The Ohio Department of Taxation administers various taxes, including the Commercial Activity Tax (CAT). The CAT is a privilege tax imposed on taxpayers for the privilege of doing business in Ohio. For the CAT, a taxpayer is generally any person or entity with Ohio gross receipts exceeding $150,000 in a calendar year. The tax is calculated on the taxpayer’s total Ohio gross receipts. However, there are specific exemptions and exclusions. One critical aspect of the CAT is the determination of what constitutes “gross receipts” for a taxpayer. Ohio Revised Code Section 5751.01(F) defines gross receipts as the total amount of a taxpayer’s receipts from sales of tangible personal property and from services, regardless of the taxpayer’s method of accounting or the form in which the receipts are received. This includes amounts received from customers for goods or services, as well as amounts received from the sale of intangible property. Importantly, for CAT purposes, gross receipts are generally sourced to Ohio if the benefit of the property or service is received in Ohio. For a financial institution, gross receipts are typically sourced to Ohio if the customer is domiciled in Ohio or, in the case of a business customer, if the business location receiving the benefit of the financial service is in Ohio. The CAT is calculated using a tiered rate structure based on the taxpayer’s total Ohio gross receipts. For taxpayers with Ohio gross receipts of $1 million or less, the tax is $0. For taxpayers with Ohio gross receipts exceeding $1 million, the tax is calculated at a rate of 0.26% on the amount exceeding $1 million, up to a maximum tax liability of $1.5 million per taxpayer per year. However, there is a $150,000 annual exclusion for all taxpayers. This means that the first $150,000 of gross receipts are not subject to the CAT. The tax is computed on the amount of gross receipts in excess of this exclusion. The tax is filed and paid quarterly, with the annual return due by May 15th of the following year.

The Ohio Department of Taxation administers various taxes, including the commercial activity tax (CAT). The CAT is a gross receipts tax imposed on most businesses for the privilege of doing business in Ohio. For the tax year 2023, the CAT has a base rate of 0.26% for taxpayers with taxable gross receipts exceeding $150,000. However, there is a de minimis exclusion for taxpayers whose total Ohio taxable gross receipts are $150,000 or less. These taxpayers are exempt from the CAT. The tax is remitted based on a “taxable gross receipts” calculation, which generally includes all revenue generated from sales of tangible personal property and services in Ohio. Certain deductions may apply, but for a business with significant gross receipts, the primary consideration is the tax rate applied to the amount exceeding the de minimis threshold. The CAT is a self-assessed tax, meaning taxpayers are responsible for determining their tax liability and remitting it to the state. The tax return and payment are generally due by May 15th of each year for the preceding calendar year. Businesses must register for a CAT account number before commencing business activities subject to the tax. The CAT is an important revenue source for Ohio, funding various state services and programs. Understanding the thresholds and rates is crucial for compliance.

In Ohio, the tax treatment of a limited liability company (LLC) for state income tax purposes is determined by its classification for federal income tax purposes, unless an election is made to treat it differently for Ohio purposes. An LLC that is treated as a partnership for federal tax purposes is generally treated as a partnership for Ohio income tax purposes. Ohio Revised Code Section 5747.01(A)(1) defines “pass-through entity” to include partnerships. For a partnership, the income, gain, loss, and deduction items are passed through to the partners. Each partner is then subject to Ohio income tax on their distributive share of the partnership’s net income, regardless of whether the income is actually distributed. This means that even if the LLC’s profits are retained within the business and not distributed to its members, the members are still liable for Ohio income tax on their respective shares of that income. This concept is known as “flow-through” taxation. Therefore, for an LLC taxed as a partnership, the members are taxed on their share of the LLC’s income in the year it is earned by the partnership, not necessarily when it is distributed to them. This is a fundamental principle of partnership taxation that extends to Ohio’s income tax system for entities classified as partnerships.

Ohio’s Commercial Activity Tax (CAT) is a franchise tax levied on the privilege of doing business in Ohio. It applies to entities with gross receipts exceeding \$150,000 in a calendar year. The tax is calculated on the taxpayer’s total Ohio taxable gross receipts. For most taxpayers, the tax rate is a flat \(0.26\%\) on gross receipts exceeding \( \$1,000,000\). However, there is a “de minimis” exclusion for the first \$1,000,000 of gross receipts. This means that if a business has total gross receipts of \$1,000,000 or less, they owe no CAT. If gross receipts exceed \$1,000,000, the tax is calculated on the amount exceeding this threshold. The tax is remitted quarterly, with an annual reconciliation. The question asks about the specific threshold at which the CAT liability begins to accrue, not the total amount of tax owed. The initial trigger for CAT liability, regardless of the tax rate applied to receipts above a certain level, is when gross receipts surpass the \$150,000 annual threshold. This initial filing requirement and the potential for tax liability are triggered at this lower amount, even though the primary tax rate applies to receipts over \$1,000,000. Therefore, the threshold for the tax to *begin* to apply, meaning the point at which a business must register and potentially pay, is \$150,000. The concept tested here is the distinction between the threshold for registration/potential liability and the threshold for the primary tax rate application.

