Executive summary:
Ohio CAT taxpayers should carefully review 2024 changes
Recall that on July 3, 2023, Ohio Gov. Mike DeWine partially signed and partially vetoed House Bill 33, the fiscal year 2024-2025 budget. Among changes to many Ohio taxes, the budget included several modifications to the Commercial Activity Tax (CAT) regime, such as increased annual exemptions and elimination of annual filings. Taxpayers must be aware of these changes especially for their next quarterly or annual CAT filing.
Ohio CAT changes require due diligence for 2024
CAT exclusion amounts and filing frequency changes
Effective Jan. 1, 2024, CAT taxpayers no longer incur annual minimum taxes, previously ranging between $150 and $2,600. The CAT rate remains unchanged at 0.26%. Annual filings are also eliminated after tax year 2023. Accordingly, all taxpayers must submit Ohio CAT filings on a quarterly basis going forward. Furthermore, annual exclusion amounts increase over a two-year period from $1 million to $3 million for the 2024 tax year and $6 million for the 2025 tax year.
The Ohio Department of Taxation encourages taxpayers to review their annual CAT receipts and, if expecting taxable receipts to be less than $3 million in 2024, to cancel their CAT accounts effective Dec. 31, 2023. Taxpayers may backdate their cancelation alongside completion of their final CAT return. The department emphasizes combined and consolidated elected taxpayer groups receive a single exclusion applied across all members. When determining the merits of cancelling its CAT account, group filers must consider the taxable receipts of all participating members. Furthermore, ongoing compliance may be necessary, regardless of the annual exclusion, where the taxpayer generates any CAT credits – particularly to monetize refundable credits.
Taxpayers planning to cancel their CAT account may do so by either submitting the Business Account Update Form available on the department’s website or through the CAT Cancel Account transaction on the Ohio Business Gateway while submitting their final annual return, due May 10, 2024, or final quarterly return, due Feb. 12, 2024. Ceasing to file without formally cancelling the account will result in the taxpayer receiving delinquency notices and potentially having to spend considerable time unwinding the matter.
Takeaways
Ultimately, the increased annual exclusions serve to reduce the taxpayer’s administrative burden and allow the department to concentrate its efforts on more active CAT filers. Implementing these changes requires impacted taxpayers to timely cancel their CAT account and submit their appropriate final CAT filing. While finalizing 2023 financial information, businesses should review Ohio revenue and assess their continuing CAT filing obligations. However, taxpayers should cancel their account before or with their final return. Taxpayers should also be aware that they will need to reactivate their account and file and pay CAT if they exceed the threshold after canceling. For more information on the CAT or last summer’s comprehensive tax bill, please reach out to an Ohio state and local tax adviser or read our article, Ohio enacts individual and business tax changes in 2024 budget bill
