Tax Abatements Exempt Real Estate Taxes for Improvement Projects

Q: What is tax abatement?
A: Tax abatement is the exemption, in whole or in part, of real estate taxes incurred from a specific project. Exemptions can apply to the improved value (new construction or renovation) of a specific property. Incentives are available to homeowners, business owners and developers.

Q: Why are tax abatements granted? 
A: Tax abatements are granted to promote investment and attract jobs to a community. The decision an employer makes about where to locate a business can have enormous positive economic benefits for the chosen community. 

Municipal corporations, specifically, have been allowed to give incentives in the form of a tax exemption to a business if it agrees to establish, expand, renovate, or occupy a facility and hire new employees, or to preserve employment opportunities for existing employees in an economically depressed area. Such an exemption can be provided for a specified number of years, but cannot exceed 15 years. Most communities see abatements as being an investment in a company that will have a positive economic impact on the community. Therefore, many communities are willing to help make a company’s project costs competitive so that the company does not decide to locate in another community instead.

Q: What levels of government can grant tax abatement?
A: Municipalities (cities and villages) typically grant tax abatements. Since impacted school districts also must approve any abatements over 50 percent, they must also be part of any tax abatement process. Counties also have the authority to negotiate and grant tax abatements. While Ohio townships do not have the authority to abate taxes, a township can ask its county government to grant an abatement on its behalf.

One tool municipalities and counties can use to grant tax abatements is the Community Reinvestment Area (CRA) program. Under this program, a city, village or county can petition the Ohio Development Services Agency to confirm that investment in housing in a particular geographical area has been discouraged. Once the Agency has confirmed that housing investment in the area is weak, the community may offer real estate tax exemptions to taxpayers who are willing to invest in the area. Such exemptions can apply to homeowners as well as businesses. Businesses interested in pursuing this program can contact the local CRA housing officer or the designated economic development officer or agency. In most cases, the economic development officer also serves as the CRA housing officer. 

The Ohio Enterprise Zone (EZ) program is another economic development tool that municipal and county governments administer. It provides tax exemptions to businesses making investments in Ohio. To use the EZ program, a community must petition to the Ohio Development Services Agency for certification of a geographical zone with a contiguous boundary. Once a zone is certified, the community may enter into negotiated agreements with businesses to invest in the zone. Businesses interested in pursuing this program can contact the local Ohio EZ manager or the designated economic development officer or agency. In most cases, the economic development officer also serves as the EZ manager.
 
Cities and counties also can create additional incentive programs such as income tax credits and grants. In addition, JobsOhio, a private nonprofit organization, provides other programs to help attract business, including job creation tax credits and public improvement grants. 

Q: What are TIFs, and how do they differ from tax abatements?
A: The Tax Increment Financing (TIF) has been developed as an alternative or complement to tax abatement. A TIF basically captures a percentage of the real property taxes paid by the property owner to its applicable school district, municipality, county or township and relocates it a specific public improvement project necessitated by the property’s development. The property owner continues to pay their real estate taxes, but those taxes are used to pay for the public improvement. For example, a TIF might be used to fund the widening of a public road to get to a factory, which benefits both the factory and the community. When the project is completed and the cost of improvement is paid, the TIF benefit ends and the taxes are relocated to the taxing entities.   

12/12/2016

This “Law You Can Use” column was provided by the Ohio State Bar Association (OSBA). It was originally prepared by Kira S. Kittoe, an attorney for the City of Garfield Heights, Ohio. It was updated by Darren Shulman, Delaware, Ohio city attorney.

Articles appearing in this column are intended to provide broad, general information about the law. This article is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from a licensed attorney.

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