Ohio Cat Tax: Recent Changes and FAQs

Ohio Cat Tax

Numerous business taxpayers in Ohio are impacted by significant modifications made to the state’s tax code. The Commercial Activity Tax (CAT), a business privilege tax based on a company’s gross receipts, is the most significant modification. Notably, the CAT applies to any type of person or business entity that satisfies the conditions outlined below, regardless of the taxpayer’s status as an individual, sole proprietorship, partnership, C corporation, S corporation, LLC, LLP, or other type of company. The CAT will gradually replace the corporate franchise tax and the tangible personal property tax over a five-year period. Continue reading to learn about the new changes in the Ohio Cat Tax rate.

What is the CAT tax in Ohio?

The CAT is a yearly privilege tax whose amount relies mostly on the taxable gross receipts of the company’s operations. In addition, most receipts generated in the normal course of business are subject to the CAT. The CAT only applies to gross earnings in Ohio situation. 

Current Changes to Ohio’s Commercial Activity Tax (CAT)

Since its introduction in 2005, the Ohio Commercial Activity Tax (CAT) rate has been a major contributor to the state’s revenue collection, taking the place of the Ohio Franchise Tax. Businesses in the state of Ohio are subject to an annual levy that is set by their gross receipts. The CAT applies to out-of-state businesses that meet at least one of its “bright-line nexus” criteria:

  • Possession of real estate in Ohio worth at least $50,000 at any point in the year.
  • The Ohio payroll for the entire calendar year comes to at least $50,000.
  • Taxable gross receipts for the calendar year that come from sources in Ohio.
  • Throughout the calendar year, at least 25% of its total assets, payroll, or gross receipts are located in Ohio.
  • In Ohio, one may choose to relocate for personal, corporate, commercial, or other business reasons.

Understanding the CAT Calculation

As per the existing legislation, the first $1 million of Ohio gross receipts can be excluded from the tax rate base under the CAT. The 0.26% tax rate applies to gross receipts exceeding $1 million, requiring taxpayers to file quarterly tax reports. However, businesses with gross receipts in Ohio between $150,000 and $1 million must file an annual return and pay a minimum tax of $150.

Modifying Your CAT Account

To terminate their CAT accounts with an equal December 31, 2023, effective date, quarterly taxpayers who expect $3 million or less in taxable gross receipts in 2024 must file their final quarterly return by February 12, 2024.

Businesses with taxable gross receipts falling short of the new exclusion limit should explore all available options. They can continue with quarterly filings without any tax obligations until their gross yearly receipts reach $3 million. Upon exceeding the new exclusion amount, users will be able to either reactivate or delete their CAT accounts, with effect from December 31, 2023. Remember that after exceeding the exclusion amount, firms must register and pay the tax within 30 days.

Advantages for Small Companies

Many small firms will no longer be liable for Ohio’s commercial activity tax after the two-year phase-in period. This significant increase in the CAT exclusion threshold—which was previously set at $15,000—will provide vital tax relief to companies that conduct sales in Ohio without having a physical presence in the state.

How to Handle the CAT Changes

Businesses operating in Ohio must comprehend the Ohio Commercial Activity Tax and its current modifications. A higher exclusion threshold and the removal of the yearly minimum tax allow businesses to better prepare for their tax commitments and possibly even receive tax relief. Understanding how to modify your CAT account is essential for both complying with Ohio tax rules and making the most out of your financial plan, regardless of whether you file on a yearly or quarterly basis.

FAQs

What changes will the Ohio CAT tax undergo in 2024?

Beginning in the tax year 2024, there will be no annual minimum tax. Three million dollars is now the annual exclusion amount. The CAT will not apply to taxpayers with taxable gross receipts of $3 million or less in a given year.

What is Ohio’s CAT tax increase?

The corporate activity tax (“CAT”) was substantially altered by Ohio’s Budget Bill (H.B. 33), which raised the yearly exclusion starting with the 2024 tax year. H.B. 33 raised the yearly exclusion from $1 million to $3 million for 2024 and $6 million for 2025 while eliminating the CAT’s alternative minimum tax.

Who is responsible for Ohio’s CAT tax?

Companies that generate over $150,000 in Ohio taxable gross receipts in a calendar year are required to register for the CAT, file all relevant forms, and make all associated payments.

When was the CAT tax implemented in Ohio?

Ohio is one of the few states with a gross receipts tax (CAT), having recently been introduced in 2005 as part of a tax reform package that cut and streamlined corporate taxes.

Ohio Cat Tax: Conclusion

To summarize, the quantity of “taxable gross receipts” a taxpayer has for the current tax period substantially determines their due under Ohio’s Commercial Activity Tax. To compute their “taxable gross receipts,” a taxpayer must first undertake the laborious task of defining what constitutes a “gross receipt” and then situs (or source) those gross receipts in Ohio. Determining a taxpayer’s CAT duties, however, doesn’t end there. There are other criteria as well, like filing frequency, minimum tax, and registration.

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