Ohio Tax Incentives: Credits, Abatements, and Exemptions

Ohio tax incentives for businesses fall into three broad buckets: state tax credits tied to jobs, payroll, or research spending; local property tax abatements that reduce the cost of building or renovating a facility; and targeted sales tax exemptions for specific industries like data centers. Each program has its own thresholds, its own application track, and its own compliance obligations after approval. Picking the right combination, and structuring the deal correctly, often matters more than the headline percentage of any single credit.

Credits Tied to Jobs and Payroll

Two of Ohio’s most-used programs reward companies for adding or keeping workers in the state.

Job Creation Tax Credit

The Job Creation Tax Credit, authorized under Ohio Revised Code Section 122.17, gives companies a credit equal to a negotiated percentage of excess payroll — the difference between Ohio employee payroll after the project and the baseline before it was approved.¹ The Ohio Tax Credit Authority sets the percentage case by case, so two similar projects can end up with very different credit values.

To qualify, a project must create at least ten new full-time equivalent positions at the project location and generate additional annual payroll equal to or greater than 175 percent of the federal minimum wage multiplied by 52,000 hours (roughly 25 full-time workers for a full year). At the current federal minimum wage of $7.25 per hour, that comes to about $660,000 in new annual payroll.² The business also has to show that the credit is a significant factor in the decision to move forward in Ohio rather than another state.

Job Retention Tax Credit

The Job Retention Tax Credit under ORC 122.171 is designed for large employers committing to keep substantial operations in place.³ The nonrefundable credit is based on a percentage of Ohio income tax withholdings from the retained workforce.

Eligibility depends on the type of business at the site. A company doing corporate administrative functions must employ at least 500 full-time equivalent workers, be located in a foreign trade zone, or carry an annual Ohio payroll of at least $35 million, and must make capital investments of at least $20 million at the site over three consecutive calendar years. A manufacturer faces a higher capital threshold: at least $50 million (or five percent of the net book value of tangible personal property at the site, whichever is less) over the same three years.³ Once in the agreement, the company must keep at least 500 full-time equivalent employees at the project site every year of the credit term.⁴

Credit for Research and Development Spending

Companies doing research in Ohio can claim a nonrefundable credit against the Commercial Activity Tax (CAT) under ORC 5751.51.⁵ A parallel credit under ORC 5726.56 is available to banks and similar entities against the financial institutions tax.⁶ Both use the same formula: seven percent of the amount by which qualified research expenses in Ohio during the current year exceed the average of the previous three years.

Qualified research expenses use the same definition as Section 41 of the Internal Revenue Code, covering wages, supplies, and contract research aimed at discovering information that is technological in nature.⁵ Because the credit measures growth over a rolling three-year average, a company steadily increasing its research budget captures the most value. A flat budget produces a slim credit.

Local Property Tax Abatements

Property tax incentives are often the first program a business encounters, because they are negotiated locally and can meaningfully lower the cost of building or renovating. Two frameworks do most of the work.

Enterprise Zone Program

Under ORC 5709.63, municipalities and counties can exempt part of the increased value of real property and certain tangible personal property when a non-retail business establishes or expands operations. In unincorporated areas, the exemption can reach up to 60 percent of assessed value for up to 15 years, with the average over the term generally capped at 50 percent unless the local school board approves a higher rate. Large manufacturing facilities that have ceased or announced plans to cease operations can qualify for a 100 percent exemption, and megaprojects can get up to 30 years.⁷

The agreement is negotiated locally and must be signed before the project begins. When the proposed exemption exceeds 50 percent, school board approval enters the picture, giving districts a real voice in the larger deals.

Community Reinvestment Area Program

The Community Reinvestment Area (CRA) program under ORC 3735.67 offers property tax exemptions for new construction and remodeling in designated areas.⁸ The exemption can cover up to 100 percent of the increased assessed value for remodeling projects, or the full assessed value for new structures. Durations vary:

Remodeling of any property type can be exempted for up to 15 years, provided cost minimums are met: $2,500 for a single- or two-family dwelling and $5,000 for all other property.
New construction (residential, commercial, or industrial) can be exempted for up to 15 years, or up to 30 years for structures on megaproject sites.

For residential projects, the exemption percentage is fixed in the local resolution creating the CRA. Commercial and industrial terms are negotiated case by case with the local Tax Incentive Review Council.⁸ Commercial agreements must be signed before construction starts; residential applicants apply after the work is finished.

Investor and Development Credits

InvestOhio

The InvestOhio program, codified in ORC 122.86, gives investors who put capital into qualifying Ohio small businesses a personal income tax credit equal to 10 percent of the qualifying investment.⁹

The definition of a qualifying small business is narrower than it first appears. Total assets must not exceed $50 million, or annual sales must not exceed $10 million, counting all related and affiliated entities. The business must also employ at least 50 full-time equivalent workers in Ohio, or have more than half of its total U.S. workforce based in the state.¹⁰ The investor must hold the investment for two years before claiming the credit, and the business must deploy the funds within six months on eligible expenses like equipment, real property, leasehold improvements, or new employee compensation.⁹

Transformational Mixed-Use Development Credit

The Transformational Mixed-Use Development (TMUD) Tax Credit under ORC 122.09 supports large projects that combine residential, retail, office, recreational, and similar uses in a single development.¹¹ The credit reaches up to 10 percent of estimated eligible expenditures, but the size thresholds are substantial.

