Thursday, Nov. 16, 2006

The Ohio Society of CPAs' Member Connections Dayton Sole Practitioners' Lunch & Learn on November 16, 2006 at the Mandalay Banquet Center in Dayton, OH. Thomas O. Bowns, CPA Begins 12:00 - 1:00 pm.

2005 CAT TAX

As you have most probably received information from the State of Ohio recently regarding the CAT Tax, I wanted to briefly review what needs to be done before November 15, 2005 and for the first filing on February 10, 2006. Although this letter is addressed to the individual or entity listed above, it pertains to all of the entities in which you have ownership that meet the criteria indicated below.

Should you have any questions regarding this tax and how it affects you after reading this letter, please feel free to call the partner on your account at our office.

The CAT Tax is the Commercial Activity Tax and is a new tax in the State of Ohio on individuals, corporations, pass- thru entities, joint ventures, clubs, trusts and disregarded entities. It excludes not for profit entities. It is a tax on gross business receipts (less cash discounts, sales and use taxes and returns and allowances) from sales to entities located in Ohio. The first semi-annual return is due February 10, 2006 on gross receipts from July 1, 2005 through December 31, 2005.

A taxpayer's method of filing (cash vs. accrual) shall be the same for the CAT Tax as the method used for filing the Federal Income Tax return. Taxpayers with annual gross receipts of $150,000 or less are not subject to the CAT Tax. All taxable entities with annual gross applicable receipts over $150,000 must register by November 15, 2005 with the State of Ohio either electronically at www.obg.ohio.gov ($15.00 fee) or on paper for a $20.00 fee. You can get forms at the Ohio Department of Taxation website, www.tax.ohio.gov or call 1-800-282-1782. This registration fee applies against the tax due on the first tax return.

Applicable gross receipts include amounts realized from sale of property to another, amounts realized from performance of services for another and amounts realized from another's use or possession of a taxpayer's property or capital (rent). It does not include employee compensation, interest, dividends or capital gains.

For the first six month tax period (July 1, 2005 to December 31, 2005) should the gross receipts be less than $500,000, the tax is $75.00. The tax rate of .06% then applies to the taxable receipts over $500,000. After the first six month period, a minimum tax of $150.00 applies if the annual taxable receipts are between $150,000 and $1 million. The tax rate then applies to the taxable receipts over 1 million. This .06% rate then steps up 20% a year until it reaches .26% in 2010.

For 2006, every taxpayer subject to the CAT Tax will be required to pay at least the $150.00 tax for the calendar year 2006 by May 10, 2006. Subsequent returns are due on a quarterly basis (by 40 days after the quarter end) if the taxpayer has receipts over $1 million a year; otherwise, returns are due annually by February 10th. For those taxpayers who have to file quarterly, they must file electronically.
There is an elimination of the Ten Percent Property Tax Rollback on most commercial and industrial real property. The rollback remains for residential and agricultural real property.

For taxpayers with 50% or more common ownership of other entities, they must elect to file as one consolidated taxpayer or one combined taxpayer. This decision is facts and circumstances driven and the election is binding for two years, so please read through the instructions or call us so that we can help you decide which classification is more advantageous.

On a positive note, for corporations, the franchise tax and the personal property tax will be phased out over the same five year time frame and for individual Ohio income taxpayers they will notice a 21% reduction in their personal tax rates over the same five year period.

Please make sure that you register by November 15, 2005 because there are penalties for not doing so. Should you need assistance, please call us.

Donald L. Mellott, Jr.
Managing Partner

2005 SWEEPING TAX REFORM

Nearly every Ohio taxpayer – both individuals and businesses – will see some tax relief as a result of a sweeping tax reform package initiated and signed into law on June 30, 2005. The tax changes are part of the biennial state budget bill that takes effect July 1, 2005.

The most significant tax law changes include:

Introduction of the new Commercial Activity Tax (CAT), an annual business privilege tax measured by a business’s gross receipts. The amount of taxable gross receipts determines whether or how the CAT applies. Businesses with annual gross receipts of $150,000 or less are not subject to the CAT; those with receipts from $150,001 - $1,000,000 pay a minimum of $150 tax; receipts exceeding one million dollars, when the tax is fully phased in, will be taxed at a rate of .26% (the tax rate for the first tax period from July 1, 2005 to December 31, 2005 is only .06%).

