Commercial Activity Tax (CAT) in Ohio is calculated as a percentage of the company’s “gross receipts.” The logical question is then, what do I have to include when I calculate my “gross receipts.” The answer may surprise you and help you save thousands of dollars.
It certainly is not recent news, but it is often forgotten or misunderstood that construction managers can avoid paying Ohio’s CAT tax when the construction manager (or general contractor) is just taking funds from the owner to turn around and pay them to subcontractors and/or suppliers. In those circumstances, the amounts being passed through to subcontractors and/or suppliers do not need to be include din the calculation of the construction manager’s (or general contractor’s) gross receipts for purposes of calculating amounts owed for Ohio’s CAT tax. The only amounts that the construction manager must include when calculating CAT tax obligations are amounts that are received and not paid out to someone else (e.g., profit, overhead, fee, etc.). However, in order to ensure that you can reap the benefit of this process, you must ensure that your subcontract has specific language that satisfies the conditions set forth in Tax Opinion No. 08-0007.
This process applies to both public and private projects, and it applies regardless of contract type (i.e., whether you are a construction manager at risk or agency, general contractor, design builder, cost plus, fixed fee, etc.). At some point, the state of Ohio may perform audits and/or change how they are interpreting things, but for now contractors should be aware of this easy way to prevent overpaying CAT tax obligations.