Ohio Commercial Activity Tax Applies to Revenues from Shale Oil and Gas Operations
The Ohio Commercial Activity Tax (CAT) is an annual tax imposed on the privilege of doing business in the state, based on taxable gross receipts from most business activities. This includes revenues from shale oil and gas leases such as lease bonus and royalty payments.
The key points of the current CAT tax rate structure are as follows:
- **Exclusion Threshold**: As of January 1, 2025, businesses with taxable gross receipts of $6 million or less per calendar year will not owe CAT, an increase from the previous $3 million threshold.
- **Tax Rate Above Threshold**: For taxable gross receipts exceeding $6 million annually, the CAT rate is 0.26% on the amount exceeding the $6 million exclusion.
- **Application to Lease Bonuses and Royalties**: Revenues received from shale oil and gas leases are considered part of a taxpayer’s gross receipts subject to CAT if those receipts are from business activity in Ohio. Therefore, these receipts count toward the $6 million threshold and are taxed at the 0.26% rate if the total gross receipts exceed that amount.
For example, a teacher leasing land for shale oil and gas, like Thomas Owen, would pay a minimum CAT fee of $800 due to his taxable gross receipts being between $1 million and $2 million. If his total taxable gross receipts exceed $6 million, he would also pay an additional CAT tax of 0.26% on the amount exceeding $6 million.
It's important to note that the CAT applies to all entities regardless of form, such as sole proprietorships, partnerships, LLCs, and all types of corporations.
Detailed instructions on registering and paying the CAT can be found on Ohio's CAT website at tax.ohio.gov/commercial_activities.aspx. Electronic registration for paying the CAT is available online through the Ohio Business Gateway at business.ohio.gov.
Certain receipts are not taxable receipts and are excluded from a taxpayer's CAT base, such as dividends, capital gains, wages reported on a W-2, interest income (other than from credit sales), and gifts.
Taxpayers with taxable gross receipts exceeding $1 million must pay an additional CAT tax of 0.26% for each dollar over $1 million. The annual minimum fee for taxpayers with taxable gross receipts more than $1 million but less than or equal to $2 million is $800. The annual minimum fee for taxpayers with taxable gross receipts of more than $2 million but less than or equal to $4 million is $2,100. The annual minimum fee for taxpayers with taxable gross receipts in excess of $4 million is $2,600. The $150 annual minimum tax is due no later than May 10th of each year.
The CAT tax is calculated based on the amount over the minimum taxable gross receipts for each tax bracket. For instance, if Thomas Owen's total taxable gross receipts were $1.6 million, he would pay a minimum CAT fee of $800, but an additional CAT tax of $1,560 for the remaining $600,000 over the minimum, totaling $2,360 in CAT obligation.
The Ohio Commercial Activity Tax (CAT) applies to lease bonus and royalty dollars received for shale oil and gas leases if the payments total over $150,000 annually.
[1] Source: Ohio Department of Taxation, https://www.tax.ohio.gov/businesses/CommercialActivityTax/Pages/default.aspx
- Given the CAT tax structure, businesses involved in the energy industry, such as those receiving lease bonus and royalty payments from shale oil and gas leases, will have to pay the annual tax of 0.26% on their revenues exceeding $6 million if their total taxable gross receipts surpass that amount.
- In light of the CAT tax, entities in the finance and industry sectors, including sole proprietorships, LLCs, corporations, and partnerships, are all subject to the annual tax, and will need to register and pay the CAT through the Ohio Business Gateway or via the Ohio Commercial Activity Tax website.
