Authorize CAT exclusion for contractor payments to subcontractors

As Introduced

136th
General Assembly

Regular
Session
S. B. No. 325

2025-2026

Senator Schaffer

To
amend section 5751.01 of the Revised Code
to
authorize a commercial activity tax exclusion for contractor payments
to subcontractors.

BE
IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section
1.
That
section 5751.01 of the Revised Code be amended to read as follows:

Sec.
5751.01.
As
used in this chapter:

(A)
"Person" means, but is not limited to, individuals,
combinations of individuals of any form, receivers, assignees,
trustees in bankruptcy, firms, companies, joint-stock companies,
business trusts, estates, partnerships, limited liability
partnerships, limited liability companies, associations, joint
ventures, clubs, societies, for-profit corporations, S corporations,
qualified subchapter S subsidiaries, qualified subchapter S trusts,
trusts, entities that are disregarded for federal income tax
purposes, and any other entities.

(B)
"Consolidated elected taxpayer" means a group of two or
more persons treated as a single taxpayer for purposes of this
chapter as the result of an election made under section 5751.011 of
the Revised Code.

(C)
"Combined taxpayer" means a group of two or more persons
treated as a single taxpayer for purposes of this chapter under
section 5751.012 of the Revised Code.

(D)
"Taxpayer" means any person, or any group of persons in the
case of a consolidated elected taxpayer or combined taxpayer treated
as one taxpayer, required to register or pay tax under this chapter.
"Taxpayer" does not include excluded persons.

(E)
"Excluded person" means any of the following:

(1)
Any person with not more than one hundred fifty thousand dollars of
taxable gross receipts during the calendar year. Division (E)(1) of
this section does not apply to a person that is a member of a
consolidated elected taxpayer.

(2)
A public utility that paid the excise tax imposed by section 5727.24
or 5727.30 of the Revised Code based on one or more measurement
periods that include the entire tax period under this chapter, except
in the following circumstances:

(a)
A public utility that is a combined company is a taxpayer with regard
to the following gross receipts:

(i)
Taxable gross receipts directly attributed to a public utility
activity, but not directly attributed to an activity that is subject
to the excise tax imposed by section 5727.24 or 5727.30 of the
Revised Code;

(ii)
Taxable gross receipts that cannot be directly attributed to any
activity, multiplied by a fraction whose numerator is the taxable
gross receipts described in division (E)(2)(a)(i) of this section and
whose denominator is the total taxable gross receipts that can be
directly attributed to any activity;

(iii)
Except for any differences resulting from the use of an accrual basis
method of accounting for purposes of determining gross receipts under
this chapter and the use of the cash basis method of accounting for
purposes of determining gross receipts under section 5727.24 of the
Revised Code, the gross receipts directly attributed to the activity
of a natural gas company shall be determined in a manner consistent
with division (D) of section 5727.03 of the Revised Code.

(b)
A heating company that became exempt from the excise tax imposed by
section 5727.30 of the Revised Code on May 1, 2023, shall not be an
excluded person for tax periods beginning on or after July 1, 2023.

As
used in division (E)(2) of this section, "combined company"
and "public utility" have the same meanings as in section
5727.01 of the Revised Code.

(3)
A financial institution, as defined in section 5726.01 of the Revised
Code, that paid the tax imposed by section 5726.02 of the Revised
Code based on one or more taxable years that include the entire tax
period under this chapter;

(4)
A person directly or indirectly owned by one or more financial
institutions, as defined in section 5726.01 of the Revised Code, that
paid the tax imposed by section 5726.02 of the Revised Code based on
one or more taxable years that include the entire tax period under
this chapter.

For
the purposes of division (E)(4) of this section, a person owns
another person under the following circumstances:

(a)
In the case of corporations issuing capital stock, one corporation
owns another corporation if it owns fifty per cent or more of the
other corporation's capital stock with current voting rights;

(b)
In the case of a limited liability company, one person owns the
company if that person's membership interest, as defined in section
1706.01 of the Revised Code, is fifty per cent or more of the
combined membership interests of all persons owning such interests in
the company;

(c)
In the case of a partnership, trust, or other unincorporated business
organization other than a limited liability company, one person owns
the organization if, under the articles of organization or other
instrument governing the affairs of the organization, that person has
a beneficial interest in the organization's profits, surpluses,
losses, or distributions of fifty per cent or more of the combined
beneficial interests of all persons having such an interest in the
organization.

