Ohio Commercial Activity Tax (Portfolio 2260)

Be a trusted advisor to your clients with Bloomberg BNA Tax Portfolios. In this Portfolio, our expert authors traces the history and evolution of business taxation in Ohio and provides a comprehensive analysis of the Commercial Activity Tax (CAT). “Planning Points” and examples throughout the Portfolio give practical insights and guidance to practitioners. 

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The Ohio Commercial Activity Tax Portfolio gives a detailed discussion of the entities or “persons” subject to the CAT. It also discusses the federal and state constitutional limitations imposed on the state's power to levy the CAT, as well as analyzes the applicability of federal statutory limitation Pub. L. No. 86–272 to Ohio's power to assess the CAT.

The author provides a comprehensive overview of how to compute the CAT, and thoroughly covers the situsing rules that apply to various sales, leases, and services. Credits that may be claimed against the CAT are also discussed.

In addition, the Portfolio addresses the filing requirements that apply to combined taxpayer groups, common owners, and consolidated elected taxpayer groups.


Thomas M. Zaino, JD, CPA

Thomas Zaino is Managing Member and founder of Zaino Hall & Farrin LLC, a law firm based in Columbus, Ohio. He assists clients with multistate business tax issues, representing many multistate and multinational companies and their owners and executives before state departments of revenue, government agencies, courts in Ohio and the Ohio General Assembly.

Prior to founding the firm, Thomas was an attorney with a multistate law firm where he served as Chair of the Multistate Tax Practice Group, Member-in-Charge of the Columbus, Ohio office and on the Board of Directors. As Special Tax Counsel to the Ohio Business Roundtable, an organization made up of the CEO's of Ohio's largest businesses, Thomas was instrumental in development of Ohio's commercial activity tax.

From 1999 to 2003, Thomas served as Ohio's tax commissioner under Governor Bob Taft, where he chaired the bipartisan Committee to Study State and Local Taxes and developed the Ohio Business Gateway. Previously Thomas was a tax consulting partner at PricewaterhouseCoopers, LLP where he was a founding member of a special project management service provided to large businesses to assist in the implementation of significant business process and legal entity changes.

Thomas is a founding member of the Independent SALT Alliance, a national not-for-profit association of independent providers of professional state and local tax services. He is a member of the American Bar Association's State and Local Tax Committee and is Chair-elect of the Board of Directors of the Ohio Chamber of Commerce, among other professional and community affiliations.

Credentials / Thomas graduated from the University of Cincinnati with a B.B.A. in accounting and is a certified public accountant. Thomas earned his law degree from The Ohio State University. He is a frequent national speaker and author on state and local tax developments.

