Tax Rules: Final: 5703-29
5703-29-19 Changes in ownership.
(A) Consolidated elections, generally.
(1) For purposes of the commercial activity tax, a group of
two or more persons may elect under section 5751.011 of the
Revised Code to be in a consolidated elected taxpayer group
that includes all persons that are at least fifty per cent
owned and controlled or at least eighty per cent owned and
controlled by common owners. The group also may elect to
include or exclude all non-United States entities that
otherwise meet the requirements to be in the group.
(2) The percentage chosen by the members of a consolidated
elected taxpayer group applies to all persons meeting the
requisite common ownership requirements. For example, person
A, a corporation, elects to consolidate at eighty per cent
with its wholly owned subsidiary, B. Person B owns two of its
own subsidiaries (C and D) at sixty per cent. Because A, the
common owner, elected to consolidate at eighty per cent with
B, entities C and D are not included in the consolidated
elected taxpayer group of their common owners (A and B).
Instead, C and D are part of a combined taxpayer group that
is commonly owned by A and B. In addition, C and D may not
make a separate election to consolidate at fifty per cent in
order to exclude their receipts. Since A and B are members of
both taxpayer groups, A’s and B’s taxable gross receipts are
reported with the consolidated elected taxpayer group.
(B) Change of ownership and control.
(1) Any time the ownership structure changes such that a
common owner no longer owns and controls a person by the
requisite percentage chosen, that person shall be removed
from the group. The group shall notify the commissioner of
this change at the time it files its next return or in
writing prior to the due date of that return. Taxpayers
wishing to notify the commissioner of such change prior to
filing the next return may obtain a form on the department of
taxation’s web site. As applicable, the person no longer
meeting the requirements shall register for the commercial
activity tax as a stand-alone taxpayer or be added as a
member of another group.
(2) It is important to note that a change in the ownership
structure may impact the tax liability of a taxpayer group.
For example, assume that a calendar year taxpayer acquires a
person at some point during the tax period that has taxable
gross receipts in excess of one million dollars. Since the
calendar year taxpayer previously had only a minimum tax
liability, by acquiring an additional person, the calendar
year taxpayer’s tax liability will surpass its previous
liability. If the calendar year taxpayer does not timely
notify the commissioner of this change, there will be an
underpayment, which is subject to statutory interest and may
be subject to penalties. Therefore, when it is reasonably
certain that a calendar year taxpayer will have taxable gross
receipts in excess of one million dollars during the calendar
year, that taxpayer shall switch to a quarterly taxpayer. In
this situation, it is advised that the taxpayer notify the
commissioner of the acquisition and/or change in filing
frequency within a reasonable period of time. A form to make
such notice may be obtained on the department of taxation’s
website.
(C) Acquiring a Member.
(1) If a consolidated elected taxpayer group acquires a
person, such person will be included in the consolidated
elected taxpayer group if that person meets the requisite
ownership and control threshold requirements. It is important
to note that if the group elected to consolidate at eighty
per cent and the new person is owned and controlled by less
than eighty per cent but more than fifty per cent, that
person would become part of a combined taxpayer group along
with any other potential members having less than eighty per
cent but more than fifty per cent common ownership. For
example, A elects to consolidate at eighty per cent with B,
its wholly-owned subsidiary. A later acquires C at sixty per
cent. Since A made an eighty per cent election, C is not
included in the group; instead, C will be in a combined
taxpayer group with its common owner, A.
(2) The rules in paragraph (C)(1) of this rule apply to a
consolidated elected taxpayer group that acquires either a
combined taxpayer group or another consolidated elected
taxpayer group. In such case, the ownership threshold of the
acquiring group controls. For example, consolidated elected
taxpayer group A elects to consolidate at fifty per cent.
Group A later acquires consolidated elected taxpayer group B,
which, at the time of registration, elected to consolidate at
eighty per cent. Since two separate consolidated elected
taxpayer groups cannot coexist under a single common owner,
A’s fifty per cent threshold controls and group B is included
in its entirety. In contrast, if A had elected to consolidate
at eighty per cent and became B’s common owner at sixty per
cent, B would be required to file as a combined taxpayer
group with A as the common owner.
(3) Alternatively, if a combined taxpayer group acquires a
pre-existing consolidated elected taxpayer group, the common
ownership of the acquiring group, i.e. the combined taxpayer
group, controls. For example, group A did not elect to
consolidate; instead, A owned and controlled enough of its
lower-tiered persons such that A filed as a combined taxpayer
group. When group A acquires group B, a consolidated elected
taxpayer group, the new taxpayer is a combined taxpayer group
in accordance with A’s status. Please note that as a combined
taxpayer group, such group may elect to consolidate at any
time pursuant to division (D) of section 5751.011 of the
Revised Code.
(D) Canceling an election to consolidate.
Pursuant to division (A)(3)(b) of section 5751.011 of the
Revised Code, a taxpayer group must notify the commissioner
if it elects to cancel its election to consolidate before the
final day in the eighth calendar quarter after the election
is made, not the due date of the return filed for the period
including that quarter. For taxpayers that elected to
consolidate during the semi-annual period from July 1, 2005
through December 31, 2005, the commissioner must be notified
in writing that the group wishes to cancel its election by
June 30, 2007, not August 9, 2007 (the due date of that
return). The cancellation will be effective beginning the
first day of the quarter following the eighth quarter after
the election is made. A form to notify the commissioner of
the desire to cancel an election may be obtained on the
department of taxation’s website.
Effective: 12-28-06
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5751.011, 5751.012