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What is CAT?

  • Privilege tax for each “person” doing business in Ohio based on taxable gross receipts
    • Not a sales tax
    • Not an income tax
  • Broad base, low rate (.0026), “few” exclusions

What is “nexus”, and do I have a requirement to file and pay CAT?

A person with “substantial nexus” is subject to the CAT and must file and pay the CAT. Substantial nexus means any of the following:

  • Owns or uses its capital in Ohio;
  • Authorized to do business in Ohio;
  • Has “bright-line presence” (BLP) in Ohio; or
  • Otherwise has nexus under the Constitution of the United States.

“Bright-line presence” means any of the following:

  • $50,000 of property
  • $50,000 of payroll
  • $500,000 of taxable gross receipts;
  • 25% of total property, total payroll, or total gross receipts; or
  • Is domiciled in Ohio.

Who is subject to the CAT?

A “person” is subject to the CAT and includes: individuals, combinations of individuals of any form, receivers, assignees, trustees in bankruptcy, firms, companies, joint-stock companies, business trusts, estates, partnerships, limited liability partnerships, limited liability companies, associations, joint ventures, clubs, societies, for-profit corporations, S corporations, qualified subchapter S subsidiaries, qualified subchapter S trusts, trusts, entities that are disregarded for federal income tax purposes, and any other entities.

An “excluded person” is not subject to the CAT and includes:

  • A person with less than $150,000 in taxable gross receipts
  • Public utility paying the public utility excise tax
  • Financial institution (FI) paying the FIT
  • Persons owned by FI paying the FIT
  • Insurance company paying Ohio premiums tax
  • Person that solely facilitates or services one or more securitizations of phase-in-recovery property pursuant to a final financing order
  • Pre-income tax trust and any pass-through entity owned by such trust
  • Non-profit organizations

What is the tax base for the CAT?

The CAT levied on each person with “taxable gross receipts” for the privilege of doing business in this state. Taxable gross receipts are those gross receipts sitused (see question 6 below) to Ohio.

Gross receipts defined as:

  • the total amount realized by a person,
  • without deduction for the cost of goods sold or other expenses incurred,
  • that contributes to the production of gross income of the person,
  • including the fair market value of any property and any services received, and
  • any debt transferred or forgiven as consideration.

Can the CAT pyramid at each sale of the product/service?

Yes, the CAT is designed to subject each taxable gross receipt to the tax, which can lead to a pyramiding of the tax. Pyramiding is one of the disadvantages of a gross receipts tax.

If I make sales in multiple states, how do I “apportion” sales to each state?

Gross receipts are “sitused” to Ohio as follows (see Ohio Revised Code 5751.033)

  • Rents/royalties of real property located in Ohio shall be sitused to Ohio
  • Rents/royalties of tangible personal property (TPP) located or used in Ohio
  • Electricity – the sale of electricity and electric transmission and distribution services shall be sitused to Ohio in the manner provided under Revised Code 5733.059
  • Sale of real property located in Ohio shall be sitused to Ohio
  • Sale of TPP is sitused to Ohio if the property is received in this state by the purchaser.
    • In the case of delivery of tangible personal property by motor carrier or by other means of transportation, the place at which such property is ultimately received after all transportation has been completed shall be considered the place where the purchaser receives the property. For purposes of this section, the phrase “delivery of tangible personal property by motor carrier or by other means of transportation” includes the situation in which a purchaser accepts the property in this state and then transports the property directly or by other means to a location outside this state.
  • Trademarks, trade names, intellectual property are sitused to Ohio to the extent that the receipts are based on the amount of use of the property in this state. If the receipts are not based on the amount of use of the property, but rather on the right to use the property, and the payor has the right to use the property in this state, then the receipts from the sale, exchange, disposition, or other grant of the right to use such property shall be sitused to this state to the extent the receipts are based on the right to use the property in this state
  • Transportation services by a motor carrier are sitused to Ohio in proportion to the mileage traveled by the carrier during the tax period on roadways, waterways, airways, and railways in Ohio to the mileage traveled by the carrier during the tax period on roadways, waterways, airways, and railways everywhere
    Services and other receipts not captured above are sitused to Ohio in the proportion that the purchaser’s benefit in Ohio with respect to what was purchased bears to the purchaser’s benefit everywhere with respect to what was purchased.

    • The physical location where the purchaser ultimately uses or receives the benefit of what was purchased shall be paramount in determining the proportion of the benefit in this state to the benefit everywhere.

Are there any exclusions from the tax base for the CAT?

Yes, Ohio Revised Code 5751.01(F)(2) provides the list of excluded gross receipts. Some of the more common exclusions include:

  • Interest income except interest on credit sales
  • Dividends and distributions
  • Receipts from the sale, exchange, or other disposition of an asset described in section 1221 or 1231 of the Internal Revenue Code
  • Proceeds received attributable to the repayment, maturity, or redemption of the principal of a loan
  • Proceeds received on the account of payments from insurance policies
  • Property, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other remuneration
  • Cash discounts, returns & allowances, bad debts

What are the filing methods for the CAT?

