CAT tax changes in 2014

Most farm and agribusiness in Ohio are aware of the Commercial Activity Tax (CAT) which is the annual tax imposed for the privilege of doing business in Ohio, measured by taxable gross receipts from most business activities. Businesses with Ohio taxable gross receipts of $150,000 or more per calendar year are subject to the tax.

The CAT was enacted in House Bill 66, passed by the 126th General Assembly in 2005. Most receipts generated in the ordinary course of business are included in a taxpayer’s CAT base. This tax applies to all types of businesses: e.g., retailers; service providers, such as lawyers, accountants, and doctors; manufacturers; and other types of businesses.

The CAT applies to all entities regardless of form, e.g., sole proprietorships, partnerships, LLCs, and all types of corporations. The tax does have limited exclusions for certain types of businesses such as financial institutions, dealers in intangibles, insurance companies, and some public utilities if those businesses pay other specific Ohio taxes.

The term “gross receipts” is broadly defined to include most business types of receipts from the sale of property or in the performance of a service. Note that certain receipts are not taxable receipts and are excluded from a taxpayer’s CAT base, such as dividends, capital gains, wages reported on a W-2, interest income (other than from credit sales), and gifts.

It is important to note that, in general, persons with $150,000 or less in taxable gross receipts are not subject to the CAT.

Up until December 31, 2013, the rates were as follows:  The first $1 million in taxable gross receipts (from $150,000 to $1,000,000) was taxed at an annual minimum tax of $150, and then taxed at 0.26% for any receipts above $1 million.

For tax periods beginning on January 1, 2014 and thereafter, the annual minimum tax (AMT) will become a tiered structure and taxpayers will pay an amount that corresponds with their overall commercial activity (legislative change in Am. Sub. H.B. 59 of the 130th General Assembly). The additional 0.26% tax for any receipts above million has not changed and continues to apply to those taxpayer’s with taxable gross receipts over $1 million.

The taxpayer will use the previous calendar year’s taxable gross receipts to determine the current year’s minimum tax.  For taxpayers with $1 million or less in taxable gross receipts the minimum payment will not change.  It will stay at $150. The annual minimum tax for taxpayers with total taxable gross receipts of more than $1 million but less than or equal to $2 million will be $800. The annual minimum tax for taxpayers with taxable gross receipts more than $2 million but less than or equal to $4 million increases to $2,100. Finally, the annual minimum tax for taxpayers for taxpayers with taxable gross receipts over $4 million will be $2,600.

 

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)

CAT examples

Marrison Farms LLC is an annual taxpayer.  The farm reports taxable gross receipts of $500,000 for the reporting period of January 1, 2013 to December 31, 2013 on its annual return in May, 2014. Marrison Farms LLC will pay an annual minimum tax for 2014 of $150 with the 2013 annual return filed in May, 2014.

John B. Landowner owns 400 acres in northeastern Ohio and is a teacher at the local high school.  He leases his land for oil & gas exploration for $3,000 per acre. He receives a bonus payment of $1,200,000. To calculate his CAT obligation, Mr. Landowner would pay $800 for the first million dollars and then apply the 0.26% tax rate for the remaining $200,000, which equals $520.  He has no other commercial business activity so his total CAT obligation would be $800 + $520 = $1,320. His wages as a school teacher are not subject to the CAT.

Note: Landowners that receive bonus and royalty dollars received for shale oil and gas leases are subject to the Ohio Commercial Activity Tax (CAT) if the payments total over $150,000 annually.

How to pay CAT

Electronic registration for paying the CAT is available online through the Ohio Business Gateway at: http://business.ohio.gov.  Additional instructions on registering and paying the tax are available on Ohio’s CAT at: http://www.tax.ohio.gov/commercial_activities.aspx

Please contact the CAT Division at 1-888-722-8829 with questions regarding this release or any other CAT matter.

References

Ohio Department of Taxation, Commercial Activity Tax Website

http://tax.ohio.gov/divisions/commercial_activities

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