1 / 40

Overview of the Commercial Activity Tax (CAT)

Overview of the Commercial Activity Tax (CAT). Sarah E. O’Leary, Administrator, Commercial Activity Tax Division Ohio Department of Taxation. Hudson, Ohio November 14, 2009. Agenda. Brief Overview of the CAT Auditing and Compliance Filing Tips CAT Statistics Recent Court Cases

slone
Download Presentation

Overview of the Commercial Activity Tax (CAT)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Overview of the Commercial Activity Tax (CAT) Sarah E. O’Leary, Administrator, Commercial Activity Tax Division Ohio Department of Taxation Hudson, Ohio November 14, 2009

  2. Agenda Brief Overview of the CAT Auditing and Compliance Filing Tips CAT Statistics Recent Court Cases List of Information Releases and Rules 2 2

  3. Commercial Activity Tax:A few things to keep in mind… A broad-based, low rate tax (0.26%) on gross receipts from business activity in Ohio Generally, taxpayers with less than $150,000 in taxable gross receipts are not subject to the CAT Rate structure of the tax: Pay $150 minimum tax on first $1 million in taxable gross receipts Receipts above $1 million, pay $150 plus 0.26% on amount in excess of $1 million 3

  4. Nature of the CATR.C. 5751.02 Tax is imposed annually for the privilege of doing business in Ohio “Doing business” means any activity for gain, profit, or income (legal or illegal) Not a transactional tax (important for Ohio’s Constitution) Not a tax on or measured by income – P.L. 86-272 Tax may not be billed or invoiced to another Tax may be passed on as part of price 4

  5. CAT TaxpayersR.C. 5751.01(D) Taxpayers are all persons or groups of persons required to file returns or to pay the tax “Person” includes corporations, pass-through entities, individuals, joint ventures, clubs, trusts, and disregarded entities 5

  6. Excluded PersonsR.C. 5751.01(E) “Excluded persons” include the following entities: Public utilities, dealers in intangibles, financial institutions and insurance companies that are subject to other taxes imposed by the state Certain subsidiaries of entities listed above Certain irrevocable trusts created pre-1972 (before Ohio’s income tax) Nonprofit organizations Most governmental agencies Persons with receipts <$150,000 6

  7. Mandatory Combined Reporting Groups of persons meeting certain ownership thresholds must file as a group Two options: Consolidated Elected Taxpayer Group – An election Combined Taxpayer Group – Mandatory if no election 7

  8. Commercial Activity Tax (CAT) Consolidated Elected Taxpayer At least 50% or 80% common ownership Option to include or exclude non-US entities Must include all entities regardless of nexus in Ohio Gross receipts between members are excluded Combined Taxpayer More than 50% common ownership Combined only required to include entities with nexus in Ohio Gross receipts resulting from payments between members are subject to the CAT Consolidated Elected vs. Combined Taxpayer 8

  9. Common Ownership Value of ownership is owned or controlled, directly or constructively through related interests, by common owners It is for all or any portion of a tax period ODT has issued rule to further clarify common ownership: Rule uses a “vertical control” test focused on voting rights Family attribution rules do not apply (e.g., IRC provisions addressing owners of S corporations) 9

  10. “Bright-line Presence”R.C. 5751.01(I) MTC Factor Presence Nexus Used: Person has “bright-line presence” for quarter and remainder of year if any of the following applies: Property of at least $50,000 within state Payroll of at least $50,000 within state Annual taxable gross receipts of at least $500,000 At least 25% of total property, payroll, or gross receipts in this state Is domiciled in this state (commercially or legally) Economic presence standard to fairly apply the tax to both instate and out-of-state businesses that benefit from receiving gross receipts from purchasers located in Ohio 10

  11. Gross Receipts Definition Broad Gross Receipts Base Exclusions e.g., interest, capital gains, wages (received), bad debt, cash discounts Situsing Rules – i.e., Taxable Gross Receipts Limited Credits Applicable to CAT What is Subject to the CAT? 11

  12. Gross receipts from the sale of services are sitused to Ohio in the proportion that the purchaser’s benefit received in Ohio bears to the purchaser’s benefit received everywhere. The physical location where the purchaser ultimately uses or receives the benefit of what was purchased shall be taken into consideration when determining the proportion of the benefit Reasonable test can be used – must be applied in uniform and consistent manner What is Subject to the CAT?Situsing Rule - Services 12