Table of Contents

Detailed Analysis


Introductory Material

A. Evolution of Business Taxation in Ohio

B. Tax Administration in Ohio

C. Taxation of Business Entities: An Overview

D. Commercial Activity Tax

E. History and Purpose of the CAT


A. In General

B. Entities or “Persons” Subject to Tax

C. Excluded Persons

1. Persons With No More Than $150,000 of Taxable Gross Receipts

2. Certain Public Utilities

3. Financial Institutions

4. Dealer in Intangibles

5. Financial Holding Companies

6. Bank Holding Companies

7. Savings and Loan Holding Companies

8. Financial Industry Affiliates

a. Determining Ownership

b. Corporations

c. Limited Liability Companies

d. Partnerships, Trusts, or Other Unincorporated Business Organizations

e. Multiple Ownership

9. Insurance Companies

10. Securitization Facilitators and Servicers

11. Pre-Income Tax Trusts Making Qualifying Election


A. Federal Constitutional Limitations

1. Special Provision for Appeals Based on Specific Constitutional Grounds

B. Public Law No. 86-272

C. State Constitutional Limitations

1. Limits on Excise Tax

a. Relevant Ohio Constitutional Provisions

b. CAT Paid by Sellers of Food for Off-Premises Consumption

(1) In General

(2) Arguments in Favor of the CAT's Constitutionality

(3) Arguments Against the CAT's Constitutionality

(4) Ohio Grocers Association v. Wilkins

2. CAT Paid by Sellers of Motor Fuel

3. Impairment of Contracts

D. Special Provision for Appeals Based on Specific Constitutional Grounds

E. The CAT's Statutory Nexus Provisions


A. Basic Calculation of the CAT

B. Gross Receipts

C. Taxable Gross Receipts

D. Excluded Gross Receipts

1. Interest Income

2. Dividends, Distributions and Distributive Shares

3. Disposition of I.R.C. 1221 and 1231 Assets

a. In General

b. Hedging Transactions

c. Bulk Sale of Assets

d. Treatment of 338(h)(10) Transactions

4. Loans, Bonds, and Other Financial Instruments

5. Repurchase Agreements and Loans

6. Contributions to Deferred Compensation Plans

7. Wages and Other Compensation for Services Rendered

8. Proceeds From Issuance of Own Stock

9. Life Insurance Proceeds

10. Gifts and Charitable Contributions

11. Fund-Raising Receipts

12. Proceeds Received by Nonprofit Organizations

13. Damages

14. Property, Money, and Other Amounts Received by Agents

15. Tax Refunds and Other Tax Benefit Recoveries

16. Pension Reversions

17. Contributions to Capital

18. Sales or Use Tax Collected

19. Excise Taxes on Cigarette and Other Tobacco Products

20. Excise Taxes on Motor Fuel

21. Excise Taxes on Beer and Liquor

22. Certain Motor Vehicle Transfers

23. Certain Proceeds From Servicing and Managing Loans

24. Proceeds From Administering Cancer Drugs

25. Table-Funding Loans and Warehousing-Lending Mortgage Loans

26. Certain Proceeds of a Professional Employer Organization

27. Proceeds Retained by Horse Race Track Permit Holders

28. Certain Proceeds From Motor Fuel Sales

29. Proceeds From Property Shipped Into a Qualified Foreign Trade Zone Area

30. Qualifying Distribution Center Receipts

31. Commissions of Real Estate Brokers and Salespersons

32. Receipts Protected by the U.S. or Ohio Constitution

E. Deductions From Gross Receipts

F. Method of Accounting

G. The One-Year Rule on Purchases


A. Situsing in General

B. Sales, Rents, and Royalties From Real Property

C. Sales, Rents, and Royalties From Tangible Personal Property

D. Lease and Rental of Mobile Property

E. Sales of Services

1. In General

2. Administrative Rule

a. When the Purchaser Is Only Located in Ohio

b. When the Purchaser Is Not Only Located In Ohio

3. The Reasonable, Consistent, and Uniform Safe-Harbor Method

4. Principal Place of Business Election

F. Situsing Specific Services

1. Accounting Services

2. Advertising Services and Broadcast Advertising

3. Agents/Managers of Athletes and Entertainers

4. Agency Services – Other

5. Appraisal Services

6. Architecture and Drafting Services

7. Athletes and Owners of Animals Used in Sporting Events

8. Barbershop, Beauty Salon, and Spa Services

9. Billing and Ancillary Services

10. Cable and Satellite Services

11. Call Center Services

12. Child Care Services

13. Collection Agency and Repossession Services

14. Computer Programming Services

15. Construction Contracting Services

16. Contract Manufacturing Services

17. Data Processing Services

18. Day Care Services

19. Directors' Fees

20. Education Services

21. Electric Transmission and Distribution Services

22. Employment Services

23. Engineering Services

24. Entertainer Services

25. Entertainment and Amusement Services

26. Exterminating Services

27. Facility Management Services

28. Financial Planning Services

