Ohio’s Commercial Activity Tax (CAT) will undergo significant changes in 2024 and 2025, representing a substantial shift in the state’s approach to business taxation, with far-reaching implications for Ohio residents and the business community.
The commercial activity tax (CAT) is an annual tax imposed on the privilege of doing business in Ohio, measured by gross receipts from business activities in Ohio.
1. Elimination of the Annual Minimum Tax: Starting January 1, 2024, the annual minimum tax, which previously applied to all businesses with taxable gross receipts of $150,000 or more, will be removed. This change is particularly beneficial for small businesses, reducing their tax burden and administrative overhead.
2. Increased Exclusion Threshold: The reform also raises the threshold for CAT liability. In 2024, businesses with gross receipts up to $3 million will be exempt, a significant increase from the previous $1 million threshold. In 2025, this exemption threshold will further rise to $6 million.
3. Transition to Quarterly Filing: The annual filing requirement will be replaced with a quarterly filing system, effective from January 1, 2024. This adjustment aims to streamline the filing process and align it more closely with the operational cycles of businesses. The CAT rate of .26% remains unchanged.
What to do now?
Currently, registered annual taxpayers anticipating having $3M or less in taxable gross receipts during 2024 will file a final annual report of their taxable gross receipts for 2023, due May 10, 2024. An annual taxpayer expecting to have $3M or less in taxable gross receipts in 2024 should then cancel their CAT account prior to or along with their final filing. If you fail to cancel your CAT account, you must file quarterly returns even if no tax is owed.
Have more questions about CAT? Reach out to your PNC tax advisor or check out: https://tax.ohio.gov/business/ohio-business-taxes/commercial-activities/changes_to_ohios_commercial_activity_tax
Implications for Ohio Residents:
1. Support for Small Businesses: By reducing the tax burden on small businesses through these changes, Ohio aims to foster a more supportive environment for entrepreneurship and small business growth. This can lead to increased economic activity, job creation, and potentially a wider variety of services and products for residents.
2. Economic Growth and Investment: The reforms could make Ohio more attractive to businesses, encouraging investment and expansion within the state. This can lead to more job opportunities and potentially boost the overall economy, benefiting residents through increased employment opportunities and economic stability.
3. Impact on Public Services and Infrastructure: While these changes are business-friendly, they might also impact on the state’s revenue. The reduction in tax collections could affect funding for public services and infrastructure projects. The balance between fostering a business-friendly environment and maintaining adequate revenue for public services is crucial.
The 2024 and 2025 reforms to Ohio’s Commercial Activity Tax signify a major shift towards supporting small businesses and simplifying the tax system. While these changes are poised to benefit the business community, their long-term impact on Ohio’s economy and residents will depend on how they intersect with broader economic trends and state fiscal policies.
Treasury Circular 230 Disclosure
Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.