  13. What is Subject to the CAT?Situsing Rule – Everything else • TPP: Ultimate delivery location • Rents/royalties from real property: Property location • Rents/royalties from TPP: Location/Use of TPP • Electricity/Electric transmission distribution: Miles • Sale of real property: Property location • Sale/exchange/distribution/use of IP (e.g., trade names): • Amount of use: Apportion to state(s) of use • Right to use: Apportion to state(s) where right to use • Transportation: Miles • Dividends/interest/financial income: R.C. 5733.056(F)

  14. Tax Returns Filing a tax return: Taxpayers with taxable (Ohio) gross receipts in excess of $150,000, but less than $1 million pay an annual flat tax of $150 (May. 10th each year) Taxpayers with taxable (Ohio) gross receipts in excess of $1 million pay $150 on the first $1 million ($250K per quarter) and remit the tax on the remainderquarterly 14

  15. Tax Returns Example – 1st QTR 2010 Return $ 150 payment of 2010 tax minimum due May 10, 2010 First Quarter Tax Calculation $ 1,500,000 in taxable (Ohio) gross receipts $ - 250,000 exclusion amount for 4th quarter $ 1,250,000 x .0026 = $3,250 Total payment of $3,400 Due May 10, 2010 15

  16. Tax Returns Deadlines for filing a quarterly return: 4th Qtr 2009: February 10, 2010 1st Qtr 2010 & Annual Return: May 10, 2010 2nd Qtr 2010: August 10, 2010 3rd Qtr 2010: November 10, 2010 4th Qtr 2010: February 10, 2011 16

  17. Commercial Activity Tax (CAT) Statute provides three rate adjustments so that the tax does not generate too much revenue The 2007 and 2009 measurement periods did not trigger a rate adjustment There is one additional rate adjustment –after FY 2011 These adjustments are made by the Tax Commissioner using a prescribed formula 17

  18. Auditing and Compliance

  19. Auditing ODT established an audit team to develop audit procedures and an audit manual. This is an ongoing process as additional audits are completed. Part of the process included Voluntary Compliance Reviews (VCRs) No penalties imposed ODT conducted 10 VCRs ODT is now conducting normal audits which will, if applicable, include penalties 19

  20. Identifying Potential Taxpayers New Nexus Unit Ohio Department of Taxation is looking for leads from the following: Other taxes - Over 400,000 notices sent Leads from audits of other taxpayers - Approximately 750 notices sent Third party information to locate out-of-state businesses 90,000 mailings made thus far Various other sources 20

  21. Compliance ODT has issued estimated assessments against entities with apparent bright-line presence. These assessments include: 10% of tax late filing penalty 15% of tax late payment penalty 35% of tax failure to register penalty (Total potential penalty of 60%) $100/month, maximum $1,000, penalty for failure to register Assessments will continue to be issued as additional information is received. 21

  22. Voluntary Disclosure Agreements (VDAs) • Information Release CAT 2008-01 – Revised May 2009 • Allows VDA for CAT • Interest only – no penalties (as long as taxpayer never contacted via audit or compliance program) • Steps for VDA: • Send request for VDA in writing to CAT Division • ODT sends letter, contract, and returns/regis. • Register, file returns, pay tax • ODT bills for interest

  23. Commercial Activity Tax Filing Tips

  24. Tips for Successful Filing • Identify all documents with account # • Do not copy forms and reuse • Only primary entity is required to file • Quarterly taxpayers must file regardless of taxable gross receipts • Reporting multiple periods on one return • New taxpayer • Delinquent taxpayer

  25. Tips for Successful Filing • Estimated Returns • Check the proper estimation box on return/OBG • Rule estimate must file reconciliation quarterly • Statutory must file reconciliation yearly • Cannot file an estimate after billing received for that period • No estimates in first Qtr 2007, 2009 or 2011 • If filing estimate returns, taxpayer must reconcile

  26. Tips for Successful Filing • Amended Returns • Include total TGR for the reporting period, not just difference from original filing • Payments • Identify with CAT account # and period-end date • Mail separately to each tax division • Watch for payment from checking • If electronic, determine why account blocked

  27. Commercial Activity Tax Statistics* *Information as of November 2, 2009

  28. Commercial Activity Tax (CAT) Types of filers: Approximately 118,676 taxpayers pay only the $150 annual minimum tax Another 59,880 taxpayers pay $150 annual minimum tax, plus the quarterly tax on their taxable gross receipts in excess of $1 million CAT is expected to raise at least $1.3 billion by FY 2010 (with no rate adjustments) 28