29. Funeral Services

30. Gambling Services

31. Healthcare Provider Services

32. Independent Writers and Artist Services

33. Installation Services

34. Internet and Web Hosting Services

35. Investigation Services

36. Landscaping Services

37. Legal Services

38. Linen, Uniform Supply, and Dry Cleaning Services

39. Logistics Services

40. Magazines and Newspapers

41. Maintenance Services

42. Management Consulting Services

43. Market Research Services

44. Membership Fees

45. Money Orders

46. Moving and Packing/Unpacking Services

47. Payroll Services

48. Promoters

49. Real Estate Broker Services

50. Repair Services

51. Security Services

52. Storage Services

53. Tax Preparation Services

54. Technical Assistance Services

55. Telecommunication Services

56. Testing Laboratories

57. Towing Services

58. Transportation Services

59. Travel Arrangement Services

60. Veterinarian Services

61. Waste Management Services

62. Wire Transfer Services – See Money Orders

G. Sales and Royalties From Intellectual Property

H. Dividends, Interest, and Other Income From Financial Instruments

I. Sales of Electricity and Electric Transmission and Distribution Services

J. Alternative Situsing Methods


A. In General

B. Choosing the Ownership Interest Threshold

C. Who Must Be Included in the Group

D. Registering for the CAT and Making the CET Election

E. Changing or Revoking the CET Election

F. Excluding Gross Receipts Between Members

G. Impact on Nexus Protections

H. Joint and Several Liability

I. Adding and Deleting Members

J. 50 Percent Owned Entities


A. In General

B. Who Must Be Included in the Combined Taxpayer Group

C. Registration Fee

D. Adding and Deleting Members

E. Gross Receipts Between Members of a Combined Taxpayer Group

F. Joint and Several Liability


A. In General

B. Statutory Provisions

C. Administrative Rule

D. Statute v. Rule – A Different View

E. De Minimis Exception for Individuals, Trusts and Estates

F. Ownership and Control Thresholds

1. In General

2. Ownership and Control Defined

3. Determining Value of Interests

a. Corporations

b. Partnerships, Limited Liability Companies, and Business Trusts

c. Trusts

d. Implied Partnerships


A. Minimum Tax

B. Flat Rate Tax

1. In General

2. Tax Rate Phase-In Percentages

3. Automatic Rate Adjustments


2260.11. TAX CREDITS

A. In General

B. Specific Credits

1. Jobs Creation Tax Credit

2. Jobs Retention Tax Credit

3. Qualified Research Expense Credit

4. Borrower's Qualified R& D Loan Credit

5. Net Operating Loss Transitional Credit

a. In General

b. Summary of Calculation

c. Limitations on the Credit

d. Unused Credit

e. Auditing the Credit

f. Making the Election to Claim the Credit

g. Impact of Claiming the Credit on Corporation Franchise Tax

C. Excess CAT Credit

D. Order in Which CAT Credits May Be Claimed


A. Registration for the CAT

B. Financial Reporting: Accounting for the Phase-In of the CAT

1. Non-Refundable CAT Credit Carryforwards

2. Refundable CAT Credit Carryforwards

C. Tax Periods, Returns, and Payments

1. Calendar Year Taxpayers

2. Calendar Quarter Taxpayers

a. In General

b. Quarterly Tax Calculation

D. Estimated Tax

1. Statutory Estimation Method

2. Rule Estimation Method

3. Alternative Estimated Payment Methods

E. Refunds

F. Passing the CAT on to Customers

G. Buying and Selling a Business

1. Acquiring a Business – Successor Liability

2. Disposing of a Business – Accelerated Liability


A. Statute of Limitations

B. Records and Confidentiality

C. Audits

1. Audit Procedures and Taxpayer Rights

2. Common Audit Issues

3. Sampling

D. Assessments

E. Appealing Assessments

1. Petition for Reassessment

2. Tax Appeals Division

a. Personal Appearance Hearings

b. Corrected Assessment Procedure

3. Board of Tax Appeals

4. Ohio Supreme Court or Court of Appeals

F. Appealing Denied Refund Claims

G. Collection of Assessed and Delinquent Taxes

1. Interest

2. Penalties

a. Failure to File or Pay

b. Additional Tax Due

c. Failure to Become Calendar Quarter Taxpayer

d. Failure to Register

e. Failure to Pay Registration Fee

f. Improper Timing of Gross Receipts

g. Fraudulent Refund

h. Non-Compliance

i. Penalty Abatement

Working Papers

Working Papers

Item Description Sheet

Worksheet 1 Commercial Activity Tax: Nexus Standards, Ohio Dept. of Taxn., Information Release CAT 2005-02 (September 2005)

Worksheet 2 Ohio Department of Taxation, Information Release-Commercial Activity Tax: CAT 2005-16

Worksheet 3 CAT Credit for Unused Franchise Tax NOLs

Worksheet 4 BNA 2008 Survey of State Tax Departments: Ohio Questionnaire

Worksheet 5 Petition for Reassessment

Worksheet 6 Declaration of Tax Representative