Kentucky ~ Corporate Income Tax: Taxpayer Was Common Parent Corporation and Required to File Consolidated Return

A Kentucky circuit court has ruled that a South Carolina company was required to file a consolidated corporation income tax return with its wholly-owned Kentucky subsidiary because it met all the relevant statutory standards to qualify as a common parent corporation doing business in the state. There was no dispute that the company was doing business in Kentucky. Two of its employees consistently performed management services for the Kentucky subsidiary which paid a fee to the parent for the services. The company was also a “common parent corporation” within the plain meaning of the Kentucky consolidated return statute. Under this statute, a common parent corporation must be part of an affiliated group that meets certain ownership requirements. First, a common parent corporation must own 80% of the vote and value of at least one other includible corporation. Second, stock meeting the 80% and value test in each of the includible corporations, excluding the common parent, must be owned by one or more of the other corporations. Finally, all the corporations, including the common parent, must be “includible corporations” to be part of an affiliated group. The company satisfied the statutory ownership requirements, but the Kentucky Department of Revenue argued that the company fell within one of nine exceptions to the definition of “includible corporation.” According to the department’s construction and interpretation of the consolidated return statute, the company was not an “includible corporation”, could not be part of an “affiliated group”, and ultimately, could not be a “common parent corporation.” Therefore, the company was required to file a separate tax return. The court determined that the department’s interpretation violated the rules of statutory construction because it ignored the separate and stand alone definition for “common parent corporations” to be an “includible corporation.” The court reasoned that the definition of “includible corporation” relied upon by the department would apply to any other corporation that does not qualify as a “common parent corporation.”

World Acceptance Corp. v. Kentucky Department of Revenue, Franklin Circuit Court, No. 14-CI-01193, August 12, 2015, ¶203-135



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