Mon, Jun 3, 2019
Over the past several months, we have seen a substantial increase in notices sent to companies doing business in Ohio encouraging compliance with the Commercial Activity Tax (“CAT”). A logical explanation may be the recent surge in sales tax registrations in Ohio relating to the new economic nexus requirements resulting from the South Dakota v. Wayfair decision. Many companies are unaware of what the Ohio CAT is and if they are required to file and remit payments.
Welcome to OH CAT 101:
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) |
Additional information can be found on Ohio’s Taxation website here.
What happens if a company does not file the Ohio CAT? The Ohio Department of Taxation can initiate a CAT audit with a lookback period of 10 years that would include penalties and interest. However, the state also offers a reasonable anonymous voluntary disclosure program with a lookback period of only three years that eliminates the penalties and gives companies the opportunity to pay their CAT liabilities timely. One caveat of the voluntary disclosure program is the company must not have received a notice from the Ohio Department of Taxation; the company must come forward prior to receiving a notice.
Following in Ohio’s footsteps, on May 16, 2019, Oregon Governor Kate Brown (D) signed Enrolled H.B. 3427. The state’s proposal to initiate a Corporate Activity Tax (CAT) will go into effect on January 1, 2020. The Oregon CAT will incorporate the situsing of Oregon gross receipts with an apportioned 35% deduction of either “cost inputs” or “labor costs.”
For companies that want to avoid playing a game of “cat and mouse” with the Ohio Department of Taxation, the Duff & Phelps Sales and Use Tax team encourages a review of the status of sales to customers in Ohio, and if appropriate, consider entering into a Voluntary Disclosure Agreement with the state before receipt of a notice of non-compliance.
H.B. 3427, 80th Oregon Legislative Assembly, 2019 Regular Session. (OR. 2019).
Ohio Department of Taxation. (2018). Annual Report Fiscal Year 2018. Retrieved from
https://www.tax.ohio.gov/Portals/0/communications/publications/annual_reports/2018AnnualReport/AR2018.pdf
Built upon the foundation of its renowned valuation business, Kroll's Tax Service practice follows a detailed and responsive approach to capturing value for clients.
Kroll provides a comprehensive suite of sales and use tax services to assist companies in complying with its sales and use tax obligations.