OHIO LEGISLATIVE SERVICE COMMISSION
Office of Research Legislative Budget
www.lsc.ohio.gov and Drafting Office
H.B. 3
l_135_0648-2
Bill Analysis
135th General Assembly Click here for H.B. 3’s Fiscal Note
Version: As Pending in House Economic and Workforce Development
Primary Sponsor: Rep. Pavliga
Effective Date:
Andrew Little and Zachary P. Bowerman, Attorneys
SUMMARY
Low-income housing tax credit
 Authorizes a nonrefundable state tax credit that piggybacks on the federal low-income
housing tax credit (LIHTC) for affordable housing projects.
 Allows the Executive Director of the Ohio Housing Finance Agency (OHFA) to reserve a
state tax credit for any project in Ohio that receives a federal LIHTC allocation, as long as
the project is located in Ohio and begins renting units between 2023 and 2029.
 Generally limits the amount of state credits that may be reserved in a fiscal year to $500
million, but allows unreserved credit allocations and recaptured credits to be added to
the credit cap for the next fiscal year.
 Allows the Executive Director to determine the amount of state credit reserved for a
qualified project so long as the reserved amount is no more than necessary to ensure
the financial feasibility of the project.
 Specifies that, like the federal LIHTC, the state credit is claimed over a ten-year credit
period starting no sooner than the year in which the qualified project is placed in
service.
 Stipulates that the annual credit amount equals the lesser of one-tenth of the state
credit amount reserved for the project or the amount of the federal LIHTC for the first
year of the credit period, adjusted as described in the bill.
 Allows any direct or indirect equity owner in a project owner that is a pass-through
entity to claim the Ohio credit regardless of whether the equity owner is eligible to claim
the federal LIHTC.
 Allows the credit to be claimed by any number of project or equity owners, against
different taxes, and over multiple calendar years, tax years, taxable years, or tax
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periods, so long as the total credit claimed does not exceed the amount specified on the
eligibility certificate.
 Allows project and equity owners to claim an advance credit after the project is placed
in service but before the Director issues an eligibility certificate so long as they reconcile
any difference between the advance credit amount and the actual credit amount
through an amended tax return or report.
 Requires that, for any federal LIHTC that is clawed back or disallowed for a particular
project, a proportional amount of Ohio credit be clawed back or otherwise disallowed.
Subsidized residential rental property valuation
 Requires the Tax Commissioner to adopt a uniform tax valuation formula for federally
subsidized residential rental property that takes into account a property’s operating
income and expenses and a uniform capitalization rate.
 Sets a minimum total value for subsidized residential rental property of 150% of the
value of the underlying land.
 Requires the owner of a subsidized residential rental property to annually report the
property’s operating income and expenses to the county auditor of the county in which
the property is located.
DETAILED ANALYSIS
Overview
The bill authorizes a tax credit for low-income housing developments and addresses the
way in which subsidized residential rental property is valued for tax purposes.
State low-income housing tax credit authorization
The bill authorizes a business tax credit that piggybacks an existing federal income tax
credit for the construction or rehabilitation of affordable rental housing. Like the federal low-
income housing tax credit (LIHTC), the credit authorized by the bill is claimed in equal amounts
over a ten-year credit period that begins no sooner than the year in which the project is placed
in service, i.e., the building is made available to tenants. Subject to certain limitations, the
amount of the state credit is determined by the Executive Director of the Ohio Housing Finance
Agency (OHFA), referred to in the bill as the “Director.” The credit may be claimed by the
project owner, or, if the project owner is a pass-through entity, any person who owns a direct
or indirect interest in the project owner. Those eligible to claim a credit may apply it against any
of several state taxes. The credit is nonrefundable, but may be claimed up to five years after the
applicable year of the credit period. The total amount of state credits reserved by the Director
is generally limited to $500 million per fiscal year, and the Director is prohibited from reserving
credits after January 1, 2029.
