The Ohio Department of Taxation has proposed a regulation change that would prevent taxpayers from making a retroactive consolidated filing election for Ohio Commercial Activity Tax purposes (CAT). The rule change appears to be an attempt to limit the application of a recent BTA decision where a taxpayer was permitted to make a retroactive consolidated filing election even after an audit had commenced. See our post about Nissan North America, Inc. v. McClain, Ohio BTA Case No. 2016-1076 (October 9, 2019).

The proposed change to OAC 5739-29-02 effectively limits the Tax Commissioner’s authority to approve a taxpayer’s request for a retroactive consolidated filing election. Under the rule, a taxpayer may only be granted retroactive consolidated filing status if it has not been contacted for audit, criminal investigation, or by a compliance program, and either 1) made a “clerical error,” or 2) requested consolidated status as part of the voluntary disclosure program. A “clerical error” essentially means that the originally filed returns reflected the intent to file on a consolidated basis, but the taxpayer merely failed to make the election (i.e. the election would not affect the original tax liability).

A consolidated election is essential for commonly-owned taxpayer groups with significant intercompany transactions. Such businesses should review their current CAT registration status and determine if they should elect a consolidated filing, especially if they have already been contacted for audit. Alternatively, if businesses have not been filing the CAT but have business activity in Ohio mandating a filing, voluntary disclosure is another option for pursuing consolidated filing status.

We will continue to monitor this development and other changes proposed by the Department.