Ohio court rules city must accept consolidated income tax returns

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September 2020

Overview

The Ohio Court of Appeals ruled on August 26 that a taxpayer could include in its consolidated municipal income tax return all affiliated corporations that were included in its consolidated federal income tax return. 

Taxpayer sought to file a consolidated return with the city that included all members of its federal consolidated group. The city denied Taxpayer’s filing, relying on its local ordinance providing that an ‘affiliated group’ could include only affiliated corporate entities doing business in Cincinnati. Taxpayer asserted that the state statute enabled it to file a consolidated filing with the same members included in its federal consolidated return. 

The appellate court agreed with Taxpayer, holding that the state statute expressly preempts aspects of the city’s municipal code. The statute required municipalities to accept a consolidated income tax return from the same affiliated group that filed for federal income tax purposes.

The takeaway

Effective January 1, 2016, House Bill 5 provides that a consolidated return under Section 1501 is permissible to be filed in all municipalities. Ohio Stat. 718.06. This amendment was adopted to provide more clarity defining the term “affiliated group” for purposes of filing a consolidated return. However, a taxpayer that made an election or entered into an agreement with a municipality corporation before January 1, 2016, to file a consolidated or combined tax return with such municipal corporation may continue to file in accordance with such election or agreement for tax years beginning on or after January 1, 2016. Ohio Stat. 718.06(H).

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Peter Michalowski

State and Local Tax Leader, PwC US

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