Ohio CAT: Considerations for Combined and Consolidated Groups

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.

A consolidated election remains effective for eight calendar quarters and automatically renews thereafter for another eight calendar quarters, unless the group notifies the tax commissioner of cancellation of its election. Click here for Ohio CAT forms.