Ohio Tax. Workshop P. Ohio s Tax Incentives Evolution to Promote Ohio Competitiveness. Tuesday, January 24, :00 p.m. to 4:00 p.m.

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1 26th Annual Tuesday & Wednesday, January 24 25, 2017 Hya Regency Columbus, Columbus, Ohio Ohio Tax Workshop P Ohio s Tax Incentives Evolution to Promote Ohio Competitiveness Tuesday, January 24, :00 p.m. to 4:00 p.m.

2 Biographical Information Kelli J. Saunders, Director Economic Development DHL/Exel Supply Chain, 570 Polaris Parkway, Westerville, OH Fax: Kelli started her career with Deloitte Tax LLP in Columbus, Ohio in 2003 as a tax analyst in business tax services. Kelli joined DHL/Exel Supply Chain in 2005 with responsibility for Federal, State and Local income tax compliance. DHL/Exel Supply Chain is the North American leader in contract logistics, providing customer-focused solutions to a wide range of industries including automotive, consumer, retail, engineering and manufacturing, life sciences and healthcare, technology, energy and chemicals. In 2012, DHL/Exel Supply started an Economic Development function within its legal department. Kelli assumed the role of Director, Economic Development in May of As of January 2015, Kelli is responsible for Economic Development for all divisions of DHL Americas; including the express, global forwarding, and parcel businesses. Kelli has worked on multiple incentive deals at the Federal, State and Local levels in over 18 states. Kelli is a graduate of Miami University in Oxford, Ohio with a B.S. in Accountancy and is a Certified Public Accountant. Chris Magill, Economic Development Director, Ice Miller LLP Arena District 250 West Street, Suite 700, Columbus, OH (Fax) cmagill@icemiller.com Chris Magill is the Economic Development Director for Ice Miller and leads a collaborative team of professionals and attorneys to assist public and private sector clients in achieving growth strategies through economic development consulting. For corporate clients, Chris provides consulting on capital investment projects and has strategically negotiated and analyzed tax credit, grant and loan-financing solutions for capital investment projects in 16 different states. In addition to his consulting on capital investment projects, Chris delivers economic development compliance strategies, best practice government compliance consulting and compliance report-filing. For public sector clients, Chris advises local governments in building strategic economic plans and creating sustainable economic development tools at the state, regional, county and municipal levels in an effort to enhance an area s standard of living. Chris works closely with Ice Miller s attorneys in Bond Financing, Broadband, Brownfield & Environmental Remediation, Government Law, Municipal Finance, Real Estate and Tax Law to provide true end-to-end strategies for both public and private sector clients. Prior to joining Ice Miller, Chris served as the executive director of the Ohio Tax Credit Authority (Authority) for the Ohio Department of Development (ODOD), a board consisting of the Director of the ODOD and four other members appointed by Ohio s governor, the speaker of the House of Representatives and the president of the Senate. As executive director of the Authority, Chris was responsible for managing more than $100 million in business tax credit programs annually including Ohio s flagship business tax credit programs, the Job Creation Tax Credit (JCTC), Job Retention Tax Credit (JRTC) and the Ohio Motion Picture Tax Credit (OMPTC). Chris has a comprehensive understanding of state and local tax credit programs and was instrumental in transitioning Ohio s JCTC and JRTC programs through major legislative changes, which included a complete overhaul of both long-standing programs from an individual employeebased system to a payroll-based system. Chris also played an integral role with ODOD s team in structuring the Ohio Motion Picture Tax Credit and served on ODOD s Insurance Tax Credit Task Force. In August of 2014, Chris was recognized as the only private-sector employee by Columbus Business First as one of 20 People to Know in Government, given his unique combination of experience in government administration, public sector and private sector economic development consulting. Education Bachelor of Science, Bowling Green State University Master in Business Administration, Ohio University

