A taxpayer’s net operating loss (NOL) credit against commercial activity tax (CAT) could not be reduced after a tax-fee reorganization. The Ohio Supreme Court held that Ohio law did not permit an adjustment of a taxpayer’s NOL amount.
NOL Credit Against Commercial Activity Tax
The NOL credit is based on the NOLs incurred by a taxpayer before the CAT was enact. To claim the credit, a taxpayer had to file a report with Ohio, calculating the NOL amount. The amortized NOL amount can be applied against the CAT for up to 20 years.
Taxpayer Objects to Reduction of NOL Credit
The taxpayer filed its report, claiming an amortizable amount of $12,493,003. Ohio ordered a reduction in the amount of the taxpayer’s federal NOLs resulting from cancellation-of-debt income (CODI) after a bankruptcy.
The taxpayer repealed the reduction, but the Board of Tax Appeals approved it.
NOL Amounts After Bankruptcy
Under the Internal Revenue Code (IRC), bankruptcy is a tax-free reorganization.
Ohio argued that, after a tax-free reorganization, an amortizable NOL amount should be reduced to the same extent that the NOLs are offset by CODI under the IRC. The taxpayer argued that Ohio law did not allow a recalculation of the amount after a non-divisive reorganization.
Ohio Adjustments of NOLs for the Credit
According to the court, the statute did not clearly state whether an amortizable NOL amount could be adjusted. Thus, the issue was about how to properly compute the credit.
In reviewing the statute, the court used the aids for construing ambiguous statutes that are generally used to understand the meaning of allocation and apportionment provisions. The court found that those aids favored the taxpayer’s interpretation, and the credit could not be reduced.
Dana Corp. v. Testa, Ohio Supreme Court, No. 2018-Ohio-1561, April 24, 2018, ¶404-714