Commercial Activity Tax
Number of Taxpayers and Tax Return Data
Fiscal Year 2006
The commercial activity tax (CAT) went into effect on July 1, 2005. It is a privilege tax measured by gross receipts from activities in this state. The tax is a key component of the 2005 tax reform package enacted by Am. Sub. House Bill 66 (126th General Assembly). The major business tax components of the tax reform act consist of the phase-out of both the tangible personal property tax and the corporate franchise tax and the phase-in of the commercial activity tax.
The commercial activity tax was first reported and paid in February 2006, based on taxable gross receipts realized during the July 1, 2005 through December 31, 2005 period. The February 2006 returns consisted of: (1) taxpayers whose taxable gross receipts were between $75,000 and $500,000 and were therefore subject only to the $75 minimum tax, and (2) taxpayers whose taxable gross receipts were over $500,000 and were therefore subject to the $75 minimum tax plus a 0.06% tax on gross receipts exceeding $500,000. (Note: For purposes of this explanation, “taxpayer” means not only a separate business entity but also a combined or consolidated group of entities.) Taxpayers with July 1-December 31, 2005 gross receipts below $75,000 (with the exception of consolidated groups) were not subject to the tax.
With the exception of the temporary six-month calendar year 2005 period explained above, the tax is levied on a quarterly or annualized basis. Taxpayers with annual taxable gross receipts above $1 million must report and pay the tax quarterly. Taxpayers whose annual taxable gross receipts are between $150,000 and $1 million are considered annual taxpayers and are subject only to the $150 minimum tax. Taxpayers with annual gross receipts below $150,000 are not subject to the commercial activity tax. As a consequence, two groups of taxpayers filed returns in May 2006: (1) calendar year 2006 annual filers that paid only the $150 annual minimum tax; and (2) quarterly filers that paid the $150 annual minimum tax and the 0.06% tax on their January 1, 2006 through March 31, 2006 receipts in excess of $250,000.
The attached CAT-1 and CAT-2 tables reflect information reported on tax returns that were due and filed during fiscal year 2006, specifically on returns that were due and filed in February 2006 and May 2006. Additional factors affecting the data in these tables are explained below.
Only nine cumulative months of gross receipts (July 2005 through March 2006) and associated tax are reflected in these tables. The CAT-1 and CAT-2 tables produced in future fiscal years will reflect a full twelve months’ of activity so the gross receipts and tax liability figures will be considerably higher than the fiscal year 2006 tables.
The attached tables reflect the initial 0.06% tax rate. Ohio law phases in the commercial activity tax rate over a five-year period. The next rate increase to 0.104% will take effect April 1,2006 for the following 12-month period (impacting fiscal year 2007 tax revenues). The fully phased-in 0.26% tax rate will take effect on April 1, 2009 (impacting fiscal year 2010 tax revenues).
Each combined and consolidated taxpayer group is shown as a single entity for purposes of these tables. In the CAT-1 table, the combined or consolidated group is reported under the primary filer’s industry code. In the CAT-2 table, the entire group’s gross receipts determine the size category in which the group is placed.
As shown in these tables, the total reported commercial activity tax liability for fiscal year 2006 was $260.2 million. Of this amount $33.0 million was attributable to the minimum tax and $227.2 million was attributable to the 0.0598% tax rate. Taxable gross receipts amounted to $427.7 billion but the exclusion available on each return ($500,000 on the February 2006 return and $250,000 on the May 2006 return) reduced taxable receipts by $49.1 billion, or 11.5% of total receipts; thus resulting in net taxable gross receipts of $378.7 billion.
Table CAT-1 shows tax return information for 19 industrial sectors. The industrial sector data is based on each taxpayer’s reported primary industrial code, using the North American Industry Classification System (NAICS). The Retail sector comprises the largest group of taxpayers, accounting for 13.9% of all taxpayers. This is followed by Unclassified (11.5%) and Construction (10.7%) taxpayers. In terms of tax liability, Manufacturers account for the largest share at 27.5% of the total. The Retail (18.7%) and Wholesale sectors (10.8%) account for the next largest shares of total liability.
Table CAT-2 provides tax return information based on the size of each taxpayer’s taxable gross receipts (prior to the exclusion). Filers whose fiscal year 2006 taxable gross receipts were $1 million or below accounted for 81.4% of all returns but only 10.8% of the total liability (mostly in minimum tax). Filers with taxable gross receipts above $100 million comprised only 0.3% of all returns but accounted for 47.5% of total tax liability.
Data contained in these tables is derived from commercial activity tax returns filed by taxpayers with the Ohio Department of Taxation.