Ohio Senate Bill 187 proposes to enact new sections of the Revised Code (122.853 and 5747.68) and amend existing sections (107.036 and 5747.98) to create a temporary, refundable income tax credit for individuals who invest in qualified sound recording production companies undertaking eligible productions or infrastructure projects in Ohio. The bill aims to stimulate the sound recording industry within the state by providing a financial incentive for investment.
Main Themes and Key Ideas/Facts:
- Creation of a New Tax Credit: The core of SB 187 is the establishment of a new “sound recording production credit” under proposed section 122.853 of the Revised Code. This credit is explicitly added to the list of “business incentive tax credit[s]” in section 107.036(B)(11).
- Refundable Nature: The proposed credit is refundable, as stated in the bill’s title (“temporarily authorize a refundable income tax credit…”) and confirmed in proposed section 5747.68(B) (“There is allowed a refundable credit against the tax imposed by section 5747.02 of the Revised Code…”). This means that if the credit amount exceeds the investor’s tax liability, the excess will be refunded to the investor. This is a significant feature, offering direct financial benefit beyond reducing a tax burden.
- Eligible Activities: The credit applies to two main categories of “eligible expenditures”:
- Tax credit-eligible production: “actual production-related costs in this state by a sound recording company for a tax credit-eligible production.” (Section 122.853(A)(1))
- Tax credit-eligible project: “actual capital costs in this state by a sound recording company for a tax credit-eligible project.” (Section 122.853(A)(1))
- Defining Key Terms: The bill provides specific definitions for relevant terms:
- “Eligible expenditures” encompass production-related and capital costs incurred in Ohio.
- “Expenditure in this state” includes costs of acquiring tangible personal property or services subject to Ohio sales/use tax and compensation for services performed in Ohio subject to income tax.
- “Sound recording” is defined as a recording of music, poetry, or spoken performance recorded in Ohio, excluding audio from television news or athletic events.
- “Sound recording production company” is defined as a sole proprietorship or pass-through entity involved in producing sound recordings.
- “Tax credit-eligible production” and “Tax credit-eligible project” require certification by the Director of Development.
- “Investor” is an individual owner of a sound recording production company or an individual with a proportionate share in a pass-through entity company.
- “Capital costs of a tax credit-eligible project” are detailed to include land, construction, design, furniture, fixtures, and equipment, but exclude general administrative costs or insurance.
- “Production-related costs” are defined as expenditures directly related to a tax credit-eligible production.
- Certification Process: The Director of Development plays a crucial role in certifying productions and projects as eligible for the credit (Section 122.853(B)). The application process requires detailed information, including budgets, distribution plans, creative elements, and location. The Director must approve or reject a complete application within 180 days.
- Criteria for Certification: The Director of Development must consider several factors when determining eligibility (Section 122.853(B)(3)):
- “The impact of the production or project on the encouragement and development in this state of a strong capital and infrastructure base in order to achieve a more independent, self-supporting music and sound recording industry.”
- “The impact of the production or project on the employment of residents of this state.”
- “The impact of the production or project on the overall economy of this state.”
- For infrastructure projects, the availability of similar facilities nearby.
- Disqualification: An application will be rejected if the applicant, or any affiliated person, owes certified debt to the Attorney General or has discharged public funds obligations through bankruptcy (Section 122.853(B)(2)).
- Credit Calculation: The credit amount is calculated as (Section 122.853(C)(1)):
- Twenty-five per cent of eligible expenditures in excess of ten thousand dollars.
- This amount is then multiplied by the investor’s proportionate share if the company is a pass-through entity.
- Credit Limits:
- Per Production/Project Limit: The maximum credit awarded to all investors for a single production or project is seventy-five thousand dollars (Section 122.853(C)(2)). If the calculated amount exceeds this, the credit will be reduced proportionately among investors.
- Annual Aggregate Limit: The total aggregate amount of credits certified for all investors across all productions and projects in any fiscal year cannot exceed one million dollars (Section 122.853(D)). Credit certificates will be awarded on a “first-come, first-served basis.”
- Exclusions: The credit cannot be claimed for any portion of an expenditure that is also the basis for a credit under the motion picture and broadway theatrical production tax credit (Section 122.853(C)(3)).
- Temporary Nature: The credit is temporary, with no credit to be awarded for taxable years beginning on or after January 1, 2029 (Section 122.853(C)(4)).
- Application for Credit: After completion of a certified production or project, the sound recording production company can apply to the Director of Development for the credit certificate for their investors (Section 122.853(C)). The Director may require a certified public accountant to prepare a report of eligible expenditures and has the authority to audit books and disallow expenditures.
- Claiming the Credit: Investors holding a valid tax credit certificate can claim the refundable credit against their income tax liability under section 5747.02 of the Revised Code (Section 5747.68(B)). The credit is claimed in a specific order relative to other tax credits, as outlined in the amended section 5747.98.
- Reporting and Evaluation: The Director of Development is required to prepare a report every even-numbered year from 2026 to 2030 evaluating the effect of the credit. This report will include metrics like the amount of credits issued, new jobs created, economic effect on the sound recording industry, and new infrastructure developed (Section 122.853(F)).
- Tax Commissioner’s Role: The Tax Commissioner is notified of certified productions/projects and credit certificates and can assess investors for improperly claimed credits (Section 122.853(G)). The Director of Development, in consultation with the Commissioner, will adopt rules for administering the credit (Section 122.853(E)).
- Branding Requirement: As a condition for receiving the credit, the Director of Development may require the production to display the state’s name or logo (Section 122.853(H)).
Most Important Ideas/Facts:
- Refundable Credit: The refundable nature of the credit makes it a powerful incentive for investment, directly providing cash to investors even if they have no tax liability.
- Industry Development Focus: The criteria for certification explicitly prioritize the impact on building a stronger, more independent sound recording industry in Ohio, job creation, and overall economic benefit.
- Director of Development’s Authority: The Director of Development holds significant authority in certifying eligibility, auditing expenditures, and administering the program, including the “first-come, first-served” allocation of the annual cap.
- Temporary Program with Sunset Date: The credit is not intended to be permanent, with a clear end date of January 1, 2029. This suggests a trial period to evaluate its effectiveness.
- Specific Exclusions and Limitations: The credit has clear limits per project and an overall annual cap, and it cannot be stacked with the motion picture and theatrical production credit.
Potential Implications:
- Stimulus for Ohio’s Sound Recording Industry: The credit could attract investment and encourage sound recording productions and infrastructure development within the state.
- Job Creation: The focus on employment of Ohio residents as a factor in certification suggests an aim to create jobs in the industry.
- Economic Impact: The credit is intended to contribute to the overall economy of the state.
- Administrative Burden: The certification, auditing, and reporting requirements will create administrative tasks for the Director of Development and potentially the Tax Commissioner.
- Fiscal Impact: The refundable nature of the credit will have a direct impact on state revenue, limited by the annual aggregate cap.