The new CAT in the barn is one that can turn around and bite you, if it doesn’t get your attention soon.
CAT is the acronym for Ohio’s new Commercial Activity Tax. You may have read or skimmed an article or two on this new tax and pushed it to the “so what” or “not urgent” piles on your desk or in your head. Time to pull it back into the “take care of now” stack.
What is it? Briefly, this new tax was part of Ohio House Bill 66, Ohio’s budget for 2006 and 2007. It is considered a “privilege tax”, or a “cost of doing business in this state,” according to the Ohio Department of Taxation’s Web site.
Tax rates are being phased in over the next four years.
Basically, any business with gross receipts of $150,000 or more must register to pay this tax by Nov. 15.
We are used to paying income taxes on the net receipts. CAT is not concerned with expenses, simply all of the income generated by a business.
Registration for the CAT is not complicated. You can register online or by mail. Registration for a single business is $15 to $20.
Businesses comprised of multiple companies will have to go through a bit more complicated procedure of registering with higher fees.
How much tax? For annual gross receipts less than $1 million, a flat $150 tax will be due.
For gross revenues exceeding the first $1 million, the initial tax rate is 0.06 percent (.0006). If a farm had gross receipts of $2 million, it would owe $150 for the first million and an additional $600 for the second million.
Any business with gross receipts of $150,000 or more
must register to pay this tax by Nov. 15.
The tax rate for the gross income greater than $1 million will increase through 2009 when it will settle at 0.26 percent (.0026). A farm will then owe $2,600 for the second $1 million in gross income.
When? The first tax payment is due Feb. 10, 2006, for gross returns generated from July 1 through Dec. 31, 2005.
The minimum tax for any farm generating more than $150,000 of gross receipts annually will be $75, less any registration fee that was paid. Not a big amount in the cash-flow planning scheme of things.
Not registering, however, can result in penalties of $100 per month, up to $1,000.
Where? If you have Internet access, full information on the tax, how multiple businesses should be registered, forms and frequently asked questions and answers are readily available. Log onto http://tax.ohio.gov/.
Time is running short to get a hard copy back and forth through the mail, but there is still time if you act soon. Call the Ohio Department of Taxation at 888-722-8829.
Request a copy of information about the CAT tax including the registration form and a listing of NAICS (North American Industrial Classification System) codes. You will need to select the code that best describes your particular farming operation for the application.
The Ohio Department of Taxation can also be reached by mail at P.O. Box 16158; Columbus, OH 43216-6158.
Crossing borders. A question has come up from areas where milk or other farm products are actually being sold in another state. An example would be a dairy farm in Ashtabula County where milk is sold to a processor located in Pennsylvania.
Don Breece, OSU Extension’s farm management specialist, asked the tax department to clarify if milk and other livestock sales from Ohio farms to out-of-state markets would be a part of the gross income figure and subject to the tax?
The answer was that “the gross receipt has to be sitused to Ohio. If the dairy farm milk is sold outside Ohio, the farm is not subject to CAT. See the Ohio Revised Code 5751.033 for situsing provision.”
For those of us nonlegal types, “sitused” translates into “sourced.” In this case, the dollars are sourced in Pennsylvania.
If the farm had additional receipts for other products sold in Ohio (say they sold crops as well as milk,) greater than $150,000, then those receipts would be subject to the CAT tax.
Nov. 15 deadline. It is time to get the Commercial Activity Tax paperwork and get the business registered. The Nov. 15 deadline is fast approaching.
Don’t get scratched by this CAT.
(The author is the northeast Ohio district dairy specialist with OSU Extension. Send comments or questions in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)