The scenario involves a business, “Buckeye Innovations LLC,” operating in Ohio and also generating revenue from sales into Indiana. Ohio’s economic nexus standard, as established by the Ohio Department of Taxation and influenced by the U.S. Supreme Court’s decision in *South Dakota v. Wayfair, Inc.*, dictates that a business must collect and remit sales tax in a state if it has a significant economic presence there, even without physical presence. For sales tax purposes in Ohio, economic nexus is generally established if a business exceeds a certain threshold of sales or transactions into the state. While Ohio’s specific thresholds are subject to change and administrative guidance, a common threshold across many states, and often cited as a benchmark for Ohio, is \( \$100,000 \) in gross receipts from sales into the state or \( 200 \) separate transactions into the state within a calendar year. Buckeye Innovations LLC’s \( \$120,000 \) in sales into Indiana, exceeding the \( \$100,000 \) threshold, creates an economic nexus in Indiana. Consequently, Buckeye Innovations LLC is obligated to register with the Indiana Department of Revenue, collect Indiana sales tax on its sales into Indiana, and remit that tax to Indiana. Ohio tax law, specifically regarding the sourcing of sales for sales tax purposes, generally follows the destination principle for tangible personal property. This means that sales tax is typically imposed by the state where the goods are delivered to the customer. Therefore, sales made by Buckeye Innovations LLC into Indiana are subject to Indiana sales tax, not Ohio sales tax, unless there are specific Ohio apportionment rules that apply to out-of-state income for income tax purposes, which is a separate consideration from sales tax collection obligations. The question specifically asks about the obligation to collect and remit sales tax, which is governed by the destination state’s laws when economic nexus is established.

The Ohio Commercial Activity Tax (CAT) is a franchise tax levied on the privilege of doing business in Ohio. It is measured by the taxpayer’s gross receipts. For a taxpayer with significant sales into Ohio from out-of-state, the primary consideration for CAT liability is whether they have sufficient nexus with Ohio. Nexus, in the context of state taxation, refers to the minimum connection a business must have with a state to be subject to that state’s taxing authority. Ohio law, consistent with federal due process and commerce clause limitations, defines nexus broadly. For CAT purposes, doing business in Ohio includes, but is not limited to, maintaining, occupying, or using any office, warehouse, storefront, mannerhouse, or other place of business in Ohio, whether owned or controlled by the taxpayer or not. It also includes deriving receipts from sales of tangible personal property or services delivered into Ohio. A significant factor in establishing nexus, particularly for remote sellers, is economic nexus, which can be triggered by exceeding certain sales or transaction thresholds within the state, even without a physical presence. Ohio has adopted economic nexus standards. Specifically, a taxpayer is presumed to have nexus if they derive more than $150,000 in gross receipts from sales in Ohio or make 200 or more separate transactions for sales of tangible personal property or services in Ohio during the calendar year. Therefore, a business that only sells goods to customers in Ohio, without any physical presence, but exceeds these economic nexus thresholds, is subject to the CAT. The CAT is applied to the gross receipts attributable to Ohio. The tax rate is marginal, with a lower rate for the first million dollars in gross receipts and a higher rate for receipts exceeding that amount, up to a statutory exclusion for the first million dollars of taxable gross receipts. For taxpayers with less than $150,000 in gross receipts, there is no CAT liability. For those exceeding this threshold, the tax applies to all gross receipts. The tax is calculated on a quarterly basis, with a minimum annual tax for those owing more than the exclusion.

The Ohio Revised Code (ORC) Chapter 5733 governs the franchise tax, which is levied on corporations for the privilege of doing business in Ohio. For tax years beginning on or after January 1, 2018, the franchise tax is phased out. Specifically, for tax years beginning on or after January 1, 2020, the franchise tax is repealed for most taxpayers. However, certain financial institutions are still subject to the franchise tax, calculated on their net worth. The question focuses on the application of Ohio’s franchise tax to a business that has ceased operations and is undergoing liquidation. When a business liquidates, its tax obligations continue until all affairs are wound up. The franchise tax, even in its phase-out period, is an annual tax for the privilege of doing business. Therefore, a corporation must file a final franchise tax report and pay any tax due for the period it was actively engaged in business during the tax year of liquidation. The tax liability for the final year is determined by the apportionment of its net worth to Ohio for the portion of the year it operated. The key concept is that cessation of business does not automatically absolve a corporation of its franchise tax liability for the period it was in existence and subject to the tax during that tax year. The filing requirement for the final return is crucial to formally end the tax period.

The Ohio Revised Code (ORC) Section 5733.05 governs the franchise tax imposed on corporations. Specifically, for tax years beginning on or after January 1, 2014, the franchise tax is levied on the greater of the corporation’s net worth or its net income. However, for many corporations, the tax is calculated based on a graduated rate applied to taxable income. The ORC outlines various apportionment factors to determine the portion of a business’s income subject to Ohio tax when it operates in multiple states. The sales factor, which measures the ratio of gross receipts from sales within Ohio to total gross receipts from sales everywhere, is a critical component of this apportionment. For service businesses, the sales factor is generally determined by the location where the service is performed or delivered. If a service is performed in multiple locations, the receipts are generally attributed to the location where the greater proportion of the service was performed. In the case of a consulting firm providing strategic planning services that involved both in-person meetings in Ohio and remote analysis conducted from their headquarters in California, the allocation of revenue for the sales factor would depend on where the value of the service was predominantly rendered. If the majority of the substantive intellectual work and client interaction, even if virtual, occurred in Ohio, or if the client’s benefit was primarily realized in Ohio, then a higher proportion of revenue would be assigned to Ohio for apportionment. Without specific details on the nature of the services and client benefit, a precise calculation is impossible, but the principle is to attribute revenue to the location where the economic activity generating the revenue occurred.

