Ohio Commercial Activity Tax Reviews Increase Statewide
Ohio businesses subject to the Ohio Commercial Activity Tax are facing heightened scrutiny as the Ohio Department of Taxation expands compliance reviews following major statutory changes. Tax professionals across the state report a rise in audit notices and information requests since late 2025. State officials are working to ensure that businesses are correctly applying the revised CAT rules, which are tied to higher filing thresholds and the elimination of the annual minimum tax.
Businesses operating in Ohio are receiving more frequent correspondence from the Ohio Department of Taxation as officials assess whether companies have adjusted to recent changes to the Commercial Activity Tax. Although the department has not announced a formal audit initiative, practitioners report an increase in compliance reviews, document requests, and inquiries related to registration.
The activity follows changes enacted under Ohio House Bill 33, which significantly altered CAT filing requirements. While the revisions reduced CAT liability for many businesses, they also introduced uncertainty around registration status, filing frequency, and sourcing rules.
Department reviews are focusing on whether businesses correctly applied revised exclusion thresholds, calculated Ohio-sourced gross receipts accurately, and maintained appropriate CAT registration following the changes.
The Commercial Activity Tax is Ohio’s privilege tax on gross receipts from business activity conducted in the state. It applies to most business entities with substantial nexus in Ohio and is calculated on gross receipts rather than net income.
For tax year 2024, Ohio increased the CAT exclusion threshold from $1 million to $3 million in Ohio taxable gross receipts. Beginning January 1, 2025, the threshold increased again to $6 million, meaning only businesses exceeding that amount are required to file returns and pay the 0.26 percent tax.
Ohio also eliminated the CAT annual minimum tax for tax periods beginning in 2024. Previously, businesses below the exclusion threshold were still required to make a minimum yearly payment, even when no CAT was otherwise due.
The elimination removed CAT liability for many smaller businesses but raised questions about whether registered taxpayers must continue filing returns. Guidance from the Ohio Department of Taxation indicates that companies may still have filing obligations unless their CAT registration is formally canceled.
A significant portion of recent compliance reviews involves CAT registration status. The department is reviewing accounts that remain active even though the business now falls below the $6 million exclusion threshold and no longer owes tax.
Businesses that remain registered but fail to file required returns, even when no tax is due, may receive delinquency notices and penalties. Many companies are now weighing whether to cancel their CAT registration or continue filing zero-dollar returns to avoid enforcement issues.
Out-of-state businesses are also a major focus of CAT compliance activity. Ohio applies “bright-line presence” standards to determine whether a business has substantial nexus for CAT purposes, regardless of physical presence.
A business may trigger CAT obligations if it exceeds $500,000 in Ohio sales, has $50,000 or more in Ohio property or payroll, or derives at least 25 percent of its total activity from Ohio. Remote sellers and service providers may meet these thresholds without realizing it, particularly if they registered for Ohio sales tax after the South Dakota v. Wayfair decision.
Another common issue identified in CAT reviews involves the proper sourcing of gross receipts. The CAT applies only to receipts sourced to Ohio, and sourcing rules vary depending on the nature of the transaction.
Sales of tangible personal property are sourced to the state where the property is delivered, while services generally follow market-based sourcing rules tied to where the benefit is received. Businesses operating across multiple states must carefully document sourcing decisions to support their CAT filings.
Affiliated and consolidated groups face additional scrutiny because the CAT exclusion applies at the group level rather than the individual entity level. The department is reviewing whether businesses properly identified related entities and aggregated receipts correctly.
Errors in group reporting, including misclassification of entities or incorrect aggregation, can result in underreported receipts and unexpected assessments. These issues are often identified during compliance reviews rather than routine return processing.
Tax professionals say the increase in compliance activity reflects the department’s effort to manage the transition to the revised CAT framework. Many businesses are still adjusting to the pace and scope of the changes.
“Businesses are unsure whether they should remain registered, whether they’ve crossed the new threshold, or whether their sourcing methods are correct,” said an Ohio-based state and local tax advisor. “That uncertainty is driving more information requests and follow-up notices.”
Practitioners also note that businesses with receipts fluctuating near the $6 million threshold are particularly vulnerable to this issue. Moving in and out of filing obligations from year to year increases the risk of missed filings or registration errors.
Businesses with any connection to Ohio are encouraged to review their CAT position proactively. This includes confirming registration status, recalculating Ohio taxable gross receipts, and reassessing nexus exposure under the state’s bright-line standards.
Companies that identify errors in prior filings may consider filing amended returns or exploring Ohio’s voluntary disclosure programs. Responding promptly and thoroughly to any notice from the Ohio Department of Taxation can help prevent penalties from escalating.
Failure to comply with CAT requirements can result in penalties and interest. Businesses that fail to register within 30 days of exceeding the exclusion threshold may face penalties of up to $100 per month, with a maximum penalty of $1,000 per month.
Late-filed returns may result in penalties of 10 percent of the tax due or $50, whichever is greater, plus accrued interest. Tax professionals expect compliance reviews to continue into 2026 as the department works through filing and registration issues created by the recent changes.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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