Small and midsize businesses may no longer owe the Commercial Activity Tax.
Beginning in 2025, Ohio increased the annual exclusion for the Commercial Activity Tax, commonly called the CAT, from $3 million to $6 million. That means many businesses with $6 million or less in Ohio taxable gross receipts may no longer owe the tax.
For many small and midsize businesses, that’s a meaningful change.
Understanding the CAT
Unlike an income tax, the CAT isn’t based on how much profit your business makes. It’s based on taxable gross receipts from business activity in Ohio.
Gross receipts generally refer to the money a business receives from selling goods or providing services.
Determining which receipts are taxable in Ohio can be more complicated, particularly for businesses operating in multiple states, so it’s important to work with your accountant or tax professional when determining what applies to your business.
For businesses subject to the CAT, the current tax rate is 0.26% of taxable gross receipts above the annual exclusion.
What Changed?
The CAT exclusion has increased significantly in a short period of time. The increases were part of a broader package of tax changes approved by Ohio lawmakers in 2023 and were designed to phase in over 2 years.
Before 2024, the exclusion was $1 million. It increased to $3 million for 2024 and then doubled to $6 million beginning in 2025.
Businesses that fall below the new threshold may no longer owe CAT.
For example, consider a business with $5 million in Ohio taxable gross receipts. Under the 2024 exclusion, $2 million would have been subject to the CAT calculation. Under the $6 million exclusion now in place, that same business falls below the threshold.
Take a look at your taxable gross receipts to determine whether the new threshold applies to your business.
What If Your Business Is Above $6 Million?
Crossing the $6 million mark does not mean the CAT applies to every dollar of taxable gross receipts. The exclusion still matters.
For example, a business with $8 million in Ohio taxable gross receipts would generally apply the $6 million exclusion before calculating CAT on the remaining $2 million.
This distinction is important when estimating future tax expenses and building your annual budget.
Take Another Look at Your Budget
Businesses that no longer owe CAT may now have the money previously set aside for taxes available for other purposes.
Consider where the extra money could have the greatest impact. Building cash reserves, paying down debt, purchasing equipment, adding employees, increasing inventory, or investing back into the business are all options worth considering.
Don’t Assume You’re Exempt
The $6 million exclusion sounds straightforward, but determining taxable gross receipts isn’t always as simple as looking at the revenue shown on your income statement.
Where a sale happens, where a service is received, the structure of related businesses, and other factors can affect how receipts are treated for CAT purposes.
Businesses near the $6 million threshold, or those operating in more than one state, should talk with an accountant or tax professional before assuming they no longer have a filing or tax obligation.
A Good Time to Review
Ohio’s higher CAT exclusion is good news for many small and midsize businesses, but it’s also a reminder that tax rules change.
Businesses that have historically included CAT payments in their budget should review that expense when planning for the year ahead. Confirm what your business owes, if anything, and consider how savings could support your broader plans.
At First Citizens National Bank, we work with businesses across Mid-Ohio as they plan for growth, manage cash flow, and make decisions about what’s next. Changes in your tax expenses may create additional room in your budget, and our team can help you think through how to put those dollars to work for your business.
