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FAQ's: Commercial Activity Tax
Please note these FAQ's are meant to assist you with this tax and do not reflect every provision of the tax law for the commercial activity tax. The actual law and any applicable rules control - you may request an Opinion of the Tax Commissioner if you desire a binding opinion regarding this tax.
1. What is the Commercial Activity Tax ("CAT")?
The CAT is an annual privilege tax measured by taxable gross receipts from most business activities. Most receipts generated in the ordinary course of business are subject to the CAT. The CAT only applies to those gross receipts that are sit used (sourced) to Ohio (i.e., taxable gross receipts - see FAQ Items 29 through 34).
2.When does the CAT start?
The start date for the CAT is July 1, 2005.
3. When is the first tax return due?
The first return is for a semi-annual period (July 1, 2005 to December 3 1, 2005) for both annual and quarterly taxpayers and is due February 10, 2006. A fee (or minimum tax) for taxpayers with at least $150,000 in taxable gross receipts for the semi-annual period of $75 will be due with that return (less any registration fees paid). In addition, a tax rate of .06% (0.0006) is applied to taxable gross receipts over $500,000 (the first $500,000 in taxable gross receipts is excluded). The method you use for federal tax purposes controls what receipts you have to report for each tax period (accrual or cash - see item 32).
4. How can I contact the Department of Taxation with questions about the CAT?+
By Internet: www.tax.ohio.gov, click on "Contact Us" to email your question by phone: 1-888-722-8829 By mail: P.O. Box 16158 Columbus, Ohio 43216-6158
5. Who is subject to the CAT?
The CAT applies to most businesses including but not limited to retail, wholesale, service, manufacturing and other general businesses regardless of the type of business organization such business operates. For example, sole proprietorships, partnerships, LLCs, S corporations, corporations, disregarded entities (SMLLC, QSSS, etc.), trusts, and all other type of associations with taxable gross receipts of more than $150,000 in the calendar year (privilege year) are subject to the CAT.
6. Who is not subject to the CAT?
Excluded from the CAT are: Non-profit organizations, most governmental entities, some public utilities, dealers in intangibles, financial institutions, insurance companies, certain affiliates of financial institutions and insurance companies, and businesses with less than $150,000 of taxable gross receipts (unless they are part of a "consolidated elected taxpayer" or "combined taxpayer").
7. Is there a registration requirement for the CAT?
Yes. The registration deadline is November 15, 2005 or within 30 days after a taxpayer has taxable gross receipts in excess of $150,000.
8. How do I register?
Electronic registration is available online through the Ohio Business Gateway at obg.ohio.gov or through our web site at tax.ohio.gov (click on the CAT logo). Paper registration forms can be downloaded at tax.ohio.gov (click on the CAT logo) or requested by calling 1-800-282-1782.
9. Is there a fee due at the time of registration?
Yes. All registrations are subject to a one-time fee; however, the fee will be applied as a credit toward your liability on your first tax return. If registration is completed electronically through the Ohio Business Gateway at obg.ohio.gov there is a $15 fee due at the time of registration. If registration is completed on a paper form, there is a $20 fee that must be submitted with the registration. For consolidated elected and combined taxpayers, the fee is $20 per member up to a maximum of $200. For businesses that begin after November 30, 2005 a fee is not required with the registration. ACH Payment from your saving or checking account is the only payment method available for Electronic Registration. You will need to have your bank routing number and bank account number available when you register.
10. Is there a penalty if I do not register timely?
Yes. If a registration or a payment is not made timely, a penalty may be imposed up to $100 per month, not to exceed $1,000.
11. What information will I need in order to register?
You will need the federal employer identification number (FEN) or social security number (only if the business does not have a FEN).
If applicable, Ohio corporate charter number, registration number or license to do business number.
NAICS code (North American Industrial Classification System). Current listing of these codes can be found at:
The date you first become subject to the CAT. You will need the names, addresses and social security numbers of the individuals as stated below.
Partnerships - Top 5 partners based on ownership
Corporations - President, Vice President, Secretary, Treasurer, Statutory Agent
Other - Top 5 members/owners, trustees, etc
Consolidated Elected & Combined taxpayers will need to provide a complete list of all members of the group.
12. What identification number do I use if I do not have a FEIN or a SSN?
Provide any Ohio or federal identification number you may have along with what type of identification number you are providing. If none - list NIA.
