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Since 2004, the Ohio Revised Code has authorized a credit against a taxpayer's Ohio corporate income/franchise tax liability for qualified R&E expenditures.


The credit is based on a percentage (7 percent) of the excess of the current year's qualifying R&E expenditures ("QRE") over a QRE base amount, which is based on the average QRE expenses over the previous three years.


Historically, this credit has only been available to C corporations filing the Ohio Franchise Tax Return (FT-1120). It has been recognized that this provides certain disadvantages to non-C corporation entities operating in Ohio in as much as the federal R&E credit (upon which the Ohio credit is loosely based) is available to flow-through entities (and thus to individuals) in addition to C corporations.


Beginning in 2008, Ohio will allow all taxpayers (regardless of entity type) filing Commercial Activity Tax ("CAT") returns to claim a credit against the CAT for qualifying R&E expenditures. However, the credit is only available for CAT periods beginning on and after July 1, 2008. Thus the first CAT return where an R&E credit could be claimed is the third quarter 2008 return (for quarterly filers) due on November 10, 2008. Annual filers can claim a credit when they file their annual CAT return which is due by February 9, 2009.


Please contact your Rea & Associates representative for further details.


-By Chris Axene, CPA (Dublin office)


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