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February 4, 2022

Produce Shippers: Beware of CATs in Ohio and elsewhere

Recently, the state of Ohio Department of Taxation has been ramping up notices sent to companies selling produce in Ohio encouraging compliance with the Commercial Activity Tax (CAT).  The tax is not new. We covered it here in 2015. At that time, the state’s tax on out of state shippers was vindicated by the Ohio Supreme Court. Fast forward to 2018, when the U.S. Supreme Court overruled 50 years of Commerce Clause jurisprudence and held that a state may require sellers with no physical presence in the state to collect and remit sales tax for goods sold within the state (South Dakota v. Wayfair, Inc.) and Ohio is more emboldened than ever.

The CAT is a tax imposed on companies that do business in Ohio, even if they don’t have a physical presence in the state, and is calculated based on taxable gross receipts sitused in Ohio.  Unlike a sales tax, the CAT cannot be passed on to the Company’s customers.

Taxpayers having over $150,000 in taxable gross receipts sitused to Ohio for the calendar year must first register for CAT with the Department of Taxation and then file tax returns for the CAT. Shippers with  $150,000 to $1 million in Ohio based gross receipts in a calendar year must pay an annual minimum tax (AMT) of $150. The AMT for shippers with total taxable gross receipts more than $1 million but less than or equal to $2 million will be $800; AMT for shippers with taxable gross receipts more than $2 million but less than or equal to $4 million, $2,100; and AMT for shippers with taxable gross receipts in excess of $4 million, $2,600.  Unlike some states that exempt the sale of fresh produce from their gross receipts tax, there is no such exception for fresh produce in Ohio. 

Companies that fail to file the Ohio CAT can be subject to an audit with a 10-year lookback to recover uncollected taxes plus penalties and interest. However, shippers that enroll in the state’s voluntary disclosure program can shorten the lookback to three years and eliminate potential penalties if they timely pay any CAT. Keep in mind that the voluntary disclosure program is only available to companies that enroll before receiving a notice from the state; companies that have received a notice from the Ohio tax authority may not avail themselves of the program.

Shippers with Ohio receipts should consult with their tax advisors about entering into a Voluntary Disclosure Agreement with the state before receiving a notice of non-compliance. Additional information can be found on Ohio’s Taxation website here.

Finally, other states, such as Oregon have enacted a similar CAT on gross receipts sitused in the state, or are considering doing so to boost tax revenues.