13. Is there an annual renewal fee for my CAT account?
No. There is not an annual renewal fee.
14. What is a Consolidated Elected Taxpayer?
A consolidated elected taxpayer is a group of entities owned by a common owner. Consolidated elected taxpayer must meet and agree to all of the following requirements:
This group elects to include all members of the group having at least 80%, or all members having more that 50%, of the value of ownership interest owned by common owners during all or any portion of the tax period.
Additionally, an election must be made to either include or exclude all foreign (non-US) corporations meeting the selected ownerships test (80% or 50%). This election must be made during the filing of the initial registration. Please see the cautionary note on the next FAQ Item before making and 80% or exclusion of foreign (non-US) corporation’s election.
15. What is a Combined Taxpayer?
A group of entities, having more than 50% owned or controlled by a common owner, that chooses not to be a consolidated elected taxpayer must register as a combined taxpayer. A major difference between a consolidated elected taxpayer and a combined taxpayer is that a combined taxpayer only bas to register all members that have the required contacts (nexus) to be required to be a taxpayer for this tax in Ohio. Cautionary note: a combined taxpayer cannot exclude taxable gross receipts between its members nor exclude taxable gross receipts from others that are not members. A consolidated election must be made to obtain that exclusion. In addition, if the 80% common ownership test or election to exclude non-US corporations is made under the consolidated provision, such taxpayers with more than 50% ownership that have the requisite contacts (nexus) are required to file as a combined taxpayer.
Similar to a consolidated elected taxpayer, a combined taxpayer must register, file returns, and pay the CAT as a single taxpayer.
16. What out-of-state business is required to register (or is required to be part of a registration) and pay the CAT if the business meets any of the following:
Taxable gross receipts in the calendar year are at least $500,000;
Property in this state during the calendar year is at least $50,000;
Payroll in this state is at least $50,000;
Has at any time during the calendar year (privilege year) within this state at least 25% of its total property, payroll or total sales; or
The business is required to be part of an elected consolidated taxpayer group.
Examples:
If a business has at least $500,000 in taxable gross receipts (sit used to Ohio) and no property or payroll in this state, that business is subject to the CAT;
If a business has $1 million in gross receipts, of which only $200,000 (20%) are taxable gross receipts (sit used to Ohio), and such business has no property or payroll in this state, that business is go required to register and remit the CAT;
If a business has only $500,000 in gross receipts of which $250,000 (50%) are taxable gross receipts (sit used to Ohio), then that business is required to register and pay the CAT:
If a business has only $15,000 in taxable gross receipts in Ohio, but is required to be part of an elected consolidated taxpayer group, then that business is subject to the CAT with the other members of that group on those gross receipts that are not between members of the group.
17. How often am I required to file?
Taxpayers with taxable gross receipts of at least $1 million during the calendar year (the privilege year) must file quarterly. Taxpayers with less than $1 million in taxable gross receipts will be calendar year taxpayers unless they choose to file as quarterly taxpayers.
18. What are the rates for the CAT?
The tax is phased in over five years.
The first semi-annual period covers only the last six months of 2005 (July 1 to December 31, 2005). Taxpayers with less than $500,000 of taxable gross receipts for that semi-annual period are subject only to the minimum tax of $75 (less any registration fees paid). Taxpayers with taxable gross receipts exceeding $500,000 for that semi-annual period are subject to the minimum, tax of $75 on the first $500,000 plus the product of 0.06% (0.0006) on taxable gross receipts in excess of $500,000. For calendar years 2006 and thereafter (privilege years), the first $1 million in taxable gross receipts are taxed at $150. Receipts above $1 million ($250,000 exclusion per calendar quarter) are taxed at the following rates:
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Base Tax
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Phase-In
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Tax Period
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Rate
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Percentage
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#Effective Rate
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July 1, 2005 to December 31, 2005
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0.06%
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N/A
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0.0600%
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January 1, 2006 to March 31, 2006
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0.26%
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23%
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0.0598%
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April 1, 2006 to March 31, 2007
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0.26%
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40%
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0.1040%
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April 1, 2007 to March 31, 2008
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0.26%
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60%
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0.1560%
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April 1, 2008 to March 31, 2009
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0.26%
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80%
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0.2080%
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After March 31, 2009
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0.26%
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100%
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0.2600%
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*Please note the tax rate is subject to adjustment based on the tax collections. All taxpayers will be notified of any change to these rates based on an adjustment.
