from entire state and county sales tax for purchases of machinery and equipment used primarily for manufacturing	Provides significant tax savings for companies and individuals that are involved in manufacturing in Ohio	Includes machinery, equipment, supplies and fuel used primarily in a manufacturing operation to produce tangible personal property for sales
Program Description	Rate/Terms	Benefits	Eligibility
Warehouse Machinery & Equipment Sales Tax Exemption Provides an exemption from state and county sales tax for companies that purchase eligible warehousing equipment. Vendor needs a blanket exemption certificate, available on-line at the Department of Taxation’s website (http://tax.ohio.gov/) under Business, Tax Forms	Exempts business from entire state and county sales tax for purchases of eligible machinery and equipment	Provides significant tax savings for companies purchasing machinery and equipment for warehousing, distribution and direct marketing activities	Includes machinery and equipment used primarily (51%) in storing, transporting, mailing or handling inventory in a warehouse, distribution center or similar facility if the inventory handled by the facility is primarily distributed outside Ohio to retail stores owned by the business or affiliated group that owns the Ohio facility or distributed by means of direct marketing
Program Description	Rate/Terms	Benefits	Eligibility
Warehouse Inventory Tax Exemption Provides an exemption from the personal property tax on qualifying inventory. Claimed as part of the Personal Property Tax return.	Current rate is 0%	Significant tax savings for companies that have substantial amounts of inventory This exemption will only be applicable as long as there is tangible personal property tax is assessed on inventory. Once the personal property tax is eliminated, the exemption is eliminated.	Inventory brought into Ohio from out of state, held for storage only with no further processing and then distributed back outside of the state, will be subject to a reduced personal tangible property assessment rate “Held for Storage Only" is a specific standard of eligibility that may preclude the value of some inventory being shipped directly to customers from qualifying for the reduced assessment rate
Program Description	Rate/Terms	Benefits	Eligibility
Enterprise Zones Provides real and personal property tax incentives for businesses that expand or locate in Ohio. In order to apply, the municipality or county must apply to the State Development Director for certification. To secure benefits, non-retail businesses must apply to the local community for local property tax exemptions and to the State Development Director for state franchise or state income tax incentives.	Up to 75% exemption in incorporated areas and up to 60% exemption in unincorporated areas on real property improvements or tangible personal property tax valuation for up to 10 years Local school board approval is required to exceed these rate and/or term limits	Substantial tax reductions on new real and/or personal property investment Reductions apply to the increase in assessed value for real property and items first-used by the business in Ohio for personal property Note that: 1) manufacturing machinery and equipment new to the state purchased after 1/1/05 will not be taxed and 2) once personal property tax is phased out, the personal property tax incentive will no longer be applicable.	Industrial projects (retail/service projects are eligible in limited areas) Business must finalize agreement to retain or create employment; establish expand, renovate or occupy a facility in an Enterprise Zone; and invest in new real and/or personal property prior to project initiation
Program Description	Rate/Terms	Benefits	Eligibility
Ohio Historic Preservation Tax Credit Provides a refundable tax credit to the owner of a historic building. The credit is based upon expenses paid by the owner to rehabilitate the historic building.	The credit is equal to 25% of the qualified rehabilitation expenditures paid to rehabilitate the historic building.	The refundable tax credit can be claimed against the building owner's individual income tax, corporate franchise tax, or dealers-in-intangibles tax liability.	Only building owners that are subject to any of the taxes against which the credit can be applied are  eligible for the credit. An application for the credit must be submitted to the e Ohio Historic Preservation Officer and to the Director of the Ohio Department of Development.  Not more than 100 applications can be approved per year of a two-year period that begins on July 1, 2007.
Program Description	Rate/Terms	Benefits	Eligibility
Community Reinvestment Areas   Provides local real-property tax incentives for residents and businesses that invest in designated areas of Ohio. In order to apply, the municipality or county must apply to the State Development Director for confirmation. Investors meeting the local criteria must apply to the municipality or county for the real property tax exemption.	Up to 100% exemption of the improved real property tax valuation for up to 15 years depending on the project Local legislative authority establishes rates and terms In some instances, local school board approval may be required	Substantial real estate property tax reduction for new real property	Real property investment incentives are available for residential, commercial, and/or industrial projects involving remodeling or new construction Commercial and industrial projects must have an agreement in place prior to investment Local legislative authority establishes project eligibility

 

Municipal Income Tax
Municipalities may levy income taxes in Ohio and are levied at the flat rate. Most municipalities require voter approval to increase the rate. Business income is apportioned using a three-factor formula including property, payroll and sales factors. This tax applies only if the business facility is located within a municipality levying a local income tax. Local taxes range from 2.25% to 1.5%.

• Tangible personal property used in pollution control facilities
• Raw materials used in the production of articles for sale
• Materials used primarily in the production of tangible personal property
• Material handling equipment when used to move property during the production process
• Machinery and equipment used primarily in qualified research and development
• Utilities, such as natural gas, electricity, water and telephone services

Generally, the tax would apply to items used in storing, handling and sorting raw materials before manufacturing begins; building materials; office equipment and furniture; and equipment used in transporting or storing finished products.

 

Unemployment Compensation
In Ohio, unemployment compensation calculations are based on the experience of the individual employer. However, employers who are new to the state will need two years to develop an experience rating. The rate is then applied to the first $9,000 of each employee’s annual wages and paid quarterly. Non-experienced rated employers are required to use an average contribution rate for their industry. The present rate for the service industry is 3%. The current manufacturing industry rate is 3.3%.