Enterprise Zones provide tax break on new construction/renovation

Summary

Ah, the Enterprise Zone (EZ).  This program was passed into law in 1982 with the idea of facilitating property investment in depressed areas.  Given Ohio’s onerous personal property taxes, the program rapidly came into use to make communities more competitive for industrial development.  Now, with personal property taxes gone, it is a very common way for local communities to provide an incentive (tax exemption) on real property improvements (and only improvements).  Thus, it can significantly lower the real property tax burden for businesses looking to refurbish, renovate and construct facilities.  (Note: The personal property tax in Ohio for tax year 2009 is now 0%.  See this site for more details on the tax reform.  Here is a .pdf describing all of the changes.) 

Terms

Projects may not be “retail” projects.  A company has to create jobs (typically in a three year window) and make a “substantial” investment (often in the neighborhood of $400/500,000 or more) in ordrer to qualify (see Project Eligibility for more details).  Note: It is not unusual to have three-party agreements, where one entity will own the real estate and make improvements and a different entity will create jobs (a requirement). The amount of jobs needed varies from zone to zone. 

The tax exemption itself applies to the new value of the real property that appears on the Auditor’s books (and is available through GIS).  It does not apply to the amount of the investment.  It is important to reemphasize here that no existing real property and real property tax revenue may be exempted (with one exception…see comments).  This includes land and existing buildings.  Although there is no maximum percentage to the exemption (could be 5%, could be 100%), the law requires school board approval when it’s above 60% in unincorporated areas and 75% in incorporated areasThe term is a maximum of 15 years, with anything above ten requiring school board approval.  Sliding scales without school board approval are also possible (100% in year one, 90% in year two, 80% in year three, 70% in year four, 60% in years five through ten), as long as the average is within line.  See ODOD’s EZ webpage for more details.  Or, you can go directly to the following .pdfs: Program Guidelines, FAQs, Project Eligibility.

Process

First, there has to be an Enterprise Zone in place.  If there is not one and the community is willing, one can usually be done.  Even if the community is in an EZ, you need to verify the address is eligible, and to do that you need to contact the EZ manager or the Chamber to assist you.  Go here to search for the appropriate Enterprise Zone Manager throughout Ohio.  For Clark County, Tom Franzen is the contact for the City of Springfield’s Zone (Zone 46), and he can be reached at 937.324.7033 or by email at tfranzen@ci.springfield.oh.us.  Shane Farnsworth is the contact for the Clark County Zone (Zone 194), and he can be reached 937.521.2186 or by email at sfarnsworth@clarkcountyohio.gov.  The Village of South Charleston (Zone 344) can be reached at 937.462.7167.  Sarah Wildman, former Village manager, was running the program but recently left the position.

Second, a company will go through the approval process, which usually consists of a (1) negotiation between the business and the community; (2) the drafting, review and approval of the legal agreement; (3) the legislative approval and signing of the agreement.  At some point during (1) and/or (2), the school board will be notified and/or involved in the process.  There is also a $750 fee that goes to the State of Ohio plus possible administrative fees that go to the authority managing the zone.  Also be aware that there are often specific additional requirements for contracts in particular zones (may require payments to school scholarship funds, use of the local OneStop as part of hiring process, etc.).  See a sample agreement

Third, the company will file annual report forms with the Enterprise Zone manager (who then files it with the State).  They typically have to file it by March 31 of each year.  See Annual Report Requirements for details as well as this page to see the actual form you will have to fill out (called Form C).  In addition, there will be a meeting of the Tax Incentive Review Council (or TIRC) for the zone, which includes members appointed by the appropriate legislative authorities (county, city, village, township), is chaired by the County Auditor (by statute), and is staffed by the EZ Manager.  Here’s the law regarding TIRCs.

Comments

This is a great program for businesses, although the future of the program in unsure.  The Ohio Department of Development is expected to shortly produce a report with recommendations on how to change incentive programs to best meet current policy objectives and take into account the tax reform and the original intent of the legislation.  What this means is that the program as we know it may be significantly altered.  If a business can apply for this, I strongly encourage them to do so.   Also note, that David Zak, Vice President of Economic Development at the Chamber, can also assist you through the whole process.  He can be reached at 937.631.5315 (cell) or by email at dzak@greaterspringfieldchamber.com.

Also, please note that there are significant issues involved if a company is relocating from one taxing jurisdiction to another, even if just across town.  See ODOD’s Relocation Issues .pdf for more information.

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