3 Biographical Information Debora (Dardinger)McGraw JD, LLM,CPA, Member, Zaino Hall & Farrin LLC 41 South High Street, Suite 3600, Columbus, OH Fax: Deb is a member of the firm's Federal and Multistate Tax Practice Group. Deb has significant experience representing clients in various state and local tax controversies, including settlement negotiations. She also assists clients with a variety of federal income tax issues. Deb has significant experience in conducting refund reviews and in assisting clients with tax planning including implementation by working with various client operational groups. Deb has worked with clients in various industry groups and has developed particular experience in the financial services and utility industries. Prior to joining the firm, Deb was a Director at PricewaterhouseCoopers where she worked for 16 years. Prior to leaving PwC, Deb led the Columbus large company tax practice and served as the lead contact for many Columbus based companies. She assisted clients with a variety of federal and state tax considerations including tax planning, corporate restructurings, federal and state controversy, corporate compliance, financial statement audits, etc. In particular, Deb excels at conducting federal and multi-state refund reviews for clients looking to improve cash flow or review their current tax positions. Deb led PwC's Ohio tax efforts nationally including negotiation of multiple Fortune 100 and 400 company audit settlements. She frequently used her refund review experience as offsets in Ohio and other state audits or to argue alternative positions. Deb handled the legislative analysis for the firm and acted as a national resource for other offices. She drafted updates that were circulated internally and to clients. Deb spoke regularly on client webcasts introducing new Ohio legislation, as well as, on federal and multistate tax considerations for internal PwC trainings. Deb served as the chair of PwC's local Women's Networking Circle for two years and the board for two additional years. The group was aimed at mentoring women in public accounting and providing them networking and support opportunities. She was voted coach of the year for the Ohio-Kentucky-Indiana cluster of PwC in 2009, the first year the award was offered. Deb is a frequent speaker and served as an adjunct professor at Capital University Law School. John Werkman, Deputy Chief, Office of Strategic Business Investments Ohio Development Services Agency, 77 S. High St., Columbus, OH John.Werkman@development.ohio.gov John joined the Ohio Development Services Agency (ODSA) in February 2014, serving as Manager of Tax Incentives. In August 2016, he was promoted to Deputy Chief of the Office of Strategic Business Investments. In this role, John oversees the agency tax incentive, grant and loan programs, including the Job Creation Tax Credit and Job Retention Tax Credit programs. He also serves as Executive Director of the Ohio Tax Credit Authority, a five-member independent board consisting of taxation and economic development professionals from throughout the state charged with reviewing applications for tax credit assistance. John started his career as an Appeals Attorney with the Ohio Department of Taxation, focusing on corporation franchise tax, personal income tax and pass-through entity tax. His primary responsibilities included managing staff attorneys and drafting final determinations in response to appeals filed by taxpayers throughout Ohio. John is a graduate of Ohio University with a bachelor s degree in Economics and Political Science. He received his law degree from the University of Toledo, College of Law.

4 Biographical Information Josiah Huber, Director, DiPerna Advisors 21 E State St, Columbus OH jhuber@dipernafinancial.com Josiah offers a proven financial perspective to the economic development industry with a concentration in structured and public finance. After beginning his career in 2010 at Schottenstein, Zox & Dunn working in its economic development practice, he joined DiPerna Advisors in 2012 where he has assisted in the structuring and closing of over 100 economic development and public finance transactions, many times employing creative revenue bond structures to provide economically viable financing solutions for its clients. Such clients include commercial and industrial real estate developers, state government agencies, port authorities, school districts, and corporations. Some of these revenue bond structures have included: economic development revenue bonds for real estate assets and growth capital expansions, tax increment financing bonds for public infrastructure improvements, new community authority bonds for community facilities (parking facilities and public improvements), special assessment bonds for public infrastructure, PACE bonds for energy efficiency and alternative energy projects, energy conservation notes and leasepurchase transactions for school district projects, industrial development bonds for manufacturing facilities, and exempt-facility bonds for airports and senior living, among others. Josiah leads the green energy finance practice developed by DiPerna Advisors in 2012 and delivers ongoing management and implementation of green energy financing programs for many its clients. By leveraging Port Authority Bond Funds and other sustainable energy finance programs for energy efficiency, alternative energy, and clean energy projects, borrowers have recognized significant utility savings net of annual maintenance and debt service, due to the low-cost, fixed rate nature of these programs. Uniquely, he has provided smaller energy efficiency projects that would otherwise not have access to the national capital markets the ability to obtain low cost of capital by bundling multiple projects together and selling pooled bonds in the national capital markets. DiPerna Advisors helped implement these financial concepts and programs for the Better Buildings program in Toledo, Ohio, the Central Ohio Energy Fund in Columbus, Ohio, and the Dayton Regional Energy Program in Dayton, Ohio. Josiah graduated from Ohio Wesleyan University with a Bachelor of Arts degree, concentrated in Finance, Accounting and Economics. He sits on the Bridge Park New Community Authority Board of Trustees. He maintains a FINRA issued Series 7 and Series 63 securities license and is studying to obtain his Chartered Financial Analyst ( CFA ) designation from the CFA institute (currently a level III candidate).

