The Ohio Commercial Activities Tax
WHO IS SUBJECT TO TAX?
The CAT applies both to businesses located within State of Ohio and also to out-of-state businesses that have sufficient “minimum contacts” with the State of Ohio. Most Ohio businesses that have annual taxable gross receipts in excess of $150,000 (or taxable gross receipts in excess $150,000 during the period July 1, 2005 to December 31, 2005) must register for the CAT. Although most businesses in Ohio are subject to the tax, there are some exceptions. Non-profit organizations, most government entities, some public utilities, dealers in intangibles, financial institutions and insurance companies are generally not subject to the CAT. If a business does not initially satisfy the $150,000 gross receipts threshold but has $150,000 of taxable gross receipts in a future year, it must register with the Ohio Department of Taxation within 30 days of meeting the $150,000 threshold. An out-of-state business must register for the CAT if (i) it has at least $500,000 in annual taxable gross receipts in Ohio, (ii) has property in Ohio valued at $50,000 or more, (iii) pays at least $50,000 in payroll per year in Ohio, (iv) has at least 25% of its total property, payroll, or sales in Ohio during the calendar year or (v) the business is required to be treated as part of an elected consolidated taxpayer group.
HOW DO I REGISTER FOR THE CAT?
Taxpayers can register for the CAT electronically for $15 through the Ohio Business Gateway (obg.ohio.gov) or the Ohio Department of Taxation website (tax.ohio.gov), or they may submit paper registrations to the Ohio Department of Taxation for $20. A business only needs to register once, and all registration fees collected will apply as a credit to offset the business’s first CAT tax liability.
WHAT IS INCLUDED IN TAXABLE GROSS RECEIPTS?
The CAT is levied on a business’s gross receipts. The law defines gross receipts broadly to include most types of revenue from sales, services and rental activities. Some types of income are excluded, however, including dividends, certain types of interest income, capital gain income and ordinary wages. Many sources of income received by a trust are also excluded.
WHAT IS THE CAT TAX RATE?
The CAT is scheduled to be phased-in over five years. For 2005, taxpayers will owe $75 on the first $500,000 in taxable gross receipts plus .06% of taxable gross receipts in excess of $500,000. Beginning in 2006, taxpayers will owe $150 on the first $1,000,000 in taxable gross receipts plus .0598% of receipts in excess of $1,000,000. The rate for receipts over $1,000,000 will increase each year until it reaches .26% in the fifth year of the phase-in.
HOW DOES THE CAT RELATE TO OTHER CHANGES IN OHIO TAX LAWS?
The phase-in of the CAT coincides with the elimination and reduction of several other Ohio taxes. Over the next four years, the State of Ohio will eliminate its personal property tax and over the next five years, the corporate franchise tax will also be phased out. Additionally, individual income tax rates and sales tax rates will be reduced.
For more information regarding the Ohio Commercial Activities Tax, please contact any of the following attorneys: Martin E. Mooney at (513) 651-6979, Jud B. Sims at (513) 651-6740, Jeremy A. Hayden at (513) 651-6912 or Scott A. Martz at (513) 651-6881.