The scenario involves a business operating in Ohio that sells goods both within Ohio and to customers in other states. The core tax concept being tested is the nexus requirement for sales and use tax collection in Ohio, particularly in light of economic nexus principles established by the South Dakota v. Wayfair, Inc. Supreme Court decision. Businesses are generally required to collect and remit sales tax in states where they have a physical presence or sufficient economic activity, even without a physical store. Ohio law, specifically Revised Code Section 5739.02 and related administrative rules, outlines these obligations. Economic nexus in Ohio is triggered when a business, not otherwise having a physical presence in the state, exceeds a certain threshold of gross receipts or number of transactions into Ohio within a calendar year. For sales tax, the threshold is typically $100,000 in gross receipts or 200 separate transactions into Ohio. Since the business in question has $150,000 in gross receipts from Ohio customers in the prior calendar year, it has met the economic nexus threshold. Therefore, it is obligated to register with the Ohio Department of Taxation and collect and remit Ohio sales tax on all taxable sales made to Ohio customers. The fact that the business has no physical presence in Ohio is irrelevant to its obligation to collect sales tax once economic nexus is established. The question focuses on the timing of this obligation and the specific threshold. The $150,000 in gross receipts from Ohio sales in the prior calendar year clearly surpasses the $100,000 economic nexus threshold. Thus, the obligation to collect and remit Ohio sales tax begins at the start of the current calendar year.

The Ohio Commercial Activity Tax (CAT) is a franchise tax levied on the privilege of doing business in Ohio. It applies to entities with Ohio taxable gross receipts exceeding a specified threshold. For the tax year 2023, the annual exclusion for qualifying entities was \$1 million in Ohio taxable gross receipts. This means that if an entity’s total Ohio taxable gross receipts for the calendar year were \$1 million or less, they were not subject to the CAT. The tax is imposed on the gross receipts, with certain deductions allowed. The tax rate is progressive, with different rates applying to different levels of taxable gross receipts. However, the fundamental principle is that if the gross receipts fall below the exclusion threshold, no CAT liability arises for that tax period. Therefore, an entity with \$950,000 in Ohio taxable gross receipts in 2023 would not owe any CAT because this amount is below the \$1 million exclusion threshold.

The Ohio Department of Taxation administers various taxes, including sales and use tax. This tax applies to the retail sale of tangible personal property and certain services in Ohio. A key aspect of sales and use tax is the determination of taxability for specific transactions, especially those involving mixed goods and services or items with dual use. For instance, when a business provides both a taxable service and tangible personal property, the tax treatment depends on whether the property is incidental to the service or a separate component. Ohio Revised Code Section 5739.01 defines “sale” and “retail sale,” and the Ohio Administrative Code (OAC) Chapter 5703-9 provides detailed rules on taxability. Specifically, OAC 5703-9-13 addresses the taxability of property transferred with a service. If the property is considered a necessary and integral part of the service, and its value is not separately stated, it may be considered part of the service and thus taxable if the service itself is taxable. Conversely, if the property is separately identified and its price is distinct, it is taxed based on its own classification. In this scenario, the repair of the specialized industrial machinery involves both labor (a service) and replacement parts (tangible personal property). The critical factor is how the transaction is structured and presented. If the replacement parts are merely incidental to the repair service and their cost is not separately itemized, they are generally considered part of the taxable repair service. However, if the parts are clearly identified, priced separately, and the customer has the option to provide their own parts, then the parts themselves would be subject to sales tax at the point of sale, while the labor for installation might be considered a non-taxable service depending on specific Ohio regulations for repair labor. Given that the parts are necessary for the repair and their cost is bundled into the overall service charge, they are treated as part of the taxable service. Therefore, the entire charge for the repair, including the parts, is subject to Ohio’s state and applicable local sales tax. Ohio’s tax structure generally taxes the sale of tangible personal property and most services. Repair services are often taxable in Ohio. The key to determining taxability for mixed transactions lies in the “true object” test or whether the components are separable. In this case, the parts are essential for the repair service, and the common practice is to include them in the service price. Thus, the entire amount is subject to sales tax.

The Ohio Commercial Activity Tax (CAT) is a privilege tax levied on the gross receipts of most businesses for the privilege of doing business in Ohio. For taxpayers that are part of an affiliated group, the CAT liability is determined by either filing a consolidated return or by filing separate returns. When filing a consolidated return, the affiliated group combines its gross receipts and can apply the annual minimum tax to the group as a whole. If an affiliated group chooses to file separately, each member of the group is treated as a distinct taxpayer and must meet its own minimum tax obligations. Ohio Revised Code Section 5751.02(A) outlines the conditions for filing a consolidated CAT return, generally requiring that all members of the affiliated group be subject to the CAT. An affiliated group, for CAT purposes, is defined by common ownership. If a business entity is a disregarded entity for federal income tax purposes, it is generally treated as separate from its owner for CAT purposes unless it is part of an affiliated group electing consolidated filing. In the scenario provided, the parent company and its wholly owned subsidiary are considered an affiliated group. If they elect to file a consolidated CAT return, they combine their gross receipts. For the tax year, their combined gross receipts are \$1,500,000. The CAT rate structure has a de minimis exclusion for the first \$150,000 of gross receipts. For gross receipts between \$150,000 and \$1,000,000, the tax rate is 0.17%. For gross receipts exceeding \$1,000,000, the tax rate is 0.26%. The annual minimum tax for a taxpayer is \$150. Calculation: Combined Gross Receipts = \$1,500,000 De Minimis Exclusion = \$150,000 Taxable Gross Receipts subject to tiered rates = \$1,500,000 – \$150,000 = \$1,350,000 Tax on the first \$1,000,000 of taxable gross receipts (above the de minimis): Tax = \$1,000,000 * 0.0017 = \$1,700 Tax on the remaining taxable gross receipts exceeding \$1,000,000: Remaining Receipts = \$1,350,000 – \$1,000,000 = \$350,000 Tax = \$350,000 * 0.0026 = \$910 Total Tax = Tax on first \$1,000,000 + Tax on remaining receipts Total Tax = \$1,700 + \$910 = \$2,610 Since the calculated tax of \$2,610 exceeds the annual minimum tax of \$150, the total tax liability is \$2,610. If they filed separately, each would be subject to the \$150 minimum tax if their individual gross receipts were below \$150,000, or taxed on their individual gross receipts if they exceeded the threshold. The consolidated filing allows for the aggregation of receipts and application of the tiered rates to the combined amount, which in this case results in a tax liability of \$2,610. This demonstrates the importance of understanding affiliated group rules and the benefits or drawbacks of consolidated versus separate filing for the Ohio Commercial Activity Tax.

