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STRATEGIC ISSUES...ONLINE    
For week of November 7, 2005, Issue #236
 
Featured Articles:
1.  Ohio's New Commercial Activity Tax (CAT)
2.  Focus on Fraud:  Corporate & Identity Theft, Part 4 - Notes
3.  Tech Tip Weekly:  What's In a Name?
4.  Compliance Calendar
If you would like to have further information on any of these articles, let us know.  We would appreciate receiving your comments and/or suggestions, anytime!
acarroll@pmcpa.com
 
1.  Ohio's New Commercial Activity Tax (CAT)
 
Major changes are happening to Ohio's tax code with enactment of Am. Sub. H.B. 66.  These changes affect most Ohio business taxpayers.  The most prominent change is the introduction of the Commercial Activity Tax (CAT), a business privilege tax measured by a business's gross receipts.  The CAT is being phased in over five years and replaces the corporation franchise tax and the tangible personal property tax, which are being phased out over a similar time period.
 
Register Your Business
 
-The effective date of the CAT is July 1, 2005.  Companies doing business in Ohio that are liable for the tax must register by November 15th and pay a one-time fee. 
-On-line registration is encouraged.  Go to the Ohio Business Gateway at obg.ohio.gov.  There is only a $15 fee for electronic registration.
-Paper registration may be done for a $20 fee.  Forms are available at the ODT web site, tax.ohio.gov, or by calling 1-800-282-1782.
-Combined or consolidated taxpayers pay a maximum registration fee of $200.
-The registration fee can be applied toward CAT liability on the first return.
 
What Type of Tax is the CAT?
 
-The CAT is a tax on the privilege of doing business in Ohio, measured by gross receipts received in an annual or calendar quarter time period.
-The CAT is not a transactional sales tax.
 
Who Pays the CAT?
 
-Most types of business (such as sole proprietors, partnerships, or corporations) with taxable gross receipts of $150,000 or more in a calendar year.
 
The CAT applies to:
 
-Service providers, such as medical professionals, attorneys, and accountants.
-Persons engaged in the sale or rental of any type of property.
-Out-of-state businesses that meet any of the following criteria:
>have more than $500,000 in taxable gross receipts in Ohio.
>have more than $50,000 in real or personal property in Ohio.
>expend more than $50,000 in payroll for work in Ohio.
>conduct more than 25% of business activity in Ohio.
 
What is the Rate of the CAT?
 
-Gross receipts between $150,000 to $1.0 million: privilege tax of $150.
-When the CAT is fully phased in, gross receipts above $1.0 million: $150 plus 0.26% on gross receipts in excess of $1.0 million.
-Rate is phased in over the next five years in 20% increments.
-CAT rate is subject to adjustment by the Tax Commissioner if revenue collections of the tax are 10% or more greater or lesser than projections.
 
CAT Exceptions
 
-Nonprofit organizations.
-Financial institutions.
-Insurance companies.
-Affiliates of financial institutions and insurance companies.
-Dealers in intangibles.
-Certain receipts by public utilities that are subject to the public utility excise tax.
-Sales of motor fuel are exempted from gross receipts for two years.
 
What is a Gross Receipt?
 
-The total amount realized, without deduction for the cost of goods sold or other expenses incurred, from activities that contribute to the production of gross income.  Examples are:
>Sales
>Performance of services.
>Rentals or leases
-The calculation for gross receipts is based on what the taxpayer is required to use for federal income tax purposes, i.e., accrual or cash basis.
-There is a deduction for bad debt.
 
What is Not a Gross Receipt?
 
Receipts of:
-Employee compensation, i.e., wages and benefits.
-Interest, dividends, federally-defined capital gains, and distributions.
-Proceeds from loans, stocks, bonds, mutual funds, trusts, pension plans, or certificates of deposit.
-Damages received from litigation.
-Property, money, or other compensation received by an agent in excess of commissions or fees.
 
When are the CAT Filing and Payment Dates?
 
-The initial return covers the period July 1, 2005 through December 31, 2005.  The return is due February 10, 2006.
-In addition, every taxpayer subject to the CAT will be required to file and pay at least the $150 privilege tax for the calendar year 2006 by May 10, 2006.
-Subsequent returns are due on a quarterly basis if the taxpayer has receipts over $1.0 million a year; otherwise returns are due annually (e.g., February 10th).
-A tax return will be sent to all registered taxpayers before the first return is due.
 
Other Changes to Ohio Taxes
 
-The corporation franchise tax is phased out over five years at a rate of 20% per year, beginning in tax year 2006.
-All components of the tangible personal property (TPP) tax - inventory, manufacturing machinery and equipment, and furniture and fixtures - are phased out over four years at approximately 25% per year, starting in tax year 2006.
-The Ohio income tax is cut by 4.2% in tax year 2005, and cuts continue for four years to total a 21% reduction from 2004 rates.
-Sales tax: temporary 6.0% state sales tax is reduce by 0.5% (state rate of 5.5%). Local permissive sales taxes are in addition to that rate.
-Cigarette excise tax: excise tax on cigarettes is increased to $1.25 per pack.  Delivery sales of cigarettes, e.g., Internet or catalogue sales to customers in Ohio, are now restricted to prevent the sale of cigarettes to minors.
 
Questions?
 
Get the answers to your CAT questions by calling ODT at:  1-888-7-CATTAX (1-888-722-8829) or you can email your questions by visiting tax.ohio.gov and clicking on the "Contact Us" link or you can call Ron White or Tom Jeakle at Prangley Marks, LLP (616-774-9004).
 
 
2.  Focus on Fraud: Corporate & Identity Theft, Part 4 - Notes
 
Identity Theft is the crime of the 21st Century and allows for the occurrence of many, many more crimes:
 
Stolen identities enable...
 
-Credit card and bank fraud
-Retail account, utilities fraud
-Mail fraud
-Loan and mortgage fraud
-Employment fraud
-Wire fraud
-Money laundering
-Internet auction fraud
-E-business fraud
-And on and on and on...
 
Recent federal authority concern growing over identity theft being a key catalyst for funding terrorism.
 
No national security standards in place to prevent identity thefts, and resulting identity crimes.
 
Results can be, and are the demise of independent businesses, and security of the country being undermined.
 
Part 5 - Notes...next week.
 
 
3.  Tech Tip Weekly: What's In a Name?
 
Each filename in MS Windows consists of two parts: a main filename and a file extension.  The file extension, which identifies the type of file and what program created it, consists of a maximum of three characters that are automatically assigned by the creating agent or program.  Typically, these file extensions aren't displayed in the lists of filenames that you see.
 
Whereas the creating program normally assigns the file extension, MS Windows XP enables you to call the main part of the filename whatever you want, up to a maximum of 255 characters (including spaces!).  Keep in mind, however, that all pre-Windows 95 programs, and even some that run on Windows 98, don't support long filenames.  These programs allow a maximum of only eight characters, with no spaces.
 
 
4.  Compliance Calendar
 
November 14
-Employers deposit Social Security, Medicare and withheld income tax for payments November 5, 6, 7, and 8.
 
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