I. Executive Summary:
Ohio Senate Bill 59 proposes significant changes to the state’s tax code by creating a sales and use tax exemption for “qualifying firearms and ammunition” and establishing a new refundable tax credit, the “constitutional commerce credit,” for businesses engaged in “small arms and ammunition manufacturing” that create new jobs. This bill aims to incentivize the firearms and ammunition industry within Ohio.
II. Main Themes and Important Ideas/Facts:
A. Sales and Use Tax Exemption for Firearms and Ammunition:
- The bill seeks to amend section 5739.02 of the Revised Code to add a new exemption from sales and use tax for the sale of “qualifying firearms and ammunition.”
- Definition of “Qualifying Firearm”: The bill defines a “qualifying firearm” as:
- “a portable firearm, including a rifle, shotgun, pistol, or revolver, that is designed to be carried and operated by a single person…” (lines 1169-1171)
- Excludes firearms (except shotguns) with a barrel diameter larger than fifty caliber. (lines 1173-1175)
- Excludes shotguns with a barrel diameter larger than ten gauge. (lines 1176-1178)
- Definition of “Ammunition”: “Ammunition” is defined as “ammunition designed for use in a qualifying firearm.” (lines 1179-1181)
- Effective Date: The amendment regarding the sales tax exemption would apply “beginning on the first day of the first month beginning on or after the effective date of this section.” (lines 1353-1356)
B. Refundable Tax Credit for Small Arms and Ammunition Manufacturing (Constitutional Commerce Credit):
- The bill proposes to enact section 122.1712 of the Revised Code, creating a “refundable credit allowed against the tax imposed by section 5747.02 or 5751.02 of the Revised Code.” (lines 98-101)
- Purpose: This credit is intended for taxpayers undertaking a “small arms and ammunition manufacturing facility project to create new jobs in this state.” (lines 112-114)
- Name of Credit: The credit “shall be known as the constitutional commerce credit.” (lines 108-109)
- Tax Credit Authority: The tax credit authority, created under section 122.17 of the Revised Code, would be responsible for granting these credits through agreements with taxpayers. (lines 95-97, 102-104, 115-116)
- Eligibility Criteria: For the authority to enter into an agreement, it must determine:
- “The taxpayer’s project will increase payroll;” (line 122)
- “The taxpayer’s project is economically sound and will benefit the people of this state by increasing opportunities for employment and strengthening the economy of this state;” (lines 123-126)
- The taxpayer has the financial capacity to complete the project. (lines 127-129)
- Credit Calculation: The amount of the credit available annually “equals the excess payroll for that year multiplied by the percentage specified in the agreement with the tax credit authority.” (lines 104-107)
- Payroll Definition: “Payroll’ means the total taxable income paid by the employer during the employer’s taxable year… to each resident who is a new employee…” (lines 31-36) “Excess payroll” is defined in relation to the baseline payroll. (lines 50-56)
- Small Arms and Ammunition Manufacturing Definition: This is defined based on North American Industry Classification System (NAICS) codes 332992 or 332994. (lines 82-85)
- Facility Definition: Includes the land, buildings, machinery, equipment, and other tangible personal property used primarily for small arms and ammunition manufacturing. (lines 86-94)
- Credit Limit: The tax credit authority “shall not issue credits under this section totaling more than ten million dollars in a fiscal year.” (lines 108-109)
- Agreement Requirements: Agreements between the taxpayer and the tax credit authority will specify the credit percentage and the taxable years or periods for which the credit can be claimed. (lines 71-73, 101-104) They will also include reporting requirements for the taxpayer regarding employment, payroll, investment, etc., for annual review by the Director of Development. (lines 136-157)
- Revocation or Reduction of Credit: The tax credit authority can reduce the percentage or term of the credit if the taxpayer fails to maintain operations or employment levels. (lines 158-166, 233-247)
- Confidentiality: Financial statements and other information submitted by applicants or recipients are generally confidential. (lines 170-187)
- Pass-Through Entities: Pass-through entities can elect to pass the credit through to their owners. (lines 190-202)
- Refundability: The credit is explicitly stated as “refundable.” (lines 99-100, 1284-1286) If the credit exceeds the taxpayer’s liability, the excess will be refunded. (lines 203-261)
C. Order of Tax Credits:
- The bill amends sections 5747.98 and 5751.98 of the Revised Code to include the “refundable constitutional commerce credit” in the order of credits allowed against income tax and commercial activity tax, respectively. (lines 1284-1286, 1343-1345)
- For income tax (section 5747.98), the constitutional commerce credit is placed after several other refundable credits, including the motion picture and broadway theatrical production credit and the film and theater capital credit. (lines 1284-1286)
- For commercial activity tax (section 5751.98), the constitutional commerce credit is placed after the refundable motion picture and broadway theatrical production credit and the refundable credit for film and theater capital investment. (lines 1343-1345)
D. Governor’s Budget:
- The Governor is required to include estimates of tax credits granted under section 122.1712 (the constitutional commerce credit) in the state budget submitted to the General Assembly. (lines 1-11)
III. Potential Implications and Considerations:
- Economic Impact: The bill aims to stimulate the small arms and ammunition manufacturing sector in Ohio, potentially leading to increased employment and investment. However, the $10 million annual cap on the total credits issued may limit the scale of this impact.
- Revenue Impact: The sales and use tax exemption will likely result in a decrease in state tax revenue. The extent of this decrease will depend on the volume of qualifying firearm and ammunition sales in Ohio. The refundable tax credits could also lead to revenue reductions if credits exceed tax liabilities. The Governor’s budget including estimates suggests an awareness of the potential fiscal implications.
- Second Amendment Considerations: The bill’s title includes “constitutional commerce credit,” suggesting a link to the right to bear arms and potentially framing the manufacturing of these items as a protected activity.
- Industry Specific Incentives: This bill provides targeted tax benefits to a specific industry, which may raise questions about fairness and whether other industries should receive similar treatment.
- Definitions: The specific definitions of “qualifying firearm,” “ammunition,” and “small arms and ammunition manufacturing” will be crucial in determining the scope and application of the proposed exemptions and credits.
- Administrative Burden: The Tax Credit Authority and the Department of Development will have the responsibility of administering the new tax credit program, including reviewing applications, entering into agreements, and monitoring compliance.
This briefing document provides a preliminary overview of Ohio Senate Bill 59 based on the “As Introduced” version. Further analysis may be required as the bill progresses through the legislative process and potential amendments are considered.