We are seeing an increasing number of Ohio Commercial Activity Tax (CAT) audits among our clients. Ohio has an aggressive audit program to seek companies doing business in the state, and they aggressively pursue tax, penalty and interest to the inception date of the tax.
The recent increase in Ohio sales tax registrations could be related to the economic nexus requirements. Many companies are unaware of what the Ohio CAT is and if they are required to file and remit payments.
If you are unfamiliar with the tax, the Ohio CAT is a gross receipts tax that replaced the Ohio Franchise tax. The phased-in implementation of the tax began July 1, 2005. Your gross receipts are the total revenue (without subtracting returns, discounts, operating expenses, or unpaid invoices) your business collects in a tax year. The tax is somewhat unusual in that Ohio’s position is that a company will have “nexus” and have to file/pay the tax if the company meets one of the following “bright-line” nexus standards:
Ohio also asserts that companies have nexus for the CAT if:
The Ohio CAT is also somewhat unusual in that there are combined/consolidated reporting rules in place, even though it is a gross receipts tax and not an income tax. Also, the CAT applies to all types of businesses, including corporations, limited liability companies, a sole proprietorship, partnerships, retailers, service providers, manufacturers and other types of businesses.The tax doesn’t apply to nonprofit organizations and certain financial institutions and insurance companies.
There is a $1,000,000 per year deduction before CAT tax is due. However, businesses with $150,000 to $1,000,000 in gross receipts are expected to file and pay the minimum tax ($150). The rate is .26% and returns are generally filed quarterly.
Example:
| Ohio Annual Gross Receipts: | $3,000,000 |
| Less Deduction: | (1,000,000) |
| Taxable receipts: | 2,000,000 |
| Tax due: | 2,000,000 X .0026=$5,200 + $150 annual fee = $5,350 (total tax amount) |
Many companies that we are working with have so far chosen to file/pay the tax, although others may not choose this route. It is important to note that Ohio has a voluntary disclosure program with a 3-4 year look-back. This voluntary disclosure program could be of tremendous benefit for companies that have tax exposure in the state of Ohio.
Our state and local tax experts can analyze your tax exposure and recommend solutions. If you need assistance with this issue please contact us. To learn more, visit our State and Local Tax services.
