Tax Rules: Final: 5703-29
5703-29-22 Explanation of the commercial activity tax
credits.
(A)(1) For purposes of the commercial activity tax, the law
provides for five different credits taxpayers may apply
against their tax liability: (a) a nonrefundable jobs
retention credit; (b) a nonrefundable credit for qualified
research expenses; (c) a nonrefundable credit for a
borrower's qualified research and development loan payments;
(d) a credit for unused franchise tax net operating loss
deductions, which operates as both a nonrefundable credit or
a refundable credit, depending on the year in which the
taxpayer claims the credit; and (e) a refundable jobs
creation credit. The jobs retention credit, the credit for
qualified research expenses, the credit for a borrower's
qualified research and development loan payments, and the
jobs creation credit are all available under the corporation
franchise tax through tax year 2008 (the taxpayer's taxable
year ending in 2007). Those credits are available under the
commercial activity tax starting January 1, 2008; however, a
taxpayer may not apply those credits against the taxpayer's
commercial activity tax liability until the tax period July
1, 2008 to September 30, 2008 on the commercial activity tax
return due November 9, 2008. (Please note that because
November 9, 2008 falls on a non-business day, pursuant to
section 1.14 of the Revised Code, the return due date is
extended to November 11, 2008. Any reference to such date in
this rule will be extended to the same date.) A taxpayer may
not begin using the credit for unused net operating losses
until tax year 2010. In any event, a taxpayer may not claim
as a credit against the commercial activity tax any credit
amount that such taxpayer previously claimed as a credit and
received the benefit of such credit against the corporation
franchise tax or individual income tax or, if applicable, any
credit amount that a pass-through entity passed through to
its owners to the extent the owners received the benefit of
such credit. In addition, in no event may a taxpayer claim a
nonrefundable credit against its commercial activity tax
annual minimum tax liability. There is no statutory provision
to allow a taxpayer to claim against the commercial activity
tax any portion of its unused one-seventh manufacturers'
credit/grant pursuant to sections 5733.33 , 5747.31, and
122.171 of the Revised Code.
(2) In the event a taxpayer is entitled to claim more than
one nonrefundable credit against its commercial activity tax
liability, section 5751.98 of the Revised Code dictates the
order in which such taxpayer must claim each credit. The
order is particularly important if, in the year the taxpayer
generates the nonrefundable credits, the taxpayer is unable
to use some portion of the total credit available (because
the total credit amount exceeds the tax due before credits).
Generally, a taxpayer may carry forward to future years any
nonrefundable credits not used in the year generated;
however, the carryforward period is often limited and varies
from credit to credit. After the carryforward period for a
particular credit expires, any credit amount that remains
unused is lost. The unused amount of a particular credit
carried forward to a later year must be used after any lower
numbered credit listed in section 5751.98 of the Revised Code
but prior to the same credit generated in the later year and
prior to any higher numbered credit listed in that section.
The chart below reflects for each credit the code section
that authorizes the credit, the carryforward period that
relates to the credit, and the first year that taxpayers may
use the credit against the commercial activity tax. The
credits are listed in the table in the order in which they
must be claimed.
|
Credit
|
Refundable or Nonrefundable
|
Ohio Revised Code Section
|
Carryforward Period
|
First Period Credit Can Be Used Against the CAT
|
|
Jobs Retention Credit
|
Nonrefundable
|
5751.50(B) and 122.171
|
Three Years
|
Period beginning July 1, 2008
|
|
Credit for Qualified Research Expenses
|
Nonrefundable
|
5751.51
|
Seven years
|
Period beginning July 1, 2008
|
|
Credit for R and D Loan Payments
|
Nonrefundable
|
5751.52
|
Unlimited
|
Period beginning July 1, 2008
|
|
Credit for Unused NOLs
|
Nonrefundable
|
5751.53
|
Twenty years
|
2010
|
|
Credit for Unused NOLs
|
Refundable
|
5751.53
|
N/A
|
2030
|
|
Jobs Creation Credit
|
Refundable
|
5751.50(A) and 122.17
|
N/A
|
Period beginning July 1, 2008
|
(3)(a) In the event a taxpayer claims any credit against the
commercial activity tax, the taxpayer must complete a
schedule promulgated by the tax commissioner for such
purpose. The schedule shall include identifying information
that links the primary/reporting entity to the member
claiming the credit, including the primary/reporting entity's
name and address, commercial activity tax account number, and
federal identification number, as well as the name(s) and
account number(s) of those entities claiming the credit, if
applicable. On the schedule, the taxpayer must indicate the
amount of each credit the taxpayer claims for that period.