19. When are the tax returns and minimum tax due?
See FAQ Item 3 for the July 1, 2005 to December 3 1, 2005 period. For subsequent periods: Quarterly Taxpayers: Returns are due 40 days from the end of each calendar quarter (1" quarter - May 10th, 2nd quarter - August 9th, 3rd quarter -November 91h, 4" quarter - February 9"). The 4" quarter return is also the annual return. For the 2006 privilege year, the minimum tax of $150 is due May 10, 2006. For the 2007 and subsequent privilege years, the minimum tax for that year is due by February 91h of that year as part of the prior year's 4'th quarter annual return. Annual Taxpayers: Returns are due 40 days from the end of the calendar year (i.e., February 9"). For the 2006 privilege year, the minimum tax for that year is $150 and is due May 10, 2006. For the 2007 and subsequent privilege years, the minimum tax for that year is paid on the prior year's annual return.
20. How do I claim the annual $1 million exclusion?Quarterly Taxpayers: The $1 million exclusion will be taken in increments of $250,000 quarterly. Any unused portion of the quarterly $250,000 exclusion can be carried forward for up to 3 consecutive quarters (which can extend past the calendar year).
Annual Taxpayers: The $1 million exclusion is taken on the annual return.
Under this election, the group must agree to file as a single taxpayer for at least the next eight calendar quarters (2-years) following the election as long as two or more of the members meet the requirements. Such election also requires entities in the group that may not have enough contacts (nexus) to also be included as part of the elected consolidated taxpayer group.
A major benefit of this election is that for most taxpayers, taxable gross receipts between members of the group are not subject to the CAT.
21. What happens if I fail to file my return or pay the tax?
There are penalties for failing to timely file and pay the tax, including proceedings to revoke a person's privilege or franchise to conduct business in this state. For example, a late filed return is subject to a penalty of up to 10% of the tax due or $50, whichever is greater.
22. Since the registration fee for the semi-annual tax period from July 1 to December 31, 2005 is credited against my first payment of the tax, how do I take this credit when filing this tax return?
There will be a line on the tax return to claim this credit.
23. If I register to file a tax return quarterly, but do not have any tax liability for that period, must I still file the return?
Yes. You are still responsible to file a quarterly tax return even if you have no tax liability.
24. I am registered as a CAT taxpayer and my taxable gross receipts will be below $150,000 for the calendar year. Do I have to pay the minimum tax for the calendar year (privilege year)?
You will need to file an amended return. This return will be available on our website at
25. Can I pass the CAT on to my customers?
The CAT is not a transaction tax like the sales/use tax. Instead, the CAT is a privilege tax that is considered a cost of doing business in this state, and you may include it like other overhead costs (e.g., employee wages) in the part of the total price you charge your customers. Because the CAT is not a transactional tax imposed on your customers, the CAT is part of the sales/use tax base. In addition, the law does not permit the CAT to be separately billed or invoiced to another person.
26. What do I need to do to make a correction to a tax return that has been filed?
You will need to file an amended return. This return will be available on our website at
27. Is any of my taxpayer information available to the public?
For compliance purposes, a limited amount of information such as your name and account number is available to the public. However, the amount of tax that you paid and information such as your social security number will not be available to the public.
28. When will I receive my CAT tax booklet/returns?
All CAT booklets/returns for the semi-annual period July 1, 2005 to December 31, 2005 should be mailed in December 2005. Beginning in 2006, quarterly taxpayers must file returns electronically through the Ohio Business Gateway at
29. Are "gross receipt" and "taxable gross receipts" the same?
No. Gross receipts, explained in FAQ Item 30, are those that are potentially subject to the tax less exclusions explained in FAQ Item 3 1. Taxable gross receipts, explained in FAQ Item 33, are those gross receipts actually subject to the CAT.
30. What is "gross receipt"?
All amounts received from the sale, exchange, or disposition of property; all amounts received from the performance of a service;
All amounts received from rents or another's use or possession of property or capital; or
Any combination of the above.
Gross receipts reflect the total amount realized, without deduction for the cost of goods sold or other expenses incurred, in a transaction or transactions that contribute to the production of gross income including the fair market value of any property and any services received, and any debt transferred or forgiven.
