There is a new economic development tool coming to Ohio. Senate Bill 39, which the Montrose Group has previously highlighted is on its way to Governor DeWine for his signature to officially become law. As we have previously discussed Senate Bill 39 creates a new tax credit in Ohio, to be used in the development of a Transformation Mixed Use Development (TMUD).

The bill allows for a nonrefundable credit of 10% of the development costs or 10% of an insurance companies capital contribution and permits unclaimed credit amounts to be carried forward for up-to five years. A nonrefundable tax credit, compared to a refundable tax credit, can only be exercised by organization that pay taxes to the state of Ohio. Refundable tax credits are available whether the organization has a tax bill at the end of the year or not and really acts for practical purpose as a government grant. The bill allows insurance companies to apply directly for the credit or to purchase the right to claim the credit from a property owner. Thus, SB 39 creates an important tool for developers to access capital to make their projects a reality.

Not all mixed-use developments are eligible for the tax credit benefits of SB 39. This legislation defines a TMUD as a project that meets the following criteria:

  1. A project within a major city (100,000 or more in population) that exceeds $50 million, includes the renovation, rehabilitation, or construction of at least one new or previously vacant building; is 15 stories in height; or is at least 350,000 sq. ft.; or is a project which creates $4 million in annual payroll.
  2. A project not within a major city (100,000 or more in population) the project includes at least one new or previously vacant building that is two or more stories in height; or is at least 75,000 sq. ft.

Thus, SB 39 creates opportunities to promote mixed use development in urban and rural centers across the Buckeye State. As done with all Ohio tax credit programs, SB 39 does not have an unlimited budget. Senate Bill 39 sets aside a cap of up-to $100 million per fiscal year, with no more than $40 million going to a single project and divides the overall $100 million between large city and small city projects, $80 million for large cities and $20 million for small cities.

The TMUD tax credit is awarded by the Ohio Tax Credit Authority (TCA) through an application process initiated by either the property owner or an insurance company that contributes capital to the TMUD project. After receiving the application – in the form of a development plan – the TCA may certify the TMUD and preliminarily approve the credit if the substance of the plan meets the bill’s eligibility criteria. The development plan needs to identify eligible development costs but also the economic impact of the project. The amount of the credit depends, in part, on the development cost associated with the TMUD if the applicant is the property owner, or the amount of the capital contribution if the applicant is an insurance company and, in part, on the increase in tax collections at the project site and the surrounding area. More than one person may apply for, and receive a tax credit for the same project, but the total amount of tax credits awarded for that project must not exceed 10% of the development costs incurred by the property owner. The credit may be claimed against Ohio’s taxes on foreign and domestic insurance companies. A property owner who is preliminarily approved for a tax credit may sell or transfer the right to claim the credit to one or more insurance companies in order to raise capital for the project. Once a credit is awarded to or acquired by an insurance company, no further sale or transfer is permitted. Once the TMUD is complete, the TCA must issue tax credit certificates to the property owner and to the insurance companies that applied for or acquired the rights to the credit.

The next steps for Senate Bill 39 after officially becoming law, is for the Ohio Tax Credit Authority through Ohio Development Services Agency to adopt rules to operate the program, not later than 120 days from the effective date of the bill and beginning accepting TMUD applications not later than 30 days after the rules are adopted with awards being made through the Ohio Tax Credit Authority not later than 40 days after application.

These types of development tools are vital to help boost Ohio’s economic growth both in the state’s urban and rural areas. This new credit allows Ohio to take advantage of the unique position the state is in due to be home to a number of the nation’s leading insurance companies.

If you would like to learn more about this new tax credit, contact David Robinson at the Montrose Group at drobinson@montrosegroupllc.com.