hb1026_00

As Introduced

136th General Assembly

Regular Session H. B. No. 1026

2025-2026

To amend sections 5726.56 and 5751.51 of the Revised Code to increase and expand the research and development tax credit.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section 1. That sections 5726.56 and 5751.51 of the Revised Code be amended to read as follows:

Sec. 5726.56. (A) As used in this section, "qualified research expenses" has the same meaning as in section 41 of the Internal Revenue Code.

(B) A taxpayer may ~~claim~~ apply to the tax commissioner for a nonrefundable credit against the tax imposed under this chapter. The application shall be made on forms prescribed by the commissioner. The credit shall equal ~~to seven~~ fourteen per cent of the excess of (1) the qualified research expenses incurred by the taxpayer in this state in a taxable year over (2) the average annual qualified research expenses incurred by the taxpayer in this state in the three previous taxable years. For the purposes of this division, "qualified research expenses incurred by the taxpayer" includes the qualified research expenses incurred by all persons included in the annual report of the taxpayer and by any insurance company subject to the tax levied under section 5725.18 or Chapter 5729. of the Revised Code that has more than fifty per cent of its ownership interests directly or indirectly owned or controlled by a person included in the annual report of the taxpayer, even though such an insurance company is not subject to the tax imposed under this chapter. The commissioner shall review and process applications in the order in which they are received and shall issue a tax credit certificate to the taxpayer identified with a unique number and listing the amount of credit eligible to be claimed or transferred. A taxpayer claiming a credit under this section shall submit a copy of the certificate with the taxpayer's return or report.

(C) A taxpayer issued a tax credit certificate under this section shall claim the credit allowed under this section in the order prescribed by section 5726.98 of the Revised Code. If the amount of the credit exceeds the amount of tax otherwise due after deducting all other credits preceding the credit in the order prescribed in section 5726.98 of the Revised Code, the excess may be carried forward for not more than ~~seven~~ twenty ensuing tax years. The amount of the excess credit claimed in any such year shall be deducted from the balance carried forward to the next tax year.

(D) A taxpayer may claim against the tax imposed under this chapter any unused portion of a credit authorized under section 5733.351 of the Revised Code but only to the extent of the remaining portion of the seven-year carry-forward period authorized by that section.

(E) In the case of a taxpayer that includes more than one person, each person in the financial institution group shall separately calculate the credit ~~claimed~~ under this section using the qualified research expenses incurred by that person on a form prescribed by the tax commissioner, which shall be used by the taxpayer to claim the credit.

A taxpayer may only claim the credit with respect to persons included in the financial institution group as of the thirty-first day of December of the taxable year in which the qualified research expenses are incurred. A taxpayer may only claim any excess credit carried forward under division (C) of this section with respect to persons included in that group as of the last day of the taxable year for which the return claiming the credit is filed.

(F) A taxpayer that claims a credit under this section shall retain records to substantiate the claim. Required records include those relating to any expenses used in calculating the credit and incurred in the current taxable year and in the three preceding taxable years.

The taxpayer shall retain the required records until the date that is four years after the due date for the return on which the credit was claimed or four years after the date the return was actually filed, whichever is later.

(G) The tax commissioner may audit a sample of the taxpayer's qualified research expenses over a representative period to ascertain the amount of tax credit the taxpayer may claim under this section and may issue an assessment under section 5726.20 of the Revised Code based on the audit. The commissioner shall make a good faith effort to reach an agreement with the taxpayer in selecting a representative sample. The commissioner is not, however, precluded from proceeding under this division if an agreement is not made.

(H) A person issued a certificate under division (B) of this section may transfer the right to claim all or part of the credit reflected on the certificate to another person by notifying the commissioner, in writing, that the transferor is transferring the right to claim all or part of the remaining credit stated on the certificate. The transferor shall identify in that notification the certificate's number, the name and the tax identification number of the transferee, the amount of the remaining credit transferred to the transferee, the tax against which the credit will be claimed, and, if applicable, the amount of remaining credit retained by the transferor.

The transferee may claim the amount of the credit received under this division in the same manner and for the same taxable years or tax periods as it may be claimed by a person under division (C) of this section or division (B)(2) of section 5751.51 of the Revised Code, as applicable. Any person to which a credit has been transferred under this division may transfer the right to claim all or part of the transferred credit amount to any other person, in the same manner prescribed by this division for the initial transfer, including that any such transfer be reported by the transferor to the tax commissioner as described in this division. Transferring a credit under this division does not extend the taxable years for which the credit may be claimed or the number of years for which the unclaimed credit amount may be carried forward.