The Ohio Revised Code (ORC) Section 5739.02 imposes a sales tax on retail sales of tangible personal property and specified digital products in Ohio. However, certain exemptions are provided to avoid double taxation or to promote specific economic activities. One such exemption pertains to the sale of tangible personal property or services used directly in manufacturing or processing. The key to this exemption is the direct and essential role the property or service plays in transforming raw materials into a different product. For a piece of equipment to qualify as used directly in manufacturing, it must be integral to the production process itself, not merely used in an ancillary or supportive capacity. For instance, a machine that molds plastic pellets into car dashboards is directly used in manufacturing. Conversely, a forklift used to move finished dashboards from the production line to a warehouse, or the office furniture in the plant manager’s office, would not be considered directly used in manufacturing. The exemption aims to encourage investment in production facilities by reducing the tax burden on capital goods essential for creating goods for sale. This principle extends to property used in the preparation of food for immediate consumption by a person who is not a retailer, such as ingredients purchased by a catering company for an event, or even the packaging materials that become part of the final product sold to the consumer.

Ohio Revised Code Section 5733.05 establishes the franchise tax liability for corporations. For a business operating solely within Ohio, the franchise tax is calculated based on the greater of the net income base or the net worth base. The net income base is determined by applying a specified tax rate to the corporation’s taxable income allocated or apportioned to Ohio. The net worth base is calculated by applying a specified tax rate to the corporation’s net worth allocated or apportioned to Ohio. The law requires a comparison of these two bases, with the tax liability being the higher of the two. For tax years beginning on or after January 1, 2018, the franchise tax is phased out, and for tax years beginning on or after January 1, 2021, the franchise tax is repealed. However, understanding the historical calculation methods is crucial for periods prior to the repeal and for understanding the evolution of Ohio’s corporate tax structure. The calculation involves identifying Ohio-sourced income and Ohio-based assets or liabilities to determine the respective bases. The statutory rates applicable to these bases, as defined in the ORC, are applied to arrive at the tentative tax amounts for each base. The final franchise tax due is the greater of these two tentative amounts, unless specific exemptions or credits apply.

The Ohio Commercial Activity Tax (CAT) is a privilege tax levied on the privilege of doing business in Ohio. It applies to taxpayers with Ohio gross receipts exceeding \$150,000 in the preceding calendar year. The tax is calculated based on the taxpayer’s total Ohio gross receipts, with specific deductions allowed. For taxpayers whose total Ohio gross receipts are between \$150,000 and \$1,000,000, the tax rate is 0.26% on the excess over \$150,000. However, there is a minimum tax of \$50 for taxpayers with gross receipts between \$150,000 and \$1,000,000. For gross receipts of \$1,000,000 or more, the tax rate is 0.26% on the first \$1,000,000 of gross receipts and 0.11% on gross receipts exceeding \$1,000,000. There is also a \$150 minimum tax for taxpayers with gross receipts of \$1,000,000 or more. Consider a scenario where a business, “Buckeye Innovations LLC,” has Ohio gross receipts of \$1,250,000 in the preceding calendar year. To determine Buckeye Innovations LLC’s CAT liability for the current year, we first identify the applicable tax rate structure. Since their gross receipts exceed \$1,000,000, the tiered rate structure applies. The tax on the first \$1,000,000 of gross receipts is calculated at 0.26%. Calculation for the first \$1,000,000: \( \$1,000,000 \times 0.0026 = \$2,600 \) Next, we calculate the tax on the gross receipts exceeding \$1,000,000. The excess amount is \$1,250,000 – \$1,000,000 = \$250,000. This excess is taxed at a rate of 0.11%. Calculation for the excess over \$1,000,000: \( \$250,000 \times 0.0011 = \$275 \) The total CAT liability is the sum of the tax on the first \$1,000,000 and the tax on the excess. Total CAT Liability: \( \$2,600 + \$275 = \$2,875 \) However, the CAT also has a minimum tax provision. For taxpayers with gross receipts of \$1,000,000 or more, the minimum tax is \$150. Since the calculated liability of \$2,875 is greater than the \$150 minimum tax, the business is liable for the calculated amount. The Ohio Department of Taxation requires taxpayers to remit the greater of the calculated tax or the minimum tax. In this case, \$2,875 is the correct tax liability. The tax is assessed on the privilege of conducting business in Ohio and is based on gross receipts, with specific thresholds and rates as outlined in Ohio Revised Code Chapter 5751. Understanding these tiered rates and minimum tax requirements is crucial for accurate CAT compliance.

