Ohio’s proposed R&D credit expansion could unlock state income tax savings

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Ohio’s proposed House Bill 756 (H.B. 756) would expand Ohio’s nonrefundable R&D tax credit beyond the Commercial Activity Tax (CAT) by allowing taxpayers to apply the same credit framework against Ohio state income tax for qualified research expenses (QREs) incurred in Ohio. The bill was introduced on March 11, 2026, and referred to the House Ways and Means Committee on March 18, 2026.

KBKG Insight 

For many startups and pass-through entities, Ohio’s recent CAT threshold changes have created a practical problem: clients may have real innovation spend, yet little or no CAT liability to absorb the credit. H.B. 756 is designed to open a second lane by moving the same Ohio R&D credit mechanics to the state income tax, which could convert “unused on CAT” into “usable for owners” in the right fact pattern. CPAs should start modeling QREs and forecasting owner-level Ohio income tax exposure now, because the credit is still nonrefundable, and planning will often come down to timing, carryforward utilization, and entity structure. The winners will be taxpayers who can substantiate Ohio QREs quickly and choose the tax where the credit creates the strongest cash-tax outcome.

Key Takeaways 

  • Ohio may broaden who can actually use the R&D credit. H.B. 756 would allow the Ohio R&D credit to be applied against Ohio state income tax, which matters for startups and pass-throughs that have little or no CAT liability under the higher CAT exclusion thresholds. 
  • The credit remains nonrefundable, so planning will be about utilization. Even if enacted, this cash-tax benefit will often depend on timing, carryforward strategy, and owner-level Ohio income tax exposure (especially for pass-through owners). 
  • Documentation and modeling should start now. CPAs should begin capturing and substantiating Ohio QREs and running scenarios to determine whether the credit produces a better outcome against CAT vs. income tax, subject to guardrails against using the same QREs twice.

Background 

Current Ohio credit mechanics (CAT-based): Ohio’s existing R&D credit is a nonrefundable credit tied to the CAT and calculated as 7% of the excess of current-year Ohio QREs over the average Ohio QREs from the prior three years. (Ohio Legislature) 

Why access narrowed for smaller companies: Ohio’s CAT exclusion/threshold has increased materially, moving to $3 million for tax year 2024 and $6 million starting in 2025, which can leave many early-stage and smaller businesses with no CAT liability to offset. (Ohio Department of Taxation) 

What H.B. 756 proposes: The bill would extend the same basic credit framework to Ohio state income tax, while keeping it nonrefundable and allowing unused credits to be carried forward (commonly described as up to seven years). It also contemplates guardrails, so the same Ohio QREs cannot generate the credit against multiple Ohio taxes in the same period. (Ohio Legislative Information System) 

Who should pay attention: Companies doing prototyping, product design, software development, engineering iteration, and process improvements in Ohio, especially technology, manufacturing, and life sciences, plus pass-through owners who pay Ohio income tax. 

Conclusion 

H.B. 756 is still early in the legislative process, but the direction is clear: Ohio is considering widening the R&D incentive, so more taxpayers can benefit even when CAT liability is limited. The practical next step for CPAs is to identify qualifying activities, quantify Ohio QREs, and build audit-ready support so clients can act quickly if the proposal advances. (Ohio Legislature) 

Action Steps 

If you have clients with Ohio development activity, KBKG can help document and quantify QREs through an R&D tax credit study built to support both federal and state positions and to model how a potential income-tax credit would flow through to owners. 

Source Documents 

Explore R&D Tax Credit Study Support with KBKG