Legislation to Expand Ohio Opportunity Zones and Historic Preservation Tax Credits Headed to Governor’s Desk

By: Jacob Davis, Esq. and Chris Nalls, Esq.

Bipartisanship is tough to find these days. However, that was not the case when Senate Bill (S.B.) 225 came to the floor in the Ohio Legislature on June 1, 2022. The Senate passed the bill 32-0 and the House followed with a vote of 87-5 in favor of passage. After the bill is signed into law, there will likely be a flurry of activity for investors wanting to invest in the state’s Opportunity Zones and Historic Preservation Tax Credit programs.

First, let’s discuss what S.B. 225 does and why it matters with respect to Opportunity Zones. The new bill makes changes to the Historical Preservation Tax Credit and Opportunity Zones tax credit programs. Currently, Ohio allows taxpayers that (1) invest in an Opportunity Zone; and (2) hold 100 percent of its assets in a qualified zone to receive a tax credit of ten percent (10%) of the investment in that zone. But what is an Opportunity Zone (OZs)?

OZs are generally defined as “economically-distressed communities where new investments, under certain conditions, may be eligible for preferential tax treatment.” In Ohio, the current OZs credit that could be awarded was $50 million. However, S.B. 225 would make that $75 million through June 30, 2023 before dropping back to $50 million in 2024 and $25 million each year thereafter. Some believe that the updated law will incentivize investment in OZs and create opportunities for development and redevelopment in underserved communities like Dayton. Dayton currently has 17 census tracts designed as OZs, which can be accessed at: https://dashboards.mysidewalk.com/dayton-oh-opportunity-zones-11b5158037c7. These census tracts cover nearly 40% of Dayton’s population. Importantly, the new law adds flexibility in that tax credit holders, including those not subject to the state income tax, will be able to transfer partial tax credit certificates. The updated language allows non-state income taxpayers to earn such tax credits by investing in projects through an Ohio Qualified Opportunity Fund. The ability to use a portion of the credit and transfer the rest to local investors and developers will likely attract additional participation for those seeking to invest in Ohio’s OZs.

Next, the bill amends the current law governing funding for the Historic Preservation Tax Credits program. Generally, Ohio grants historical preservation tax credits for up to 25% of qualifying expenditures on historical properties with an individual project cap of $5 million. Currently, the total amount of funding available for these credits is $60 million. The new law increases the total amount of funding available for these credits for 2023-2024 to $120 million. S.B. 225 will provide additional benefits for those who have already been awarded tax credits so long as construction has not commenced. In certain areas, the percent is increased from 25% to 35% of qualified expenditures. The individual project cap is now $10 million which is refundable. This provides an additional incentive to compete for a tax credit in a time of rapid inflation in most markets, including construction which can be costly for historical properties.

This new law will cost state and local governments approximately $85 million but provides temporary changes that incentivize investments in communities that need it most. Several Dayton-area properties have benefited from the program, including the Dayton Arcade, The Wheelhouse,

and the Barclay Building. For more information on business planning, you can contact the Nalls Davis at (937) 813-3003 or schedule a free consultation