(b) It is important to note that according to division
(G)(2)(c) of section 5733.01 of the Revised Code, the
corporation franchise tax phase-out factor does not apply in
computing the amount of unused (nonrefundable) corporation
franchise tax credit carried forward to subsequent year(s).
That is, in computing the corporation franchise tax credit
carried forward to a subsequent year, the credit is utilized
against the corporation franchise tax to the extent the
credit applies against the tax before multiplying the credit
by the phase-out factor.
(B)(1)(a) Pursuant to division (B) of section 5751.50 of the
Revised Code, the nonrefundable jobs retention tax credit is
available under section 122.171 of the Revised Code to
certain eligible businesses that propose capital investment
projects that will retain jobs in Ohio. An eligible business
may make an application to the tax credit authority to be
considered for a nonrefundable jobs retention tax credit.
(b) Subject to the restrictions in paragraph (A)(1) of this
rule, the credit granted under section 122.171 of the Revised
Code may be applied against the corporation franchise tax,
personal income tax, or commercial activity tax for a period
of up to fifteen years, depending on the terms of the
agreement with the tax credit authority. A taxpayer may carry
forward any unused credit for not more than three years after
the year in which the credit is granted.
(2)(a) For those taxpayers that are subject to the phase-out
of the corporation franchise tax and the phase-in of the
commercial activity tax, the last corporation franchise tax
report for which the jobs retention tax credit applies is the
2008 tax year (the taxable year ending in 2007). Jobs
retention tax credit agreements entered into prior to 2008
that first apply to the corporation franchise tax
automatically apply to the commercial activity tax for the
remaining years of the agreement without further action on
the part of the taxpayer or the director of development.
(b) A taxpayer that otherwise meets the requirements to claim
the jobs retention tax credit must obtain a certificate from
the director of development before the taxpayer may claim the
credit. A taxpayer claiming a nonrefundable jobs retention
tax credit may not begin accumulating the credit toward the
taxpayer's commercial activity tax liability until January 1,
2008, and may not apply that credit against its commercial
activity tax liability until the period July 1, 2008 to
September 30, 2008 on the commercial activity tax return due
November 9, 2008.
(c) In administering the jobs retention tax credit, the
department of taxation will follow the policy established by
the department of development in a letter to jobs creation
tax credit recipients on December 29, 2006. Pursuant to that
letter, the credit referenced in any certificate issued
before May 31, 2008 must be claimed against the taxpayer's
corporation franchise tax liability, and the credit
referenced in any certificate issued after May 31, 2008 must
be claimed against the taxpayer's commercial activity tax
liability regardless of the withholding period on which the
credit is based. Alternatively, recipients that are
pass-through entities may elect to pass through the credit to
such entity's owners. Of course, recipients that make that
election may not claim as a credit against their commercial
activity tax liability any portion of the credit passed
through to a pass-through entity's owners.
(d) For commercial activity tax purposes, a taxpayer
operating on a fiscal year basis that has a credit for any
portion of calendar year 2007, which credit the taxpayer
cannot claim against its corporation franchise tax liability,
may claim the credit for that short period against the
taxpayer's commercial activity tax liability.
(e) As an example of paragraph (B)(2) of this rule, assume
that in year 2000, an April 30 year-end corporation franchise
taxpayer enters into an agreement with the director of
development for a credit for a period of fifteen years.