5 Ohio s Tax Incentives Evolution to Promote Ohio Competitiveness Insights on major changes, trends and creative use of tax incentives

6 Agenda Ohio Attorney General s Compliance Report Ohio Job Creation and Retention Tax Credits Comparison to Other States/Markets & Private Sector Insights Ohio Joint Economic Development District InvestOhio Notable Local District Incentives Downtown Redevelopment Districts/Innovation Districts Tourism Districts New Community Authorities Case Study

7 Ohio Attorney General s Compliance In December 2008, the 127th General Assembly enacted Section of the Revised Code Purpose: establish a new regime for providing information to the public regarding state awards and grants made to any entity by an agency of the state. 1. Determine the compliance of recipients with the terms and conditions, including performance metrics, if any, of the awards they receive at the end of the closeout year 2. Report annually to the General Assembly regarding the level of compliance of such recipients with the terms and conditions of their award agreements

8 Ohio Attorney General s Compliance 2015 Report Compliance Rates Overall Compliance Rate 78.9% (269/341) Workforce Compliance Rate 100% (43/43) WTG Workforce Training 100% (23/23) Ohio Investment in Training 100% (1/1) Ohio Workforce Guarantee 100% (19/19) Grant Compliance Rate 76.3% (58/76) Rapid Outreach 65% (26/40) Roadwork Development 92% (23/25) Economic Development Contingency 81.8% (9/11) Tax Credit Compliance Rate 73.4% (116/158) Job Creation Tax Credit 71.8% (107/149) Job Retention Tax Credit 100% (9/9) Loan Compliance Rate 81.3% (52/64) 166 Direct 76.9% (10/13) Regional 166 Direct 92.6% (25/27) Research & Development Investment 100% (2/2) Innovation Ohio Loan 55.6% (5/9) Ohio Enterprise Bond Fund 83.3% (5/6) Minority Business Direct Fund 33.3% (1/3) Logistics & Distribution 100% (4/4) Source: 2016 Report to the General Assembly: Compliance with State Awards for Economic Development, Ohio Attorney General, 11/22/ Report Compliance Rates Overall Compliance Rate 84.8% (279/329) Workforce Compliance Rate 100% (33/33) WTG Workforce Training 100% (20/20) Ohio Investment in Training 100% (1/1) Ohio Workforce Guarantee 100% (13/13) Grant Compliance Rate 86.3% (101/117) Rapid Outreach 75% (39/52) Roadwork Development 100% (41/41) Economic Development Contingency 88.9% (16/18) Tax Credit Compliance Rate 80% (92/115) Job Creation Tax Credit 79.6% (90/113) Job Retention Tax Credit 100% (2/2) Loan Compliance Rate 82.8% (53/64) 166 Direct 77.8% (14/18) Regional 166 Direct 95.7% (22/23) Research & Development Investment 100% (4/4) Innovation Ohio Loan 33.3% (3/9) Ohio Enterprise Bond Fund 100% (5/5) Minority Business Direct Fund 100% (1/1) Logistics & Distribution 100% (4/4)