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Federal low-income housing tax credit
The federal LIHTC is a federal income tax credit that offsets a portion of a developer’s
construction costs in exchange for reserving a certain number of rent-restricted units for lower-
income households in a new or rehabilitated facility. The federal government assigns a credit
allotment to each state or territory based on population. State housing agencies then award
the credits to private developers through a competitive application process. In Ohio, the federal
LIHTC is administered by the OHFA. State housing agencies are required to develop a plan,
known as a qualified allocation plan (QAP), to evaluate and award tax credits to projects that
satisfy federal requirements.1
To receive a federal LIHTC, developers must apply to the OHFA before undertaking a
project. If the project preliminarily qualifies for a credit, based on federal criteria and the state’s
QAP, the OHFA may set aside (or “allocate”) one for that project. Receipt of the credit is
contingent upon completion of the project and placing it in service, generally within two years
of allocation. In practice, developers typically sell the rights to claim federal LIHTCs upon
receiving an allocation to secure up-front financing necessary to undertake the project.
There are two types of federal LIHTCs: (1) a larger credit, sometimes called the “9%
credit,” that subsidizes approximately 70% of the developer’s qualified basis in the project
(determined based on the developer’s nonland investments in the project and the percentage
of the building reserved for affordable housing), and (2) a smaller credit, sometimes called the
“4% credit,” that subsidizes approximately 30% of the developer’s qualified basis. The 9% credit
is competitively awarded, and generally reserved for new construction, while the 4% credit is
available to any project that utilizes a threshold percentage of federally tax-exempt bond
financing, including rehabilitation projects. Both credits are claimed in equal amounts over a
ten-year credit period, beginning when the project is placed in service.2
Ohio low-income housing tax credit
Any project that is allocated a federal LIHTC may also qualify for the Ohio LIHTC
authorized by the bill, as long as the project is located in Ohio and placed into service at any
time on or after January 1, 2023, and before or on January 1, 2029 (referred to in the bill as a
“qualified project”). The Ohio LIHTC may be claimed against the income tax, financial
institutions tax, or the tax on foreign and domestic insurance companies.3
1 For more information about Ohio’s qualified allocation plan, see the OHFA 2022-2023 Qualified
Allocation Plan (PDF), which may be accessed by conducting a keyword search for “Qualified Allocation
Plan” on the OHFA’s website: ohiohome.org.
2 26 United States Code 42; Congressional Research Service, An Introduction to the Low-Income Housing
Tax Credit (PDF), which may be accessed by conducting a keyword search for “An Introduction to the
Low-Income Housing Tax Credit” on the Congressional Research Service’s website:
crsreports.congress.gov.
3 R.C. 175.16(A)(3) and (5) and (F)(1).
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Reserved credit
Developers do not need to separately apply for the Ohio LIHTC. Instead, the Director
may reserve a state credit for any qualified project when allocating a federal LIHTC to that
project. When reserving a state credit, the Director must send written notice of reservation to
each project owner, i.e., any person who holds a fee simple or leasehold interest in the land on
which the project sits. The notice must include the aggregate amount of the state credit
reserved for all years of the qualified project’s ten-year credit period and state that the receipt
of the state credit is contingent upon issuance of an eligibility certificate.
The amount of state credit reserved for any particular qualified project is determined by
the Director, but in no case may the reserved credit, combined with the allocated federal credit,
exceed the amount necessary to ensure the financial feasibility of the project. The bill does not
define what is meant by financial feasibility.
The bill prohibits the Director from reserving a state LIHTC for any project after January
1, 2029.4
Awarded credit
After the qualified project is placed into service and the Director approves the final cost
certification or otherwise determines the owner’s qualified basis, the Director must issue an
eligibility certificate to each project owner. The certificate must state the amount of the credit
that may be claimed for each year of the ten-year credit period, the annual credit amount,
which is the lesser of:
 The amount of the federal credit that would be awarded for the first year of the credit
period absent a first-year reduction required by federal law;
 One tenth of the reserved credit amount stated in the notice reserving the state LIHTC.
This provision effectively caps the amount of a state LIHTC at the amount of the corresponding
federal credit.
The eligibility certificate must also state the years that comprise the credit period, each
project owner’s name, address, and taxpayer identification number, the date it is issued, a
unique identifying number, and any other information the Director requires by rule.
Each project owner that is a pass-through entity must provide a copy of the certificate
to each of its equity owners that has been allocated a portion of the credit (see “Allocating
and reporting the credit,” below). Additionally, the Director must send copies of all
eligibility certificates to the Tax Commissioner and Superintendent of Insurance. 5
4 R.C. 175.16(A)(3), (B), and (F)(1) and (3).
5 R.C. 175.16(A)(11), (D), and (E).
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Credit limit
The aggregate amount of credits reserved for all qualified projects in any fiscal year
generally may not exceed $500 million. For purposes of the calculation, the credit reserved for
each qualified project is the aggregate amount of credits reserved for the project’s full ten-year
credit period.