According to the agreement, the first taxable year for which
the taxpayer can claim the credit is the taxable year
beginning May 1, 2000 and ending April 30, 2001, which
corresponds with the taxpayer's corporation franchise tax
report year 2002. When the taxpayer entered into the
agreement, the last taxable year for which the taxpayer could
have claimed the credit under the corporation franchise tax
was the taxable year ending April 30, 2015, which corresponds
with corporation franchise tax report year 2016. Because the
commercial activity tax is computed and reported on a
calendar year basis, the taxpayer is concerned with its
credit for the short period May 1, 2007 to December 31, 2007.
(i) If on July 30, 2008, the director of development issues
the taxpayer a tax credit certificate for the short period
May 1, 2007 to December 31, 2007 then pursuant to the policy
established by the department of development's December 29,
2006 letter, the taxpayer must claim the credit for that
short period on its commercial activity tax return due
November 9, 2008 to the extent of the taxpayer's liability
for that quarter. Any unused credit is carried forward to the
taxpayer's next quarterly return and is applied against the
taxpayer's corresponding commercial activity tax liability.
Beginning in calendar year 2008, the taxpayer is required to
compute the credit on a calendar year basis, regardless of
its fiscal year-end. Accordingly, the director of development
will issue a certificate for the period January 1, 2008 to
December 31, 2008 to the taxpayer, and the taxpayer will
claim the credit on its return for the period during which
the taxpayer receives the certificate.
(ii) If, instead of issuing the certificate in paragraph
(B)(2)(e)(i) of this rule, on April 25, 2008, the director of
development issues the taxpayer a certificate for the short
period May 1, 2007 to December 31, 2007, such taxpayer would
be required to apply that credit against its 2008 corporation
franchise tax report (based on taxable year 2007).
(3)(a) In accordance with division (H) of section 122.171 of
the Revised Code, a taxpayer claiming a credit under section
122.171 of the Revised Code must submit to the commissioner
with the taxpayer's tax return for the tax period in which
the taxpayer receives the certificate a copy of the
certificate and the completed schedules as referenced in
paragraph (A)(3) of this rule. For purposes of the commercial
activity tax, some taxpayers are required to file tax returns
and to remit tax due on a quarterly basis electronically in
accordance with section 5751.07 of the Revised Code, division
(C) of section 5751.05 of the Revised Code, and rule
5703-29-05 of the Administrative Code. Electronic filers must
send a copy of the certificate along with completed schedules
to the following address: “Ohio Department of Taxation,
Commercial Activity Tax Division - CAT Credits, P.O. Box 530,
Columbus, Ohio 43216-0530.” If the taxpayer fails to provide
a copy of the certificate and schedules with its return or,
if filing electronically, a copy to the commissioner, the
taxpayer must supply a copy of the certificate within sixty
days of the commissioner's request.
(b) For example, a taxpayer accrues a credit under section
122.171 of the Revised Code for the period January 1, 2009 to
December 31, 2009. The taxpayer applies for a certificate
with the director of development and receives the certificate
June 15, 2010. The taxpayer may apply the credit against its
commercial activity tax liability for the period April 1,
2010 to June 30, 2010 on its return due August 9, 2010. In
the event the taxpayer does not fully utilize its entire
credit, the taxpayer may carry forward any unused portion to
apply against its future commercial activity tax liability
for a period of up to three years. The taxpayer must provide
the commissioner with a copy of its certificate at the time
it files its initial return. If the taxpayer does not supply
a copy of the certificate at that time, the taxpayer must
supply a copy of the certificate within sixty days after the
commissioner requests such copy.
(C)(1) Pursuant to section 5751.51 of the Revised Code, the
nonrefundable credit for qualified research expenses is
available to taxpayers to apply against their commercial
activity tax liability for purposes of conducting in-house
research and contract research. The term "qualified research
expenses" is defined in section 41 of the Internal Revenue
Code. For purposes of this paragraph, "Internal Revenue Code"
has the same meaning as in division (K) of section 5751.01 of
the Revised Code.