9 Ohio Attorney General s Compliance Source: 2016 Report to the General Assembly: Compliance with State Awards for Economic Development, Ohio Attorney General, 11/22/2016

10 Incentive Matrix Job Based Training Abatement & Exemptions Special Districts Broadband Capital Investment Business Investment Public Infrastruct ure Site Prep Housing Local JCTC, JGI Job Centers CRA, EZ JEDD, NCA, DRD, TD LGIF, Discounted Fiber TIF, Streetscap e, Parking Incentives, P3 Workforc e Housing County WIG Small Business Loans Public Works State JCTC, JRTC JO Training QEP/OAQDA OEBF, Historic Preservation, NMTC, 166 Loan, JO Loan/Grant InvestOhio, Third Frontier 629 JO Revitali zation Grant/L oan Federal WOTC USDA TI Loan, Communit y Connect, EDA, HUD NMTC, USDA OWDA, EPA, EDA LIHTC, HUD Other Port Authority Sales Tax CDC Loans, Port Authority Financing

11 Ohio JCTC/JRTC Update Amended Substitute House Bill 64 ( Am. Sub. H.B. 64 ), generally effective September 29, 2015, revamped the Ohio Job Creation Tax Credit ( JCTC ) and Ohio Job Retention Tax Credit ( JRTC ) provisions (collectively, Jobs Credits ). Prior to Am. Sub. H.B. 64, the Jobs Credits were measured as a percentage of the increase in the Ohio income tax withheld from employee wages at the project location. However, the Ohio individual tax rates decreased, which also decreased the Ohio tax withheld and, thereby, the value of Jobs Credits. For original agreements executed in 2014 or 2015, the taxpayer could request to amend their agreement applying the new methodology. Original agreements executed prior to 2014 and that meet their job, payroll and investment commitments (if applicable) are entitled to a withholding adjustment factor ( WAF ), which should restore lost value due to the reduction in withholding rates.

12 Ohio JCTC/JRTC Withholding Adjustment Factor At the February 29, 2016 meeting, the Tax Credit Authority certified a WAF of % for reporting periods ending in WAF calculated based on change in average withholding tax rates from 2013 through 12/31/2015. WAF should not change for reporting periods ending in 2016 because there were no further changes in the individual income tax rates in ODSA provides the annual WAF with certification of the credit.

13 Ohio JCTC/JRTC Updated Rules In light of Am. Sub. H.B. 64, new Jobs Credits rules, effective July 28, 2016 were adopted. The rules: Define substantially meet and substantially maintain as meeting 50% of the taxpayer s job, payroll, and investment obligations. Deleted computers from the definition of fixed asset investment. Retained the 75% of tax withholding limitation, with minor changes. Added remedial action language if the taxpayer relocates employment positions. Clarified Payroll Increase Factor Methodology change in the Consumer Price Index for all Urban Consumers Midwest Urban. Applies the relocation notice requirement to affiliated entities.

14 Ohio JCTC/JRTC Claw Back Rules define substantially meet and substantially maintain based on meeting 50% of the taxpayer s job, payroll, and investment obligations. Unclear how much of the prior Job Credits are subject to claw back if a taxpayer meets its obligation initially but then falls below 50% in a later year. This uncertainty could create a concern with the income recognition standard applied for financial statement purposes both when the taxpayer initially recognizes the Job Credits or upon the subsequent failure to meet the commitments. The statute provides the Tax Credit Authority with discretion in applying a claw back. ODSA tries to be proactive when companies are having difficulties and recommends that companies proactively reach out to ODSA in such situations.

15 Ohio JCTC/JRTC Affiliated Entities Historically, Rule 122:7 1 09, Relocation of Employees, required notice if a substantial number of employment locations were transferred, defined as $200,000 of annual gross payroll, excluding fringe benefits. The rule expanded the notice requirement to affiliated entities. This term is newly defined as: (A) Affiliated entities means any person that (directly or indirectly) owns or controls, is owned or controlled by, or is under common ownership or control with, the taxpayer. For purposes of this definition, the term own means to own an equity interest (or the equivalent thereof) of fifty per cent or more. Rule 122:7 1 01(A). Most of the post 2009 agreements already required notice for the taxpayer and any affiliated entities.

