Municipal Income Tax Decision

Recently, the Ohio First Appellate District issued a 3-0 decision affirming an earlier decision of the Ohio Board of Tax Appeals that ruled in favor of a taxpayer seeking to use its federal consolidated tax return as the affiliate group of businesses for its Cincinnati, Ohio local return. See, Time Warner Cable, Inc., v. City of Cincinnati here.

This decision may have limited application given the changes to the Ohio Revised Code subsequent to the tax year involved in the lawsuit, but it is an important decision in the sense that it adds another fence post to jurisprudence landscape surrounding local taxation. Ohio has a difficult tax structure due in part to the large number of jurisdictions that can impose tax which can add uncertainty to tax positions taken by taxpayers. The Ohio Chamber welcomes decisions such as this one that add clarity and certainty for Ohio’s taxpayers.

The dispute involved the 2013 tax year. When Time Warner amended its original filing in 2015 to include all affiliated companies contained in the federal consolidated return as permitted by the state statute, the city of Cincinnati rejected the return pointing to its law and regulation that only allowed an affiliated group to contain companies doing business in the city of Cincinnati. Through a series of appeals the two sides settled on a single assignment of error.  Is there a conflict between the city ordinance and regulation (former Cincinnati Municipal Code 311-11 and Regulation R11) with the state statute (former Revised Code section 718.06)? The city maintained that no express conflict existed, and that Time Warner must file in accordance with the local tax code.   

After a review of the jurisprudence on the subject of the “Home Rule Amendment,” the court ruled that the Ohio General Assembly expressly limited the city’s authority in former Ohio Revised Code section 718.06 (This section was amended in 2014 by Sub, HB 5). In summary, that section required a municipal corporation to accept a consolidated group of companies return if the corporation also filed a consolidated return at the federal level. Given the plain reading of that state law a conflict did exist between the local ordinance and the state statute and required preemption of the local ordinance.

The reader may be wondering what about the general principle of home rule that allows cities and villages to set local direction with local ordinances and laws.  For the subject matter of taxation, the Ohio Constitution allows the General Assembly to pass laws that limit the power of municipalities to levy taxes and to restrict municipal power of taxation. These preemptions can be found at Article XVII, Section 13 and Article XIII, Section 6.  And these legislative limitations attempt to bring uniformity, clarity and certainty to the entire tax code faced by Ohioans as they file and pay taxes.