The Ohio Commercial Activity Tax (CAT) affects many business taxpayers, regardless of whether they have any physical presence or economic nexus with Ohio. Currently, any business taxpayer with over $150,000 in gross receipts sourced to Ohio is required to file a CAT return and pay a flat $150 on the first $1 million in revenue and 0.26% of revenues over $1 million.
Very few taxpayers are exempt from this tax, nor do many qualify for any deductions or credits against the tax. While most taxpayers do not pay a substantial amount of CAT, many regard this tax as an added compliance hassle. However, beginning in the 2024 calendar year, the hassles of making estimated payments and filing for the CAT will be eliminated for many taxpayers.
The Ohio Department of Taxation recently announced changes to CAT, which modify the CAT filing requirements and thresholds, potentially reducing the tax burden for smaller businesses.
The biggest changes include:
- Elimination of the $150 minimum tax: Starting in 2024, the $150 minimum tax in Ohio will be eliminated.
- Exemption for Small Businesses in 2024: Businesses with less than $3 million in Ohio sales will be exempt from filing and paying the CAT starting in 2024.
- Expanded Exemption in 2025: In 2025, this exemption threshold will increase, exempting businesses with less than $6 million in Ohio sales from the CAT.
- Majority Taxpayer Exemption: Over 90% of taxpayers who were previously subject to the CAT will no longer need to file or pay it by 2025.
- Minimal Revenue Impact: Despite the high percentage of exempt taxpayers, Ohio anticipates less than a 10% annual decline in CAT revenue, as the majority of current CAT revenue comes from a small portion of larger taxpayers.
- Offsetting Costs with Reduced Processing: The reduction in the number of taxpayers will lead to considerably lower processing costs, helping to offset some of the revenue loss.
Taxpayers with a common owner (i.e., greater than 50% interest) are required to file for CAT purposes as a combined taxpayer unless those taxpayers have made an election to be part of a consolidated taxpayer group. Historically, many taxpayers who are currently required to file on a combined basis are not properly doing so. While these combined group taxpayers may have been subject to the CAT for prior years and for 2023, they may no longer be required to file for tax years after 2023 due to the recent law changes.
It’s also important to note that annual taxpayers who anticipate having $3 million or less in taxable gross receipts in 2024 should cancel their account effective Dec. 31, 2023. A taxpayer may cancel their CAT account via the CAT Cancel Account transaction on the Gateway (preferred method) or via the Business Account Update Form, which is also available on the department's website.
While removing this tax for several taxpayers may come as good news for many businesses and corporations doing business in Ohio, the state also made this change due to overall tax revenues exceeding their projections, which may not continue to be the case in the next economic downturn. Taxpayers with any significant activity in Ohio should be aware of the possibility of other tax
increases in the state to make up for any future revenue declines.
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