Information Release

Revisions to May 6, 1996 Information Release - June 18, 1996

Recently-enacted Am. Sub. H. B. No. 441, 121st General Assembly changes among other things (i) the ORC section 5733.33(A)(10) definition of "eligible area" as applied to an "inner city area"¹ and (ii) the computation of the 7.5%/13.5% credit for eligible areas. As a result of the law change, the computations in examples 4 and 5 on pages 20 and 21 of our May 6, 1996 information release no longer reflect the law.²  Based on the new law, set forth below are the revisions to those examples. We have also enclosed a copy of Ohio Revised Code sections 5733.33(C)(1) and 5733.33(C)(2) as amended.³

Example #4

During 1996 a taxpayer purchased for use in Ohio County E new manufacturing machinery and equipment costing $201. The taxpayer located $99 of the new equipment at its facility in an eligible area within the county; the taxpayer located $102 at another facility within County E but not in the eligible area. The taxpayer's base investment for the county is $100.

The total amount eligible for the 7.5%/13.5% credit is $101:

Purchases of qualifying equipment for entire county Base investment for the county County excess amount eligible for the credit

$201 -$100 $101 ====

The portion of the $101 amount subject to the 13.5% credit rate is $99: the lesser of (i) the $101 county excess eligible for the credit or (ii) the $99 of the new equipment purchases for use in the eligible areas within the county. The portion of the $101 amount subject to the 7.5% credit rate is $2: the amount by which the county excess exceeds the amount subject to the 13.5% rate ($101 - $99).The total credit is $13.52:

13.5% 7.5% Total credit

X X

$99 $2

= =

$13.37 $    .15   $13.52 =====

Example #5

During 1996 a taxpayer purchased for use in Ohio County E new manufacturing machinery and equipment costing $300. At the time the qualifying equipment was purchased the county itself was not an eligible area, but the County contained within its boundaries a municipality, a portion of which was an eligible area. The taxpayer located $275 of the qualifying equipment at its facility in the eligible area and $25 at another facility not in the eligible area. The taxpayer's base investment for the county is $200.

The total amount eligible for the 7.5%/13.5% credit is $100:

Purchases of qualifying equipment for entire county Base investment for the county County excess amount eligible for the credit

$300 -$200 $100 ====

The portion of the $100 amount subject to the 13.5% credit rate is $100: the lesser of (i) the $100 county excess amount eligible for the credit or (ii) the $275 of the new equipment purchases for use in the eligible areas within the county. The portion of the $100 amount subject to the 7.5% credit rate is -0- since there is no amount by which the county excess exceeds the amount subject the 13.5% rate.The total credit is $13.50:

13.5% 7.5% Total credit

X X

$100 $0

= =

$13.50 $    -0-   $13.50 =====

*   *   *   *   *

Tax Information Releases are not "Opinions of the Tax Commissioner" within the meaning of ORC section 5703.53. However, the above discussion does reflect the Income Tax Audit Division's interpretation of the law.For more information about this new law, call the numbers listed below:

1-614-433-7617
Ohio Relay Service for the hearing-impaired: 1-800-750-0750.

^{____________________________________________1}  An inner city area now includes any census block tract which is contiguous to a census block tract that meets the previous definition of an inner city eligible area. Section 4 of Am. H. B. No. 441 states that this change in the law applies to purchases made after the act's effective date (August 22, 1996).

²   In addition, the third "bullet" on page 10 of our September 22, 1995 information release is no longer applicable.

³ Taxpayers may apply the new computation to new equipment purchased after June 30, 1995.