Ohio’s most recent budget bill made significant changes to the commercial activity tax (“CAT”) that will take 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 is $150, $800, $2,100, or $2,600 depending on the taxpayer’s total taxable gross receipts in 2022.
Two important changes take effect in 2024. First, the annual minimum tax is eliminated. Second, the exclusion amount increases to $3,000,000. Accordingly, only taxpayers with taxable gross receipts in excess of $3,000,000 will owe CAT for 2024.
The Ohio Department of Taxation recently explained how it plans to administer these changes. The vast majority of 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 3rd and 4th quarter filings due November 13, 2023 and February 12, 2024 respectively. For annual filers this means the annual return due May 10, 2024.
- Cancel the company’s CAT account effective December 31, 2023. This can be done through the Ohio Business Gateway 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 who will have 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. GBQ will continue to monitor developments in this area, so stay tuned for future updates.
There are additional details and nuances to these changes that will affect some taxpayers, so please contact GBQ’s SALT team if you have questions.
Article written by:
John Petzinger, CPA
Manager, State & Local Tax Services