Ohio operates without a corporate income tax, instead using a Commercial Activity Tax on gross receipts. Companies formed in Ohio have nexus from the time of formation, while out-of-state businesses trigger registration through economic thresholds for sales tax and CAT minimums, and immediate requirements when hiring Ohio employees.
Ohio's factor presence test uses $500,000 in sales, $50,000 in payroll or property, and a 25% rule to capture businesses whose Ohio activity represents a significant portion of their operations. Cities impose independent income taxes beyond state obligations, adding layers of municipal compliance.
Sales tax nexus activates through economic metrics or physical presence, requiring registration and collection once either standard is met. Ohio's post-Wayfair approach incorporates both revenue and transaction counting alongside traditional presence tests.
Remote sellers must register when they exceed $100,000 in gross sales to Ohio customers or conduct 200 or more retail transactions during the current or previous calendar year. Both taxable and non-taxable retail sales contribute to revenue, while only retail transactions are included in the transaction count.
Marketplace facilitators collect tax on behalf of third-party sellers; however, individual sellers still track these transactions for nexus monitoring purposes. Registration and collection obligations begin on the first day of the calendar month following at least 30 days after either threshold is crossed.
A traditional presence creates immediate obligations, regardless of sales volume. Triggers include owning or leasing business locations, maintaining inventory through third-party fulfillment centers, employing workers in Ohio, or conducting direct business activities within state borders.
Remote employees working from Ohio addresses establish physical presence instantly. Ohio repealed its "cookie nexus" provisions in 2019, eliminating digital presence through software installations or server usage as nexus factors.
Registration occurs through the Ohio Business Gateway, with filing frequencies assigned based on tax volume: monthly for larger sellers, quarterly for medium-sized operations, and annually for smaller businesses.
Ohio's local tax structure requires collecting the state rate plus county and transit authority taxes, which vary by delivery location. Non-compliance triggers late filing fees, late payment penalties, and interest accrual on unpaid amounts, depending on the length of the delinquency.
Eliminating corporate income tax in favor of the Commercial Activity Tax reshapes nexus compared to traditional income tax states.
CAT applies to businesses with $6 million or more in Ohio gross receipts during the current or previous calendar year. This gross receipts tax applies at a rate of 0.26% to receipts exceeding the exclusion threshold.
Factor presence standards consider sales, payroll, and property thresholds, with percentage rules capturing businesses with significant Ohio activity. These statutory thresholds remain fixed.
Pass-through entities, including LLCs, partnerships, and S corporations, may be subject to nexus when holding property in Ohio or engaging in business in the state.
Since Ohio doesn't impose a traditional corporate income tax, Public Law 86-272 protections offer limited relevance. The federal law protects businesses from income tax when their sole activity is soliciting orders for tangible personal property that is approved and shipped from outside the state. However, this protection doesn't apply to Ohio's Commercial Activity Tax, which operates as a gross receipts tax rather than an income tax.
Businesses exceeding the CAT thresholds must register before conducting taxable business and file quarterly returns (annual filings will be eliminated after 2023). Municipal taxes add complexity, as cities like Columbus, Cleveland, and Cincinnati impose local income taxes operating independently of state obligations.
Any employee performing work within Ohio creates an immediate employment tax nexus, establishing withholding, unemployment insurance, and workers' compensation obligations, regardless of the business's size or revenue.
Employees working from Ohio locations, remote workers, temporary assignments, or seasonal staff establish a nexus for employers. This applies to both Ohio residents and nonresidents performing work within the state borders.
While the factor presence nexus includes specific payroll thresholds (verify at the Ohio Tax Department), employment tax obligations begin with the first dollar of compensation paid to Ohio-based employees. The state requires withholding when out-of-state employees work in Ohio beyond specified thresholds or when compensation exceeds specified amounts.
Employment nexus requires Ohio withholding tax accounts through the Department of Taxation, unemployment insurance registration with quarterly wage reporting, and workers' compensation coverage through the Ohio Bureau of Workers' Compensation. Municipal tax withholding demands separate registration with cities and school districts where employees work, potentially spanning dozens of local jurisdictions.
Ohio's nexus framework captures modern business activities, including cloud software, digital products, remote employees, and marketplace operations, with recent legislative changes addressing economic thresholds and digital taxation.
SaaS offerings may be subject to sales tax depending on classification (consult tax.ohio.gov for current treatment). Digital products, downloads, and subscriptions may be taxable when delivered to Ohio customers, with the $100,000/200-transaction thresholds applying to electronically delivered goods and services.
Remote employees working from Ohio can create employment tax nexus and potentially trigger the CAT factor presence nexus.
Marketplace facilitator rules require platforms to collect and remit sales tax on behalf of sellers; however, individual sellers are responsible for monitoring their own sales volumes to determine whether they have established independent nexus. Affiliate marketing relationships or drop-shipping arrangements with Ohio-based partners can create a physical presence nexus requiring immediate registration.
Digital presence, as established through software installations, cookies, or server usage, no longer constitutes a physical nexus under current Ohio law.
Crossing Ohio's tax or employment nexus thresholds may also require foreign registration with the Secretary of State. Although Ohio doesn't have specific nexus thresholds for the Secretary of State, states are more likely to consider a company "doing business" if it's already paying taxes there. Understanding tax nexus thresholds helps identify when Secretary of State registration may also become necessary.
Once any Ohio nexus threshold is crossed, immediate registration and ongoing compliance become mandatory, with penalties and interest accruing from the date of nexus.
Ohio expects detailed documentation supporting nexus calculations, including:
Maintain records for audit examination, as municipal tax obligations may require additional location-specific documentation.
Ohio imposes penalties for late registration and non-compliance. Interest accrues from the date the tax was originally due, and the Department of Taxation can assess back taxes for periods when nexus existed but registration was not in place.
The state offers voluntary disclosure programs that may limit lookback periods and reduce penalties for businesses that proactively address past exposure before being contacted by an auditor.
Ohio's distinctive tax structure, combined with extensive municipal obligations, creates compliance challenges across multiple jurisdictions. When tax nexus indicates a potential need for foreign registration, coordinating these requirements across Ohio's regulatory landscape can be particularly challenging for businesses operating at scale.
Discern provides comprehensive registered agent services and automated compliance tracking across all Ohio tax obligations and foreign registration requirements. Ready to streamline your Ohio compliance? Book a demo with Discern today.
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