The latest biennial budget bill made significant changes to the Ohio Commercial Activity Tax (CAT) that left many business taxpayers and practitioners in the state waiting for more clarity. On Monday, August 21, 2023, the Ohio Department of Taxation issued CAT 2023-01, an information release discussing the changes and their application.
While there are quite a few changes to Ohio’s CAT compliance procedures, the good news is that fewer taxpayers will be subject to the CAT once the rules take effect in 2024 and 2025.
What is Changing Under Ohio CAT Law?
Tiered Annual Minimum Tax and Annual Returns are Ending
Many CAT taxpayers were subject to an annual minimum fee (see table below) based on their annual Ohio taxable gross receipts.
CAT Annual Minimum Tax
|Taxable Gross Receipts
|$0 - $1,000,000
|$1,000,001 - $2,000,000
|$2,000,0001 - $4,000,000
|$4,000,000 and above
Effective in 2024, Ohio will no longer impose a CAT annual reporting requirement nor a CAT annual minimum tax.
CAT Gross Receipts Exclusion is Increasing
The exclusion will increase from $1 million of taxable gross receipts to $3 million in 2024. The exclusion rises further to $6 million in 2025. Therefore, in 2024 and 2025, CAT filers with Ohio CAT taxable receipts below the $3 million and $6 million exclusion, respectively, will no longer be required to file any CAT return.
Annual CAT Filing is Eliminated
This filing is eliminated after the 2023 annual return is filed, which is due May 10, 2024. If the taxpayer anticipates having less the $3 million of taxable CAT receipts in 2024, they should cancel their account with an effective date of December 31, 2023. A similar approach applies in 2025 to taxpayers with receipts below the $6 million exclusion.
Quarterly Filing Status
CAT taxpayers anticipating their Ohio gross receipts will exceed $3 million in 2024 and $6 million in 2025 will still be required to file quarterly. However, quarterly taxpayers no longer subject to the Ohio CAT due to these increased exclusion amounts may cancel their account and file their final quarterly CAT return with their Q4 CAT filing, which is due on or before February 10 of the following year.
Who Must File the Commercial Activity Tax
||Taxpayer's Taxable Gross Receipts (TGR)
|2005 through 2023
||TGR > $150,000 (with bright-line presence)
||TGR > $3,000,000
|2025 and thereafter
||TGR > $6,000,000
Group Filers Research & Development (R&D) Credits
Group members can no longer share their R&D credits. Ohio R&D credits are now required to be calculated on a member-by-member basis, and CAT members must maintain records for the year claiming the credit and the three preceding years.
What Remains the Same Under Ohio CAT Law?
- The current CAT tax rate of 0.26% remains the same and will continue to apply to taxpayers with CAT taxable gross receipts exceeding $3 million in 2024 and $6 million in 2025.
- Any unused exclusion in the first calendar quarter is still carried forward to subsequent quarters within the same calendar year.
- The CAT reporting combined group and consolidated election and return filing process has not changed for CAT filing groups.These groups will continue to be treated as one taxpayer when determining whether or not the group’s gross receipts have exceeded the new CAT exclusion amounts. CAT consolidated elected taxpayers do not include intercompany receipts eliminated, when determining whether the group has exceeded the exclusion amounts.
How to Cancel Your Eligible Ohio CAT Account
A filer may cancel their Ohio CAT account via the Ohio Gateway website, which is the preferred method, or via the Business Account Update form available on the Department’s website.
When to Cancel Your Ohio CAT Account
When a filer cancels their CAT account, they can provide an effective date up to one year in the future or they may backdate the effective date at the time of their last required filing. Effective September 1, 2023, a taxpayer can elect to cancel their account based on their 2024 and subsequent years anticipated sales. If the taxpayer cancels their account and exceeds the threshold in a subsequent year, they must reactivate their account and begin filing and paying timely.
The changes to Ohio’s CAT compliance procedures are significant, but they also offer the opportunity for some taxpayers to strike this tax from their requirements over the next two years. Always work closely with your tax advisers and continue to monitor your gross receipts going forward.
Contact Scott Zielaskiewicz at email@example.com or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.