31. What receipts are excluded from gross receipts?
Interest income except interest on credit sales;
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;
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;
Proceeds received attributable to the repayment, maturity, or redemption of the principal of a loan, bond, mutual fund, certificate of deposit, or marketable instrument;
The principal amount received under a repurchase agreement or on account of any transaction properly characterized as a loan;
Contributions received by a trust, plan, or other arrangement, any of which is described in section 50l(a) of the Internal Revenue Code, or to which Title 26, Subtitle A, Chapter 1, Subchapter (D) of the Internal Revenue Code applies;
Compensation received or to be received for services rendered for an employer, including health insurance premiums, reimbursements for medical or education expenses, or on account of a dependent care spending account, legal services plan, or any similar employee reimbursement;
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;
Proceeds received on the account of payments from life insurance policies;
Gifts or charitable contributions received, membership dues received, and payments received for educational courses, meetings, meals, or similar payments to a trade, professional, or other similar association;
Fundraising receipts received by any person when any excess receipts are donated or used exclusively for charitable purposes;
Damages received as the result of litigation in excess of amounts that, if received without litigation, would be gross receipts;
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;
Tax refunds and other tax benefit recoveries;
Pension reversions;
Contributions to capital;
Sales or use taxes collected as a vendor on behalf of the taxing jurisdiction from a consumer;
Federal and state excise taxes on cigarettes, other tobacco products, motor fuel, beer, wine or other intoxicating liquor;
Receipts realized by a person engaged in selling securities in excess of the gain on the sale of those securities;
Receipts realized by a motor vehicle dealer from the sale or other transfer of a motor vehicle to another motor vehicle dealer (transferee) for the purpose of resale but only if the sale or other transfer was based upon the transferee's need to meet a transferee's specific customer's preference for a motor vehicle;
Receipts from a financial institution for services provided to the financial institution in connection with loans or credit accounts, if such financial institution and the recipient of such receipts have at least fifty per cent of their ownership by common owners;
Receipts realized from administering anti-neoplastic drugs and other cancer chemotherapy, biological, therapeutic agents, and supportive drugs in a physician's office to patients with cancer;
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;
Property, money, and other amounts received by a professional employer organization, as defined in 4125.01 of the Revised Code, from a client employer, as defined in that section, in excess of the administrative fee charged by the professional employer organization to the client employer;
In the case of amounts retained as commissions by a horse racing 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;
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;
Amounts received or recorded on the taxpayer's books and records relating to transactions between an electric company and a regional transmission organization that are mandated by the federal energy regulatory commission;
Real estate broker's gross receipts includes only the portion of any fee for the service of a real estate broker, that is retained by the broker and not paid to an associated real estate salesperson or another real estate broker.
Temporary exclusions:
Receipts from the sale of fuel by a refinery to a terminal that is intended to be used as motor fuel;
Receipts from the sale of motor fuel from a terminal to a motor fuel dealer, excluding motor fuel that is not subject to taxation under Chapter 5735 of the Revised Code;
Receipts from the sale of motor fuel upon which the tax under Chapter 5735. of the Revised Code has been imposed;
Amounts received from the sale of property delivered into or shipped from a qualified foreign trade zone area.
32. At what time is it determined that I have a taxable gross receipt to report?
A taxpayer's method of accounting for gross receipts for a tax period is the same as the taxpayer's method of accounting for federal income tax purposes (accrual v. cash basis).
33. Are there any deductions from gross receipts?
Yes. The following may be deducted from gross receipts:
Cash discounts allowed and taken;
Returns and allowances;
Bad debts from receipts upon which the tax imposed by this chapter was previously paid. Bad debts mean any debts that have become worthless or uncollectible, have been uncollected for at least six months, and may be claimed as a deduction under the Internal Revenue Code or that could be claimed as such if the taxpayer kept its accounts on the accrual basis. "Bad debts" does not include uncollectible amounts on property that remains in the possession of the taxpayer until the full purchase price is paid, expenses in attempting to collect any account receivable or for any portion of the debt recovered, and repossessed property;
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.