Sec. 5751.51. (A) As used in this section, "qualified research expenses" has the same meaning as in section 41 of the Internal Revenue Code.

(B)(1) ~~For calendar years beginning on or after January 1, 2008,~~ A taxpayer may apply to the tax commissioner for a nonrefundable credit ~~may be claimed under this chapter equal to seven~~ against the tax imposed under this chapter. The application shall be made on forms prescribed by the commissioner. The credit shall equal fourteen per cent of the excess of (a) qualified research expenses incurred in this state by the taxpayer in the calendar year for which the credit is claimed over (b) the taxpayer's average annual qualified research expenses incurred in this state for the three preceding calendar years. The commissioner shall review and process applications in the order in which they are received and shall issue a tax credit certificate to the taxpayer identified with a unique number and listing the amount of credit eligible to be claimed or transferred. A taxpayer claiming a credit under this section shall submit a copy of the certificate with the taxpayer's return or report.

(2) The taxpayer issued a tax credit certificate under this section shall claim the credit allowed under division (B)(1) of this section in the order required by section 5751.98 of the Revised Code. A credit claimed in calendar year 2008 may not be applied against the tax otherwise due under this chapter for a tax period beginning before July 1, 2008. Any credit amount in excess of the tax due under section 5751.03 of the Revised Code, after allowing for any other credits that precede the credit under this section in the order required under that section, may be carried forward for ~~seven~~ twenty years, but the amount of the excess credit claimed against the tax for any tax period shall be deducted from the balance carried forward to the next tax period.

(3) No credit shall be allowed under this chapter if the credit was available against the tax imposed by section 5733.06 of the Revised Code, except to the extent the credit was not applied against such tax.

(C) In the case of a taxpayer that is a consolidated elected taxpayer or combined taxpayer, each person in the taxpayer's group shall separately calculate the credit ~~claimed~~ under this section using the qualified research expenses incurred by that person on a form prescribed by the tax commissioner, which shall be used by the taxpayer to claim the credit.

Such a taxpayer may only claim the credit with respect to persons included in the taxpayer's group as of the thirty-first day of December of the calendar year in which the qualified research expenses are incurred. Such a taxpayer may only claim any excess credit carried forward under division (B)(2) of this section with respect to persons included in that group as of the last day of the tax period for which the return claiming the credit is filed.

(D) A taxpayer that claims a credit under this section shall retain records to substantiate the claim. Required records include those relating to any expenses used in calculating the credit and incurred in the current calendar year and in the three preceding calendar years.

(E) The tax commissioner may audit a sample of the taxpayer's qualified research expenses over a representative period to ascertain the amount of tax credit the taxpayer may claim under this section and may issue an assessment under section 5751.09 of the Revised Code based on the audit. The commissioner shall make a good faith effort to reach an agreement with the taxpayer in selecting a representative sample. The commissioner is not, however, precluded from proceeding under this division if an agreement is not made.

(F) A person issued a certificate under division (B)(1) of this section may transfer the right to claim all or part of the credit reflected on the certificate to another person by notifying the commissioner, in writing, that the transferor is transferring the right to claim all or part of the remaining credit stated on the certificate. The transferor shall identify in that notification the certificate's number, the name and the tax identification number of the transferee, the amount of the remaining credit transferred to the transferee, the tax against which the credit may be claimed, and, if applicable, the amount of remaining credit retained by the transferor.

The transferee may claim the amount of the credit received under this division in the same manner and for the same taxable years or tax periods as it may be claimed by a person under division (B)(2) of this section or division (C) of section 5726.56 of the Revised Code, as applicable. Any person to which a credit has been transferred under this division may transfer the right to claim all or part of the transferred credit amount to any other person, in the same manner prescribed by this division for the initial transfer, including that any such transfer be reported by the transferor to the tax commissioner as described in this division. Transferring a credit under this division does not extend the tax periods for which the credit may be claimed or the number of years for which the unclaimed credit amount may be carried forward.

Section 2. That existing sections 5726.56 and 5751.51 of the Revised Code are hereby repealed.

Section 3. The amendment by this act of section 5726.56 of the Revised Code applies to taxable years ending on or after the effective date of this section.

The amendment by this act of section 5751.51 of the Revised Code applies to tax periods ending on or after the effective date of this section.