Ohio's Commercial Activity Tax (CAT) - General Information
The commercial activity tax (CAT) was enacted in Ohio House Bill 66 and first applied to taxable gross receipts received on and after July 1, 2005. The CAT is a successor tax to Ohio’s general business property and corporate franchise taxes, both of which were phased out. The CAT is an annual privilege tax measured by gross receipts on business activities in Ohio. This tax applies to all types of businesses: e.g., retailers, service providers (such as lawyers, accountants, and doctors), manufacturers, and other types of businesses including rentals. The CAT also applies whether the business is located in Ohio or is located outside of Ohio if the taxpayer has enough business contacts with this state. The CAT applies to all entities regardless of form, (e.g., sole proprietorships, partnerships, LLCs, and all types of corporations). A person with taxable gross receipts of more than $150,000 per calendar year is subject to this tax.
Taxable Gross Receipts - Gross receipts subject to CAT include most business types of receipts. Some examples of receipts that are not subject to the CAT include interest, dividends, capital gains, wages and gifts. Receipts from sales to out-of-state purchasers are not subject to the CAT.
Registration - Taxpayers having over $150,000 in gross receipts from sales to customers in Ohio for the calendar year are required to file returns for the CAT. In order to file returns, a taxpayer must first register for the CAT with the Ohio Department of Taxation.
Annual and Quarterly Filers - Annual CAT taxpayers (those taxpayers with taxable gross receipts between $150,000 and $1 million in a calendar year) must pay an annual minimum tax. The annual minimum tax is due on May 10th of the current tax year.
Taxpayers with annual taxable gross receipts in excess of $1 million must file returns on a quarterly basis. Quarterly taxpayers pay a rate component for taxable gross receipts in excess of $1 million. The tax rate on receipts in excess of $1 million is 0.26%. The annual minimum tax is paid with the filing of the first quarter return, which is due on May 10th.
Consolidated Elected Taxpayer Groups and Combined Taxpayer Groups - A consolidated elected taxpayer group is a taxpayer that has elected to file as a group including all entities that have either 50 percent or more common ownership or 80 percent or more common ownership. A major benefit of making this election is that receipts received between members of the group may be excluded from the taxable gross receipts of the group. This election is binding for eight calendar quarters.
Annual Minimum Tax – The annual minimum tax is calculated as follows:
• $150 for taxpayers with taxable gross receipts of $1 million or less in the previous calendar year;
• $800 for taxpayers with taxable gross receipts between $1 million and $2 million;
• $2,100 for taxpayers with taxable gross receipts between $2 million and $4 million; or
• $2,600 for taxpayers with more than $4 million in taxable gross receipts in the previous calendar year.
Tax Credits - Some credits that taxpayers can claim against the CAT include:
• the nonrefundable jobs retention credit;
• the nonrefundable credit for qualified research expenses, or, the nonrefundable credit for a borrower’s qualified research and development loan payments;
• the refundable motion picture production credit;
• the refundable jobs creation credit, or the refundable job retention credit;
• the Ohio historic preservation tax credit (on a temporary basis).
Some Issues We’ve Seen – From the beginning of enactment, and even through the present, many taxpayers are simply unaware that the tax exists, or that they are subject to it. Another issue is that some taxpayers file CAT returns that include all gross receipts and not just those to Ohio customers. And some do not take advantage of credits that can be applied to the tax. Also, we have seen many cases where the taxpayer computes the tax, then goes online and makes the payment, but never files the return. And, it usually takes Ohio over a year to send out a notice for the unfiled return, and by then, they have sent the taxpayer to collections, and filed liens. And finally, we have noticed that audits in this area are on the rise.
As you can see, this simple tax is not always so simple.
Note: most of this information is available on the Ohio Department of Taxation’s website.
Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.