  29. Taxpayer Registration Types Active Taxpayers: 178,551 Single Entity: 154,600 Combined Taxpayer Groups: 6,010 Largest Group: 500 Members Average Group: 3 Members Consolidated Elected Taxpayer Group: 17,836 Largest Group: 3,020 Members Average Group: 6 Members 29

  30. CAT Revenue • Actual Collections – 1st Measurement Period: • FY 2006: $273.4M • FY 2007: $594.9M • Total: $868.3M (Target: $815M [+ 6.5%]) • Actual Collections – 2nd Measurement Period: • FY 2009: $1.18B (Target: $1.19B [-1%]) • Next measurement period: July 1, 2010 - June 30, 2010 • Trigger: $1.61B • ODT projects collections will be far short of estimate

  31. CAT Taxpayer Base by Industry

  32. Case Law Update

  33. Case Law Update • Ohio Grocers Assn. v. Wilkins • Decision by Ohio Supreme Court issued September 17, 2009 • 28 amici groups supported position (7 briefs) • Beaver Excavating v. Levin • Status Conf. Scheduled later in November Re: Grocers’ decision • Ohio Farmers Foodservice v. Wilkins • September 29, 2009 case dismissed • Overstock.com v. Levin • Motion to Dismiss – Granted August 31, 2009 (Franklin Co.)

  34. Administrative Rules and Information Releases

  35. Administrative Rules and Information Releases • CAT 2005-02: CAT Nexus Standards • CAT 2005-03: Excluded Person • Adm. Rule 5703-29-04 • CAT 2005-04: Electronic Filing • Adm. Rule 5703-29-05 • CAT 2005-05: “Common Owners and Joint Ventures • Adm. Rule 5703-29-02 • CAT 2005-06: Situsing of Services • Adm. Rule 5703-29-17 • CAT 2005-07: Transfers of Property Into the State • Adm. Rule 5703-29-06

  36. Administrative Rules and Information Releases (Continued) • CAT 2005-08: I.R.C. Section 1221 and 1231 Assets Excluded from Gross Receipts • CAT 2005-09: Sampling • Adm. Rule 5703-29-03 • CAT 2005-12: Request to File Separately • Adm. Rule 5703-29-08 • CAT 2005-13: Estimated Payments for Quarterly Taxpayers • Adm. Rule 5703-29-09 • CAT 2005-14: Nonprofit Organizations • Adm. Rule 5703-29-10 • CAT 2005-18: Temporary Motor Fuel Exemptions • Adm. Rule 5703-29-12 • CAT 2006-01: Applicable Excise Tax Rates for Purposes of the CAT

  37. Administrative Rules and Information Releases (Continued) • CAT 2006-03: Agency, Defined • Adm. Rule 5703-29-13 • CAT 2006-04: Cash Discounts, Defined • Adm. Rule 5703-29-14 • CAT 2006-05: Highway Transportation Services: Bright-Line Presence and Situsing • Adm. Rule 5703-29-15 • CAT 2006-07: Qualified Distribution Center • Adm. Rule 5703-29-16 • CAT 2006-08: Situsing Receipts from Periodic Payment for Mobile Property • Adm. Rule 5703-29-20 • CAT 2006-09: CAT Records Retention Requirements • Adm. Rule 5703-29-18

  38. Administrative Rules and Information Releases (Continued) • CAT 2006-10: CAT Changes in Ownership • Adm. Rule 5703-29-17 • CAT 2007-01: Rule Estimation and Statutory Estimation Procedures, Compared • CAT 2007-02: Pre-Income Tax Trusts, Explained With Revocation Procedures • Adm. Rule 5703-29-21 • CAT 2007-03: Commercial Activity Tax Credits, Explained • Adm. Rule 5703-29-22 • CAT 2008-01: Commercial Activity Tax: Voluntary Disclosure Agreements • CAT 2008-02: Commercial Activity Tax: Business as usual after Ohio Supreme Court decision in Ohio Grocers Association v. Levin • CAT 2009-01: Commercial Activity Tax: Change in Due Dates for the Annual Minimum Tax, Annual Returns, Quarterly Returns and Deadline for Cancellations of Accounts

  39. Important CAT Contact Numbers • Phone: 888-722-8829 • Fax: 614-644-9641 • Website: tax.ohio.gov • Address: Commercial Activity Tax Division P.O. Box 16158 Columbus, OH 43216-6158 • CAT E-mail: CAT@tax.state.oh.us

  40. Subscribe to the Department’s tax practitioner e-mailing list. Click on ODT web site at:Tax.Ohio.Gov E-Mail Notifications 40

More Related