Separate filer – if a person does not have a common owner, then the person is required to file as a separate filer

Combined taxpayer – if a person has a common owner then, the person along with the common owner and any other person the common owner owns more than 50% are required to file as a combined taxpayer

Consolidated elected taxpayer (CET) – a group of commonly-owned persons can elect to be treated as a CET and file one return as a CET. The group must make an election to include all persons owned at least 50% or at least 80% in the group. The group must also elect to include or exclude all foreign persons in the CET group.

What is a common owner?

  • Person that owns “or” controls certain percentage of the value of the ownership interest (statute)
  • Person that owns “and” controls certain percentage of the value of the ownership interest (rule)
  • Combined – more than 50%
  • Consolidated elected
    • At least 50%, or at least 80% (taxpayer election)
    • Include foreign entities (taxpayer election)
  • According to the Ohio Department of Taxation, attribution rules do not apply

What is the difference between combined and consolidated elected?

  • Combined – more than 50%
    • Only those entities with substantial nexus are required to be part of the combined taxpayer group
    • Taxable gross receipts between members of a combined taxpayer group are subject to CAT
  • Consolidated elected
    • At least 50%, or at least 80% (taxpayer election)
    • Include foreign entities (taxpayer election)
    • All persons meeting the elections above are required to be part of the consolidated elected taxpayer group even if a person does not have substantial nexus
      Receipts between members of the consolidated elected taxpayer group are not subject to CAT

What are the filing frequencies?

  • Periods prior to 1/1/2024
    • Annual – taxpayer’s with less than $1M in taxable gross receipts in a calendar year were required to file annually
    • Quarterly – taxpayer’s with more than $1M in taxable gross receipts in a calendar year were required to file quarterly
  • Periods after 1/1/2024
    • All taxpayers are required to file quarterly

Is there an annual minimum tax that is required in addition to my taxable gross receipts?

For periods prior to 1/1/2024 – Yes, there is an annual minimum tax that is based on a taxpayer’s previous calendar year taxable gross receipts

Taxable Gross Receipts Annual Minimum Tax CAT
$1 Million or less $150 No Additional Tax
More than $1 Million but less than or equal to $2 Million $800 0.26% x (Taxable Gross Receipts – $1 Million)
More than $2 Million but less than or equal to $4 Million $2,100 0.26% x (Taxable Gross Receipts – $1 Million)
More than $4 Million $2,600 0.26% x (Taxable Gross Receipts – $1 Million)

For periods beginning 1/1/2024 – No, the annual minimum tax has been eliminated

If I am part of a group of entities, can I file separately or must I file as part of a group return?

  • Combined – more than 50%
    • Required to file as a group return unless a person requests permission to opt out of the combined group filing
    • A person opting out of the combined group filing files as a separate filer, but is not entitled to the $1M exclusion (for periods prior to 1/1/2024), the $3M exclusion (for periods after 1/1/2024 and before 1/1/2025), or the $6M exclusion (for periods beginning 1/1/2025). Further, the opted out person is not required to pay the annual minimum tax for periods prior to 1/1/2024
  • Consolidated elected
    • There is not an option to request to opt out of the consolidated elected taxpayer group filing

If I haven’t registered for the CAT and should have, can I come forward under special terms to get registered?

  • Yes, according to the CAT Voluntary Disclosure Unit, if you haven’t registered and filed, a taxpayer can request to participate in a voluntary disclosure, which limits the periods to be filed to only 3 years and waives penalties.
    • Taxpayers may be able to obtain a retroactive consolidated taxpayer election as part of a voluntary disclosure
  • According to the CAT Voluntary Disclosure Unit, taxpayers that are already registered or have been contacted for audit are not eligible for the voluntary disclosure program. Taxpayers may wish to consider approaching the Department of Taxation outside of the voluntary disclosure program if ineligible for the voluntary disclosure program.
  • Please contact us to discuss assistance with obtaining a voluntary disclosure or contacting the Department outside of the voluntary disclosure program.

What happens if I get contacted for audit?

You should take the audit commencement letter seriously as the Department could issue estimated assessments if you don’t cooperate with the audit. You should consider reaching out to outside counsel with the experience necessary to handle the audit. ZHF has CAT experience like no other firm and stands ready to assist you with your audit.

What happens if I have overpaid CAT?

  • If you have overpaid the CAT, taxpayers can file a CAT-REF (along with amending the returns appropriate period(s)). ZHF has CAT experience like no other firm and stands ready to assist you with your refund claim.
  • Refund claims can be filed up to four (4) years from the date of payment of the CAT.

What is the statute of limitations for assessments and refunds?

Assessment

  • If return has been filed: 4 years from the later of the due date or filed date
  • If no return filed: 10 years from the due date – Audit Division usually audits for 7 years for unregistered companies

Refund

  • 4 years from the date of payment

Is the CAT an above the line expense or a below the line expense?

CAT is typically accounted for as an above-the-line expense since the CAT is not an income tax – not based on net income. ASC 740/ASC 450.

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