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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:  What levels of government can grant tax abatement?
A:
 In most Ohio locations, municipalities (cities and villages) typically grant tax abatements. In some instances, however, counties and townships may have authority to grant tax abatements, so you should contact your local government to determine which level of government has authority to offer tax incentives.
Under Ohio’s Community Reinvestment Area program, a city, village or county can petition the Ohio Department of Development to confirm that investment in housing in a particular geographical area has been discouraged. Once the Department 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 Community Reinvestment Area Officer.

The Ohio Enterprise Zone is another economic development tool that is administered by municipal and county governments.  It provides real and personal property tax exemptions to businesses making investments in Ohio. In order to use the Enterprise Zone program, communities must petition to the Ohio Department of Development for certification of a geographical zone with a contiguous boundary. Once a zone is certified, communities may enter into negotiated agreements with businesses to invest in the zone. Businesses interested in pursuing this program can contact the local Ohio Enterprise Zone Officer.                                                   
The Department of Development also provides other programs, including job creation tax credits and public improvement grants.

Q: Why are tax abatements granted?
A:
 Particularly in the wake of the recent financial crisis, municipalities want to fill vacant houses and may offer a tax abatement to entice people to purchase these vacant homes. Filling vacant houses can reduce blight and boost the local economy.

Also, when a large employer is making a location decision, that decision can have enormous positive economic benefits for the chosen community. Thus, local communities compete for these large employers to locate to their towns. If a business relocates within Ohio, both the community the business is leaving and the community the business is entering may negotiate to share the business’s income taxes for a period of time. Recently, commercialized businesses have been reducing the number of their locations and wary of opening new ones. Tax abatements help to attract and retain large businesses to local communities, so communities have good reasons to offer such an incentive.

Municipal corporations, specifically, have been allowed to give incentives in the form of a personal property 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 economically depressed areas. Such an exemption can be provided for a specified number of years, but cannot exceed 15 years.

Q: What are TIFs, and how do they differ from tax abatements?
A: 
The Tax Increment Financing (TIF) has been developed as an alternative to tax abatement. A TIF basically captures a percentage of the real property taxes paid by the property owner to its applicable 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. TIFs usually are viewed more favorably than tax abatements because the property owner actually pays its taxes, even though those taxes are used for development-related purposes.

2/29/2012

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

Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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