(2) A taxpayer may begin accumulating a credit for qualified
research expenses toward its commercial activity tax
liability in tax year (calendar year) 2008. In addition, a
taxpayer may begin applying its unused corporation franchise
tax credit for qualified research expenses against its
commercial activity tax liability on the commercial activity
tax return due November 9, 2008 to the extent the taxpayer
could not have applied the credit against the corporation
franchise tax. Regardless of a taxpayer's commercial activity
tax filing frequency, a taxpayer must compute the credit for
qualified research expenses based on expenses incurred during
the calendar year (not the taxpayer's federal taxable year or
the taxpayer's Ohio corporation franchise taxable year).
Thus, a taxpayer must claim the credit for qualified research
expenses on its annual return due in February of each year.
Any portion of the nonrefundable credit that remains unused
after the taxpayer applies the credit against its commercial
activity tax liability for that period may be carried forward
to the subsequent return for no more than seven years.
(3)(a) Fiscal year corporation franchise taxpayers claiming a
credit under section 5751.51 of the Revised Code need not
compute the credit for the short period beginning on the day
following the end of its taxable year ending in 2007 and
ending December 31, 2007 because the credit does not apply
for that period. For calendar years 2008 and thereafter,
eligible taxpayers may calculate the available nonrefundable
credit by multiplying seven per cent by the difference
between the taxpayer's research and development expenses
incurred in Ohio during the calendar year and the taxpayer's
average annual research and development expenses incurred in
Ohio during the three preceding calendar years.
(b) For example, a March 31 fiscal year-end taxpayer's 2008
corporation franchise tax report (based on taxable year
ending March 31, 2007) reflects excess research and
development expense credits. The taxpayer may begin applying
those unused credits against its commercial activity tax
liability beginning with the period July 1, 2008 on a return
due November 9, 2008. The taxpayer is not required to compute
a credit for the period April 1, 2007 to December 31, 2007
because the taxpayer cannot claim a credit for research and
development expenses incurred in that period. For calendar
years beginning in 2008 and thereafter, the taxpayer will use
the formula prescribed in paragraph (C)(3)(a) of this rule to
determine its available credit.
(D)(1) Pursuant to section 5751.52 of the Revised Code, the
nonrefundable credit for research and development loan
payments is available to taxpayers for application against
their commercial activity tax liability for purposes of
paying allowable costs of eligible research and development
projects. The terms "borrower" and "qualified research and
development loan payments" are defined in section 166.21 of
the Revised Code. A taxpayer may make an application to the
director of development for consideration for this credit,
and, if approved, the director of development will issue a
certificate.
(2) A taxpayer may begin accumulating a credit for research
and development loan payments toward its commercial activity
tax liability in tax year 2008, and may begin applying that
credit against its commercial activity tax liability for the
period July 1, 2008 to September 30, 2008 on the return due
November 9, 2008. Furthermore, a taxpayer may begin applying
its unused corporation franchise tax credit for research and
development loan payments toward the taxpayer's commercial
activity tax liability on the commercial activity tax return
due November 9, 2008. Any portion of the credit that remains
unused after the taxpayer applies the credit against its 2008
corporation franchise tax liability may be applied toward the
taxpayer's commercial activity tax until the credit is used
in its entirety.
(3) In accordance with division (B) of section 5751.52 of the
Revised Code and division (D) of section 166.21 of the
Revised Code, before a taxpayer may claim a credit for
research and development loan payments, the taxpayer must
obtain a certificate from the director of development. The
taxpayer must submit to the commissioner with the taxpayer's
tax return for the tax period in which the taxpayer receives
the certificate a copy of the certificate and the completed
schedules as referenced in paragraph (A)(3) of this rule. For
purposes of the commercial activity tax, some taxpayers are
required to file tax returns and to remit tax due on a
quarterly basis electronically in accordance with section
5751.07 of the Revised Code, division (C) of section 5751.05
of the Revised Code, and rule 5703-29-05 of the
Administrative Code. Electronic filers must send a copy of
the certificate along with completed schedules to the
following address: “Ohio Department of Taxation, Commercial
Activity Tax Division - CAT Credits, P.O. Box 530, Columbus,
Ohio 43216-0530.” If the taxpayer fails to provide a copy of
the certificate and schedules with its return or, if filing
electronically, a copy to the commissioner, the taxpayer must
supply a copy of the certificate within sixty days of the
commissioner's request.