16 Refundability Private Sector Insights Compliance and Clawback Comparison to Other States Other considerations

17 Ohio Joint Economic Development District (JEDD) Legislative Changes As Ohio townships cannot impose an income tax, the JEDD provisions were originally passed in the mid 1990s to allow townships and municipalities to partner in the imposition of a local income tax for economic development purposes. Generally, only businesses and employees located in the JEDD were subject to the tax, but residents were not. Substituted House Bill 182 ( Sub. H.B 182 ), which was effective September 11, 2016, simplified the historic JEDD rules. Sub. H.B. 182 key changes to the JEDD provisions include: Consolidates the JEDD provisions into one code section, R.C Allows for funds to be used for redevelopment.

18 Ohio Joint Economic Development District (JEDD) Legislative Changes Sub. H.B. 182 key changes (Continued): Allows a multi use development with residents and business in the same geographic area. Permits the exclusion of certain parcels. County approval is no longer required. Requires the Economic Development Plan be incorporated into the contract. Provides for a broader definition of businesses operating within the JEDD. Modifies the change in the use of proceeds language. Provides an opt out procedure for existing businesses.

19 Ohio Joint Economic Development District (JEDD) Legislative Changes Sub. H.B. 182 key changes (Continued): Allows a multi use development with residents and business in the same geographic area. Permits the exclusion of certain parcels. County approval is no longer required. Requires the Economic Development Plan be incorporated into the contract. Provides for a broader definition of businesses operating within the JEDD. Modifies the change in the use of proceeds language. Provides an opt out procedure for existing businesses.

20 InvestOhio Rewards an investor in a small business 10% of its investment in the form of an income tax credit Eligible Investor Individual, estate, or trust subject to the tax imposed by section of the Revised Code, or a pass through entity in which such an individual, estate, or trust holds a direct or indirect ownership or other equity interest. To qualify as an eligible investor, the individual, estate, trust, or pass through entity shall not owe any outstanding tax or other liability to the state at the time of a qualifying investment Eligible Small Business At the time of a qualifying investment: enterprise's assets according to generally accepted accounting principles do not exceed fifty million dollars, or its annual sales do not exceed ten million dollars. When making this determination, the assets and annual sales of all of the enterprise's related or affiliated entities shall be included in the calculation. The enterprise employs at least: fifty full time equivalent employees in this state for whom the enterprise is required to withhold income tax under section of the Revised Code, or more than one half the enterprise's total number of full time equivalent employees employed anywhere in the United States are employed in this state and are subject to that withholding requirement

21 InvestOhio Qualifying Investment An investment of money made on or after July 1, 2011, to acquire capital stock or other equity interest in a small business enterprise. "Qualifying investment" does not include either of the following: Any investment of money an eligible investor derives, directly or indirectly, from a grant or loan from the federal government or the state or a political subdivision, including the third frontier program under Chapter 184. of the Revised Code; Any investment of money which is the basis of a tax credit granted under any other section of the Revised Code An investment of money that is derived from a loan in which the assets of the small business enterprise have been pledged as collateral or otherwise encumbered The eligible investor pledges not to sell or otherwise dispose of the qualifying investment before the conclusion of the applicable holding period. Qualified Small Business Expenditures Tangible personal property Motor vehicles operated on public roads and highways Real property Intangible personal property Compensation for new employees

22 InvestOhio 1. Register: Companies/Investors receive immediate verification of registry upon filing with the Ohio Business Gateway 2. Apply/Approval ID: Application is confirmed with a transaction ID 3. Investment: The investment can take place at any moment, so long as it is in the current biennium Investment Proof: Within 30 days of the time of the investment, or for an investment made prior to the acceptance period, the investor must provide evidence that the transfer of the investment of money has been made 4. Expenditure Evidence: Within 30 days of the date in which the small business enterprise completes its expenditures, or for expenditures made prior to the acceptance period, the small business must provide evidence that the expenditures have been made 5. Expenditure Period: Expenditures must be made within 6 months of the investment 6. Credit Issued: The investor becomes eligible for a tax credit certificate 2 years after investment made (the holding period) 7. Credit Claimed: The tax credit certificate is claimed on the investor s income tax return covering the year that includes the last day of the holding period (income tax returns for prior years are due in April).

