Most of CAT cut in Senate bill would go to larger businesses
Posted June 20, 2023 in Press Releases
Most of the business tax reduction included in the Ohio Senate budget bill will go to just a tenth of the companies currently liable for the tax — those with more than $6 million in annual Ohio receipts.
“Ohio’s taxes on business are already low,” said Zach Schiller, Policy Matters Ohio research director. “The General Assembly would do better with the House bill, which does not include a large permanent business tax cut that will drain revenue available for education and public services.”
The Senate bill over two years would eliminate the Commercial Activity Tax (CAT) — Ohio’s general business tax — for companies with less than $6 million in annual Ohio gross receipts. Companies with greater than $6 million in Ohio receipts wouldn’t have to pay tax on that amount.
The vast majority of Ohio’s smallest businesses —100,000 companies that account for more than two-thirds of those whose tax will be wiped out — will get an annual cut of $150. Those with more than $6 million in receipts by contrast will each save $18,200 a year when the cut is fully implemented. This means that about 17,000 such companies altogether will get a cut of $310 million, or a majority of the savings, based on Fiscal Year 2022 data from the Ohio Department of Taxation.
“While the ultimate Senate CAT reduction is not as heavily weighted in favor of Ohio’s biggest companies as the original Senate proposal, it still provides most of the cut to a small share of state businesses — the state’s bigger businesses,” Schiller said.
Cutting the CAT does little for the lion’s share of Ohio’s small businesses because they already pay little or no CAT. Companies with less than $150,000 in annual receipts don’t pay CAT now, and those with between $150,000 and $1 million pay a flat $150.
With the elimination of that $150 minimum, some companies would pay $1, $5 or $20 or some other amount of tax so modest that it will probably cost the state more to process it than the revenue collected.
As Policy Matters Ohio noted in a previous release, Ernst & Young reported that in Fiscal Year 2021, Ohio state and local business taxes as a share of gross state product and per employee ranked well below the national average, and lower than those of more than 40 other states.
“The half-billion dollars a year that this tax cut will cost would be better spent educating our kids, bolstering our public health system, paying our care workers better, and aiding local governments and libraries,” Schiller said.