For nearly two decades, the Ohio Commercial Activity Tax (CAT) has generated significant tax revenue from both in-state and out-of-state entities. Recently, the CAT underwent notable changes aimed at simplifying the tax structure and reducing the burden on small businesses. These changes will expand further in 2025.
Prior Thresholds and Rates
Historically, businesses with Ohio taxable gross receipts of $150,000 or more per calendar year were required to register for the CAT, file returns, and make payments. The CAT gross receipts threshold was set at $1 million. Thus, the CAT taxed gross receipts totaling more than $1 million at a rate of 0.26%. Further, each business was required to pay an annual minimum tax (AMT) on the first $1 million of taxable gross receipts based on a tiered structure.
2024: Increased Thresholds and Elimination of AMT
In 2024, the gross receipts threshold increased significantly to $3 million. The exclusion amount for taxable gross receipts was also set at $3 million, meaning businesses with taxable gross receipts below $3 million were not required to register for or pay the CAT. The AMT was eliminated, simplifying tax obligations for many small businesses. The CAT rate remained unchanged at 0.26% of taxable gross receipts more than $3 million.
2025: Further Increases in the CAT Exclusion Amount
In 2025, the exclusion amount for taxable gross receipts will further increase to $6 million. Consequently, businesses with taxable gross receipts below $6 million will not be required to register for or pay the CAT. The CAT rate of 0.26% will remain applicable to taxable gross receipts over $6 million.
Implications for Small Businesses
With higher thresholds and the elimination of the AMT, small businesses will face fewer tax filings and payments, creating a more favorable environment for growth. These changes are designed to foster a more business-friendly climate in Ohio, benefiting small and medium-sized enterprises.
Larger companies, both within and outside Ohio, with Ohio sales and transactions, will continue to be subject to the CAT. It is anticipated that Ohio will remain proactive in pursuing large companies that owe CAT.