Entities having “substantial nexus” with Ohio and more than 50% common ownership are required to file Ohio Commercial Activity Tax (“CAT”) returns as a combined taxpayer, unless an election to file as a consolidated group is made.  A group may elect to file CAT returns as a consolidated taxpayer if the group has at least 80% or 50% common ownership.  In both cases, the combined or consolidated group will file CAT returns as a single taxpayer. 

In deciding whether to file CAT returns as a combined or consolidated group, the following two factors should be considered: 

1. Potential group members lacking “sufficient nexus” with Ohio; and
2. Intra-group transactions.   

A combined group only includes entities with “substantial nexus” with Ohio, as defined by Section 5751.01(H) of the Ohio Revised Code.  Conversely, when making a consolidated election, the taxpayer voluntary elects to include all members with the requisite common ownership, regardless of whether each has sufficient nexus with Ohio. Accordingly, if a group with more than 50% common ownership has substantial gross receipts from members without “substantial nexus” with Ohio, it may be advantageous to forego a consolidated election, thereby excluding such member(s)’ gross receipts. 

Unlike combined taxpayers, gross receipts received by one member of a consolidated group from another member are excluded from the group’s Ohio gross receipts for the CAT. Essentially, Ohio has provided taxpayers with an incentive to elect to file as a consolidated group by excluding intra-group transactions. Further, an interesting situation could arise where certain members of a required combined group can make an 80% consolidated election, with other members of the required combined group having between 80% and 50% common ownership. In this situation, the 80% consolidated taxpayer is entitled to exclude intra-group transactions (remember, limited only to those entities included in the 80% consolidated group). Additionally, the other required combined group members may still be able to avoid CAT obligations if the particular entity has less than 80% common ownership and lacks “substantial nexus” with Ohio.