Ohio is one of a handful of states that don’t impose corporate income or franchise taxes. Instead, it levels a type of gross receipts tax called the Commercial Activity Tax (CAT). Ohio also has several other types of tax filing obligations that small business owners need to know about.
What is Ohio’s CAT?
Ohio’s CAT is an annual tax paid for doing business in the state. It’s based on the taxpayer’s gross receipts from business activities in Ohio. The tax applies to businesses with gross receipts of more than $150,000 per calendar year.
How often must a business file and pay the CAT?
Taxpayers with taxable gross receipts greater than $1 million must file with the Ohio Department of Taxation and pay quarterly; others file annually and pay the annual minimum tax (see below).
Do I need to file if I don’t owe any tax?
Yes. You’re still obligated to file a quarterly tax return even if you have no tax liability for a particular quarter.
How is Ohio’s CAT computed?
The CAT applies a tax rate of 0.26 percent to your taxable gross receipts less a $1 million exclusion.
How do quarterly filers apply the $1 million exclusion?
They should apply the full exclusion amount to their first calendar quarter return for that year. If an excess balance remains, they can carry forward the unused exclusion amount to later quarters in the same calendar year.
Who is subject to Ohio’s CAT?
The tax applies to all types of businesses and entities (for example, sole proprietorships, partnerships, limited liability companies [LLCs], and all types of corporations) with more than $150,000 in taxable gross receipts in a calendar year. And it can ensnare out-of-state businesses if they have enough business contact with Ohio.
How does Ohio define gross receipts?
Ohio defines “gross receipts” broadly. It includes most business types of receipts from the sale of property or performance of a service—without any deductions for costs of goods sold or other expenses.
The term doesn’t include:
- Interest income (other than from installment sales)
- Dividends
- Capital gains
- Wages reported on IRS Form W-2, “Wage and Tax Statement”
- Gifts
In the case of a sale of property, the receipt is generally considered a taxable gross receipt if the property is delivered to a location in Ohio. For services, the receipt is attributed to Ohio in the proportion that the amount of the purchaser’s benefit in the state bears to the purchaser’s benefit everywhere. Neither receipts from sales to out-of-state purchasers nor the proportion of services where the benefit was primarily received outside of Ohio are subject to the CAT.
How do I pay Ohio’s CAT?
Small businesses subject to the tax must register for the CAT through the Ohio Business Gateway, the state’s online filing and payment system. You can also register by submitting Form CAT 1, “Commercial Activity Tax Registration,” to the Ohio Department of Taxation by mail.
Registrations through the Gateway result in an immediate CAT account number and registration confirmation letter, but paper registrations can take up to six weeks to process.
Notably, Ohio expects taxpayers to file and pay any taxes due not later than 30 days after the point that they have more than $150,000 in taxable gross receipts in a calendar year.
Quarterly tax returns are due as follows:
- First quarter: May 10
- Second quarter: August 10
- Third quarter: November 10
- Fourth quarter: February 10
Annual tax returns are due May 10.
Do out-of-state businesses have to register for Ohio’s CAT?
Possibly. Out-of-state businesses must register and pay if they have a “bright-line” presence in Ohio, meaning they have any of the following at any time during the calendar year:
- Property in Ohio of at least $50,000
- Payroll in Ohio of at least $50,000
- Taxable gross receipts attributable to Ohio of at least $500,000
- 25 percent of total property, total payroll, or total gross receipts in Ohio
- The business is domiciled in Ohio
They also must have at least $150,000 in taxable gross receipts attributable to Ohio to be subject to the CAT.
Are any tax credits available?
Yes. Ohio provides several tax credits to businesses, including:
What is the annual minimum tax?
Annual CAT filers (businesses with taxable gross receipts between $150,000 and $1 million in a calendar year) must pay an annual minimum tax.
Quarterly CAT filers must pay the annual minimum tax for receipts up to $1 million. They also pay a rate component for taxable gross receipts exceeding $1 million (see below).
How is Ohio’s annual minimum tax computed?
The annual minimum tax is tiered, based on the previous calendar year’s taxable gross receipts:
Taxable Gross Receipts
$1 million or less: $150
More than $1 million but less than or equal to $2 million: $800
More than $2 million but less than or equal to $4 million: $2,100
More than $4 million: $2,600
How do I pay Ohio’s annual minimum tax?
You must file and pay the tax electronically. You can do this through the Ohio Business Gateway. Annual filers can also use Telefile to file and pay the annual CAT return.
The tax is due on May 10 of the current tax year, paid with the filing of the annual return or the first quarterly return. The annual return reports your taxable gross receipts for the prior year and prepays the annual minimum tax for the current year.
