Taxpayers with less than $3m annual exclusion should cancel Ohio CAT account effective 12/31/23

Preparing for significant changes to Ohio commercial activity tax for 2024 – Majority of taxpayers will no longer be subject to CAT following increases in annual exclusions.

Ohio’s Budget Bill (H.B. 33) significantly changed corporate activity tax (“CAT”) by increasing the annual exclusion beginning with the 2024 tax year. H.B. 33 eliminated the CAT’s alternative minimum tax and increased the annual exclusion from $1 million to $3 million for 2024 and $6 million for 2025. Therefore, starting in 2024, businesses with taxable gross receipts less than $3 million and, in 2025, less than $6 million of taxable gross receipts will not be subject to the CAT. Additionally, businesses falling below these thresholds will no longer be required to file CAT returns. These minimum filing thresholds significantly increase from the previous amount of $150,000. Additionally, H.B. 33 eliminated annual CAT returns starting in 2024 requiring all taxpayers to file quarterly.

One issue for taxpayers to navigate following these changes concerns combined filing for commonly-owned taxpayers. For CAT purposes, taxpayers with a common owner with greater than 50% interest are required to file as a combined taxpayer. R.C. 5751.012(A). Alternatively, such taxpayers may make a consolidated taxpayer election to exclude intercompany receipts. In our experience, many taxpayers required to file on a combined basis have not done so correctly, although this failure has only had a minor effect on the taxes owed. Now, the determination of whether taxpayers are required to file on a combined basis will have a substantial consequence – e.g. whether the taxpayers are subject to the CAT or not. 

The Ohio Department of Taxation has instructed taxpayers that will no longer be subject to CAT to cancel their CAT accounts, preferably through the Ohio Business Gateway. Ohio Dep’t of Taxation, Info. Release CAT 2023-1, Commercial Activity Tax: Changes to the CAT Exclusion and Annual Minimum Tax (8/21/23). Taxpayers may cancel their account now, as the cancellation may be effective as of 12/31/23. Failure to cancel the CAT account may result in the taxpayer receiving notices and incurring penalties for a failure to file. If a business suspects it may have over $3 million in taxable gross receipts for 2024, they will need to continue filing quarterly CAT returns.

In conjunction with the statutory changes, revisions to Ohio Administrative Code (“O.A.C.”) Rule 5703-29-04 have been proposed. The new rule would distinguish future tax years from pre-2024 tax years. Significantly, the proposed rule provides that, if a combined taxpayer group would have less than the annual exclusion threshold if they made a consolidated election, the group does not need to register for CAT. O.A.C. 5703-29-04(B)(2)(b).

If you have questions regarding your Ohio commercial activity tax obligations or application of these new rules, please do not hesitate to contact us.

Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at [email protected] or 330.258.6460.

Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423.

Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.