Summary: Ohio R&D Tax Credit (ORC 5751.51)
The Ohio Research and Development Tax Credit is a nonrefundable incentive worth 7% of qualified research expenses (QREs) exceeding a three-year average. Applied against the Commercial Activity Tax (CAT), it rewards Ohio-based innovation. Key eligibility includes In-House Wages, Supplies, and 65% of Contracted Research for activities that meet the IRC Section 41 four-part test.
| Glossary Term & Reference | Definition |
|---|---|
| Ohio Revised Code (ORC) Section 5751.51 | The legal statute governing the R&D credit application against Ohio’s Commercial Activity Tax liability. |
| Research and Development Investment Tax Credit | A tax incentive for businesses investing in qualified research and development activities within Ohio. |
| Qualified Research Expenses (QREs) | Costs including wages, supplies, and contract research that qualify for the R&D tax credit. |
| Ohio-Incurred Qualified Research Expenses | Eligible R&D expenses specifically attributed to activities, personnel, and supplies utilized within Ohio’s borders. |
| Commercial Activity Tax (CAT) | Ohio’s primary business tax levied on gross receipts, which the R&D credit directly offsets. |
| CAT Liability | The total amount of Commercial Activity Tax owed by a business before applying available credits. |
| Credit Percentage (7%) | The statutory rate used to calculate the Ohio R&D credit based on excess qualified expenses. |
| Average Annual Research and Development Expenses | The base amount calculated from the mean R&D spending over the previous three taxable years. |
| Three Preceding Taxable Years | The specific lookback period used to determine a taxpayer’s historical R&D spending base level. |
| Excess Qualified Research Expenses | The portion of current year QREs that exceeds the historical three-year average spending level. |
| Nonrefundable Credit | A credit that reduces tax liability but does not provide a refund for unused portions. |
| Credit Carry Forward | The process of applying unused R&D tax credits to future tax years’ liabilities. |
| Carry Forward Period (Seven years) | The statutory seven-year timeframe during which taxpayers may utilize excess R&D tax credits. |
| Internal Revenue Code (IRC) Section 41 | The federal regulation defining research eligibility standards adopted by the state of Ohio. |
| In-House Research Expenses | Direct costs for research conducted internally, primarily consisting of employee wages and consumed supplies. |
| Contracted Research Expenses (65%) | The percentage of payments to third parties for research services that qualify for the credit. |
| Wages for Qualified Services | Compensation paid to employees for direct conduct, supervision, or support of qualified research activities. |
| Supplies Used in Research | Tangible property, excluding land or depreciable assets, used directly in the research and development process. |
| Qualified Services | The specific employee activities including direct conduct, supervision, or support that qualify for credit wages. |
| Direct Conduct of Research | The actual performance of technical tasks, testing, and experimentation required for a research project. |
| Directly Supervising Research | The immediate oversight and management of employees engaged in the direct conduct of qualified research. |
| Directly Supporting Research | Services essential to research, such as prototype cleaning, equipment maintenance, or technical data entry. |
| Business Component Test | The requirement that research must develop a new or improved product, process, or software. |
| Elimination of Uncertainty Test | Research conducted to discover information that resolves technical uncertainty regarding capability, method, or design. |
| Process of Experimentation Test | A systematic evaluation of alternatives through testing, modeling, or trial and error to achieve results. |
| Technological in Nature | The requirement that the process of experimentation must rely on hard sciences or engineering. |
| Permitted Purpose | Research aimed at improving performance, reliability, quality, or function rather than purely aesthetic features. |
| Research and Development Sales Tax Exemption | An Ohio sales tax benefit for purchases of tangible property used primarily for research activities. |
| Qualified Machinery and Equipment (R&D) | Capital assets used primarily in the conduct of research that may qualify for sales exemption. |
| Direct Research | Activities that are inherently experimental and focused on solving technical problems through scientific inquiry. |
| Pure Research | Scientific exploration intended to gain new knowledge without specific immediate commercial or product applications. |
| Sales and Use Tax Blanket Exemption Certificate | Documentation provided to vendors to purchase R&D-related items without paying Ohio state sales tax. |
| Tax Commissioner | The administrative head of the Ohio Department of Taxation responsible for tax policy and enforcement. |
| Ohio Department of Taxation | The state agency managing tax collection and ensuring compliance with Ohio’s R&D tax credit laws. |
| Consolidated Elected Taxpayer | A group of related entities electing to file as a single taxpayer for CAT purposes. |
| Combined Taxpayer | A taxpayer group with common ownership required to report their activities collectively for Ohio tax. |
| Financial Institution Group | Entities categorized as financial institutions that may be subject to different R&D credit application rules. |
| Financial Institutions Tax (FIT) (Chapter 5726) | The specific tax framework for financial institutions operating in Ohio, distinct from the CAT. |
| Corporation Franchise Tax (Chapter 5733) | The legacy corporate tax system in Ohio which previously hosted the state’s R&D tax incentives. |
| Section 5733.351 (Former Credit Statute) | The historical legal provision for R&D credits under the old Ohio corporation franchise tax regime. |
| Job Creation Tax Credit (JCTC) | A performance-based incentive for businesses that create and maintain new jobs within the state. |
| Job Retention Tax Credit | An incentive aimed at companies that commit to preserving existing significant employment levels in Ohio. |
| JobsOhio Research & Development Center Grant | A competitive grant program supporting the creation of corporate R&D centers in the state of Ohio. |
| Tax Credit Authority | The state board responsible for reviewing and approving eligibility for Ohio’s discretionary tax incentive programs. |
| Job Creation Tax Credit Refundability | The feature of the JCTC that allows businesses to receive cash refunds for excess credits. |
| Research and Development Loan Payments Credit | A credit available for payments made on loans used for qualified research and development projects. |
| Taxable Year | The specific accounting period—usually the calendar year—during which tax liability and credits are calculated. |
| Calendar Year | The twelve-month period from January through December used for mandatory Commercial Activity Tax reporting. |
| Tax Audit Sample | Statistical methods used by auditors to verify the accuracy of a taxpayer’s R&D credit claims. |
