Ohio R&D Investment Tax Credit (CAT)

Ohio R&D Investment Tax Credit (CAT)

Offers Ohio businesses a tax credit against state tax liability for in-state innovation spending beyond prior average levels.

Ohio's Research and Development Investment Tax Credit, codified at Ohio Revised Code §5751.51 and administered by the Ohio Department of Taxation under Ohio Admin. Code 5703-29-22, provides a nonrefundable credit equal to 7% of incremental qualified research expenses (QREs) above the taxpayer's three-year rolling average. The credit is applied against Commercial Activity Tax (CAT) liability, not income tax. QREs must be incurred inside Ohio and follow the same definition as federal IRC §41, covering in-house wages and supplies for qualifying research activity as well as 65% of payments to outside contract research firms. Eligible activities include developing or improving products, processes, techniques, formulas, and software, and any experimentation designed to resolve technological uncertainty.

The credit is nonrefundable and self-claimed on the annual CAT return using the CAT credit schedule — no prior application, certification, or state agency approval is required. Any unused credit balance may be carried forward for up to seven years against future CAT liability. For-profit companies, nonprofits, universities, and research organizations that incur in-Ohio QREs and have CAT liability are eligible; individuals are not. Pending H.B. 756 (under legislative consideration as of May 2026) could expand the credit rate and potentially make it refundable.

Because no approval process exists, applicants simply calculate incremental QREs on their CAT return and apply the 7% rate. The Ohio Department of Taxation audits claims after filing. Organizations with material Ohio R&D spend and meaningful CAT liability benefit most, particularly manufacturers, software developers, and life-sciences companies conducting prototype, algorithm, or process-improvement work inside the state.