In February 2015, the Ohio General Assembly introduced House Bill 64 (“H.B. 64”), which is the biennial operating budget bill for the biennium beginning July 1, 2015.  H.B. 64 includes significant proposed changes to the Ohio Job Creation Tax Credit (“JCTC”) and the Ohio Job Retention Tax Credit (“JRTC”).  The most significant proposed changes are summarized in this alert.

Tax Credit Base

Under current law, the JCTC is calculated by taking the Ohio income taxes withheld from employees during the year at a particular site, subtracting a baseline income tax amount that is established at the time that the JCTC is awarded, and applying a negotiated tax credit percentage to that difference.  Similarly, under current law, the JRTC is calculated by taking the Ohio income taxes withheld from employees during the year at a particular site and multiplying that amount by the negotiated tax credit percentage.

H.B. 64 would significantly alter the manner in which the JCTC and JRTC are calculated.  Rather than using income taxes withheld, H.B. 64 would specify that the JCTC and JRTC are to be calculated based on Ohio employee payroll over a particular year.  This change was likely proposed to address concerns that the value of the JCTC and JRTC could be reduced over time as Governor Kasich’s previously-enacted personal income tax rate reduction takes effect.  That reduction could have a particularly significant effect on the JCTC, which is calculated based on a baseline income tax number that may have been calculated using higher rates. 

Addition of New Discretionary “Clawback” Provisions

Under current law, if a JCTC or JRTC recipient fails to maintain operations at the project location for a specified period of time, the Ohio Tax Credit Authority (the “Authority”) is authorized to impose a “clawback” (i.e., require the repayment of a portion of the previously-claimed tax credits) pursuant to a graduated scale based on the period during which the taxpayer maintained operations.  That is the only clawback that may be imposed under current law.

H.B. 64 would authorize the Authority to impose additional discretionary clawbacks under certain circumstances.  For both the JCTC and the JRTC, H.B. 64 would give the Authority the ability to impose discretionary clawbacks if a taxpayer fails to comply with job creation, payroll or investment requirements contained in its tax credit agreement.  In addition, if the failure occurs after a taxpayer files for bankruptcy, H.B. 64 would allow the Authority to impose an immediate clawback of up to 100% of the previously-claimed tax credits.  This is a significant expansion of the JCTC and JRTC clawback provisions, and, if enacted, should be carefully considered by companies in applying for a JCTC or JRTC.

Effective Date of Amendments

H.B. 64 includes language that would allow taxpayers who were awarded JCTCs in 2014 or 2015 to enter into a mutual agreement with the Ohio Development Services Agency to amend their tax credit agreements in conformance with the provisions of H.B. 64.  Any such amendment must be approved by the Authority.  Otherwise, the changes to the JCTC and JRTC proposed in H.B. 64 would take effect 90 days after the bill is signed by Governor Kasich.