Ohio CAT: Identifying Businesses with “Bright-Line” Nexus

The Ohio Department of Taxation (the “Department”) is focused on increasing registration and compliance with the commercial activity tax (the “CAT”), which replaced Ohio’s corporate franchise, personal property and personal income taxes (although the final phase-out of the personal income tax has been delayed). As part of the Department’s addition of 100 revenue generating employees, a nine person Nexus Unit in the Department’s CAT Division was created with the primary purpose of registering taxpayers for the CAT.

The Nexus Unit, started in November, 2009, identifies and contacts businesses believed to have greater than $500,000 of annual Ohio gross receipts, thereby meeting the definition of “bright-line” nexus. One way the Nexus Unit is identifying such businesses, making sales into Ohio but not necessarily with a physical presence in the state, is by creating a database of accounts payable from taxpayers audited for Ohio sales and use taxes.  This allows the Department to identify taxpayers with “bright-line” nexus merely through audits of the business’ Ohio customers. In addition, the Nexus Unit is using several types of information publicly available, such as SEC filings and Forbes lists, to identify businesses skirting their CAT obligations.

A penalty of up to 60% of the delinquent liability may be imposed upon those who receive notice from the Department instructing them to register for the CAT, but fail to do so. This steep penalty can be avoided by participating in the CAT’s Voluntary Disclosure Program. This program requires the business to register for the CAT and pay its delinquency, while avoiding applicable penalties.  However, the Voluntary Disclosure Program is not available after having been contacted by the Department.

Please contact us if you desire our assistance in making a Voluntary Disclosure to the Department.