(5)
A domestic insurance company or foreign insurance company, as defined
in section 5725.01 of the Revised Code, that paid the insurance
company premiums tax imposed by section 5725.18 or Chapter 5729. of
the Revised Code, or an unauthorized insurance company whose gross
premiums are subject to tax under section 3905.36 of the Revised Code
based on one or more measurement periods that include the entire tax
period under this chapter;

(6)
A person that solely facilitates or services one or more
securitizations of phase-in-recovery property pursuant to a final
financing order as those terms are defined in section 4928.23 of the
Revised Code. For purposes of this division, "securitization"
means transferring one or more assets to one or more persons and then
issuing securities backed by the right to receive payment from the
asset or assets so transferred.

(7)
Except as otherwise provided in this division, a pre-income tax trust
as defined in section 5747.01 of the Revised Code and any
pass-through entity of which such pre-income tax trust owns or
controls, directly, indirectly, or constructively through related
interests, more than five per cent of the ownership or equity
interests. If the pre-income tax trust has made a qualifying
pre-income tax trust election under division (EE) of section 5747.01
of the Revised Code, then the trust and the pass-through entities of
which it owns or controls, directly, indirectly, or constructively
through related interests, more than five per cent of the ownership
or equity interests, shall not be excluded persons for purposes of
the tax imposed under section 5751.02 of the Revised Code.

(8)
Nonprofit organizations or the state and its agencies,
instrumentalities, or political subdivisions.

(F)
Except as otherwise provided in divisions (F)(2), (3), and (4) of
this section, "gross receipts" means the total amount
realized by a person, without deduction for the cost of goods sold or
other expenses incurred, that contributes to the production of gross
income of the person, including the fair market value of any property
and any services received, and any debt transferred or forgiven as
consideration.

(1)
The following are examples of gross receipts:

(a)
Amounts realized from the sale, exchange, or other disposition of the
taxpayer's property to or with another;

(b)
Amounts realized from the taxpayer's performance of services for
another;

(c)
Amounts realized from another's use or possession of the taxpayer's
property or capital;

(d)
Any combination of the foregoing amounts.

(2)
"Gross receipts" excludes the following amounts:

(a)
Interest income except interest on credit sales;

(b)
Dividends and distributions from corporations, and distributive or
proportionate shares of receipts and income from a pass-through
entity as defined under section 5733.04 of the Revised Code;

(c)
Receipts from the sale, exchange, or other disposition of an asset
described in section 1221 or 1231 of the Internal Revenue Code,
without regard to the length of time the person held the asset.
Notwithstanding section 1221 of the Internal Revenue Code, receipts
from hedging transactions also are excluded to the extent the
transactions are entered into primarily to protect a financial
position, such as managing the risk of exposure to (i) foreign
currency fluctuations that affect assets, liabilities, profits,
losses, equity, or investments in foreign operations; (ii) interest
rate fluctuations; or (iii) commodity price fluctuations. As used in
division (F)(2)(c) of this section, "hedging transaction"
has the same meaning as used in section 1221 of the Internal Revenue
Code and also includes transactions accorded hedge accounting
treatment under statement of financial accounting standards number
133 of the financial accounting standards board. For the purposes of
division (F)(2)(c) of this section, the actual transfer of title of
real or tangible personal property to another entity is not a hedging
transaction.