(E)(1) Pursuant to section 5751.53 of the Revised Code, the
credit for unused corporation franchise tax net operating
loss deductions is available to qualifying taxpayers for
application against their commercial activity tax liability
to the extent provided by that section and rule 5703-29-11 of
the Administrative Code. In order to be eligible for a credit
for unused net operating loss deductions, a qualifying
taxpayer must have filed with the commissioner a report by
June 30, 2006 that set forth the amortizable amount
available. The term "qualifying taxpayer" is defined in
division (A)(4) of section 5751.53 of the Revised Code.
(2) In accordance with divisions (B) and (C) of section
5751.53 of the Revised Code, a qualifying taxpayer may not
begin claiming the credit for unused corporation franchise
tax net operating losses until calendar year 2010.
(a) In accordance with division (B) of section 5751.53 of the
Revised Code, the credit is at first nonrefundable and
phases-in by increments of ten per cent per year over the
first nine years of the credit. In calendar year 2019, a
taxpayer may begin claiming one hundred per cent of any
remaining, previously unclaimed amortizable amount as a
nonrefundable credit against its commercial activity tax
liability. From 2019 through 2029, a taxpayer may continue to
claim one hundred per cent of the remaining and outstanding
amortizable amount as a nonrefundable credit. In no event may
the taxpayer's cumulative credit exceed one hundred per cent
of its amortizable amount. In addition, a taxpayer may not
apply the nonrefundable credit to reduce its outstanding tax
liability (after applying the other credits that precede this
credit in the order listed in section 5751.98 of the Revised
Code) by more than one-half.
(b) In accordance with division (C)(1) of section 5751.53 of
the Revised Code, the taxpayer may claim a refundable credit
for its remaining and outstanding amortizable amount in
calendar year 2030. In no event may the taxpayer claim a
refundable credit for any portion of the amortizable amount
the taxpayer previously claimed as a nonrefundable credit. In
addition, a taxpayer may not claim a refundable credit if the
claimant was not subject to the commercial activity tax
during any portion of calendar year 2030.
(F)(1) Pursuant to division (A) of section 5751.50 of the
Revised Code, the refundable jobs creation tax credit is
available to taxpayers and is granted by the tax credit
authority under section 122.17 of the Revised Code. A
taxpayer that proposes a project to create new jobs in the
state of Ohio may apply to the tax credit authority for a tax
credit and if the project is approved, the taxpayer and the
tax credit authority may enter into an agreement for a term
specified by the agreement and in conjunction with division
(C) of that section. The jobs creation tax credit is computed
by multiplying the amount of Ohio income tax withheld from
compensation paid to "new employees" by the percentage stated
in the agreement. The term "new employees" is defined in
division (A)(2) of section 122.17 of the Revised Code. For
corporation franchise tax purposes, the credit is computed
based on withholding during the taxpayer's taxable year; for
commercial activity tax purposes, the credit is computed
based on withholding during the "tax period". The term "tax
period" is defined in division (M) of section 5751.01 to mean
a calendar year or calendar quarter.
(2)(a) For those taxpayers that are subject to the phase-out
of the corporation franchise tax and the phase-in of the
commercial activity tax, the last corporation franchise tax
report for which the jobs creation tax credit applies is the
2008 tax year (the taxable year ending in 2007). Jobs
creation tax credit agreements entered into prior to 2008
that first apply to the corporation franchise tax
automatically apply to the commercial activity tax for the
remaining years of the agreement without further action on
the part of the taxpayer or the director of development.