23 Innovation Districts Steps for Creation Analysis on existing TIFs in the project area 30 day Public Hearing Notices to all district property owners prior to City Council Creating a Downtown Redevelopment District (DRDs) Creating the 10 acre district boundary compliant with the Ohio Revised Code Obtaining parcel numbers for each district parcel and identifying parcels within historic districts and/or containing historic buildings The life of the district Including negotiation with the School District (to enhance from a 10 year to a 30 year term) Includes creation of a Payment in Lieu of Taxes (PILOT) agreement with the School District Creation of an economic development plan, including Purpose and goals of the district Methods for collaboration with business owners A plan for applying service payments/development charges (revenue sources) Creating the innovation district(s) Creating the district boundary The permanent parcel numbers contained within the district An economic development plan for the district That meets the criteria of the redevelopment district economic development plan Creation of the operating entity for the Redevelopment/Innovation District Creation of all formation documents Development of a plan for tracking loan and grant awards to historic building owners, nonhistoric building owners and qualified businesses

24 Innovation Districts Steps for Creation 10 acre limit for DRDs Ability to assess community development charges in addition to property service payments Funds can be used for: Finance and support loans/grants for historic building rehab, qualified businesses Contribute to Special Improvement Districts Finance loans to rehab non historic buildings Finance public infrastructure improvements Ability to create grants and loans to qualified businesses primarily engaged, or primarily organized to engage, in a trade or business that involves research and development, technology transfer, bio technology, information technology, or the application of new technology developed through research and development or acquired through technology transfer

25 New Community Authorities New community authorities (NCA s) are special units of government that have been authorized under the Ohio Revised Code for many years. Formed at the request of a private developer with the consent of local government. NCA's are an ideal tool for mixed use development. If within a municipality, NCA s may be of any size, and need not be comprised of contiguous property. Within a new community authority, each property owner is obligated to make community development charges in accordance with the declaration forming the NCA.

26 New Community Authorities Powers: Acquire real and personal property interests within or outside of the new community district. Improve, maintain, sell, lease or otherwise dispose of real and personal property and community facilities (i.e. public improvements) within the new community district, without competitive bidding. Impose charges and user fees to cover costs in carrying out its new community development program, with charges based on assessed value, per parcel or otherwise. Levy community development charges on property. Such charges are accorded a lien on a parity with property taxes.

27 New Community Authorities Powers: Finance as Community Facilities private facilities, not just public improvements or facilities used by the public. Formerly, only public improvements qualified as public improvements Levy community development charges based on business revenues, not simply property values or on a per parcel basis, as under prior law. Example: Charges based on retail sales Example: Charges based on hotel occupancy Example: Charges based on admissions Provide for the selection of board members by appointment, rather than through an election in which residents within the NCA may vote. Under prior law elections were required to replace board members.

28 New Community Authorities NCA may issue bonds secured by community development charges levied on property within the District: To fund public improvements like community centers, roads and parking facilities and amphitheaters. To fund private improvements like privately owned practice or playing fields. Community Development Charges may be used: To supplement other revenues available for Project. To backstop contingent revenues like TIF Revenues. As a first source of payment (in the case of transactional community development charges, for example, charges based on retail sales). To pay operating costs of the District (much like a common area maintenance fee).

29 Tourism Districts Specifically used for Pro Football Hall of Fame project Similar to previously mentioned and other municipal finance tools County population greater than three hundred seventy five thousand but less than four hundred thousand Could be utilized if amended