(d)
Proceeds received attributable to the repayment, maturity, or
redemption of the principal of a loan, bond, mutual fund, certificate
of deposit, or marketable instrument;

(e)
The principal amount received under a repurchase agreement or on
account of any transaction properly characterized as a loan to the
person;

(f)
Contributions received by a trust, plan, or other arrangement, any of
which is described in section 501(a) of the Internal Revenue Code, or
to which Title 26, Subtitle A, Chapter 1, Subchapter (D) of the
Internal Revenue Code applies;

(g)
Compensation, whether current or deferred, and whether in cash or in
kind, received or to be received by an employee, former employee, or
the employee's legal successor for services rendered to or for an
employer, including reimbursements received by or for an individual
for medical or education expenses, health insurance premiums, or
employee expenses, or on account of a dependent care spending
account, legal services plan, any cafeteria plan described in section
125 of the Internal Revenue Code, or any similar employee
reimbursement;

(h)
Proceeds received from the issuance of the taxpayer's own stock,
options, warrants, puts, or calls, or from the sale of the taxpayer's
treasury stock;

(i)
Proceeds received on the account of payments from insurance policies,
except those proceeds received for the loss of business revenue;

(j)
Gifts or charitable contributions received; membership dues received
by trade, professional, homeowners', or condominium associations;
payments received for educational courses, meetings, meals, or
similar payments to a trade, professional, or other similar
association; and fundraising receipts received by any person when any
excess receipts are donated or used exclusively for charitable
purposes;

(k)
Damages received as the result of litigation in excess of amounts
that, if received without litigation, would be gross receipts;

(l)
Property, money, and other amounts received or acquired by an agent
on behalf of another in excess of the agent's commission, fee, or
other remuneration;

(m)
Tax refunds, other tax benefit recoveries, and reimbursements for the
tax imposed under this chapter made by entities that are part of the
same combined taxpayer or consolidated elected taxpayer group, and
reimbursements made by entities that are not members of a combined
taxpayer or consolidated elected taxpayer group that are required to
be made for economic parity among multiple owners of an entity whose
tax obligation under this chapter is required to be reported and paid
entirely by one owner, pursuant to the requirements of sections
5751.011 and 5751.012 of the Revised Code;

(n)
Pension reversions;

(o)
Contributions to capital;

(p)
Sales or use taxes collected as a vendor or an out-of-state seller on
behalf of the taxing jurisdiction from a consumer or other taxes the
taxpayer is required by law to collect directly from a purchaser and
remit to a local, state, or federal tax authority;

(q)
In the case of receipts from the sale of cigarettes, tobacco
products, or vapor products by a wholesale dealer, retail dealer,
distributor, manufacturer, vapor distributor, or seller, all as
defined in section 5743.01 of the Revised Code, an amount equal to
the federal and state excise taxes paid by any person on or for such
cigarettes, tobacco products, or vapor products under subtitle E of
the Internal Revenue Code or Chapter 5743. of the Revised Code;

(r)
In the case of receipts from the sale, transfer, exchange, or other
disposition of motor fuel as "motor fuel" is defined in
section 5736.01 of the Revised Code, an amount equal to the value of
the motor fuel, including federal and state motor fuel excise taxes
and receipts from billing or invoicing the tax imposed under section
5736.02 of the Revised Code to another person;

(s)
In the case of receipts from the sale of beer or intoxicating liquor,
as defined in section 4301.01 of the Revised Code, by a person
holding a permit issued under Chapter 4301. or 4303. of the Revised
Code, an amount equal to federal and state excise taxes paid by any
person on or for such beer or intoxicating liquor under subtitle E of
the Internal Revenue Code or Chapter 4301. or 4305. of the Revised
Code;

(t)
Receipts realized by a new motor vehicle dealer or used motor vehicle
dealer, as defined in section 4517.01 of the Revised Code, from the
sale or other transfer of a motor vehicle, as defined in that
section, to another motor vehicle dealer for the purpose of resale by
the transferee motor vehicle dealer, but only if the sale or other
transfer was based upon the transferee's need to meet a specific
customer's preference for a motor vehicle;

(u)
Receipts from a financial institution described in division (E)(3) of
this section for services provided to the financial institution in
connection with the issuance, processing, servicing, and management
of loans or credit accounts, if such financial institution and the
recipient of such receipts have at least fifty per cent of their
ownership interests owned or controlled, directly or constructively
through related interests, by common owners;

