Ohio House Bill 33 has resulted in favorable changes to the Ohio Commercial Activity Tax (CAT), which began on January 1, 2024, that bring big impacts to businesses, retailers and service providers operating in the state. Even if your business isn’t located in Ohio, depending on your 2023 filing frequency and sales in Ohio, these changes may affect your compliance process. A keen understanding of your expected 2024 and 2025 revenue will help determine what filing requirements your business will need to meet moving forward.
What is the Ohio Commercial Activity Tax?
The Ohio CAT is an annual privilege tax imposed on the seller for the privilege of doing business in Ohio. It’s based on gross receipts from business activities in Ohio and can apply to businesses located outside Ohio if the taxpayer has sufficient business contacts with the state. CAT is imposed on all types of entities and businesses, including those normally not subject to sales tax on receipts such as lawyers and doctors. There are exceptions for certain types of businesses if those businesses must pay specific other Ohio taxes, such as financial institutions and insurance companies.
CAT even impacts many sales that aren’t subject to sales tax, such as sales for resale by wholesalers and manufacturers. The exception is intercompany sales by businesses that register as a consolidated group. Combined groups may not exclude receipts between members of the group.
When Is the Ohio CAT Effective?
The following measures are effective as of January 1, 2024:
- The first $3 million in taxable gross receipts are exempted
- The first $6 million in taxable gross receipts will be exempted as of January 1, 2025
- Annual filing and the Annual Minimum Tax are eliminated
- If you expect less than $3 million in taxable gross receipts in 2024, file a final return effective as of December 31, 2023. If you don’t close the account, 2024 quarterly returns must be filed to prevent non-filer notices
- All members of a group are combined to determine whether the thresholds have been exceeded. Keep in mind that excluded intercompany receipts for consolidated groups aren’t considered for determining the threshold
- The .26% tax rate remains the same
- The due date for 2023 annual filers is May 10, 2024, with the due date for 2023 quarterly filers falling on February 12, 2024
If you have outstanding OH CAT credits/refunds, consider them before closing your OH CAT account. Businesses with multiple related entities should consider the advantages and disadvantages of consolidated versus combined filing, especially considering the recent changes.
Anders State and Local Tax advisors closely monitor legislation impacting business owners and taxpayers to educate our clients about the latest tax changes. For more information about how this tax legislation could impact your business, and the associated costs, request a meeting with an Anders advisor below.
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