What is the pass-through entity (PTE) election?
Beginning with the 2022 tax year, Ohio allows a qualifying PTE to elect to be subject to an entity-level tax. Partners or members can then claim a refundable business credit, equal to their proportionate share of the entity-level tax, against their state income tax. The election is essentially a workaround for the IRS’s $10,000 limit on the itemized deduction for state and local taxes on federal income tax returns.
What is the PTE tax rate?
The PTE tax rate equals the tax rate imposed on taxable business income, currently three percent. The tax is imposed on the entity’s total qualifying taxable income. That is, all of the PTE’s business income subject to apportionment plus all of the non-business income subject to allocation.
What is the due date for the PTE election?
You must make the election by filing Form IT 4738, “Pass-through Entity/Fiduciary Income Tax,” on or before April 15 after the year the entity’s fiscal year ends.
Does a small business that makes the PTE election have to make estimated tax payments?
Yes. Estimated payments are due on the 15th day of the month after each quarter.
What is the business income deduction?
Ohio allows some taxpayers to deduct some of their business income on their individual income tax returns, as follows:
- For taxpayers filing as “single” or “married filing jointly, the first $250,000 of business income included in their federal adjusted gross income
- For taxpayers filing as “married filing separately,” the first $125,000 of business income included in their federal adjusted gross income
The remaining business income above those thresholds is taxed at a flat three percent rate.
The deduction doesn’t apply to compensation, guaranteed payments, rents and royalties, interest, dividends, or capital gains.
Who can claim the business income deduction?
Any individual with business income can claim the deduction, regardless of residency or where the income was earned. That includes business income from pass-through entities (sole proprietorships, partnerships, limited liability companies, and S corporations), regardless of the individual’s ownership percentage in the entity.
Does Ohio have a sales and use tax?
Yes. The Ohio sales and use tax rate is 5.75 percent, with adjustments made by cities and counties. It applies to the retail sale, lease, and rental of tangible personal property and the sale of selected services in Ohio. In transactions where sales tax was due but not collected by the vendor or seller, the use tax is due from the customer.
Are out-of-state businesses subject to the sales and use tax?
Ohio requires any person or business without a physical presence (e.g., a store or an employee) in the state to obtain an Ohio seller’s sales and use tax license and pay the applicable tax if the business satisfies one of the following criteria in the current or previous calendar year:
- Gross receipts in Ohio exceeding $100,000
- 200 or more separate transactions in Ohio
Such businesses must collect state sales tax on taxable sales made to consumers in the state, file returns, and remit the appropriate tax. The requirements kick in the month that an out-of-state seller satisfies one of the above criteria. This is referred to as “establishing substantial nexus,” and it means the business has sufficient contact with the state to impose tax liability. Out-of-state sellers may register through the Ohio Business Gateway or the Streamlined Sales Tax Project.
Out-of-state sellers aren’t required to register or collect and remit sales tax on taxable sales made through a marketplace if the marketplace facilitator collects and remits sales tax on their behalf.
How do I pay Ohio’s sales and use tax?
Sales tax returns are due monthly or semi-annually, depending on the amount of sales. Monthly sales tax returns are due on the 23rd day of the month following the period covered in the filing. For example, the return for the month of August is due September 23. All returns must be filed electronically. Semi-annual sales tax returns are due July 23 and January 23.
Use tax returns are due monthly or quarterly. Monthly use tax returns are also due on the 23rd day of the month following the period covered in the filing. Quarterly use tax returns are due April 23, July 23, October 23, and January 23.
What is the withholding tax?
Businesses generally are responsible for withholding Ohio individual income tax from their employees’ pay. Ohio employers must also withhold school district income tax from the pay of employees who live in a school district with such a tax. All employers required to withhold Ohio income taxes must register within 15 days of when such liability begins. Register online through the Ohio Business Gateway.
Both employee (Form IT 501, “Return for Income Tax Withheld”) and school district (Form SD 101, “Return for School District Income Tax Withheld”) withholding taxes must be filed and paid electronically. The due dates vary based on the amount withheld. You’ll also need to file annual reconciliations and, for each employee, collect Form IT 4, “Employee’s Withholding Exemption Certificate.”
Does Ohio have an unemployment tax?
Yes. Businesses must register with the Ohio Department of Job and Family Services as soon as they have an employee. The rates for 2023 range from 0.03 percent to 9.8 percent of the first $9,000 of an employee’s wages.
Payments are made quarterly on the last day of the month following the reporting period. They must be made electronically.
Are there any other business taxes I should know about?
Ohio imposes several excise taxes on specific industries or products.