(v)
Receipts realized from administering anti-neoplastic drugs and other
cancer chemotherapy, biologicals, therapeutic agents, and supportive
drugs in a physician's office to patients with cancer;

(w)
Funds received or used by a mortgage broker that is not a dealer in
intangibles, other than fees or other consideration, pursuant to a
table-funding mortgage loan or warehouse-lending mortgage loan. Terms
used in division (F)(2)(w) of this section have the same meanings as
in section 1322.01 of the Revised Code, except "mortgage broker"
means a person assisting a buyer in obtaining a mortgage loan for a
fee or other consideration paid by the buyer or a lender, or a person
engaged in table-funding or warehouse-lending mortgage loans that are
first lien mortgage loans.

(x)
Property, money, and other amounts received by a professional
employer organization, as defined in section 4125.01 of the Revised
Code, or an alternate employer organization, as defined in section
4133.01 of the Revised Code, from a client employer, as defined in
either of those sections as applicable, in excess of the
administrative fee charged by the professional employer organization
or the alternate employer organization to the client employer;

(y)
In the case of amounts retained as commissions by a permit holder
under Chapter 3769. of the Revised Code, an amount equal to the
amounts specified under that chapter that must be paid to or
collected by the tax commissioner as a tax and the amounts specified
under that chapter to be used as purse money;

(z)
Qualifying distribution center receipts as determined under section
5751.40 of the Revised Code;

(aa)
Receipts of an employer from payroll deductions relating to the
reimbursement of the employer for advancing moneys to an unrelated
third party on an employee's behalf;

(bb)
Cash discounts allowed and taken;

(cc)
Returns and allowances;

(dd)
Bad debts from receipts on the basis of which the tax imposed by this
chapter was paid in a prior quarterly tax payment period. For the
purpose of this division, "bad debts" means any debts that
have become worthless or uncollectible between the preceding and
current quarterly tax payment periods, have been uncollected for at
least six months, and that may be claimed as a deduction under
section 166 of the Internal Revenue Code and the regulations adopted
under that section, or that could be claimed as such if the taxpayer
kept its accounts on the accrual basis. "Bad debts" does
not include repossessed property, uncollectible amounts on property
that remains in the possession of the taxpayer until the full
purchase price is paid, or expenses in attempting to collect any
account receivable or for any portion of the debt recovered.

(ee)
Any amount realized from the sale of an account receivable to the
extent the receipts from the underlying transaction giving rise to
the account receivable were included in the gross receipts of the
taxpayer;

(ff)
Any receipts directly attributed to a transfer agreement or to the
enterprise transferred under that agreement under section 4313.02 of
the Revised Code;

(gg)
Qualified uranium receipts as determined under section 5751.41 of the
Revised Code;

(hh)
In the case of amounts collected by a licensed casino operator from
casino gaming, amounts in excess of the casino operator's gross
casino revenue. In this division, "casino operator" and
"casino gaming" have the meanings defined in section
3772.01 of the Revised Code, and "gross casino revenue" has
the meaning defined in section 5753.01 of the Revised Code.

(ii)
Receipts realized from the sale of agricultural commodities by an
agricultural commodity handler, both as defined in section 926.01 of
the Revised Code, that is licensed by the director of agriculture to
handle agricultural commodities in this state;

(jj)
Qualifying integrated supply chain receipts as determined under
section 5751.42 of the Revised Code;

(kk)
In the case of a railroad company described in division (D)(9) of
section 5727.01 of the Revised Code that purchases dyed diesel fuel
directly from a supplier as defined by section 5736.01 of the Revised
Code, an amount equal to the product of the number of gallons of dyed
diesel fuel purchased directly from such a supplier multiplied by the
average wholesale price for a gallon of diesel fuel as determined
under section 5736.02 of the Revised Code for the period during which
the fuel was purchased multiplied by a fraction, the numerator of
which equals the rate of tax levied by section 5736.02 of the Revised
Code less the rate of tax computed in section 5751.03 of the Revised
Code, and the denominator of which equals the rate of tax computed in
section 5751.03 of the Revised Code;

(ll)
Receipts realized by an out-of-state disaster business from disaster
work conducted in this state during a disaster response period
pursuant to a qualifying solicitation received by the business. Terms
used in division (F)(2)(ll) of this section have the same meanings as
in section 5703.94 of the Revised Code.