However, if the amount of credits reserved in any year is less than the credit limit for
that year, the difference may be carried forward and added to the credit limit for the following
year. Additionally, any amount of credits recaptured as the result of an assessment made by the
Tax Commissioner or Superintendent of Insurance may be added to the credit limit for the
following year.6
Allocating and reporting the credit
If the project owner is a pass-through entity (PTE) – any entity disregarded as a taxpayer
for federal income tax purposes – the bill allows the annual credit amount to be allocated
among the project owner’s “equity owners,” i.e., any person that is a direct or indirect owner of
the project owner. Equity owners may then assign all or part of their interest in the qualified
project, including interests in credits, to one or more other equity owners. In other words,
equity owners may assign their ownership interests in project owners, and with those interests
the right to claim a tax credit may be transferred.
If a PTE project owner allocates a credit among its equity owners, it must list the
amount of the credit allocated to each equity owner, and include that information with the
project owner’s tax return or report. The bill also requires each project owner that is awarded a
state LIHTC to designate itself, or, if applicable, one of its equity owners as a “designated
reporter.” The designation must be made to the Tax Commissioner and Superintendent of
Insurance in the time and manner each officer prescribes. Every calendar year, the designated
reporter for each project awarded a credit must provide certain information to the
Commissioner and Superintendent, again at the time and in the manner prescribed by the
Commissioner, in consultation with the Superintendent. The report must contain all of the
following:
 The name, address, and taxpayer identification number of each equity owner that has
been allocated a portion of the annual credit amount;
 The amount of the annual credit allocated to each equity owner for that year and the
tax against which the credit will be claimed;
 The total amount of all credits allocated among the equity owners listed in the report.
The bill also requires the designated reporter to inform the Commissioner and Superintendent
if any of the reported information changes. This may be most likely to apply in the case of
equity owners that assign their interest in a project and its credits, and each purchaser in those
6 R.C. 175.16(C).
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scenarios is required to inform the designated reporter so the reporter can identify the
transferee.7
The bill specifies that the state LIHTC may be allocated among equity owners of a PTE
project owner even if that allocation would be disallowed for the federal LIHTC, as long as the
person that claims the state credit is considered an equity owner under state law and acquired
the ownership interest before claiming the credit. Interests in equity owners, including interests
in the state LIHTC, may be assigned to equity owners, who may claim the credits as long as the
interest is acquired before the tax return claiming the credits is filed.8
Claiming the credit
The bill allows the project owners or equity owners to claim the state LIHTC against the
state income tax, financial institutions tax, or insurance company premiums taxes. In order for
an equity owner to claim a credit, the equity owner and the amount of the credit allocated to
that equity owner must appear on the report filed with the Tax Commissioner and
Superintendent of Insurance by the project’s designated reporter (see “Allocating and
reporting the credit,” above).
The credit must be claimed for a calendar year or taxable year (depending on the tax it
is claimed against) that includes all or part of the year of the credit period to which the credit it
is attributed, or any of the five following years. The credit may be applied against more than
one tax over more than one calendar year, tax year, taxable year, or tax period. The total
credits claimed in connection with the applicable year of the project’s credit period must not,
however, exceed the amount stated on the eligibility certificate.9
Advance credit
For instances in which a project is placed in service before an eligibility certificate is
issued, the bill provides a mechanism that allows the project owners or equity investors to
claim an advance credit based on the notice of reservation. The advance credit available for the
applicable credit period is one tenth of the reserved amount, stated in the notice of reservation
(see “Reserved credit,” above). If, after the eligibility certificate is issued, the actual annual
credit amount is different than advance credit amount (see “Awarded credit,” above), the
project owners or equity investors that claimed the advance credit must reconcile the
difference by filing an amended tax return or report.10
7 R.C. 175.16(F)(2), (4), and (6), and (I)(1) to (3).
8 R.C. 175.16(F)(1), (2), and (5).
9 R.C. 175.16(F)(1) and (I)(4), 5725.36, 5725.98, 5726.58, 5726.98, 5729.19, 5729.98, 5747.85, and
5747.98.
10 R.C. 175.16(F)(3).
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