(b) A taxpayer that otherwise meets the requirements to claim
the jobs creation tax credit must obtain a certificate from
the director of development before the taxpayer may claim the
credit. A taxpayer claiming a refundable jobs creation tax
credit may not begin accumulating the credit under the
commercial activity tax until January 1, 2008, and may not
apply that credit against its commercial activity tax
liability until the period July 1, 2008 to September 30, 2008
on the commercial activity tax return due November 9, 2008.
(c) In administering the jobs creation tax credit, the
department of taxation will follow the policy established by
the department of development in a letter to jobs creation
tax credit recipients on December 29, 2006. Pursuant to that
letter, the credit referenced in any certificate issued on or
before May 31, 2008 must be claimed against the taxpayer's
corporation franchise tax liability and the credit referenced
in any certificate issued after May 31, 2008 must be claimed
against the taxpayer's commercial activity tax liability
regardless of the withholding period on which the credit is
based. Alternatively, recipients that are pass-through
entities may elect to pass the credit through to such
entity's owners. Of course, recipients that make that
election may not claim as a credit against their commercial
activity tax liability any portion of the credit passed
through to a pass-through entity's owners.
(3)(a) In accordance with division (H) of section 122.17 of
the Revised Code, a taxpayer claiming a credit under section
122.17 of the Revised Code must submit to the commissioner
with the taxpayer's tax return for the tax period in which
the taxpayer receives the certificate a copy of the
certificate and the completed schedules as referenced in
paragraph (A)(3) of this rule. For purposes of the commercial
activity tax, some taxpayers are required to file tax returns
and to remit tax due on a quarterly basis electronically in
accordance with division (C) of section 5751.05 of the
Revised Code and rule 5703-29-05 of the Administrative Code.
Electronic filers must send a copy of the certificate along
with completed schedules to the following address: “Ohio
Department of Taxation, Commercial Activity Tax Division -
CAT Credits, P.O. Box 530, Columbus, Ohio 43216-0530.” If the
taxpayer fails to supply a copy of the certificate from the
director of development with its return, or, if filing
electronically, a copy to the commissioner, the taxpayer must
supply a copy of the certificate within sixty days after the
commissioner requests such copy.
(b) For example, assume that in year 2000, an April 30
year-end taxpayer entered into a jobs creation tax credit
agreement with the tax credit authority for a period of
fifteen years. According to the agreement, the first taxable
year for which the taxpayer can claim the credit is the
taxable year beginning May 1, 2000 and ending April 30, 2001,
which corresponds with the taxpayer's corporation franchise
tax report year 2002. When the taxpayer entered into the
agreement, the last taxable year for which the taxpayer could
have claimed the credit under the corporation franchise tax
was the taxable year ending April 30, 2015, which corresponds
with corporation franchise tax report year 2016. However,
because of the law change that phases-out the corporation
franchise tax and phases-in the commercial activity tax, the
2008 corporation franchise tax report is the last report for
claiming the jobs creation tax credit against the corporation
franchise tax. Further, assume that on July 30, 2008, the tax
credit authority issued a separate tax certificate for the
transition period that begins May 1, 2007 and ends on
December 31, 2007. Because the certificate was issued after
May 31, 2008, the taxpayer must apply the credit for that
short period against the taxpayer's 2008 commercial activity
tax liability. The taxpayer provided to the commissioner a
copy of the certificate along with a completed schedule on
November 9, 2008. At the same time, the taxpayer filed its
third quarter return electronically. The taxpayer applied the
credit amount against its third quarter liability and
received a refund of the outstanding balance. Beginning in
calendar year 2008, the taxpayer is required to compute the
total amount of available credit on a calendar year basis,
regardless of its fiscal year-end.
Effective: 05-29-08
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 122.17, 122.171, 5751.50, 5751.51, 5751.52,
5751.53, 5751.98