(mm)
In the case of receipts from the sale or transfer of a
mortgage-backed security or a mortgage loan by a mortgage lender
holding a valid certificate of registration issued under Chapter
1322. of the Revised Code or by a person that is a member of the
mortgage lender's consolidated elected taxpayer group, an amount
equal to the principal balance of the mortgage loan;

(nn)
Amounts of excess surplus of the state insurance fund received by the
taxpayer from the Ohio bureau of workers' compensation pursuant to
rules adopted under section 4123.321 of the Revised Code;

(oo)
Except as otherwise provided in division (B) of section 5751.091 of
the Revised Code, receipts of a megaproject supplier from sales of
tangible personal property directly to a megaproject operator in this
state for use at the site of the megaproject operator's megaproject,
provided that the sale occurs during the period that the megaproject
operator has an agreement with the tax credit authority for the
megaproject under division (D) of section 122.17 of the Revised Code
that remains in effect and has not expired or been terminated, and
provided the megaproject supplier holds a certificate for such
megaproject issued under section 5751.052 of the Revised Code for the
calendar year in which the sales are made and, if the megaproject
supplier meets the requirements described in division (A)(13)(b) of
section 122.17 of the Revised Code, the megaproject supplier holds a
certificate for such megaproject issued under division (D)(11) of
section 122.17 of the Revised Code on the first day of that calendar
year;

(pp)
Receipts from the sale of each new piece of capital equipment that
has a cost in excess of one hundred million dollars and that is used
at the site of a megaproject that satisfies the criteria described in
division (A)(11)(a)(ii) of section 122.17 of the Revised Code,
provided that the sale occurs during the period that a megaproject
operator has an agreement for that megaproject with the tax credit
authority under division (D) of section 122.17 of the Revised Code
that remains in effect and has not expired or been terminated;

(qq)
In the case of amounts collected by a sports gaming proprietor from
sports gaming, amounts in excess of the proprietor's sports gaming
receipts. As used in this division, "sports gaming proprietor"
has the same meaning as in section 3775.01 of the Revised Code and
"sports gaming receipts" has the same meaning as in section
5753.01 of the Revised Code.

(rr)
Amounts received from any federal, state, or local grant, and amounts
of indebtedness discharged or forgiven pursuant to federal, state, or
local law, for providing or expanding access to broadband service in
this state. As used in this division, "broadband service"
has the same meaning as in section 188.01 of the Revised Code.

(ss)
Receipts provided to a taxpayer to compensate for lost business
resulting from the train derailment near the city of East Palestine
on February 3, 2023, by any of the following:

(i)
A federal, state, or local government agency;

(ii)
A railroad company, as that term is defined in section 5727.01 of the
Revised Code;

(iii)
Any subsidiary, insurer, or agent of a railroad company or any
related person.

(tt)
An amount equal to the fee imposed by section 3743.22 of the Revised
Code billed to the purchaser, collected by the taxpayer, and remitted
to the fire marshal during the tax period, provided that the fee is
separately stated on the invoice, bill of sale, or similar document
given to the purchaser of 1.4G fireworks in this state
.
;

(uu)

Receipts
under a construction contract to the extent the taxpayer is obligated
to pay those receipts to a subcontractor under a subcontract;

(vv)

Any
receipts for which the tax imposed by this chapter is prohibited by
the constitution or laws of the United States or the constitution of
this state;

(vv)
(ww)

Receipts from fees imposed under sections 128.41 and 128.42 of the
Revised Code.

(3)
In the case of a taxpayer when acting as a real estate broker, "gross
receipts" includes only the portion of any fee for the service
of a real estate broker, or service of a real estate salesperson
associated with that broker, that is retained by the broker and not
paid to an associated real estate salesperson or another real estate
broker. For the purposes of this division, "real estate broker"
and "real estate salesperson" have the same meanings as in
section 4735.01 of the Revised Code.