The Ohio Revised Code (ORC) Section 5703.052 outlines the criteria for determining if a business activity constitutes a “significant business presence” in Ohio for purposes of the commercial activity tax (CAT). This determination is crucial for establishing nexus and tax liability. A business has a significant business presence if it meets any of three tests: the property test, the payroll test, or the sales test. The property test is met if the total value of the taxpayer’s real and tangible personal property owned or rented in Ohio exceeds \( \$500,000 \). The payroll test is met if the taxpayer’s total compensation paid in Ohio for the taxable year exceeds \( \$500,000 \). The sales test is met if the taxpayer’s total receipts from sales in Ohio, as determined under ORC Section 5703.053, exceed \( \$500,000 \). If a taxpayer’s Ohio gross receipts are less than \( \$150,000 \), they are generally exempt from the CAT, provided they do not have a significant business presence. However, the question asks about a business that *does* have a significant business presence, implying it has exceeded one of the \( \$500,000 \) thresholds. The question then focuses on the specific threshold for the sales test, which is \( \$500,000 \) in Ohio receipts. The exemption for businesses with less than \( \$150,000 \) in Ohio gross receipts is a separate consideration and does not negate the existence of a significant business presence if the \( \$500,000 \) threshold for sales is met. Therefore, the correct threshold for the sales component of the significant business presence test is \( \$500,000 \).

The Ohio Revised Code (ORC) Section 5709.63 outlines the criteria for a business to qualify for a tax exemption related to a Community Reinvestment Area (CRA). For a business to be eligible for an exemption on improvements to real property within a CRA, the property must be a “commercial facility” or an “industrial facility” as defined in the statute. A commercial facility is generally understood to be a facility used for the purpose of conducting a business enterprise that provides goods or services to the public. An industrial facility is typically used for manufacturing, processing, or storage of goods. The key element for eligibility under ORC 5709.63 is that the business activity conducted on the property must align with these definitions. If a business operates solely as a residential dwelling or for a non-commercial, non-industrial purpose, it would not meet the statutory definition of a qualifying facility for a CRA tax exemption on real property improvements. Therefore, a property used exclusively for residential purposes, even if located within a designated CRA, would not be eligible for the real property tax exemption on improvements under this specific provision.

The Ohio Commercial Activity Tax (CAT) is a franchise tax levied on the privilege of doing business in Ohio. It applies to entities with Ohio taxable gross receipts exceeding \$150,000 annually. The tax is calculated on taxable gross receipts, which are generally defined as the total gross receipts of the taxpayer in Ohio, minus certain exclusions. For a taxpayer whose only business activity in Ohio is the sale of tangible personal property, the tax is imposed on the gross receipts from those sales. If the taxpayer is engaged in providing services, the tax is generally imposed on the gross receipts derived from services performed within Ohio. The CAT return is filed quarterly, with the tax due on the last day of the month following the end of the calendar quarter. Ohio Revised Code (ORC) Section 5751.01 defines taxable gross receipts and outlines various exclusions, such as receipts from sales of tangible personal property delivered outside of Ohio, and receipts from services performed outside of Ohio. The determination of whether receipts are taxable hinges on the nexus established within Ohio and the nature of the economic activity. For a business solely providing consulting services, the taxability of their receipts depends on where those services are performed or where the benefit of those services is received. In Ohio, services are generally considered to be performed at the location where the primary activities that produce the revenue occur. Therefore, if a consulting firm based in Pennsylvania performs all its services remotely and the client is located in Ohio, the receipts from these services are taxable in Ohio if the benefit of the service is received in Ohio.

The Ohio Revised Code (ORC) Section 5733.05 outlines the franchise tax calculation for corporations. For a corporation that is not a financial institution, the tax is based on the greater of the net income allocated or apportioned to Ohio, or a minimum tax. The net income base is determined by the corporation’s federal taxable income, with certain modifications. Ohio uses an apportionment formula for income derived from business activities both within and outside of Ohio. This formula typically considers the property, payroll, and sales factors of the business. For a corporation with a significant portion of its business conducted within Ohio, the apportionment formula will result in a substantial portion of its net income being subject to Ohio franchise tax. The specific calculation involves determining the apportionment percentage for each factor and then averaging these percentages to arrive at the overall apportionment ratio. This ratio is then applied to the corporation’s total net income to determine the amount of income allocable to Ohio. The tax rate is then applied to this allocated net income. The question probes the understanding of how Ohio taxes corporate income, emphasizing the apportionment concept for businesses operating in multiple states, and how this process determines the taxable base within Ohio. The core principle is that only the income demonstrably connected to Ohio’s economic nexus is subject to the franchise tax.

The Ohio Commercial Activity Tax (CAT) is levied on the taxable gross receipts of a business. For a business with a physical presence in Ohio and also conducting business in other states, the determination of the Ohio-apportioned gross receipts is crucial. Apportionment is the process of allocating a portion of a business’s total gross receipts to Ohio based on a specific formula. Ohio Revised Code (ORC) Section 5751.03 specifies the apportionment rules for businesses subject to the CAT. For most businesses, the apportionment factor is a three-factor formula: property, payroll, and sales. However, for businesses that primarily provide services or engage in intangible transactions, the sales factor is often the sole determinant of apportionment. In such cases, gross receipts are sourced to Ohio if the benefit of the service is received in Ohio. ORC 5751.03(B)(2) generally defines the sales factor for services as the ratio of gross receipts from sales in Ohio to the total gross receipts from sales everywhere. For services, the benefit is typically considered received in Ohio if the service provider’s employees or agents are physically present in Ohio when performing the service, or if the customer directly benefits from the service within Ohio. If a business provides consulting services to a client whose primary operations are in Ohio, and the consulting work directly impacts those Ohio operations, the receipts from those services would generally be sourced to Ohio. Therefore, if a business has total gross receipts of $1,000,000 and $400,000 of those receipts are attributable to services performed for clients in Ohio, the Ohio-apportioned gross receipts would be $400,000. The CAT liability is then calculated on this apportioned amount, subject to the tax rates and annual exemption thresholds.

