Ohio’s Governor Kasich recently signed into law an amended substitute house bill – HB 64. This bill contains significant modifications to the Ohio Job Creation Tax Credit (JCTC) and the Ohio Job Retention Tax Credit (JRTC) as well as several tax law changes, all of which became effective September 29, 2015.
The JRTC and JCTC are the main tax credits offered to Ohio businesses by the Tax Credit Authority (the Authority). These credits were originally computed on an agreed-upon percentage of a company’s Ohio income tax withholdings in a given year, which could include non-residents working in Ohio, and subject to a cap of 75%. However, HB 64 changes how the credits are calculated. All JCTC and JRTC agreements approved by the Authority after September 29, 2015 will utilize an agreed-upon percentage of the company’s Ohio resident employee payroll as the basis for calculating credit instead of income tax withholding.
New Calculation Methods
Taxpayers originally approved for a JCTC after 1/1/2014 are being given the option to have their tax credit calculated using whichever method they choose – the “new” way based on excess Ohio employee payroll or the “old” way based on excess Ohio employee income tax withholdings. Businesses can discuss next steps and their options with the Ohio Development Services Agency to come to a mutual agreement. JRTC agreements are not eligible for this option.
Withholding Adjustment Factor
For JCTC and JRTC agreements approved on or before December 31, 2013, the Authority will annually compute a withholding adjustment factor starting in January 2016. The adjustment will be equal to the percentage Ohio income tax withholding rates have increased or decreased since June 29, 2013. This will effectively compensate businesses for any discrepancies in tax credits as a result of income tax decreases that have occurred and any future tax rate changes. It is important to note that the withholding adjustment factor is only available for taxpayers that meet all of the commitments in their agreement for the current year in terms of job growth, payroll, and capital investment.
Another change included in HB 64 is that converting to the new payroll computation method triggers discretionary “clawback” provisions. This requires taxpayers to repay claimed tax credits – or a portion of the previously claimed credits – under certain circumstances. These enhanced clawback provisions apply to JCTC and JRTC agreements approved on or after January 1, 2014 as well as to any amendments to JCTC agreements.
The Authority can recoup an amount in their discretion should the business fail to do the following at any time during the term of the agreement:
- JCTC: substantially meet the job creation, payroll, or investment requirements on the annual metric evaluation date
- JCTC: substantially maintain the number of new full-time equivalent employees or amount of payroll required
- JRTC: substantially maintain both the number of full-time equivalent employees and the payroll required under the agreement (during the term of the agreement and the post-term reporting period)
If the taxpayer files for bankruptcy or fails to maintain operations at the project site for the mandatory period or does not meet its job creation or payroll requirements, the Authority can now recover up to 100% of claimed credits. It’s important to note this can be done without giving the taxpayer an opportunity to explain noncompliance.
The forthcoming changes can have a significant impact on the tax benefit companies receive. It’s essential to ensure you are working with a qualified firm to help guide you through the changes to receive the highest value possible. If you would like additional information or have questions about how the new JCTC and JRTC rules, call us at 513-241-8313, or click here to email us. We look forward to assisting you soon!