The Ohio Board of Tax Appeals recently allowed a taxpayer to retroactively elect to be taxed as a consolidated taxpayer for Ohio commercial activity tax, even after an audit had commenced. Nissan North America, Inc. v. McClain, Ohio BTA Case No. 2016-1076 (October 9, 2019). Even though Nissan failed to elect consolidated status when it first filed CAT returns, the substance of Nissan’s returns established its obvious intent to file on a consolidated basis. Thus, the Board found that it was unreasonable for the Tax Commissioner to deny Nissan’s request to retroactively apply its consolidated election to the audit period under the applicable statutes and regulations. As illustrated in this case, a consolidated election is essential for commonly-owned taxpayer groups with significant intercompany transactions.

The issues arose out of an audit of Nissan’s CAT returns from 2009-2011 and refund request for the same period. Nissan engaged in complex leasing and securitization transactions through various affiliates, such as Nissan Infiniti Lease Trust (NILT) and Nissan Motor Acceptance Corp. (NMAC). Since a consolidated election had not been filed, the Tax Commissioner treated gross receipts from related parties as taxable during the audit. The Commissioner’s position was that a taxpayer could not make a retroactive consolidated election after commencement of an audit.

However, the Tax Commissioner’s administrative rule did not prohibit a retroactive consolidated election even after the taxpayer was notified of an audit. OAC 5703-29-04. Further, Nissan had filed its returns consistent with having made a consolidated election. The Board held that Nissan had the right to correct the mistake and, therefore, the Tax Commissioner abused his discretion by not allowing the retroactive election.

This pro-taxpayer ruling may create refund opportunities for taxpayers assessed CAT on intercompany transactions from mistakenly failing to make a consolidated election.