The scenario involves determining the taxability of a specific type of intangible personal property in Ohio. Ohio Revised Code (ORC) Section 5701.02 defines taxable intangible personal property. This section broadly includes items such as money, deposits, credits, and other rights to receive money or other valuable things. However, certain items are specifically excluded or treated differently. For example, ORC Section 5701.03 excludes certain types of property, and ORC Section 5701.04 addresses the situs of intangible property for tax purposes. The question hinges on whether a royalty interest in a patent, which generates income based on the use of that patent by others, constitutes taxable intangible personal property in Ohio. Royalty interests are generally considered rights to receive income from the use of intellectual property. In Ohio, such rights are typically classified as intangible personal property and are subject to taxation unless specifically exempted. The Ohio Department of Taxation provides guidance on the classification of various forms of intangible property. The critical aspect here is that a patent is an intellectual property right, and the income derived from its licensing through royalties represents a stream of future payments, which falls under the definition of credits or rights to receive money. Unless there is a specific statutory exemption for patent royalties, they are taxable as intangible property. Given the broad definition of taxable intangibles in Ohio, and the absence of a specific exemption for patent royalties in the general provisions, these interests are considered taxable.

In Ohio, a taxpayer can claim a credit for taxes paid to another state or country on income that is also subject to Ohio income tax. This is known as the credit for taxes paid to other states. The purpose of this credit is to prevent double taxation. The calculation involves determining the portion of the taxpayer’s total tax liability that is attributable to income earned in the other state. Ohio Revised Code Section 5747.05(A) outlines the provisions for this credit. The credit is generally limited to the lesser of the tax paid to the other state on the income or the Ohio tax liability on that same income. For instance, if an Ohio resident earns $10,000 in wages in Pennsylvania and pays $500 in Pennsylvania income tax on that income, and their Ohio tax liability on that $10,000 is $300, the credit would be $300. If the Ohio tax liability on that income was $600, the credit would be $500. The credit is applied against the taxpayer’s total Ohio income tax liability. It is crucial for taxpayers to maintain records of income earned and taxes paid to other states. The credit does not apply to taxes paid on income that is not subject to Ohio income tax. The credit is nonrefundable, meaning it can reduce the Ohio tax liability to zero, but any excess credit cannot be claimed as a refund or carried forward.

The scenario describes a business, “Buckeye Innovations LLC,” operating in Ohio and engaging in transactions with customers in other states. The core issue is determining when Buckeye Innovations LLC establishes nexus in another state for Ohio income tax purposes, specifically concerning the sourcing of its sales. Ohio Revised Code (ORC) Section 5703.05 and related administrative rules, such as Ohio Administrative Code (OAC) 5703-5-04, govern the allocation and apportionment of business income. For a business to be subject to tax in another state, it must establish sufficient physical presence or economic nexus. Physical presence typically involves having employees, property, or a place of business in that state. Economic nexus, as established by many states following the *Wayfair* decision, can be triggered by a certain level of sales or transactions within a state, even without a physical presence. In this case, Buckeye Innovations LLC has no employees or physical property in Indiana. However, it does have a significant volume of sales to Indiana customers. The question hinges on whether this economic activity alone creates nexus in Indiana for Ohio tax purposes. Ohio, like many states, follows the principle that income derived from sources within Ohio is taxable by Ohio. If Buckeye Innovations LLC’s activities in Indiana are sufficient to create nexus there, Indiana would have the right to tax that portion of its income. Ohio tax law requires businesses to source their sales to the state where the customer receives the benefit of the service or where the tangible personal property is delivered. Since Buckeye Innovations LLC is selling software services and delivering them electronically to Indiana customers, and the economic nexus threshold in Indiana is met, Ohio would consider the income derived from these sales as sourced to Indiana for apportionment purposes. This means that the income generated from sales to Indiana customers, if taxable by Indiana due to nexus, would be removed from Ohio’s tax base through apportionment. The question asks about the sourcing of income from sales to Indiana customers when nexus is established in Indiana. The sourcing rule for services and intangible property in Ohio generally follows market-based sourcing, meaning the income is sourced to the state where the benefit of the service is received. For software delivered electronically, this is typically where the customer is located. Therefore, income from sales to Indiana customers, where nexus is established in Indiana, is sourced to Indiana.

The Ohio Commercial Activity Tax (CAT) is a privilege tax imposed on the privilege of doing business in Ohio. It applies to entities with Ohio taxable gross receipts exceeding \$150,000 annually. The tax is calculated on a progressive rate schedule based on annual taxable gross receipts. For the tax year 2023, the tax rates are as follows: 0.26% on the first \$1 million of taxable gross receipts, 0.52% on taxable gross receipts between \$1 million and \$2 million, 0.70% on taxable gross receipts between \$2 million and \$5 million, and 0.88% on taxable gross receipts exceeding \$5 million. However, there is a minimum annual tax of \$50 for taxpayers with less than \$1 million in taxable gross receipts and a minimum annual tax of \$1,000 for taxpayers with \$1 million or more in taxable gross receipts. The scenario describes a business, “Buckeye Innovations LLC,” with Ohio taxable gross receipts of \$3,500,000 for the tax year. To determine the CAT liability, we apply the progressive rate structure. Taxable gross receipts: \$3,500,000 1. First \$1,000,000: \( \$1,000,000 \times 0.0026 = \$2,600 \) 2. Next \$1,000,000 (from \$1,000,001 to \$2,000,000): \( \$1,000,000 \times 0.0052 = \$5,200 \) 3. Next \$1,500,000 (from \$2,000,001 to \$3,500,000): \( \$1,500,000 \times 0.0070 = \$10,500 \) Total calculated tax: \( \$2,600 + \$5,200 + \$10,500 = \$18,300 \) Since Buckeye Innovations LLC’s taxable gross receipts (\$3,500,000) exceed \$1,000,000, the minimum annual tax is \$1,000. The calculated tax of \$18,300 is greater than the minimum tax of \$1,000. Therefore, the total CAT liability for Buckeye Innovations LLC is \$18,300. The Ohio Commercial Activity Tax (CAT) is a franchise tax measured by the taxable gross receipts of a business entity. It is crucial to understand that the CAT is not an income tax but rather a tax on the privilege of conducting business within Ohio. The tax applies to most business entities, including corporations, partnerships, and limited liability companies, that have Ohio taxable gross receipts exceeding a statutory threshold, which is \$150,000 per year. The tax rate is applied on a progressive scale, meaning that higher levels of taxable gross receipts are taxed at higher rates. The tax is levied on the total gross receipts of the taxpayer, less certain exclusions and deductions allowed by Ohio law, such as receipts from sales in interstate commerce that are not allocable to Ohio. Taxpayers are required to file returns and remit tax on a quarterly basis, with an annual reconciliation. The minimum tax provisions are designed to ensure that even small businesses that meet the gross receipts threshold contribute a baseline amount to the state’s revenue. Understanding the specific rate brackets and minimum tax requirements is essential for accurate tax compliance for businesses operating in Ohio.

