January 5, 2024 Changes to Ohio's Commercial Activity Tax in 2023 will affect CAT taxpayers beginning in 2024 Changes to Ohio's Commercial Activity Tax (CAT), which were summarized in Tax Alert 2023-1218, took effect on January 1, 2024. This Alert serves as a reminder of those changes, as well as other administrative changes that took effect in 2024. Increase in CAT exclusion From the CAT's inception in July 2005 through 2023, taxpayers1 could exclude their first $1 million from Ohio gross receipts, and apply the 0.26% rate to Ohio receipts exceeding $1 million. Calendar-year taxpayers apply the exclusion to the first calendar quarter return filed and may carry forward any unutilized exclusion to subsequent calendar quarters in that same calendar year. Taxpayers may not, however, carry forward an unused exclusion to the subsequent calendar year. Starting in calendar-year 2024, the exclusion increases to $3 million. For calendar-year 2025 and forward, the exclusion increases again to $6 million. The 0.26% rate will continue to apply to Ohio receipts exceeding the increased exclusion; the rules prohibiting the carryforward of unused exclusions to another calendar year will also continue to apply. Annual minimum tax eliminated Before 2024, an annual minimum tax applied to CAT taxpayers. From 2005—2013, the annual minimum tax was $150. From 2014 through 2023, the annual minimum tax applied on a graduated basis as follows:
Effective for tax periods beginning on or after January 1, 2024, the CAT annual minimum tax is eliminated. Annual filings eliminated Taxpayers filing as a $150 annual minimum taxpayer would typically file an annual CAT return. Taxpayers with more than $1 million in Ohio receipts would file CAT returns on a calendar quarterly basis. After the filing of 2023 annual CAT returns, which are due on May 10, 2024, CAT annual filings will be eliminated. Only quarterly filings will be allowed. Implications As a result of these changes, fewer taxpayers will owe CAT but will be required to file quarterly zero-dollar tax returns unless action is taken to cancel their CAT accounts. For 2024, Ohio Department of Taxation (Department) guidance2 suggests that taxpayers with taxable gross receipts not exceeding $3 million cancel their accounts3 effective December 31, 2023, and file a final return for 2023.4 For 2025, taxpayers with taxable gross receipts not exceeding $6 million may cancel their accounts effective December 31, 2024, and file a final return for 2024.5 The Department's guidance suggests that most taxpayers should cancel their accounts unless they are close to the $3 million threshold in 2024 or the $6 million threshold in 2025. Some taxpayers, however, may not want to cancel their accounts if they need to file to claim refundable tax credits.
——————————————— 1 Under Ohio law, a taxpayer includes a combined taxpayer or an elective consolidated taxpayer. A CAT combined or consolidated group is treated as a single taxpayer for purposes of the exclusion. 2 CAT_2023-01_info_release.pdf (ohio.gov) 3 This can be done by filing the Business Account Update Form, business_account_update_form_fi (ohio.gov), or through the Ohio Business Gateway. 4 For annual filers, this return would be due May 10, 2024; for calendar quarterly taxpayers, the return would be due February 10, 2024. 5 This return, since only quarterly filing is allowed after 2023, would be due February 10, 2025. | ||||||||||||||
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