OHIO CAT…COMPLY NOW or PAY LATER!

Cleveland, Ohio - November 2005 --- Mike Baker, Ohio State and Local Tax (SALT) leader for Plante & Moran stresses the importance of registering for the new Ohio Commercial Activity Tax (CAT). “It is not too late for businesses to register and comply with the CAT.” Technically, the registration is late if completed after November 15, 2005. However, the Ohio Tax Department's focus is to bring businesses into compliance with the CAT. Baker suggests, “Businesses have a better chance of avoiding costly penalties by filing the required registration before the Ohio Tax Department begins pursuing unregistered taxpayers.”

Noncompliance with the CAT can be costly. There are penalties for failure to register, failure to file and failure to pay. Cumulatively, these penalties can be assessed at 60% of the outstanding tax liability. Failure to register penalties can also cause the Secretary of State to revoke a corporation's certificate of authority to do business in Ohio.

Mike Baker believes, “the Ohio Department of Taxation is encouraging businesses to complete the registration as soon as possible. I hope the Ohio Department of Taxation announces an informal grace period for the CAT registration to avoid penalties.”

Much fewer businesses registered with the state for Ohio's new CAT by the November 15th deadline than expected. The Ohio Department of Taxation projected that 400,000 businesses currently have Ohio gross receipts that would be subject to the new tax, but only 105,000 responded by the registration deadline. Thousands of registrations that were mailed are still arriving and a final count is not yet available.

The CAT was introduced as a broad-based, low-rate tax on Ohio business receipts. The "success" of the CAT is largely dependent on having nonresident businesses sign up to pay the CAT. These nonresident businesses are companies that may not have been required to file tax returns in Ohio due to federal law (PL 86-272) protecting them from an income tax. The PL 86-272 protection does not protect these businesses from the CAT. In other words, businesses that only make sales into Ohio and do not have property or personnel in Ohio are very likely subject to CAT (or that is certainly Ohio's position). Those that benefit most by the CAT are heavily capitalized Ohio manufacturers and those hurt most are low margin/high gross receipts businesses such as retailers. Initially, grocers were also hurt by CAT, however, House Bill 399 has been introduced which exempts certain food sales (including take-out food, wholesale sales of food, items purchased by resellers of food for use in business or retail sales of packaging containing food). Simultaneous with the CAT enactment is the repeal of Ohio personal property tax (over four years) and Ohio corporate franchise tax (over five years).

February 10, 2006 is the initial CAT tax return deadline.

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