Ohio Commercial Activities Tax

Ohio’s Budget Bill (Am. Sub. H.B. 66) was signed by the governor on June 30, 2005. It is the most sweeping change in Ohio tax law in 40 years. Ohio has enacted, effective July 1, 2005, a Commercial Activit y Tax (CAT). The CAT is designed to be a broad-based, low rate tax applied to Ohio business gross receipts. The following is general information about the CAT:

• CAT is applicable to nearly everyone doing business in Ohio. Any minimal presence in Ohio, including a sales representative contacting Ohio customers on your behalf, is sufficient to create nexus for the CAT.
• New business privilege tax that applies to all forms of business organizations having Ohio taxable annual gross receipts in excess of $150,000.
• The CAT does not apply to the following: financial institutions, dealers in intangibles, insurance companies, public utilities, and nonprofit organizations.
• CAT is $150 annually on Ohio taxable gross receipts up to $1 million.
• For receipts greater than $1 million, CAT is $150 plus 0.26% of Ohio taxable receipts over $1 million annually ($2,600 per $1 million in Ohio taxable receipts). The rate is to be phased in over a four-year period.
• CAT rate is subject to adjustment (upward or downward) on three occasions through 2011 by the Tax Commissioner, and without vote of General Assembly, if revenue differs materially from target amounts.
• The first CAT return will be due February 9, 2006 for the six-month period ending December 31, 2005. Thereafter, returns must be filed on a calendar quarter basis within 40 days of the close of the quarter.
• Penalties of up to 60% of the tax liability may be applied to a business for failure to register and pay the tax.

Please keep in mind that the CAT is a business activities tax based on Ohio taxable gross receipts and is not an income tax. For financial reporting purposes, CAT expense is required to be classified as an operating expense.

As well, Ohio’s Budget Bill repeals both the Personal Propert y Tax and the Corporate Franchise Tax. The Personal Propert y Tax is phased-out over a four-year period. The Corporate Franchise Tax is phased-out over a five-year period.

Every business entit y or person now subject to the CAT is required to register by November 15, 2005. Registration may be made on-line through the Ohio Business Gateway at www.obg.ohio.gov. There is a $15 registration fee for each legal entit y registered.

Entities with related members may elect to register and file on a consolidated basis. You should consider the benefits and implications of consolidated filings to determine what is in your best interest prior to your registration.

The first Ohio Commercial Activity Tax Return is due February 9, 2006. Please contact Mike Baker, Ohio State and Local Tax Leader, if you have specific questions, 216.523.1010.