Ohio Drafts Rule Limiting Retroactive Consolidated Filing Elections

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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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