Auto dealers outside of Ohio with store locations near the Ohio border should pay attention to potential Ohio Commercial Activity Tax (CAT) filing obligations. Businesses with Ohio taxable gross receipts of $150,000 or more per the calendar year are subject to CAT. Non-Ohio dealers should make sure to understand the rules in order to determine whether they have any CAT filing obligation.
First, it is important to understand what sales could be considered Ohio sales. For CAT purposes, sales of vehicles or other tangible personal property are sourced to the ultimate destination of the item being sold. Therefore, if a car is sold by a Pennsylvania auto dealer to an Ohio resident who is taking the vehicle back to Ohio, the sale is considered an Ohio sale for CAT purposes.
Many non-Ohio dealers will have Ohio sales for CAT purposes, but will not have a filing requirement because they won’t have enough activity to create nexus. However, they should still track Ohio activity in order to see if they cross any of the bright line presence standards which would create nexus. Crossing one of any of the following thresholds creates nexus:
At least $50,000 of property located in Ohio
At least $50,000 in payroll paid to employees in Ohio
At least $500,000 of taxable gross receipts sourced to Ohio
At least 25% of the total property, payroll or taxable gross receipts in Ohio
Standalone businesses with $50,000 of property or payroll in Ohio during a calendar year, but less than $150,000 of taxable gross receipts sourced to Ohio will still generally not be subject to CAT.
However, when common ownership exists amongst business entities additional factors need to be considered. If a taxpayer owns fifty percent or more in two or more businesses, then common ownership exists for CAT purposes. If a fifty percent owner in the dealership owns fifty percent or more of another dealership or other business in Ohio, the related business in Ohio may create CAT filing and liability obligations for the non-Ohio dealership. Someone in the accounting department of the dealership or dealership group should have an understanding of the owners’ other businesses when a fifty percent or greater owner exists in order to understand if there’s any CAT exposure.
Dealership groups with Ohio and Non-Ohio stores should also keep in mind that depending on the filing method of the group (combined or consolidated), intercompany sales from an out of state dealership to an Ohio dealership may be considered gross receipts subject to CAT.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.