Ohio commercial activity tax credits remain one of the most underused tools for reducing business tax liability in the state. Many Ohio businesses pay the CAT each quarter without ever checking whether they qualify for credits that could lower, or even eliminate, the amount they owe. If your company files Form 6765 with the IRS, you may already have the foundation for a valuable Ohio tax credit sitting in your returns.
This article breaks down how the Ohio commercial activity tax works under the current rules, which credits are available, and why the qualified research expense (QRE) credit deserves closer attention from businesses across industries.
What is the Ohio commercial activity tax?
The Ohio commercial activity tax is a tax imposed on the privilege of doing business in Ohio. It is measured by a company’s taxable gross receipts from most business activities. “Gross receipts” means the total amount realized by a person, without deduction for cost of goods sold or other expenses. However, certain amounts, including cash discounts, returns and allowances, bad debts, and certain sales of accounts receivable, are excluded from the calculation under Ohio Revised Code Section 5751.01.
Only taxable gross receipts sourced to Ohio are subject to the tax. This distinction matters for multi-state businesses that may generate revenue both inside and outside of Ohio. Ohio law sets out the sourcing rules and exclusion amounts that govern how those receipts are reported.
Which businesses must pay the Ohio CAT?
The Ohio commercial activity tax applies to nearly every type of business operating in the state, regardless of how the business is organized. Retail, wholesale, service, manufacturing, and other general businesses can all be subject to the tax. Sole proprietorships, partnerships, LLCs, S corporations, C corporations, disregarded entities, trusts, and other associations may be covered if their taxable gross receipts are large enough to exceed the annual exclusion.
That said, recent law changes have removed most small and midsize businesses from the CAT entirely. Beginning with tax periods in 2024, the annual exclusion rose to $3 million, and for 2025 and later years it increased to $6 million. A business with $6 million or less in taxable gross receipts in a calendar year is no longer subject to the tax and generally does not need to file.
This shift means the CAT now lands primarily on larger companies. For those that remain subject to it, the assumption that the CAT is simply a fixed cost of doing business in Ohio leads many taxpayers to overlook the credits built into the system. Companies in capital-intensive sectors such as manufacturing and distribution are especially likely to qualify for research-based credits they never claim.
How is the Ohio CAT calculated?
The Ohio CAT structure was simplified by the state budget changes that took effect in 2024. The annual minimum tax, which had required even small filers to pay a fee based on their receipts tier, was eliminated effective January 1, 2024. There is no longer a pay-to-play minimum for holding a CAT account.
Under the current rules, a taxpayer subtracts the annual exclusion from its taxable gross receipts and applies a rate of 0.26 percent to the amount that exceeds the exclusion. For 2025 and 2026, that exclusion is $6 million, so the tax applies only to taxable gross receipts above $6 million. The CAT now follows the calendar year and is filed on a quarterly basis; annual filing was discontinued after the 2023 annual returns.
Taxpayers that owe CAT after applying the exclusion should evaluate whether any available tax credits can reduce what they owe. This is where the Ohio commercial activity tax credits come in, and where many businesses leave money on the table.
Five CAT credits available under Ohio law
Ohio Administrative Code Rule 5703-29-22 explains the credits that taxpayers may apply against their commercial activity tax liability. Five of those credits are summarized below. Understanding all five is important, even if only one or two apply to your business.
Nonrefundable jobs retention credit
This credit is designed for businesses that commit to retaining a specified number of jobs in Ohio. It requires an agreement with the state and is typically associated with larger employers negotiating incentive packages.
Nonrefundable qualified research expense credit
The QRE credit is the focus of this article and is discussed in detail below. It rewards businesses that invest in research and development activities, directly tying the Ohio benefit to work already documented on the federal return.
Nonrefundable credit for qualified R&D loan payments
Businesses that have taken out loans specifically to fund qualified research and development activities may be eligible for a credit based on their loan payments. This credit is less commonly claimed but can be valuable for companies that finance R&D through borrowing.
Credit for unused franchise tax net operating loss deductions
This credit addresses a legacy issue from Ohio’s transition away from the corporate franchise tax. Businesses that had accumulated net operating loss deductions under the old franchise tax system may apply those unused deductions against their CAT liability.
Refundable jobs creation credit
Unlike the other credits on this list, the jobs creation credit is refundable, meaning it can generate a payment to the taxpayer even if it exceeds the CAT owed. This credit is tied to agreements with the Ohio Tax Credit Authority and requires a commitment to creating new jobs in the state.
When a taxpayer qualifies for more than one credit, Section 5751.98 of the Ohio Revised Code dictates the order in which the credits must be claimed.
How the qualified research expense credit works
The Ohio research and development tax credit for CAT purposes is based directly on the federal Form 6765, Credit for Increasing Research Activities. If your business filed this form with its federal tax return, it may already qualify for the QRE credit on the Ohio commercial activity tax return. The IRS provides the official About Form 6765 page that defines which expenses count as qualified research expenses.
