Many states have a form of tax on a business’s collective gross receipts. For example, New Mexico has the Gross Receipts Tax, Washington has Business & Occupation Tax (B&O Tax), and Ohio has Commercial Activity Tax (CAT). Like any other type of taxation, gross receipt taxes are subject to change. In this article, we’re discussing recent developments in the Ohio Commercial Activity Tax, and how these revisions impact businesses operating in The Buckeye State.
What is Commercial Activity Tax?
The Commercial Activity Tax (CAT) is an annual business privilege tax imposed by the state of Ohio on gross receipts. The tax was established in 2005 under House Bill 66 to replace Ohio’s corporate franchise tax and tangible personal property taxes.
CAT is a broad-based privilege tax, meaning it applies to most types of business entities. As long as a company sells a certain amount of taxable products/services to Ohio residents in a calendar year, it is required to register for and pay CAT.
In previous years, the taxable gross receipt threshold for businesses was $150,000 per year. Taxable receipts between $150,000 and 1 million have an annual minimum of $150 in tax with no added rates. Any taxable receipts under 1 million are excluded from additional CAT. However, a business with $1,500,000 in gross receipts would pay 0.26% tax on the $500,000 above the 1 million exclusion amount.
Note: As of 2024, businesses that sell under 3 million in Ohio taxable gross receipts are no longer required to file CAT. See section 2024 CAT Changes for more details.
Some businesses or business activities are excluded from CAT, such as:
- Non-profit organizations
- Most government entities
- Some public entities like natural gas, pipe-line companies, and water-works companies.
- Financial institutions that pay corporation franchise tax.
- Insurance companies that pay insurance premiums tax.
Who Needs to File CAT?
All types of businesses that meet the taxable gross receipts threshold are required to file and pay CAT. Determining whether a gross receipt is taxable is where things can get tricky. Generally, sales of personal property (such as retail sales), rentals, electricity, and transportation services are taxable in Ohio. A detailed explanation on taxable gross receipts as they apply to CAT can be found in this information release.
Out-of-state businesses are also reponsible to file CAT if they have bright-line presence in Ohio. A person or business has bright-line presence if any one of the following apply:
- Property in Ohio is at least $50,000.
- Payroll in Ohio is at least $50,000.
- Taxable gross receipts to Ohio are at least $500,000.
- 25% of total property, total payroll, or total gross receipts is within Ohio.
- The person is domiciled in the state.
Generally, if an in-state or out-of-state business that is for-profit meets either sales thresholds or bright-line presence, it will have CAT responsibility.
2024 CAT Changes
The Elimination of the Annual Minimum Tax
Prior to 2024, businesses with taxable Ohio sales above $150,000 would have to pay, at the very least, $150 of annual minimum tax. This minimum tax is eliminated as of January 1, 2024, so sales above the 3 million mark will be taxed at 0.26% with no additional minimum tax.
Exclusion Amount Increase
The exclusion amount is the amount of gross taxable receipts that are excluded from CAT. Before 2024, this amount was set to 1 million. Starting 2024, it has increased to 3 million. This means that the first 3 million in taxable receipts sourced to Ohio are excluded from CAT, which can be a game-changer for many small and mid-sized businesses.
No More Annual Filing
After the 2023 annual return due on May 10, 2024, annual CAT filing will be eliminated, making quarterly the lone reporting period for CAT.
2025 CAT Changes
Another Exclusion Increase
Beginning January 1, 2025, the exclusion amount will increase once again from 3 million to 6 million. This will exempt all taxpayers that have under 6 million in Ohio taxable sales from filing CAT.
Next Steps for Businesses
You might be wondering how these changes will affect your business in 2024 and 2025, and what steps to take to ensure compliance. Here are some recommendations from us and the Ohio Department of revenue:
- Account management – If you currently do not or don’t anticipate meeting the taxable sales threshold of 3 million in 2024 or 6 million in 2025, you will need to file your final return for 2023 and cancel your CAT account. The final returns are due:
- Annual – by May 10, 2024
- Quarterly – by February 12, 2024
- Ensure that the cancellation effective date is December 31, 2023 so that you do not need to file an additional return. Remember that all CAT taxpayers with active accounts are required to file returns, even if they do not meet the taxable gross receipts threshold.
- Anticipate future sales – Just because your business isn’t making millions in Ohio sales doesn’t mean that it never will! If you anticipate exceeding the CAT exclusion amounts in 2024 or 2025 and already have a CAT account, the Ohio Department of Taxation recommends you continue to file quarterly returns. No tax will be due until you exceed the exclusion amount. Alternatively, you can cancel your account and reactivate it within thirty days of exceeding the exclusion amount.
- Let us help you manage CAT – At SalesTaxSolutions.US, we manage hundreds of tax accounts from sales tax to income tax to CAT. If you’re finding it hard to keep up with the changes (and we don’t blame you) contact us today for a free consultation!