34. What are "taxable gross receipts"?
Taxable gross receipts means gross receipts sit used (sourced) to Ohio, based on the following:
Gross rents and royalties from real property located in Ohio;
Gross rents and royalties from personal property in Ohio to the extent the personal property is located or used in Ohio;
Gross receipts from the sale of electricity and electric transmission and distribution services in the manner provided under section 5733.059 of the Revised Code; Gross receipts from the sale of real property located in Ohio;
Gross receipts from the sale of personal property if the property is received in Ohio by the purchaser. In the case of delivery of personal property, the place at which such property is ultimately received after all transportation has been completed shall be considered the place where the purchaser receives the property. Direct delivery in this state, other than for purposes of transportation, to a person or firm designated by a purchaser constitutes delivery to the purchaser in this state, and direct delivery outside this state to a person or firm designated by a purchaser does not constitute delivery to the purchaser in this state, regardless of where title passes or other conditions of sale;
Gross receipts from the sale, exchange, disposition, or other grant of the right to use trademarks, trade names, patents, copyrights, and similar intellectual property to the extent that the receipts are based on the amount of use of the property in this state;
Gross receipts from the sale of transportation services by a common or contract carrier in proportion to the mileage traveled by the carrier during the tax period in this state to the mileage traveled by the carrier everywhere;
Gross receipts from dividends, interest, and other sources of income from financial instruments in accordance with the sit using provisions set forth in section 5733.056;
Gross receipts from the sale of all other services, and all other gross receipts not otherwise addressed in the proportion that the purchaser's benefit in this state with respect to what was purchased bears to the purchaser's benefit everywhere with respect to what was purchased.
If the sit using provisions do not fairly represent the extent of a person's activity in this state, the person may request, or the tax commissioner may require or permit, an alternative method. Such request by a person must be made within the applicable statute of limitations set forth in this chapter.
Cautionary note: gross receipts received from sales to nonprofit organizations
35. If I go out of business or need to cancel my account, what are my requirements?
A final tax return, along with payment for any tax liability due, must be filed within 15 days upon the sale or closure of a business.
Any person acquiring a business, that was subject to the CAT, is liable for the liability of the previous owner, unless the previous owner receives a receipt or certificate from the tax commissioner, indicating that the taxes have been paid or no taxes are due. If you purchase a trade or business with tax liability, you are responsible for withholding a sufficient amount of money to cover the amount due from the former owner. If you fail to withhold the amount due, the successor may be liable for the unpaid liability incurred by the former owner.
36. How long must I maintain my tax records before they can be destroyed?
Under most circumstances, you are required to keep records for four years from the date that the tax is due or the date that the taxes were filed, whichever is later.
37. I am unable to determine actual taxable gross receipts when I am required to timely filing my returns, can I make estimated quarterly payments?
The Tax Commissioner may grant written approval for a calendar quarter taxpayer to use an alternative reporting schedule or estimate the amount of tax due for a calendar quarter if the taxpayer demonstrates to the Commissioner the need for such a deviation.
In addition, taxpayers who report between 95% and 105% of the actual taxable gross receipts for the calendar quarter are deemed to not have incorrectly reported taxable gross receipts. However, taxpayers using this option will be required to file a comprehensive reconciliation schedule with the 4 quarter return and pay any additional tax owed at the 4th quarter rate. Taxpayers unable to make actual payment of the tax are advised to seek approval from the Tax Commissioner as described in the preceding paragraph.
38. I registered as an annual taxpayer and my receipts for the calendar year now exceed the $1 million threshold. When and how do I become a quarterly taxpayer?
A calendar year taxpayer that will have over $1 million in taxable gross receipts for a calendar year is required to switch to a quarterly taxpayer in the subsequent year and if it elects to, can switch to a quarterly taxpayer at any time during the current calendar year. A taxpayer switching from a calendar year tax period to a calendar quarter tax period for the first quarter of the change, can apply the prior calendar quarter exclusion amounts to the first calendar quarter return the taxpayer files that calendar year. The tax rate shall be based on the rate imposed that calendar quarter when the taxpayer switches from a calendar year to a calendar quarter tax period.
39. I have gross receipts from sales of tangible personal property to customers located in and outside Ohio. Do I need to pay CAT on those gross receipts received from sales to customers where the tangible personal property was shipped (ultimately delivered) outside Ohio?
No. Taxable gross receipts only include gross receipts sit used (sourced) to Ohio. Sales of tangible personal property shipped outside Ohio are not subject to the CAT because such gross receipts would be sit used (sourced) outside Ohio.
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