Now that the state of Ohio is catching up on InvestOhio applications from the first round of funding (July 1, 2011 through June 30, 2013), agency officials are issuing letters to applicants, notifying them that their application for credit has been denied. The state is apparently examining applications through a more defined lens.
While the letters are labeled as “final rejections,” applicants actually have 30 days from the date on the letter to inform the state that they wish to correct the issues identified in the denial letter. If you receive a notice, it is very important that you do not ignore it. The Skoda Minotti State and Local Tax Group will work with you to address and fix the issue(s) the state cited for the denial.
Some of the issues the state is examining are the following:
- Entity did not have a full-time employee at time of investment.
- Real estate investment entities might face additional scrutiny. The state will make sure a full-time employee was in place as of the date of investment, and the state will search public records to make sure there is not a mortgage on the property in question.
- For new buildings, only the purchase of tangible personal property that went into the building (e.g., windows, doors) will qualify.
- For machinery and equipment purchases, only the actual cost of the machinery will qualify—no installation or freight costs.
- If the original investment was for the purchase of a building, you cannot take a mortgage out on the building before the two-year holding period has ended.
On a positive note, the state has become more lenient on payroll and what/who qualifies for InvestOhio. For example, the payroll of the owner of the entity and individuals holding management positions may qualify for the InvestOhio tax credit. Additionally, the state will permit guaranteed payments, as long as there is a history of guaranteed payments. However, please note that for payroll, large spikes in the payroll aligning with the application will raise a red flag.
InvestOhio remains a valuable tax credit program for individuals who invest up to $10 million in eligible small businesses, if that investment is held for two years. Given the 10 percent income tax credit, it is worthwhile to address any issues identified in a denial letter.