The calculation is straightforward. Take the total qualified research expenses reported on federal Form 6765 for the current year, subtract the average QRE from the prior three years, and multiply the result by seven percent.
Sample QRE credit calculation
Consider a business with the following numbers:
- Current year total QRE: $200,000
- Average QRE for prior three years: $133,333
- Ohio eligible QRE: $66,667
- Ohio CAT credit (at 7%): $4,667
That $4,667 credit directly reduces the business’s commercial activity tax liability for the year.
When can you use the QRE credit?
The qualified research expense credit becomes available starting with the fourth quarter of the year in which the research expenses were incurred. For example, expenses incurred during 2025 could generate a credit first claimed on the fourth-quarter 2025 CAT return. Because the credit is nonrefundable, it can reduce CAT liability to zero, and any unused portion carries forward for seven years, giving businesses a long window to apply the benefit.
Businesses that failed to claim the QRE credit in prior years are not necessarily out of luck. Ohio applies a four-year statute of limitations to CAT filings. This means taxpayers can look back and recover credits they were entitled to but never claimed, a step that many businesses and even some advisors overlook.
Why the QRE credit is the most overlooked Ohio CAT credit
The Ohio gross receipts tax structure makes the CAT feel like a straightforward obligation: calculate your receipts, subtract the exclusion, pay the rate. But the QRE credit adds a layer that many businesses skip for a few common reasons.
First, business owners may not realize that their federal R&D credit work product, Form 6765, automatically feeds into an Ohio-level benefit. Second, the incremental nature of the calculation (current year minus prior three-year average) can seem complex, leading some taxpayers to assume the credit is not worth pursuing. Third, many businesses simply do not have advisors who proactively review CAT returns for credit eligibility.
The result is that qualifying businesses pay more Ohio commercial activity tax than they need to, year after year.
Steps to claim your Ohio CAT credits
Taking advantage of Ohio commercial activity tax credits requires a few deliberate steps:
1. Confirm you are still a CAT taxpayer. With the exclusion now at $6 million, verify that your taxable gross receipts exceed the threshold before working through credits.
2. Review your federal returns. If your business files Form 6765, you have the data needed to calculate the QRE credit. Pull the qualified research expense totals for the current year and the prior three years.
3. Run the QRE calculation. Subtract the three-year average from the current year total and multiply by seven percent. If the result is positive, you have a credit to claim.
4. Check prior years. If you did not claim the credit in past periods, evaluate whether amended returns are still within the four-year statute of limitations.
5. Evaluate other credits. Review the full list of CAT credits to determine whether your business qualifies for additional reductions beyond the QRE.
6. Work with a qualified advisor. Ohio business tax credits involve specific filing requirements and ordering rules. Pease Bell CPAs’ tax advisory services can ensure credits are claimed correctly and in the right sequence, and our broader accounting services help businesses keep the underlying records that support every credit.
Frequently Asked Questions
What is the Ohio commercial activity tax?
The Ohio commercial activity tax is a tax on the privilege of doing business in Ohio, measured by taxable gross receipts sourced to the state. It applies to most business types, including sole proprietorships, LLCs, and corporations, when taxable gross receipts exceed the annual exclusion. For 2025 and 2026, that exclusion is $6 million, and the CAT rate is 0.26 percent on taxable receipts above that amount.
Who has to pay the Ohio CAT?
Businesses operating in Ohio with taxable gross receipts above the $6 million annual exclusion must file and pay the CAT. This can include retail, wholesale, service, and manufacturing businesses regardless of entity type. Businesses with $6 million or less in taxable gross receipts are no longer subject to the tax.
What credits can reduce my Ohio commercial activity tax?
Ohio law provides several credits against the CAT, including a jobs retention credit, a qualified research expense credit, a credit for R&D loan payments, a credit for unused franchise tax NOL deductions, and a refundable jobs creation credit. The QRE credit is the most accessible for businesses that already claim the federal R&D credit on Form 6765.
How is the Ohio QRE credit calculated?
The Ohio qualified research expense credit equals seven percent of the difference between your current-year qualified research expenses and the average of your QRE for the prior three years. If your current-year expenses exceed the three-year average, the resulting credit directly offsets your CAT liability.
Can I amend prior Ohio CAT returns to claim missed credits?
Yes. Ohio applies a four-year statute of limitations to CAT filings. If your business was entitled to the QRE credit or other credits in prior years but did not claim them, you may be able to file amended returns within that window to recover those benefits.
When does the Ohio QRE credit become available?
The qualified research expense credit is first available in the fourth quarter of the year the expenses were incurred. Any unused portion carries forward for up to seven years, giving businesses extended time to apply the credit against future CAT liability.
