Ohio CAT: Changes to How You Apply the $1M Exclusion– February 19, 2013

Beginning in 2013, taxpayers filing quarterly Ohio Commercial Activity Tax (CAT) returns will see a change in how the $1 million exclusion is applied.

Old Rule
Prior to the recent tax law change, quarterly CAT filers were eligible for an exclusion of $250,000 per quarter. Any unused exclusion amount could be carried forward for up to three consecutive calendar quarters, regardless if those quarters fell outside the calendar year when the unused exclusion was created.

New Rule
Under the new rule, which takes effect for tax periods beginning on or after January 1, 2013, a quarterly filer will exclude the first $1 million of taxable gross receipts on the first quarter return, which, for many small business taxpayers, will likely defer payment on gross receipts until later in the year. Any unused portion of the exclusion will be carried forward to subsequent quarters but only to those that fall within the same calendar year. If the $1 million exclusion is not used within the calendar year, it will be lost.

For example, a quarterly CAT return filer has $850,000 of Ohio gross receipts for the first quarter of 2013.

Under the Old Rule
Ohio gross receipts $850,000
Less exclusion amount ($250,000)
Ohio taxable receipts $600,000
Tax@.0026 $1,560
Minimum tax/initial filing fee due $150
Total tax due $1,710


Under the NEW Rule
Ohio gross receipts $850,000
Less exclusion amount ($1,000,000)
Ohio taxable receipts $0
Tax@.0026 $0
Minimum tax/initial filing fee due $150
Total tax due $150
Carry forward exclusion to next quarter $150,000


What Next
For those taxpayers filing quarterly CAT returns, the first quarter of 2013 is due May 10. Be sure to use the exclusion amount of $1 million for first quarter sales, paying CAT only on the amount above $1 million. For many small businesses, this will mean that only the minimum initial filing fee of $150 will be due with the first quarter return.

For more information or questions about CAT return filing, contact a member of our state and local tax team.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.