The Ohio Commercial Activity Tax (CAT) is a privilege tax levied on the privilege of doing business in Ohio. For taxpayers with less than $150,000 in annual gross receipts, the tax is $0. This is often referred to as the CAT “de minimis” threshold. For taxpayers with gross receipts between $150,000 and $1,000,000, the tax rate is $0.55 per $1,000 of gross receipts, with a minimum annual tax of $150. For gross receipts exceeding $1,000,000, the tax rate is $0.70 per $1,000 of gross receipts. The question concerns a taxpayer whose Ohio gross receipts are $1,250,000. To calculate the CAT liability, we first determine if the taxpayer is subject to the $0.70 rate, which they are, as their gross receipts exceed $1,000,000. The tax is calculated on the amount exceeding $1,000,000. Therefore, the taxable base is $1,250,000 – $1,000,000 = $250,000. The tax rate is $0.70 per $1,000 of gross receipts. So, the tax is calculated as \(\frac{$250,000}{$1,000}\) * $0.70. This equals 250 * $0.70 = $175. However, the CAT has a minimum tax of $150 for taxpayers with gross receipts between $150,000 and $1,000,000, and a minimum tax of $1,000 for taxpayers with gross receipts over $1,000,000. Since the taxpayer’s gross receipts are $1,250,000, they fall into the highest tax bracket, which has a minimum annual tax of $1,000. Therefore, the tax liability is the greater of the calculated tax ($175) or the minimum tax for that bracket ($1,000). The minimum tax of $1,000 applies. The Ohio Commercial Activity Tax is a gross receipts tax, meaning it is levied on the total amount of gross receipts of a business. It is important to understand the different tax rates and minimum tax liabilities associated with various gross receipt thresholds in Ohio. The tax is designed to be a broad-based tax on the privilege of doing business in the state. Understanding these thresholds is crucial for accurate tax compliance.

The question concerns the tax treatment of certain business expenses in Ohio, specifically focusing on the deductibility of payments made to a related entity for services. Ohio’s Corporate Franchise Tax, prior to its repeal, and subsequent income tax provisions, often scrutinized intercompany transactions to prevent tax avoidance. A key principle is the “arm’s length” standard, which requires that transactions between related parties be priced as if they were between unrelated parties. If a payment to a related entity lacks economic substance or is demonstrably inflated beyond fair market value for the services rendered, it may be disallowed as a deduction. In Ohio, for corporate franchise tax purposes, and similarly for income tax, the Commissioner of Tax could disallow deductions for expenses paid to related entities if the payments were not at arm’s length. For instance, if a parent company in Ohio paid its wholly-owned subsidiary in another state an exorbitant management fee that far exceeded the value of services provided, the excess portion would likely be added back to the Ohio corporation’s taxable income. This is based on the general anti-abuse provisions and the principle that deductions are for ordinary and necessary business expenses incurred at fair value. The Ohio Revised Code, particularly sections pertaining to corporate income and franchise tax (though franchise tax is now repealed, the principles carry over to income tax), allows for adjustments to income where transactions with related parties distort taxable income. The scenario presented describes a payment for services that appears to be at a significantly higher rate than comparable independent providers would charge, indicating a potential lack of arm’s length dealing. Therefore, the portion of the payment exceeding the fair market value of the services would be disallowed as a deduction. If the fair market value of the management services provided by the Delaware subsidiary to the Ohio parent is determined to be $50,000, and the Ohio parent paid $150,000, then $100,000 of the payment would be disallowed as a deduction.

