Not a Fat CAT: Commercial Activity Tax Adds to Ohio’s Budget Problems

Ohio’s broad state tax on business — the Commercial Activity Tax (CAT) — has now gone into full effect. Unfortunately, like Ohio’s other major state taxes, the CAT is not holding up in the poor economy. Created in 2005 as a replacement for the state’s corporate income tax and a local property tax on business, the CAT was not expected to come close to replacing the revenue from both taxes. However, it is now expected to produce $200 million less a year than expected as recently as last February, contributing to Ohio’s budget problems. This report describes the CAT revenue picture and recommends that the General Assembly take action to bolster business taxes and the CAT in particular. One way to start is to reinstate a self-adjusting trigger — included in the original CAT but later eliminated — that would raise the CAT rate if it falls well below projections.

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