This article was originally published in The State and Local Tax Lawyer, Volume 11, 2006. The article was authored by Edward J. Bernert and Andrew M. Ferris, and is 36 pages in length.

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Note: The following is an excerpt from the introduction to the article as published in The State and Local Tax Lawyer. The word formed by the initial letters for Ohio's new Commercial Activity Tax is familiar; the structure of the new tax is not. The CAT is a dramatic break from the Ohio tax system that it is scheduled to replace. At a recent tax conference, Harley T. Duncan, Executive Director of the Federation of Tax Administrators, commented that Ohio was "taking arrows for the other states," an apparent reference to certain aspects of the CAT, including the broad base, low rate, expanded nexus, and taxation of services that other states would like to embrace but have been reluctant to enact. Ohio's experience with the CAT, therefore, is worthy of scrutiny by those outside Ohio. The 2006-2007 Ohio Budget Bill dramatically changed the Ohio tax system. The changes are subject to transitional rules that delay the full effect of many of the tax increases and reductions until 2009 and 2010. Taxpayers, however, immediately must come into compliance with the new CAT, which is both unique and untested. One cannot predict with certainty whether the CAT will help Ohio attract and retain business in Ohio and replace the revenue from the taxes being phased out. In Part II, this Article describes the history and basic elements of Ohio's tax reform movement. Part III discusses the theory behind the CAT, while Part IV discusses its major elements. Parts V, VI, and VII discuss compliance issues, how existing net operating losses are treated, and audit and assessment issues. Parts VIII and IX discuss the true nature of the CAT and how this may affect state constitutional challenges to the application of the CAT. Parts X and XI of this Article discuss the CAT in the context of certain constitutional and policy constraints.