The effect of Ohio's Commercial Activity Tax on Landowners

Landowners receiving lease and royalty payments from oil and gas companies may be in for a surprise. The Ohio commercial activity tax ("CAT") applies to all gross receipts that contribute to the production of gross income. The CAT is imposed upon persons with taxable gross receipts in excess of $150,000 annually. The tax is $150 on the first $1 million in gross receipts, and is imposed at a rate of $150 plus 0.26% of gross receipts in excess of $1 million.
Individuals and entities such as pass-through entities may be subject to the CAT if their annual lease and royalty payments, plus other receipts from business activities, exceed $150,000.  Persons entering into leases with gas and oil companies may want to consult with their tax advisor in order to determine whether they will incur CAT as a result of the lease. For more information, read a recent article in Farm & Dairy about the Commercial Activity Tax here.