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Multistate Tax: Ohio Commercial Activity Tax and Airline Flight Partners

The Commercial Activity Tax (CAT) is an excise tax for the privilege of doing business in Ohio, which is measured by a person’s taxable gross receipts. It is our understanding the Ohio Department of Taxation is considering applying the CAT to airline flight partners for their flight activity in Ohio.

The Department has trained more than 70 auditors in auditing for CAT and have been aggressively pursuing audit leads. There is a substantial risk that airline flight partners could be audited.

These businesses should analyze their activity in Ohio to determine what the potential exposure could be if the CAT is applied to them. Businesses will need to consider the impact of the 47 exclusions and the proper situsing of their gross receipts when determining such exposure.

Our Multistate Tax professionals are very experienced with assisting companies in understanding the complicated CAT statutes, rules and information releases and helping quantify potential exposure. Further, our Multistate Tax professionals are very experienced with conducting and defending CAT audits if a business has already been contacted.

Does a business just have to wait to be contacted by the Department?

No, businesses can be proactive in addressing this issue in three ways:

  • General Amnesty—Businesses could apply for general amnesty (May 1, 2012 through June 15, 2012, see Multistate Tax Services Alert for more detail) and remit the tax liability for all open years plus one-half of the normal interest (no penalty would apply);
  • Voluntary Disclosure—Businesses could apply for a voluntary disclosure agreement and remit the past three years plus full interest (no penalty would apply) [we can assist clients with determining if Amnesty or Voluntary Disclosure is the better option]; or
  • Managed Audit—Businesses could request a managed audit from the Department’s Audit Division and remit the tax liability plus full interest for the audit period, which is typically two years for registered taxpayers (no penalty would apply). While there is no formal managed audit program for CAT purposes, the Department may be willing to discuss this approach. This type of audit involves the Department and the client planning the audit together and allows the client to complete part of the actual work, which minimizes the involvement of the Department in the audit process. Clients are often more comfortable with this audit approach and feel more in control of the audit.

If you would like to discuss this CAT issue or how McDonald Hopkins can help assist you with resolving any potential CAT liability, please contact:

John R. Trippier
(non-attorney professional)

Thomas M. Zaino

or any of our Multistate Tax Group by clicking on the link below:

Multistate Tax Practice

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. This can be a daunting task. We provide a broad range of state and local tax services including tax planning, tax controversy, real estate tax abatement and exemption, and tax policy advocacy. With professionals who have worked both inside and outside government agencies, the multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.

Carl J. Grassi, President
600 Superior Avenue, East, Suite 2100, Cleveland, Ohio 44114
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IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments), was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding any penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction matter addressed herein.

© 2012 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.