Tax News Update    Email this document    Print this document  

In Time Warner Cable, Inc. and Subsidiaries v. City of Cincinnati, et al,¹ the Ohio Court of Appeals, First Appellate District (court) held that Time Warner could include in its consolidated municipal net profits return all affiliated corporations that were included in its consolidated federal income tax return. In so finding, the court affirmed a decision of the Ohio Board of Tax Appeals (BTA) reversing a determination of the Cincinnati Income Tax Board of Review.

For 2014, the year at issue, a city ordinance only permitted an elective nexus-consolidated filing instead of a filing based on the taxpayer's membership in its federal consolidated group. Before 2017, Ohio cities applied disparate treatment to taxpayers that were members of a federal affiliated group, with some cities allowing an elective consolidated filing based on the federal affiliated group and others permitting a nexus-only consolidated filing. After 2016, Ohio House Bill 5 amended Ohio Revised Code Chapter 718 to require all cities to allow an elective consolidated filing based on the membership of the taxpayer's federal affiliated group.

Time Warner sought to file an amended consolidated return for 2014 with Cincinnati using its federal affiliated group. The Cincinnati tax authorities, relying on the 2014 ordinance, disallowed the inclusion of entities that did not have nexus with the city and thus, were not subject to the city's income tax, resulting in additional liability for the tax year at issue. Time Warner argued that the city ordinance conflicted with the state statute, which allowed a consolidated filing to include all members of its federal affiliated group and not just those members having nexus with the city. In agreeing with Time Warner, the court concluded that the state statute expressly preempted certain aspects of the city's municipal code. As such, the court held that the state statute required municipalities to accept a consolidated income tax return including the same members of the affiliated group that filed for federal income tax purposes.

Implications

At this time, it is unknown whether Cincinnati will appeal this decision. As the decision is from a county court of appeals, an appeal to the Ohio Supreme Court is discretionary and not as of right, as would be the case with an appeal from the BTA.

This decision may have relatively limited application because all Ohio cities, for years after 2016, must allow an elective consolidated filing based on the taxpayer's membership in a federal affiliated group. Ohio cities have a three-year statute of limitations on refunds unless a waiver is in effect. There is, however, some variation with the statutes of limitations provisions among the various Ohio city income tax ordinances. In some Ohio cities, the statute of limitations begins running from the date the taxes were due (i.e., unextended due date); in others, the statute of limitations begins running from the date of the extended due date. Therefore, only some 2016 tax year Ohio city income tax returns (assuming a calendar-year taxpayer) that were filed in 2017 may still be open for a potential amended return refund claim. Taxpayers that filed nexus-only consolidated returns in any Ohio city may want to consider the application of this decision for open tax years.

———————————————

———————————————
ENDNOTES

¹ Time Warner Cable, Inc. and Subsidiaries v. City of Cincinnati, et al, Appeal No. C-190375 (Ohio Ct. App., First App. Dist., Aug. 26, 2020).