** This blog was last updated 12/18/23 **
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.
Many CAT taxpayers were subject to an annual minimum fee (see table below) based on their annual Ohio taxable gross receipts.
| Taxable Gross Receipts | AMT |
|---|---|
| $0 - $1,000,000 | 150 |
| $1,000,001 - $2,000,000 | 800 |
| $2,000,0001 - $4,000,000 | 2,100 |
| $4,000,000 and above | 2,600 |
Effective in 2024, Ohio will no longer impose a CAT annual reporting requirement nor a CAT annual minimum tax.
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.
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.
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. Taxpayers can begin filing FINAL in December 2023 or wait to close with their 2022 Q4 filing if it will be below the 2024 $3 million exemption.
| Calendar Year | Taxpayer's Taxable Gross Receipts (TGR) |
|---|---|
| 2005 through 2023 | TGR > $150,000 (with bright-line presence) |
| 2024 | TGR > $3,000,000 |
| 2025 and thereafter | TGR > $6,000,000 |
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.
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 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 szielaskiewicz@cohenco.com or a member of your service team to discuss this topic further.
Cohen & Co 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.