Businesses subject to the CAT must register by November 15, 2005. Registration includes a one time refundable fee of $15 for registering on-line or a $20 fee for paper registration. On-line (electronic) registration is available beginning July 1, 2005 at the Ohio Business Gateway (www.obg.ohio.gov); paper applications will be available on the ODT website (www.tax.ohio.gov). Information on filing and payment of the CAT will be sent to all registered taxpayers. The first CAT returns must be filed by February 10, 2006.

Also included in the tax reform package are the following:

Phase out over five years of the Corporation Franchise Tax at the rate of 20% annually beginning in tax year 2006.

Phase out of the Tangible Personal Property (TPP) Tax on most business’s inventory, manufacturing machinery and equipment and furniture and fixtures over four years at about 25% annually beginning in tax year 2006. Most new manufacturing machinery and equipment that would have been first taxable in tax year 2006 and thereafter will be subject to no TPP tax.

The Individual Income Tax rate will be cut by 4.2% for all tax brackets for the tax year 2005 with an additional 4.2% (from 2004 rates) cut each year through 2009 for a total decrease of 21%.

The State Sales Tax rate was cut from 6 to 5.5%. The vendor discount of .9% remains for timely filed and paid sales tax returns.

There is an elimination of the Ten Percent Property Tax Rollback on most commercial and industrial real property. The rollback remains for residential and agricultural real property.

For questions regarding CAT and other major changes, we encourage you to visit the Ohio Department of Taxation website (www.tax.ohio.gov) for information and updates or please feel free to call us. We will be providing more information as it becomes available.

Donald L. Mellott, Jr.
Managing Partner

Gold Standard Magazine

Mellott & Mellott, P.L.L.

Partners (from left to right): Richard J. Rumpler, CPA, Donald L. Mellott, Sr. CPA, John P. Mellott, CPA, Thomas R. Meyer, CPA, Donald L. Mellott, Jr. CPA, Managing Partner "Mellott & Mellott is a CPA firm of utmost quality and customer service, focused on the three disciplines of accounting, auditing, and tax service."John P. Mellott, Partner

Mellott & Mellott P.L.L. was founded in 1956 by Leo J. Mellott, and lead by Don Mellott Sr. for 30 years. Don Mellott Jr., representative of the third generation of Mellotts, is now at the helm as Managing Partner of the successful and highly acclaimed CPA firm.

Don Mellott Sr. explains that for the firm's continued success, "At Mellott & Mellott, our personal commitment to excellence, coupled with our professional dedication, ensure the highest level of quality and service. We provide an extensive range of financial services, and a consistency that instills a high level of trust among our clients."

These high standards are recognized nationally, within the industry, and locally, among Mellott & Mellott's many satisfied clients. In the most recent American Institute of Certified Public Accountants' Peer Review, Mellott & Mellott received the highest possible rating, enjoyed only by the top five percent of accounting firms.

Clients appreciate the talents and dedication of the Mellott & Mellott team. Joan Parker, founder of The Answer Group, says of her 16-year working relationship with the firm, "They have been there consistently, going out of their way to anticipate my needs. I couldn't be more satisfied."

"I have and will continue to recommend your firm. The employees and partners are very responsive and thorough. Mellott & Mellott provides a very high level of personal service unique in business today. The partners and employees take a professional, satisfaction driven approach with their clients in order to provide the best service possible. I have and will continue to recommend Mellott & Mellott to my own clients and friends. This is firm is truly second to none!."
Jane Boerger

In an ever-evolving industry, Mellott & Mellott holds true to the specialties of accounting, auditing and tax services. The firm's newer information technology group compliments these services. Staff, now numbering 39, includes a highly sought after tax specialist, with 34 years' experience as an IRS Appeals Officer, and a Human Resources Director. "We focus our energy and resources on what we do best. Our clients appreciate the depth of our expertise in these important areas," says Mellott, Jr..

Many of Mellott & Mellott's clients are privately owned, closely held businesses and not-for-profit organizations in the Tri-State area, while individual tax clients are to be found throughout the United States and in Europe. As Don Mellott, Jr. explains, "Our clientele are either high income or high net worth individuals, who require and appreciate our extensive professional services."

• Specialty: Accounting, Auditing, and Tax Services
• Unique Service: Technology Consulting
• Managing Partner: Donald L. Mellott, Jr.
• Philosophy: Superior Product Through Quality and Service

312 Elm Street
Suite 1250
Cincinnati, OH 45202-2749

For accounting software, and information systems expertise please visit Information Technologies Group, Ltd. at: www.itgltd.com/itgsite/index.html