For projects within 10 miles of a major city, the development must include at least one new or previously vacant building that is 15 or more stories tall, has a floor area of at least 350,000 square feet, or will house employment generating at least $5 million in annual payroll. Two or more connected buildings totaling 350,000 square feet also qualify. Projects farther from major cities can qualify with lower thresholds: at least one building two or more stories tall or with a floor area of at least 75,000 square feet, or multiple buildings totaling that square footage.¹¹

Industry-Specific Exemptions and Credits

Data Center Sales Tax Exemption

Ohio exempts qualifying computer data centers from sales and use taxes on eligible equipment and the electricity that runs it. Under ORC 122.175, the exemption covers hardware like servers, routers, storage systems, backup generators, and environmental control equipment, along with supporting power infrastructure.¹² The bar is high: one or more operators at the site must collectively invest at least $100 million over three consecutive calendar years (for projects beginning in 2015 or later) and maintain annual employee compensation of at least $1.5 million, measured starting 25 months after the agreement is signed.¹³ The program is built for large operations, not modest server rooms.

Historic Preservation Credit

Ohio’s Historic Preservation Tax Credit under ORC 149.311 rewards owners or qualified lessees who rehabilitate historic buildings in line with the U.S. Secretary of the Interior’s Standards for Rehabilitation. The credit is 25 percent of qualified rehabilitation expenditures for catalytic projects (capped at $25 million per project) and 35 percent for projects located in municipalities with populations under 300,000 or in unincorporated township areas.¹⁴

The program runs under an annual statewide cap of $75 million in approved credits per fiscal year, with unused credits from prior years available for reallocation. Applicants must show the credit is a major factor in the decision to rehabilitate or to increase investment, and must demonstrate reviewable progress within 12 months of approval.¹⁴ Applications run on a biannual competitive cycle.

How Federal Tax Treatment Affects the Real Value

One detail catches many businesses off guard. Before 2018, cash contributions from government entities to corporations could qualify as nontaxable contributions to capital under Internal Revenue Code Section 118. The Tax Cuts and Jobs Act added an exception: a “contribution to the capital of the taxpayer” does not include any contribution by a governmental entity or civic group (other than a contribution made by a shareholder as such).¹⁵ Direct cash grants from Ohio to a C corporation are now generally taxable income for federal purposes.

Tax credits, exemptions, and abatements work differently. They reduce a company’s tax liability rather than putting cash in its hands, so they do not create taxable income federally. That asymmetry matters. A $500,000 cash grant can lose more than $100,000 to federal taxes, while a $500,000 tax credit delivers full face value. When you negotiate the form an incentive will take, that gap should be on the table.

Applying and Staying Compliant

Most incentive applications start with the Ohio Department of Development or, for tax-specific programs, the Ohio Business Gateway portal. Expect to provide identifying information like the Federal Employer Identification Number, a project description, projected payroll figures, the number of new or retained jobs, and a timeline for capital investments. Accurate baseline data on current employment and existing property values is essential, because the state uses those numbers to measure whether you have hit your commitments.

Payroll figures must line up with the statute. For the Job Creation Tax Credit, “Ohio employee payroll” means compensation used to determine state income tax withholding, and it excludes certain categories of workers and compensation already claimed under a Job Retention Credit.¹ Misalignment between your figures and the statutory definitions can stall an application.

The Ohio Tax Credit Authority reviews proposals at regularly scheduled monthly meetings, typically the last Monday of the month.¹⁶ Approval produces a formal tax credit certificate used on the annual return. Plan for a multi-month process rather than a quick turnaround.

Approval is only the start. Every agreement carries ongoing obligations, and missing them can cost the credit entirely. The Job Retention Tax Credit requires at least 500 full-time equivalent employees at the project site every year of the agreement.⁴ InvestOhio investors must hold their investment for the full two-year period, and the small business must maintain its eligible expenditures for the same duration.⁹

The Tax Credit Authority monitors approved projects on an ongoing basis.¹⁶ Expect to provide annual documentation showing you have hit your job creation, retention, and investment benchmarks. Falling short does not always mean a proportional reduction; depending on the program, the state may revoke the agreement outright. Accurate payroll and employment records from day one are the cheapest form of insurance against a costly compliance review later.

1
Ohio Legislative Service Commission. Ohio Code 122.17 – Grants to Foster Job Creation
2
Ohio Legislative Service Commission. Ohio Administrative Code Rule 122-7-1-05 – Eligibility Requirements
3
Ohio Legislative Service Commission. Ohio Code 122.171 – Tax Credits to Foster Job Retention
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Ohio Legislative Service Commission. Ohio Administrative Code Rule 122-16-1-03 – Eligibility Requirements
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Ohio Legislative Service Commission. Ohio Code 5751.51 – Credit for Qualified Research Expenses
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Ohio Legislative Service Commission. Ohio Code 5726.56 – Research and Development Tax Credit
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Ohio Legislative Service Commission. Ohio Code 5709.63 – Enterprise Zone Tax Exemptions
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Ohio Legislative Service Commission. Ohio Code 3735.67 – Applying for Exemption From Taxation
9
Ohio Department of Development. InvestOhio Program
10
Ohio Legislative Service Commission. Ohio Code 122.86 – Small Business Investment Certificate and Tax Credit
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Ohio Legislative Service Commission. Ohio Code 122.09 – Transformational Mixed Use Development Tax Credit
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Ohio Legislative Service Commission. Ohio Code 122.175 – Tax Exemption for Computer Data Center Equipment
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Ohio Legislative Service Commission. Ohio Administrative Code 122-28-1 – Computer Data Centers
14
Ohio Legislative Service Commission. Ohio Code 149.311 – Historic Preservation Tax Credit
15
Office of the Law Revision Counsel. 26 USC 118 – Contributions to the Capital of a Corporation
16
Ohio Department of Development. Ohio Tax Credit Authority