Sep 26, 2023
Commercial Activity Tax Changes Under Ohio House Bill 33
We recently covered the changes to Ohio’s tax codes that were enacted by Ohio House Bill 33 after it’s passage into law in July of 2023. The new law introduced several changes to state tax codes that could prove advantageous for Ohio business owners. One of the more significant changes to the tax law relates to how CAT is reported.
The CAT is calculated using a business’s taxable gross receipts. As a result of the passing bill, beginning January 1, 2024, the CAT annual minimum tax will be eliminated, and the exemption amounts for businesses will be significantly increased. Under the new law, the CAT rate of .26% will stay the same, but will now only affect taxpayers with gross receipts over $3 million in 2024, (that number will increase to $6 million in 2025).
Businesses currently reporting under $1 million in gross receipts, and that are predicted to have less than $3 million in gross receipts in 2024, should cancel their CAT account effective December 31, 2023, and file a final annual CAT return, due May 10, 2024. Once the final CAT return is filed, taxpayers with gross receipts under the exemption amount will no longer have to file an annual CAT return in subsequent years. Taxpayers that predict they will have annual gross receipts between $3 million and $6 million should file their final CAT return the following year, 2025. All remaining CAT payers that do not meet the exclusion amount must still file quarterly returns for tax periods after January 1, 2024.
If a taxpayer does not cancel their CAT account, they will still be required to file a CAT return until the account is canceled, even if nothing is due. Taxpayers may cancel their CAT account by visiting the CAT Cancel Account Transaction on the Ohio Department of Taxation’s Business Gateway (preferred method.) Alternatively, those wishing to cancel their CAT account can also complete and submit a “Business Account Update Form” available in the “Tax Forms” section of the Ohio Department of Taxation’s website.
If a business’s gross receipts happen to exceed the exclusion amount in subsequent periods, the taxpayer must reactivate their CAT account and resume filing returns and paying the Commercial Activity Tax at that time.
Ohio House Bill 33 has made several alterations to Ohio’s tax laws, with the regulations around Commercial Activity Tax being particularly affected. For more information on these changes, visit the official release from the Ohio Department of Taxation.
William Vaughan Company will continue to monitor the changes resulting from this bill as well as other state and federal tax bills.
Questions or concerns about how these changes apply to your specific CAT filings? Connect with us today to get a better understanding of these new developments and mitigate tax risks in your business.
Categories: Tax Compliance
Jul 17, 2023
Ohioans can expect significant changes to state tax laws next year thanks to Ohio House Bill 33. The newly passed piece of legislature, signed by Governor Mike DeWine on July 3, 2023, establishes state operating appropriations for fiscal years 2024-2025. This comprehensive legislation also brings several tax advantages specifically designed to benefit Ohio business owners. Taxpayers can expect changes to personal income tax, Commercial Activity Tax, Pass-Through Entity Tax Credits, and Municipal tax.
Personal Income Tax Reductions
The first significant change introduced by House Bill 33 is a reduction in personal income tax rates. The new law establishes two tax brackets based on income levels. If you earn over $26,050, you’ll pay a marginal tax rate of 2.75%. For individuals with income over $100,000, the rate increases slightly to 3.5%. Those earning $26,050 or less will be exempt from paying any income taxes to the state of Ohio.
Commercial Activity Tax (CAT) Exemption
House Bill 33 also brings changes to the Commercial Activity Tax (CAT), affecting businesses in Ohio. CAT is determined based off a business’s taxable gross receipts. The new law significantly increases the annual exemption threshold for businesses. Previously, businesses with taxable gross receipts under $150,000 were exempt from paying CAT. However, under the new law, the exemption amount rises to $3 million for the 2024 tax year and further increases to $6 million starting in 2025. This means that a large amount of Ohio-based businesses will no longer have to pay CAT.
Pass-Through Entity (PTE) Tax Credit
Another important change under House Bill 33 is the introduction of a tax credit for Ohio residents subject to double taxation on pass-through entity (PTE) income. Pass-through entities include businesses like partnerships, S corporations, and limited liability companies (LLCs). Often, individuals earning income from such entities face double taxation, meaning they pay taxes at both the entity level and the individual level. The new law allows Ohio residents to claim a credit on their individual tax returns for PTE taxes paid to other states, helping alleviate the burden of double taxation.
Municipal Tax Changes
Finally, House Bill 33 will enact several changes to municipal taxes in Ohio. Municipal taxes are taxes imposed by local governments, such as cities and towns. The new law reduces fees and penalties for late filing of municipal income tax returns, making it more affordable for taxpayers to comply with local tax obligations. Additionally, the bill extends the due date for filing municipal net profits tax returns from October 15th to November 15th, giving individuals and businesses more time to prepare their tax returns.
Furthermore, House Bill 33 exempts individuals under the age of 18 from Ohio municipal income tax. This means that high school students who have part-time jobs or earn income from other sources will not have to pay municipal income tax in Ohio.
The newly passed bill includes numerous other provisions aimed at providing tax relief for both business and individuals. From baby wipes and cribs, to traffic control services often used by construction contractors, taxpayers can expect additions to the state’s list of tax-exempt goods and services. Businesses with remote or hybrid employees in Ohio can also expect a new option for calculating their municipal net profits tax.
Ultimately, the passage of Ohio House Bill 33 introduces several significant changes to the state’s tax landscape. William Vaughan Company’s tax team will continue to monitor changes resulting from House Bill 33 along with other state and federal tax updates. For both businesses and individuals, understanding tax law is crucial when it comes to making informed financial decisions. Don’t leave your finances up to chance, connect with us today to understand how House Bill 33 may effect your specific situation.
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