UPDATE: Ohio General Assembly Passes Increased Historic and Opportunity Zone Incentives in SB 225

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Ohio’s General Assembly recently voted to temporarily double its Ohio Historic Preservation Tax Credit (OHPTC) award cap and increase, then reduce Ohio’s Opportunity Zone (OZ) Tax Credit cap. For state fiscal years 2023 and 2024, the SB 225 permits the Ohio Director of Development to change the amount of OHPTCs awarded from $60 Million to $120 Million. Ohio’s state fiscal years run from July to June and the Ohio Department of Development’s Round 29 beginning Fall 2022 would be the first group of applications to benefit from the increased $120 Million cap.

As written in the bill, Ohio’s OZ tax credit cap is set to increase from $50 Million to $75 Million for the July 2021 to June 2023 biennium. For fiscal year 2024 the cap drops back from $75 Million to $50 Million, then from FY 2025 forward the cap halves from $50 Million to $25 Million.

OHPTC AWARD ADJUSTMENTS

In addition to the cap increase, SB 225 also provides several enhancements to the credit:

  • The credit is boosted from 25% of Qualified Rehabilitation Expenditures (QREs) to 35% of QREs for projects in counties, townships or municipal corporations with populations smaller than 300,000 as determined by the 2020 census. With this population limit, most areas of Ohio outside of Cincinnati, Cleveland, and Columbus are eligible for the enhanced 35% tax credit. The credit remains 25% for counties, townships or municipal corporations with larger populations. Prior to House amendments SB 225 limited the 35% enhanced credit to areas outside of Akron, Dayton, Cincinnati, Columbus, Cleveland, Parma and Toledo.
  • The bill would increase the maximum annual credit able to be claimed for a single project from $5 million to $10 million for any calendar year, tax year or taxable year.
  • Credits in excess of tax liability for the period may be refunded in full. For prior year awards, the bill increases the amount eligible to be refunded is limited to $3 million, with any balance carrying forward up to 5 years.

As would be provided by the bill, these enhancements apply automatically to projects approved on or after the bill’s 90-day effective date and before July 1, 2023. As long as construction has not yet commenced, the owner of a project approved for OHPTC credits after June 30, 2020 may reapply for an enhanced tax credit. Notwithstanding the 25% OHPTC credit, most project applicants apply for a fraction of the credit to boost scores and increase their likelihood of winning an award in the highly competitive biannual application process.

The increase in funding for the OHPTC credit may see a trend of applicants applying for awards that are higher percentages of eligible QREs as double the credits would be available to applicants. The possibility of higher awards as a percentage of QREs would be welcome news to an industry that has been beset by construction price inflation and labor and material shortages particularly given the amount of time that elapses from when projects are awarded credits to when the project is completed and receives the credits.

Often used in conjunction with the 20% federal income tax credit for the certified rehabilitation of certified historic structures, the OHPTC is a sought-after tool that makes challenging redevelopments of eligible historic buildings feasible. The program is highly competitive and impactful. OHPTC credits can be applied to income tax, financial institutions tax, or insurance premiums taxes. Ohio has approved OHPTC credits for over 766 buildings in 77 Ohio communities, leveraging more than $7.3 billion in private development and federal tax credits.

OHIO OZ TAX CREDIT CHANGES

Aside from the changes to the OZ tax credit caps, SB 225 expands tax credit certificate eligibility to investors in an Ohio Opportunity Zone that are not subject to the Ohio personal income tax. While only state income taxpayers may use the credits, the bill permits the credits to be transferred. This change so allows others in addition to state income taxpayers to earn such OZ tax credits by investing in projects through an Ohio Qualified Opportunity Fund (Ohio QOF).

The bill provides that there would be two shorter credit application periods each calendar year covering investments made in the prior six months. The first application window would run from January 10 to February 1, while the second would extend from July 10 to August 1.

The Ohio OZ Tax Credit Program provides an incentive for taxpayer investors to place capital in projects located in economically distressed areas known as “Ohio Opportunity Zones.” Ohio’s program requires that taxpayer investors place cash in an Ohio QOF, which in turn must invest that money in an Ohio Qualified Opportunity Zone property. Once the money is invested in the Qualified Opportunity Zone property (QOZ Property), the taxpayer investor is then eligible for a non-refundable tax credit equal to 10% of the amount of its funds invested by the Ohio QOF in the QOZ Property. The Ohio Department of Development reviews OZ Tax Credit applications in the order that they are received until all eligible applications are funded or until the allocated tax credits are fully utilized, whichever comes first.

PROJECTED FISCAL IMPACT OF INCREASED OHPTC AND OZ INCENTIVES

Notwithstanding the positive economic and other benefits derived from projects funded with OHPTC and OZ incentives, the Ohio Legislative Service Commission projects the increased incentives to cost Ohio $85 Million for the Fiscal Year 2022 to 2023 biennium, with the General Revenue Fund bearing $82.1 Million of the cost and the Local Government and Public Library funds bearing $2.9 Million of the cost.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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