The Ohio Commercial Activity Tax (CAT) is levied on the taxable gross receipts of businesses operating in Ohio. For a business to be subject to the CAT, it must have a substantial nexus with the state. Nexus, in the context of Ohio’s CAT, is established if a business has any physical presence in Ohio or, under certain economic nexus rules, exceeds specific thresholds of economic activity within the state. Ohio Revised Code (ORC) Section 5751.01 defines gross receipts, and ORC Section 5751.03 outlines the tax rates and exemptions. For taxpayers with less than \$1 million in annual taxable gross receipts, the tax liability is \$0. For those with taxable gross receipts between \$1 million and \$1,999,999.99, the tax is \$25. For taxable gross receipts between \$2,000,000 and \$2,999,999.99, the tax is \$150. For taxable gross receipts between \$3,000,000 and \$3,999,999.99, the tax is \$375. For taxable gross receipts between \$4,000,000 and \$4,999,999.99, the tax is \$750. For taxable gross receipts of \$5,000,000 or more, the tax is calculated using a tiered rate structure, with the highest rate being 0.26% on receipts exceeding \$1 million. However, the question specifically asks about a business that *only* sells tangible personal property to customers in Ohio via a website, with no physical presence. This scenario triggers the economic nexus provisions. Ohio’s economic nexus threshold for the CAT is established if a business derives more than \$150,000 in gross receipts from sales of tangible personal property to customers in Ohio during the calendar year, or engages in at least 200 separate transactions for the sale of tangible personal property to customers in Ohio during the calendar year. In this case, the business has \$175,000 in gross receipts from sales to Ohio customers. This amount exceeds the \$150,000 economic nexus threshold. Therefore, the business has established a substantial nexus with Ohio for CAT purposes. The tax is calculated on the total gross receipts, which are \$175,000. Since these receipts fall into the \$150,000 to \$1,999,999.99 bracket, the tax is \$25.

The Ohio Commercial Activity Tax (CAT) is a privilege tax levied on the privilege of doing business in Ohio. It applies to taxpayers with gross receipts exceeding \$150,000 annually. The tax is calculated based on the taxpayer’s total Ohio gross receipts, with a credit available for qualifying taxpayers. For the tax year 2023, the tax rates and credit structure were as follows: For taxable gross receipts between \$150,000 and \$1 million, the rate was 0.26%. For gross receipts between \$1 million and \$10 million, the rate was 0.52%. For gross receipts between \$10 million and \$20 million, the rate was 1.25%. For gross receipts exceeding \$20 million, the rate was 1.50%. Additionally, a tax credit was available for taxpayers with total gross receipts of \$1 million or less. This credit reduced the tax liability. Specifically, for gross receipts between \$150,000 and \$1 million, the credit was \$1,000. This credit is applied after the tax is calculated at the 0.26% rate. Therefore, a taxpayer with gross receipts of \$750,000 would first calculate their tax liability at the 0.26% rate: \(0.0026 \times \$750,000 = \$1,950\). Then, the available credit of \$1,000 would be applied to reduce the tax liability: \(\$1,950 – \$1,000 = \$950\). This demonstrates how the tax and credit interact for smaller businesses. The CAT is administered by the Ohio Department of Taxation. Understanding the tiered rate structure and the availability of the credit is crucial for accurate tax compliance in Ohio. The tax is remitted quarterly.

The Ohio Commercial Activity Tax (CAT) is a privilege tax imposed on the privilege of doing business in Ohio. It applies to entities with Ohio gross receipts exceeding a statutory threshold. For tax year 2024, the annual exclusion amount is $150,000. This means that if an entity’s total Ohio gross receipts are $150,000 or less, they are not subject to the CAT. The tax is levied on the taxpayer’s “taxable gross receipts,” which are defined as gross receipts attributable to Ohio, less certain allowable deductions. However, the question specifically asks about the threshold for *not* being subject to the tax. Therefore, any entity with Ohio gross receipts at or below $150,000 is exempt from the CAT for the current tax year. The calculation is straightforward: if Total Ohio Gross Receipts \(\leq\) $150,000, then the entity is not subject to the CAT. Since the scenario states the company’s Ohio gross receipts are $145,000, this amount falls below the $150,000 exclusion threshold. Consequently, the company is not required to register for or pay the Ohio Commercial Activity Tax. The concept tested here is the application of the gross receipts threshold for CAT liability in Ohio. Understanding this threshold is fundamental to determining filing obligations and potential tax liabilities for businesses operating within the state. It is important to note that this threshold can be adjusted by the Ohio General Assembly, so taxpayers must stay current with legislative changes. The tax is calculated on a quarterly basis for those who are liable, with different rates applying depending on the amount of taxable gross receipts. However, the initial determination of liability hinges on exceeding the annual exclusion amount.

The Ohio Commercial Activity Tax (CAT) is a privilege tax levied on the gross receipts of businesses for the privilege of doing business in Ohio. The tax is imposed on the taxpayer’s taxable gross receipts. For taxpayers with annual taxable gross receipts of \$150,000 or less, the CAT liability is \$0. For taxpayers with annual taxable gross receipts exceeding \$150,000, the tax is calculated based on a tiered rate structure. The first \$1,000,000 of taxable gross receipts are taxed at a rate of 0.26%. For taxable gross receipts between \$1,000,001 and \$10,000,000, the rate is 0.17%. For taxable gross receipts between \$10,000,001 and \$20,000,000, the rate is 0.12%. For taxable gross receipts exceeding \$20,000,000, the rate is 0.11%. In this scenario, Veridian Corp. has total gross receipts of \$5,500,000. Assuming these are all taxable gross receipts for CAT purposes, we calculate the tax liability as follows: The first \$1,000,000 is taxed at 0.26%: \( \$1,000,000 \times 0.0026 = \$2,600 \) The remaining taxable gross receipts are \$5,500,000 – \$1,000,000 = \$4,500,000. This remaining amount falls within the second tier, which applies to receipts between \$1,000,001 and \$10,000,000. The rate for this tier is 0.17%. Tax on the next \$4,500,000 is: \( \$4,500,000 \times 0.0017 = \$7,650 \) The total CAT liability is the sum of the tax from each tier: \( \$2,600 + \$7,650 = \$10,250 \). This calculation demonstrates the application of the tiered rate structure for the Ohio Commercial Activity Tax. Understanding these tiers and the threshold for \$0 liability is crucial for compliance. The tax is designed to capture revenue from businesses operating within Ohio, with a progressive reduction in the tax rate as gross receipts increase, incentivizing growth while ensuring a revenue base.