Ohio Commercial Activity Tax Applies to Revenues from Shale Oil and Gas Extraction
The Ohio Commercial Activity Tax (CAT) is an annual tax imposed on businesses operating within the state, and it applies to a wide range of commercial activities. This includes lease bonus and royalty payments received from shale oil and gas leases.
According to the Ohio Department of Taxation, lease bonuses - upfront payments made for the right to explore or produce oil and gas on a property - are considered taxable gross receipts under the CAT. Similarly, royalties paid based on production from shale oil and gas leases are also included in the taxable gross receipts.
The CAT applies to all entities, regardless of form, such as sole proprietorships, partnerships, LLCs, and all types of corporations. For instance, a teacher named Thomas Owen, who received $1,600,000 in lease bonus payments, would pay a minimum CAT fee of $800 and an additional CAT tax of $1,560, totalling $2,360.
The additional CAT tax for taxpayers with over $1 million in taxable gross receipts is one-quarter of a percent (0.26%) for each dollar over $1 million. The annual minimum fee for taxpayers with total taxable gross receipts more than $1 million but less than or equal to $2 million is $800. For taxpayers with taxable gross receipts more than $2 million but less than or equal to $4 million, the annual minimum fee is $2,100, and for those with taxable gross receipts in excess of $4 million, the annual minimum fee is $2,600.
The $150 annual minimum tax is due no later than May 10th of each year. Electronic registration for paying the CAT is available online through the Ohio Business Gateway at business.ohio.gov. Those with taxable gross receipts of more than $150,000 per calendar year are subject to this tax and must register as a taxpayer with the Ohio Department of Taxation.
It is important to note that while the Ohio CAT statute broadly captures gross receipts from sales, leases, or other commercial activity, there may be nuances or exemptions that might apply. For precise application or for recent audit trends and legal developments, consulting a tax professional or a specialized attorney with Ohio oil and gas tax experience is strongly recommended.
The CAT was enacted in House Bill 66, passed by the 126th General Assembly in 2005. Additional instructions on registering and paying the tax are available on Ohio's CAT website at tax.ohio.gov/commercial_activities.aspx. The term "gross receipts" is broadly defined to include most business types of receipts from the sale of property or in the performance of a service.
[1] Ohio Department of Taxation, Commercial Activity Tax (CAT) Information, accessed on April 10, 2023, https://business.ohio.gov/taxes/commercial-activities-tax/ [3] BakerHostetler, Ohio Commercial Activity Tax (CAT) Update: Recent Developments and Audit Trends, accessed on April 10, 2023, https://www.bakerlaw.com/en/insights/publications/2021/03/ohio-commercial-activity-tax-cat-update-recent-developments-and-audit-trends
The Ohio Department of Taxation considers lease bonuses, which are upfront payments for the right to explore or produce oil and gas on a property, as taxable gross receipts under the CAT, similar to royalties paid based on production from shale oil and gas leases. As detailed on Ohio's CAT website, the term "gross receipts" is defined broadly to include most business types of receipts from the sale of property or the performance of a service, and may pertain to a wide range of business activities like finance and industry.
