Ohio takes a unique approach to business taxation. Unlike most states, it does not impose a corporate income tax or a franchise tax. Instead, businesses are subject to the Commercial Activity Tax (CAT), which is based on gross receipts from business activities carried out in the state. This tax applies to nearly all entities—corporations, partnerships, LLCs, and even sole proprietorships—without deductions for expenses or costs of goods sold.
The CAT has evolved since its introduction in 2005. Initially, businesses could exclude their first $1 million in receipts, with taxes applying above that threshold. From 2024, the rules shift significantly, including higher exemption thresholds and the elimination of the annual minimum tax. This blog explains the CAT in detail, including its scope, rates, exemptions, and filing obligations, as well as recent changes that businesses operating in Ohio must understand.
Commercial Activity Tax (CAT)
Ohio’s business tax system stands apart from most states because it does not levy a corporate income tax or a franchise tax. Instead, it relies on the Commercial Activity Tax (CAT).
The CAT is based on a business’s gross receipts from activities within Ohio. It applies to:
- Partnerships
- Sole proprietorships
- Limited liability companies (LLCs)
- All types of corporations
What counts as gross receipts?
Gross receipts generally include revenue from the sale of property or performance of services. Importantly, businesses cannot deduct costs such as raw materials, operating expenses, or salaries.
However, certain items are excluded from the CAT, such as:
- Interest income (except from installment sales)
- Dividends
- Capital gains
- Wages reported on IRS Form W-2
- Gifts
This means the CAT is fundamentally different from an income tax, because it looks only at total receipts, not profit.
Background and Amendments
The CAT was first introduced in July 2005. From its inception until 2023, the law allowed taxpayers to exclude their initial $1 million of Ohio gross receipts. On receipts beyond that threshold, a 0.26% tax rate applied.
Before 2024, taxpayers with less than $3 million in Ohio sales were still required to file and pay the CAT. In addition, an annual minimum tax applied, which was determined on a graduated scale based on gross receipts.
Exemption Thresholds from 2024 Onward
The CAT has undergone major changes beginning in 2024:
- Businesses with less than $3 million in Ohio sales are no longer required to file or pay the CAT.
- Starting in 2025, this exemption threshold increases further to $6 million in Ohio sales.
These changes significantly reduce the compliance burden for small and medium-sized businesses operating in Ohio.
Tax Rate
The 0.26% rate remains unchanged for receipts that exceed the exclusion threshold.
Annual Minimum Tax (Eliminated)
Prior to 2024, an annual minimum tax was imposed on a graduated scale:
| Taxable Gross Receipts (USD) | Annual Minimum Tax (USD) |
| 1 million or less | 150 |
| More than 1m up to 2m | 800 |
| More than 2m up to 4m | 2,100 |
| More than 4m | 2,600 |
Effective for tax periods starting January 1, 2024, this annual minimum tax has been eliminated.
Filing Requirements
Until 2023, businesses filing as $150 annual minimum taxpayers typically filed an annual CAT return. Taxpayers with more than $1 million in Ohio receipts had to file returns quarterly.
However, starting in 2024, annual CAT filings will no longer exist. Only quarterly returns are required.
Due Dates for Quarterly Filings
Quarterly CAT filings follow this schedule:
- 1st Quarter: May 10 of the current year
- 2nd Quarter: August 10 of the current year
- 3rd Quarter: November 10 of the current year
- 4th Quarter: February 10 of the following year
All returns must be filed electronically using the Ohio Business Gateway, and the filing is done through CAT Form 12.
This streamlined approach reflects Ohio’s shift to a more efficient system while maintaining consistent revenue collection.
Conclusion
Ohio’s taxation system is distinctive in the United States. By replacing corporate income and franchise taxes with the Commercial Activity Tax (CAT), the state ensures a straightforward, receipts-based system that applies broadly to nearly all businesses.
Key features include:
- The CAT applies to gross receipts, not income.
- Many common financial streams, such as dividends and capital gains, are excluded.
- From 2024 onward, only businesses with over $3 million in Ohio sales are required to file.
- By 2025, the exemption doubles to $6 million in sales.
- The annual minimum tax was eliminated starting in 2024.
- Filing requirements have shifted exclusively to quarterly returns through the Ohio Business Gateway.
For businesses, these changes reduce compliance costs and simplify tax obligations. However, companies with receipts above the thresholds must remain diligent in tracking gross receipts and meeting quarterly deadlines to avoid penalties.
Ohio’s system demonstrates how a state can depart from traditional corporate taxation while still maintaining a clear, structured method to collect revenue.
