Big changes to Ohio’s commercial activity tax (“CAT”) took effect on January 1, 2024. Many taxpayers will no longer pay CAT, while the rest will see their CAT liability decrease.
Since the inception of the CAT in 2005, taxpayers have paid an annual minimum tax plus 0.26% of taxable gross receipts in excess of $1,000,000 (the “exclusion amount”). The annual minimum tax for 2023 was $150, $800, $2,100, or $2,600, depending on the taxpayer’s total taxable gross receipts in 2022.
Two important changes were effective January 1st. First, the annual minimum tax was eliminated. Second, the exclusion amount increased to $3,000,000. Accordingly, only taxpayers with taxable gross receipts in excess of $3,000,000 will pay CAT in 2024.
In light of these changes, businesses should review their CAT filings and organization charts to ensure their filing status complies with the rules on single-entity, combined, and consolidated elected taxpayer groups. The benefit or exposure from each exclusion has jumped from $2,600 (or less) to $7,800.
Aside from any changes to update filing status, most taxpayers should be able to implement these changes as follows.
What should a CAT taxpayer do if it anticipates having less than $3,000,000 of taxable gross receipts in 2024?
- File the remaining CAT return(s) for 2023. For quarterly filers, this means the 4th quarter return is due February 12, 2024. For annual filers, this means the annual return is due May 10, 2024.
- Cancel the company’s CAT account effective December 31, 2023. This can be done through the taxpayer’s Ohio Business Gateway account or by submitting Form BA UF to the Department of Taxation. This is an important step that should not be overlooked – a company that stops filing without canceling its account will undoubtedly have to deal with notices in the future.
How do these changes affect a CAT taxpayer with more than $3,000,000 of taxable gross receipts in 2024?
- When the company files its 1st quarter 2024 return, it will not pay a minimum tax for 2024. For a company with 2023 taxable gross receipts between $3,000,000 and $4,000,000, the minimum tax would have been $2,100 without the law change. That fee would have been $2,600 if taxable gross receipts exceeded $4,000,000.
- The company will file quarterly CAT returns for 2024 and pay CAT once its taxable gross receipts exceed $3,000,000. The increase in the exclusion amount will save the company $5,200 (0.26% x $2,000,000).
In 2025, the exclusion amount is scheduled to increase again to $6,000,000. Watch for updates from GBQ as we continue to monitor developments in this area.
Additional details and nuances to these changes will affect some taxpayers, so please contact GBQ’s SALT team if you have questions.
