CAT Tax - Wholesale deal question
We wholesale 40+ houses a year, most of them we double close on since they are bank owned and can't be assigned.
Ohio, if your volume is over 1,000,000 in sales you pay CAT (commercial activity tax).
You don't have to sell many houses to exceed the million dollar mark.
I am told I need to pay CAT tax on the sale price of them.
Odd tax it seems like, nothing to do with profits, if I lose money on a house I still have to pay CAT taxes on the price of the sale. Had a friend sold a 750,000 house lost about 60k on the deal and has to pay CAT taxes, that's painful.
We wholesale as a side business to our rehabs, to guys who buy from us consistently, and charge them 5,000. Not a lot of money but it's consistent business, that's easy and when you do volume it adds up.
So when I wholesales a house for 200,000. And make 5,000, I have to pay CAT tax on the 200,000. Just seems wrong, but I haven't found an accountant who has a legal way around it.
Looking at financial statement here with 22,274 in CAT taxes I paid last year.
Any one know an accounting workaround that won't get me into hot water with the IRS.