(4)
A taxpayer's method of accounting for gross receipts for a tax period
shall be the same as the taxpayer's method of accounting for federal
income tax purposes for the taxpayer's federal taxable year that
includes the tax period. If a taxpayer's method of accounting for
federal income tax purposes changes, its method of accounting for
gross receipts under this chapter shall be changed accordingly.

(G)
"Taxable gross receipts" means gross receipts sitused to
this state under section 5751.033 of the Revised Code.

(H)
A person has "substantial nexus with this state" if any of
the following applies. The person:

(1)
Owns or uses a part or all of its capital in this state;

(2)
Holds a certificate of compliance with the laws of this state
authorizing the person to do business in this state;

(3)
Has bright-line presence in this state;

(4)
Otherwise has nexus with this state to an extent that the person can
be required to remit the tax imposed under this chapter under the
Constitution of the United States.

(I)
A person has "bright-line presence" in this state for a
reporting period and for the remaining portion of the calendar year
if any of the following applies. The person:

(1)
Has at any time during the calendar year property in this state with
an aggregate value of at least fifty thousand dollars. For the
purpose of division (I)(1) of this section, owned property is valued
at original cost and rented property is valued at eight times the net
annual rental charge.

(2)
Has during the calendar year payroll in this state of at least fifty
thousand dollars. Payroll in this state includes all of the
following:

(a)
Any amount subject to withholding by the person under section 5747.06
of the Revised Code;

(b)
Any other amount the person pays as compensation to an individual
under the supervision or control of the person for work done in this
state; and

(c)
Any amount the person pays for services performed in this state on
its behalf by another.

(3)
Has during the calendar year taxable gross receipts of at least five
hundred thousand dollars;

(4)
Has at any time during the calendar year within this state at least
twenty-five per cent of the person's total property, total payroll,
or total gross receipts;

(5)
Is domiciled in this state as an individual or for corporate,
commercial, or other business purposes.

(J)
"Tangible personal property" has the same meaning as in
section 5739.01 of the Revised Code.

(K)
"Internal Revenue Code" means the Internal Revenue Code of
1986, 100 Stat. 2085, 26 U.S.C. 1, as amended. Any term used in this
chapter that is not otherwise defined has the same meaning as when
used in a comparable context in the laws of the United States
relating to federal income taxes unless a different meaning is
clearly required. Any reference in this chapter to the Internal
Revenue Code includes other laws of the United States relating to
federal income taxes.

(L)
"Calendar quarter" means a three-month period ending on the
thirty-first day of March, the thirtieth day of June, the thirtieth
day of September, or the thirty-first day of December.

(M)
"Tax period" means the calendar quarter on the basis of
which a taxpayer is required to pay the tax imposed under this
chapter.

(N)
"Agent" means a person authorized by another person to act
on its behalf to undertake a transaction for the other, including any
of the following:

(1)
A person receiving a fee to sell financial instruments;

(2)
A person retaining only a commission from a transaction with the
other proceeds from the transaction being remitted to another person;

(3)
A person issuing licenses and permits under section 1533.13 of the
Revised Code;

(4)
A lottery sales agent holding a valid license issued under section
3770.05 of the Revised Code;

(5)
A person acting as an agent of the division of liquor control under
section 4301.17 of the Revised Code.

(O)
"Received" includes amounts accrued under the accrual
method of accounting.

(P)
"Reporting person" means a person in a consolidated elected
taxpayer or combined taxpayer group that is designated by that group
to legally bind the group for all filings and tax liabilities and to
receive all legal notices with respect to matters under this chapter,
or, for the purposes of section 5751.04 of the Revised Code, a
separate taxpayer that is not a member of such a group.

(Q)
"Megaproject," "megaproject operator," and
"megaproject supplier" have the same meanings as in section
122.17 of the Revised Code.

(R)
"Exclusion amount" means three million dollars beginning in
2024 and six million dollars beginning in 2025.

Section
2.
That
existing section 5751.01 of the Revised Code is hereby repealed.

Section
3.
The
amendment by this act of section 5751.01 of the Revised Code applies
to tax periods ending on or after the effective date of this section.