Ohio Commercial Activity Tax | Gross Receipts Exclusion | OH IN KY

Ohio’s Commercial Activity Tax: Changes to CAT Minimum Tax & Gross Receipts Exclusion

Published on by Chris Weissmann in Tax Services

Ohio’s Commercial Activity Tax: Changes to CAT Minimum Tax & Gross Receipts Exclusion

In the complex world of taxes, change is the only constant. As such, it’s critical to keep a close eye on alterations and modifications, particularly when they affect your tax planning and obligations.

Most recently, Ohio’s Commercial Activity Tax (CAT) has come under the spotlight with the signing of HB 33, the state’s budget bill, into law by Governor DeWine, and effective July 4, 2023.

What does this mean for taxpayers in Ohio?

In tax year 2024, two key rules change:

  1. The minimum tax of $150 assessed on business with under $1 million in gross receipts will go away.
  2. The gross receipts exclusion amount for the CAT will increase significantly.

The gross receipts exclusion amount is essentially a tax-free allowance, beyond which CAT becomes applicable. Under HB 33, this amount will jump to $3 million in tax year 2024, and further to $6 million in 2025. This represents a significant increase from the current $1 million exclusion threshold.

Why does this matter?

A higher exclusion amount and the removal of the minimum tax translates to lower tax liabilities for businesses, as the new law effectively expands the tax-free threshold. This means that more businesses, particularly small to medium-sized enterprises, could find themselves falling within this exclusion amount, and therefore not owing any CAT.

Even with these changes, some things remain constant. There will be no change in the filing threshold. This means that the criteria determining whether a taxpayer needs to file the CAT will remain the same. In a move that may have surprised some, Governor DeWine vetoed a provision that would have exempted taxpayers earning over $150,000 but less than the exclusion amount from filing.

In practical terms, this means that many taxpayers whose Ohio gross receipts are between $150,000 and the exclusion amount ($3 million in 2024, $6 million in 2025) will still be obligated to file quarterly tax returns, even though they will not owe any tax. This could result in additional paperwork and administrative effort for businesses that fall into this category.

Putting it all together

While the modifications to Ohio’s Commercial Activity Tax under HB 33 bring some potential tax benefits, they also introduce additional complexities. It’s crucial for businesses to stay informed and adapt their tax planning strategies accordingly. Consultation with a tax professional is recommended to navigate these changes and ensure compliance while maximizing the tax-saving potential.

For many, a good first step is a sales tax nexus checkup. Or, read about avoiding common sales tax compliance mistakes. You can also get insights into the impact of remote work on tax withholding or contact us to set up a free consultation. As always, we’re here to help.


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