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Basic Business Taxes

Corporate franchise tax:
4.0 mills on net worth with $150,000 maximum liability, or 5.1 percent on the first $50,000 of net income plus 8.5 percent on net income in excess of $50,000, or minimum tax of $50 or $1,000 (dependent on size of business). SPECIAL NOTE: Tax is to be phased out over five years, at a rate of 20 percent per year, with an applicable tax rate for tax year 2005 of the greater of 80 percent of calculated tax liability OR the minimum tax.

Corporate organization and qualification fees:
Domestic and foreign corporations (includes banks, trust companies, and savings and loan associations) are assessed the greater of a minimum fee of either $125 (domestic corporations), $85 (foreign corporations) OR an initial fee of $0.10 per share up to $0.0025 per share, with the fee based on the number of shares issued.

Sales and use tax:
5.5 percent on the sale and/or rental of tangible personal property and selected services, unless specifically exempt by law. Counties and transit authorities may impose sales and use taxes; however the maximum combined local sales and use tax rate is 2 percent.

Property tax:
There is no state property tax. Assessed by cities, counties, and/or special tax districts on 35 percent of market value for real property, 25 percent of market value for machinery, equipment, and office furniture/fixtures, or 23 percent of market value for property personal property classified as "inventory". SPECIAL NOTE: Tax on machinery and equipment bought and placed into operation after January 1, 2005 is exempt. Tax on all other items classified as tangible personal property is to be phased out over four years, at a rate of 25 percent per year, with an applicable tax rate for tax year 2005 of 75 percent of calculated tax liability.

Commercial activity tax:
The commercial activity tax (CAT) is an annual privilege tax on the gross receipts generated by business. Businesses with gross receipts under $150,000 as well as all exports out of Ohio are exempt from the tax. The tax rate is $150 on gross receipts between $150,000 and $1 million and $150, plus 0.26 percent of the excess receipts above $1 million, on gross receipts above $1 million. SPECIAL NOTE: The CAT tax is to be phased-in over a five-year period. The applicable tax rate for the period from July 1, 2005 through March 31, 2005 is 6 percent (0.26 percent multiplied by 23 percent) of a business's calculated CAT tax liability. The applicable tax rate for the period from April 1, 2006 through March 31, 2007 is 40 percent of a businesses calculated CAT tax liability.

Property tax exemption:
Under Ohio's Enterprise Zone Program, local governments may grant an eligible business investing in a new plant or equipment in a designated enterprise zone a tax exemption of up to 75 percent (municipal location) or 60 percent (unincorporated location) of the value of the eligible improvements for up to 10 years. Eligible improvements include new construction, renovation of existing structures, new machinery, equipment and fixtures, and new inventory. A project must create or retain Ohio job opportunities.

Under the Community Reinvestment Program, municipalities and counties may designate an area within their jurisdiction to grant a real property tax exemption of up to 100 percent on the value of improvements. The term of the exemption can be: up to 10 years on residential rehabilitation exceeding $2,500; up to 12 years on multiunit dwellings, commercial or industrial remodeling/improvements exceeding $5,000; or up to 15 years on new construction activities.

Job creation tax credit:
A refundable tax credit is available for up to 10 years based on a percentage of the new state income taxes withheld from the employees who received the newly created jobs. Eligibility of businesses, period of the credit, and percentage to be credited are determined by a five-member authority, headed by the Director of Development. The process requires local jurisdictions to support the proposal. The average credit awarded is 60 percent over a seven-year term.

Training tax credit:
The nonrefundable tax credit against the corporate franchise tax is provided for certain approved corporations for expenses of specified job training costs for eligible employees. Credits may be granted for tax years beginning on or after Jan. 1, 2000 but before Jan. 1, 2004.

Eligible corporations include those engaged in manufacturing, finance, insurance, real estate, business services, legal services, engineering, accounting, research, management, and related services. The credit must be a major factor in the taxpayer's decision to go forward with the training program.

Credit may equal 50 percent of the amount by which a qualifying corporation's eligible training expenses for a year exceeds the corporation's three-year annual average of those expenses. A credit for any taxable year may not exceed the equivalent of $500 per employee who receives qualified training; or $100,000 or 50 percent of the corporation's franchise tax liability for the preceding year, whichever is less. If the amount of the corporation's credit exceeds the end-of-year tax liability, the excess may be carried forward for three years.

Research and development exemption:
Equipment used in "qualified research and development activities", including both "pure" and "directed" research work, is exempted from state sales tax.

New research tax credit:
A nonrefundable credit is allowed against Ohio's corporate franchise tax for increases in a corporation's qualified research expenses. The credit equals 7 percent of the excess of qualified research expenses incurred by the taxpayer in Ohio that exceeds the average annual qualified research expenses for the three preceding years. Credit amounts may be carried forward for seven years.

Goods in transit:
Sales and use tax exemptions are provided for property manufactured in Ohio and sold to out-of-state retailers. Sales of motor vehicles to nonresidents are also exempt from sales and use taxation. Agricultural products and merchandise stored in the state in interstate commerce are also exempt.

Pollution-control equipment:
Certified pollution-control equipment is not considered a corporate asset for corporate income tax. It is exempt from property taxation and is also exempt from sales and use taxes.

Industrial machinery and equipment:
Manufacturing machinery and equipment; machinery for packaging, handling, and transportation equipment; and ships in commerce are exempt from the sales and use tax.

An exemption for industrial machinery and equipment is provided for tools, dies, molds, and other machinery used directly in the manufacture of property that is then used or consumed in the production of other property used one last time in the production of a final product for sale (a use-on-use exemption).

Agricultural structures:
Materials used in the construction of new single-purpose livestock and horticulture structures are exempt from state sales tax.

Inventory tax phase-out:
Ohio currently assesses inventory at 23 percent of value. Under recently enacted law, this percentage may decline beginning in 2002 and will be phased out no later than 2031.

The tangible personal property tax assessment rate for inventory may be reduced by one percentage point in each of the tax years 2002 to 2006, but only if the state's total tangible personal property taxes grow each year, comparing the third preceding year to the second preceding year. Total tangible property taxes for the purposes of this calculation do not include public utility and telecommunications property taxes.

Beginning in tax year 2007, the assessment rate will drop by 1 percent annually until the tax is eliminated, regardless of tax receipts.

Warehouse equipment:
Equipment used primarily for storing, transporting, mailing, or handling inventory in a warehouse/distribution center is exempt from state sales tax if the inventory at the site is primarily distributed outside Ohio to retail operations owned by the business that owns the warehouse, or if the inventory is distributed by direct marketing to the customers.

Industrial fuels and raw materials:
Packaging, water, steam, and natural gas, as well as certain motor vehicle fuels used in manufacturing, are exempt from sales and use taxes.

Energy and fuel conservation measures:
Energy conversion facilities, thermal efficiency facilities, and solid waste energy conversion facilities are exempt from sales and use taxes and property tax. Such facilities are not considered assets in determining the value of property owned for net income tax.

Ohio State Contact:
Ohio Department of Development
77 S. High Street
P.O. Box 1001
Columbus, OH 43216-1001
(800) 848-1300