CF 1991-01 - Taxpayer-Elected Franchise Tax Combinations -
May 15, 1991
Set forth below is a review of the Department's policy for
taxpayer-elected franchise tax combinations. This policy is
based upon the Department's interpretation of ORC section
5733.052 and Ohio Administrative Code Rule 5703-5-06.
- Two or more corporations may elect to combine on the net
income basis if they satisfy all of the following
Each corporation must have income, other than dividend
income, from sources within Ohio. "Income" means both
positive income and negative income (losses). "Income
from sources within Ohio" means income that would be
allocated or apportioned to Ohio if the taxpayer filed
separately (that is, if the taxpayer were not included
in a combined report). Some taxpayers erroneously
believe that corporations with Ohio losses may not be
included in a combined report.
The corporations must satisfy the ownership or control
requirements set forth in division (A) of ORC section
5733.052 on January 1 of the
tax year; and
The corporations must elect the combination in a timely
filed report which sets forth any information that the
Tax Commissioner requires.
Brother-sister corporations (corporations owned by a
common parent) meet the ownership requirements set forth
in division (A) of ORC section 5733.052; therefore, they
may elect to combine without inclusion of the parent
corporation (if they otherwise qualify to combine).
Where an election to combine is made by less than all
eligible taxpayer corporations, the taxpayer must explain
the reason(s) for the non-participation by such eligible
corporation(s) on form FT-1120C (see Rule 5703-5-06). An
eligible corporation is a taxpayer which on January 1 of
year satisfies the ownership or control requirements set
forth in division (A) of ORC section 5733.052
during the taxable year has income, other than dividend
income, from sources within Ohio.
Corporations may not change their election to combine
with respect to amended reports or reports for future
years without the written consent of the Tax
Commissioner. Requests to amend existing elected (as well
as required or permitted) combined reports must be filed
with the Tax Commissioner on form FT-COM.
Corporations which properly elect to combine for a given
tax year must continue to combine for tax years thereafter
if the corporations continue to satisfy the ownership or
control requirements set forth in division (A) of ORC
section 5733.052 and each corporation on a separate company
basis has income, other than dividend income, from sources
within Ohio. For example, Corporations F, G, and H properly
elect to combine for tax year 1991. Corporations F, G, and
H must continue to combine for tax year 1992 and tax years
thereafter if the corporations continue to satisfy the
ownership or control requirements and F, G, and H on a
separate company basis, each have income, other than
dividend income, from sources within Ohio.
Corporations requesting to change their existing
combination by either adding or deleting eligible
corporations must file form FT-COM and request the
inclusion of additional eligible members to an existing
combination. A corporation which acquires a group of
corporations, which group in previous years elected to file
combined, may not join the combination without the consent
of the Tax Commissioner. The acquired group must continue
to combine unless the acquiring corporation timely files
form FT-COM and the Tax Commissioner grants permission.
Corporations need not request the Tax Commissioner's
permission to delete from the combination corporations no
longer eligible to be included because of merger,
withdrawal, dissolution, or change of ownership. For
example, Corporations A, B, and C properly elected to
combine for report year 1990 based on their fiscal year
ending June 30, 1989. On December 31, 1990 Corporation A
sold its 100% interest in Corporation C to an unrelated
party. C may not be included in A's 1991 combined report
because on January 1, 1991 the ownership requirements
were not met. Accordingly, Corporation A need not request
the Tax Commissioner's permission to delete C from the
combination for 1991. However, Corporations A and B must
continue to combine for 1991 and tax years thereafter
unless the Tax Commissioner grants permission otherwise.
If the Tax Commissioner grants a combined franchise tax
group permission to file separately, those corporations
in future years may again elect to combine without the
consent of the Tax Commissioner if they satisfy the
eligibility requirements as stated on page 1 (see
Corporation and Subsidiaries v. Lindley, November
19, 1984, BTA Case No. 82-G-195).
- Eligible corporations may elect to combine only in a
report. A report is timely if it is filed within the time
prescribed by ORC section 5733.02 as extended under ORC
section 5733.13. Thus, corporations which file their reports
after the due date or extended due date may not elect to combine
(see Olan Mills
Inc. of Tenn. v. Limbach (1990) 56 Ohio St. 3d 70).
However, the Tax Commissioner has the authority to permit or
require a combined report under Divisions (A) and (C) of ORC
section 5733.052 if a combination is necessary because of
intercorporate transactions and the tax imposed by Chapter
Corporations which filed separate reports for a given tax
year may amend their reports and elect to combine for
that tax year only if they do so
on or before the due date or extended due date (see
Olan Mills v.
Limbach). For example, Corporations A and B are
eligible to combine for tax year 1991, but instead filed
separate reports on January 31, 1991. A and B may elect
to combine for 1991 only if they do so by the March 31,
1991 due date.
Eligible Corporations which choose to file separate
reports for one tax year may, if meeting the eligibility
tests, elect to combine for the following tax year. For
example, Corporations C, D, and E could have elected to
combine for Ohio franchise tax year 1991 but instead
filed separate reports. Corporations C, D and E may elect
to combine for tax year 1992 notwithstanding the fact
that they filed separately for 1991.
The Tax Commissioner may not disallow a
properly elected combination even if the members of the
combined group are nonunitary. For example, a parent
mining company in a timely report may elect to combine
its income with that of its nonunitary restaurant
subsidiary even though separately filed reports would
result in a much greater franchise tax liability.
However, the Tax Commissioner may require the inclusion
of additional members to an elected combination in order
to properly reflect income where such a combination is
necessary because of intercorporate transactions.
- Corporations included in a combined report are not
required to have the same taxable year.
* * * * *
Franchise Tax Information Releases are not "Opinions of the
Tax Commissioner" within the meaning of ORC section 5703.53.
Accordingly, the Tax Commissioner is not bound by this
release. Nevertheless, the above discussion does reflect the
Income Tax Audit Division's interpretation of the law.
For further assistance please call 614-433-7617.