Ohio CAT Reform 2024
In the wake of the recent enactment of Am. Sub. H.B. 33 by the 135th Ohio General Assembly, the Ohio Commercial Activity Tax (CAT) is set to undergo substantial modifications starting next calendar year.
The objective is to streamline the tax system and alleviate the burden on small businesses. The Ohio Department of Taxation has outlined the following changes:
- Annual Minimum Tax Elimination:
- One of the primary changes is the elimination of the CAT annual minimum tax for tax periods commencing on or after January 1, 2024. This move is geared towards providing relief to businesses, particularly small enterprises, by reducing the financial strain associated with the minimum tax requirement.
- Increased Exclusion Threshold:
- The threshold at which businesses are exempt from the CAT will gradually increase across the following two years. For the calendar year 2024, the exclusion amount is raised from $1 million to $3 million. Moving forward, for calendar year 2025 and beyond, the exclusion amount is further increased to $6 million.
- Transition to Quarterly Filing:
- Following the 2023 annual CAT returns, annual filing requirements are eliminated. All remaining CAT taxpayers are required to file quarterly for periods starting January 1, 2024. Current annual taxpayers will file a final annual return reporting their taxable gross receipts for 2023, due May 10, 2024.
- This shift in filing frequency aims to enhance efficiency and align with businesses’ operational cycles.
- An Unchanged Tax Rate:
- The CAT rate will remain constant at a rate of 0.26%. This rate will be applied to calculate outstanding CAT for the current year, for gross receipts exceeding $3 million in 2024 and $6 mission in 2026 and subsequent year.
Strategic CAT Account Management
These changes will be beneficial towards reducing future fiscal liability for a number of small businesses, who should consider cancelling their CAT accounts if their projected gross receipts over the next few years won’t meet the increased minimum criteria:
- Guidance for Annual Taxpayers:
- Annual taxpayers with $1 million or less in taxable gross receipts during the current calendar year and anticipating the same in 2024 will file a final annual return reporting their taxable gross receipts for 2023, due May 10, 2024. Those expecting $3 million or less in taxable gross receipts in 2024 should cancel their account by December 31, 2023.
- Guidance for Quarterly Taxpayers:
- Quarterly taxpayers projecting $3 million or less in taxable gross receipts during the current calendar year 2024 should cancel their CAT account by December 31, 2023. If the minimum amount is exceeded in a subsequent calendar year, reactivation of the CAT account is required.
Businesses who elect to cancel their CAT account may do so on Ohio’s “Gateway”, or via the Business Account Update Form, both available on the state’s department of Taxation’s website. When cancelling a CAT account, taxpayers may provide an effective date up to one year in the future.
If your business is based in Ohio or has nexus with the state, you should familiarize yourself with the new CAT regulations and take necessary steps to comply.
