House Bill 33 was signed into law on July 4, 2023, and enacted many changes to the Ohio Commercial Activity Tax. This is the first major change to the CAT since its inception in 2005.
CAT Changes
Prior Law: In the calendar year 2023, taxpayers with taxable gross receipts greater than $150,000 were required to file the CAT. The CAT rate of 0.26% was applied to the taxpayer’s taxable gross receipts after subtracting the exclusion amount of $1 million. There was a tiered annual minimum tax (AMT) ranging from $150 - $2,600.
New Law: The exclusion amount is increased to $3 million (for tax periods beginning in 2024), and $6 million (for tax periods beginning in 2025). Amounts above the exclusion amount will remain at the existing 0.26% rate. Beginning on January 1, 2024, the annual minimum tax (AMT) will be eliminated. Beginning on January 1, 2024, annual filing is also eliminated, and all remaining taxpayers must file quarterly.
The new exclusion applies to all businesses and is a substantial increase to the current exemption for taxable gross receipts. After the two-year phase-in, nearly 90% of all Ohio-based businesses will no longer pay CAT.
Combined and consolidated elected taxpayer groups must consider the taxable gross receipts of all members of the group in determining whether the taxpayer group will exceed the exclusion amount of $3 million in 2024 and $6 million in 2025 and thereafter.
What Taxpayers Need to Do:
Since the annual filing requirement and annual minimum tax for years after 2023 will be eliminated, there will be many taxpayers who do not need to pay CAT tax. Ohio Department of Taxation has indicated most taxpayers should cancel their accounts unless they are close to the $3 million threshold in 2024 or the $6 million threshold in 2025. Otherwise, they may need to file quarterly zero-dollar tax returns to avoid receiving delinquency notices and assessments. However, taxpayers may not want to cancel their account if they need to file to claim a tax credit, especially refundable credits.
Those taxpayers who wish to cancel their CAT accounts may cancel CAT accounts now or with the 2023 return filed in 2024. Taxpayers can cancel the accounts at any time before December 31, 2023, via the Ohio Business Gateway by using the Cancel Account transaction and entering an effective date of December 31, 2023. Alternatively, the 2023 CAT annual return (due in May 2024) and the 2023 fourth quarter return (due in February 2024) will both have a checkbox on the return that allows a taxpayer to easily cancel the account back to 12/31/2023 by checking the box. Taxpayers can also cancel their accounts by submitting the Business Account Update Form (BAUF) if needed.
If you anticipate exceeding $3 million in taxable gross receipts in 2024, it is recommended you continue filing quarterly returns. No tax will be due until you exceed $3 million in taxable gross receipts. Alternatively, you may cancel the account and reactivate the account when you exceed the new exclusion amount. Taxpayers are required to register and pay the tax within thirty days of exceeding the exclusion amount.
Taxpayers who plan on canceling their CAT accounts for 2024 since they will not be subject to CAT must remember to file their 2023 returns. The 2023 annual return is due May 10, 2024, and the Q4 2023 return is due February 10, 2024. Annual filers who have taxable gross receipts less than the $1 million exclusion for 2023 will not owe any tax on their 2023 return, since they prepaid the 2023 annual minimum tax with their 2022 return.
Additional information, including FAQs can be found here.
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