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Ohio's Secret -- Business-Friendly Tax Code

Feb. 10, 2012
Has tax reform helped attract manufacturers to state?

Ohio's $4 billion electrical equipment and appliance industry ranks first in the nation as a contribution to total gross domestic product, according to the state's Department of Development. That may come as a surprise considering the number of manufacturing jobs lost in Ohio and other Midwest states over the past decade. But has the state's corporate tax climate played a role in its ability to maintain a strong manufacturing base?

It's certainly one of the factors, says Kenny McDonald, chief economic officer of Columbus 2020, a Columbus, Ohio, economic-development group. "The tax liability rate is incredibly attractive," says McDonald. "It is certainly helpful to the Columbus region where new manufacturing projects account for 45% of all new economic projects this past year. "We have been working on tax reform for the past three to four years and will continue to tweak our system."

Favorable tax conditions include the elimination of corporate income tax and franchise tax as well as the personal property tax. There is no tax on new machinery or equipment, and inventories are not taxed. If a company ships 100% of its product outside of Ohio, the commercial activity tax is zero. For in-state sales, the tax is 0.26%. Other tax benefits include a flat tax if sales are between $150,000 and $1 million.

All of this contributes to Ohio being ranked third in the nation for friendliest tax environment, according to a recent report by Ernst & Young in conjunction with the Council on State Taxation. "Tax environment is a critical factor in site selection for new capital investments," says former Ohio Tax Commissioner Thomas Zaino.

Alcoa's Decision

Manufacturers are taking note of these benefits when making the decision to either move to or expand in the state. A recent example is Alcoa Inc. In July 2011, B&C Research, a division of Alcoa Wheel and Transportation Products, broke ground on a $21 million plant expansion for an advanced recycling and casting process that will reduce energy consumption and greenhouse-gas emissions. It is expected to be completed in the second half of 2012. While 30 new jobs were added, 350 were saved.

Tim Myers, president of Alcoa's Wheel and Transportation Products division based in Cleveland, says he campaigned to have his company choose Ohio to create the facility that will use new technology to make billets -- long cylinders of aluminum -- from remelted scrap aluminum left over from the manufacturing processes. He says financial incentives helped him make his case.

Other companies are making that same decision based, in part, on financial incentives. Thyssen-Krupp Bilstein of America Inc. chose Hamilton, near Cincinnati, to bring a product line of shock absorbers from its main plant in Germany, both retaining current jobs and adding new ones.

The opening of MAC Liquid Tank Trailer in Kent, a new manufacturer to the northeast region, added 250 new jobs, in large part due to state financial support. The facility will build three types of liquid trailers: a vacuum water-tank trailer, a vacuum bob-tail trailer and a frack-tank trailer

Intelligrated, an automated material handling solutions provider, took advantage of property tax abatements and an extension of a job creation tax credit in deciding to double the size of its Mason headquarters. The $15 million investment included adding 200 new technical and engineering positions in research and development, system design and customer service. They chose Ohio over Kentucky and Missouri where they have other locations.

However, tax incentives are not the whole picture. "The reason that companies come to Ohio or expand in Ohio is the overall business climate, the central location and the workforce," explains Nate Green, senior project manager for JobsOhio. "We have a history of manufacturing going back to the 1880s. Our people know how to make things."

Those reasons seem to resonate with Honda Motor Co., which recently announced it will build its new sports car, the Acura NSX, in Ohio. The company didn't ask for any incentives.

Honda opened its first auto plant in the United States nearly 30 years ago in Marysville, Ohio, and currently builds more cars and light trucks in the state than all other automakers combined. The company's Anna, Ohio, engine plant, with a 1.2 million-unit capacity, is the largest auto engine factory in Honda's global production network.

Since 2011, Honda has invested $166 million in its East Liberty plant, $64 million in the Marysville plant, $31 million in the Anna engine facility and $145 million in its Russels Point transmission plant. Honda employs more than 13,000 workers in Ohio.

Honda's investment, along with the other 16,922 manufacturing companies in Ohio, accounts for 620,200 jobs with an annual payroll of $38 billion. Ohio is second in the United States in primary and fabricated metals manufacturing at $18.6 billion, the state's Department of Development reports. Manufacturing accounts for 18% of Ohio's GPD and at $73.5 billion is the highest in the Midwest region representing 4.7% of total U.S. production .

Viewpoint: Why is it Important to Lower Corporate Tax Rates?
Incentivizing and Revitalizing U.S. Manufacturing

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