Summary#
HB 1026, “Increase and expand the research and development tax credit,” would amend Ohio’s Revised Code sections on credits against the financial institutions tax and the commercial activity tax. It aims to increase the credit and make it usable over a longer period. The bill is introduced and is not law.
- It would raise the credit from 7% to 14% of Ohio qualified research expenses above the taxpayer’s average annual expenses in the previous three years.
- It would extend the time to carry unused credit forward from 7 years to 20 years. The credit is nonrefundable: an amount that exceeds tax owed is not paid out in cash.
- It would set out an application process through the Ohio Tax Commissioner, who would issue certificates for eligible credits. The bill text provides for transferring all or part of a credit, including onward transfers to another person.
- For the financial institutions tax, the calculation includes expenses of people in the taxpayer’s annual report and certain insurance companies more than 50% owned or controlled by a person in that report.
- The changes would apply to tax years or periods ending on or after the bill’s effective date. The provided text does not give that date.
What it means for you#
- Businesses paying either tax: If eligible, a business could claim a larger credit for Ohio research spending above its own three-year average. The credit is tied to the specific tax; it is not a general payment for research.
- Businesses with unused credits: They could have up to 20 years to use an excess credit, and the bill would allow the credit to be transferred under its notice requirements. A transfer would not extend the time to use it.
- Taxpayers generally: The bill does not change individual income taxes, create a grant program, or require businesses to conduct research. Whether a business qualifies depends on the tax and expense rules.
- Financial institutions: The bill’s calculation can include expenses of certain related people and insurance companies, subject to the ownership and reporting conditions in the bill.
Money#
No publicly available information on the expected revenue loss, administrative cost, or other fiscal effect.
- The bill would increase the potential tax credit and extend the period for using unused credits. It does not state how much businesses would claim or how much revenue the state might forgo.
- It would require the Tax Commissioner to process applications and issue certificates. No staffing or cost estimate is provided.
What is unclear#
- The current versions of the two amended sections were not supplied, so the full set of changes cannot be checked against current law.
- The bill does not provide an effective date in the supplied text.
- It does not give application decision deadlines or explain what happens if the Commissioner finds expenses ineligible.
- The bill refers to the federal definition of qualified research expenses. How that definition applies to particular expenses is not explained here.
- The price or other terms for transferring a credit are not specified.
Case for#
- A possible argument for the bill is that a larger credit could reward businesses for increasing research spending in Ohio.
- The longer carry-forward period could give businesses more time to use a credit when they do not owe enough tax in the year they earn it.
- Allowing transfers could let a business use the value of a credit even if it cannot use the full amount against its own tax.
Case against#
- One concern is that a higher credit and longer carry-forward could reduce state tax revenue, but the bill materials do not estimate the effect.
- The bill does not set out detailed application decisions or timelines, leaving important parts of how the credit would be administered to the Tax Commissioner.
- A possible trade-off is added complexity: the Commissioner would process applications and transfers, and businesses would need to track certificates and credit balances over time.