Use R&D Expenditures for a Credit Against the Ohio Commercial Activity Tax (CAT)
By James Sacher, Partner, Tax & Business Services
What to Look For
If you own or operate a business that pays the Ohio Commercial Activity Tax (CAT) and are spending money on qualified research, you may be eligible for a tax credit for increased research and development (R&D) against the CAT.
The Opportunity
The state of Ohio allows a credit for increased R&D costs against the CAT. If your business is already filing Form 6765 with your federal income tax return, you are probably eligible for the Ohio credit as well. The R&D costs that qualify for the Ohio credit generally follow the definitions under Internal Revenue Code Section 41. Once you’ve identified the current year R&D expenses, the excess of these costs over the average R&D expenses of the prior three years is eligible for the credit.
The Benefit
The Ohio Research and Development Investment Tax Credit is equal to 7% of the amount of qualified research expenses in excess of your average investment in qualifying research expenses over the three preceding taxable years. Any excess credit not used for the taxable year in which it is earned may be carried forward for up to seven years.
For example, if your total investment in qualifying research expenses for the taxable year is $600,000, and your average investment in qualifying research expenses for the three preceding taxable years was $200,000, then the net excess of qualifying research expenses for the taxable year is $400,000, and the 7% credit earned would be $28,000.
Do you have a question about how this information applies to you? Email Jim Sacher, CPA or call him at 440-449-6800.
