Summary
In Procter Gamble Co. v. Evatt (1943), 142 Ohio St. 373, 27 O.O. 287, 52 N.E.2d 519, the taxpayer incorrectly omitted some subsidiaries from a consolidated tax return, which was authorized under the then General Code. The commissioner, independent of the returns, increased the assessment and refused to accept substituted returns which corrected the faulty listing of the subsidiary companies.
Summary of this case from Lincoln Elec. Co. v. LimbachOpinion
Nos. 29581 and 29582
Decided December 22, 1943.
Taxation — Listing personal property — Consolidated return by corporation owning or controlling subsidiaries — Inter-company accounts eliminated, when — Section 5879, General Code — Tax Commissioner may amend or correct return, when — Taxpayer may file amended return and include all its subsidiaries, when.
1. Where a taxpayer makes a form of tax return permitted under the law, the Tax Commissioner has not only the right but the duty to amend or correct the return so as to reflect therein all the taxable credits with which the taxpayer may be charged as required by the form or character of the return made.
2. While a corporate taxpayer owning or controlling 51 per cent or more of the common stock of another corporation or corporations may make an independent return, or a consolidated return pursuant to Section 5379, General Code, if it makes the latter it must include in such consolidated return all the taxable property mentioned in Section 5328, General Code, belonging to the corporation making the return and to each and all of its subsidiaries.
3. Where a corporate taxpayer is entitled to make a consolidated tax return as authorized by Section 5379, General Code, but in making such return by mistake omits some of its subsidiaries in which it owns 51 per cent or more of the common stock, it is entitled to amend its return so as to include all of its qualified subsidiaries and thereby comply with the statute.
APPEALS from the Board of Tax Appeals.
The Procter Gamble Company, an Ohio corporation with its principal office at Cincinnati, Ohio, filed for the year 1939 what purported to be a "consolidated" tax return as provided for under Section 5379, General Code, which return is the subject matter of the appeal involved in cause No. 29581, and a similar return for the year 1940, which is the subject matter of the appeal in cause No. 29582.
Under the provisions of the code section above named, a corporation owning 51 per cent or more of the common stock of another corporation or corporations may make such a return for itself and subsidiary companies as if the group were one company. In making such a return under the statute, the investment of the parent company in its subsidiaries and monies owing on account between a parent company and its subsidiaries may be ignored for the reason that the group, as a unit, is neither richer nor poorer as result of such inter-company transactions.
In making its return for each of the years above named, The Procter Gamble Company included returns for five wholly owned Ohio subsidiary companies as a group, but failed to include in such return returns for six foreign subsidiary corporations located outside Ohio in which it owned 51 per cent or more of the common stock.
Since these corporations located outside Ohio were not included in the consolidated return, neither The Procter Gamble Company nor the omitted corporations were entitled to eliminate their inter-company accounts. Under date of November 26, 1940, the Tax Commissioner issued an assessment certificate covering the intangible taxes of The Procter Gamble Company and its five Ohio subsidiaries for the year 1939, and on February 24, 1941, the Tax Commissioner issued a like certificate for the tax year 1940. The Tax Commissioner, independently of the returns, made an increased assessment against the appellant for its Ohio taxable credits, the increase resulting from the inclusion in the assessment of certain credits claimed by the commissioner as having an Ohio situs, although arising from the foreign operations of a domestic subsidiary of the appellant.
The appellant then protested the assessment on the ground that the accounts receivable arising from the operation, outside of Ohio, of such domestic subsidiary were not taxable in Ohio, and also sought to revise its returns so as to include therein returns for its foreign, as well as its state, subsidiaries as consolidated returns and thereby secure the elimination of intercompany accounts between itself and such foreign subsidiaries as well as those between itself and its Ohio subsidiaries.
The Tax Commissioner refused to reduce the assessment made by him independently of the returns, and denied the application for leave to file substituted returns. The appellant then appealed to the Board of Tax Appeals.
The Board of Tax Appeals affirmed in part the findings of the Tax Commissioner but held that "appellant is entitled to eliminate in its return the intercompany accounts of those companies only for which the return is made; [and] that the inter-company accounts of those companies omitted from appellant's return do not come within the provisions of said Section 5379, General Code."
The same holdings were made with reference to appellant's tax return for the taxable year of 1940, except that the amounts of the credits assessed were different. The appellant now appeals to this court from the findings and holdings of the Board of Tax Appeals as to both the years 1939 and 1940.
Messrs. Dinsmore, Shohl, Sawyer Dinsmore, Messrs. Dargusch, Caren, Greek King and Mr. Richard W. Barrett, for appellant.
Mr. Thomas J. Herbert, attorney general, and Mr. Perry L. Graham, for appellees.
The questions presented by the record for review in this court are substantially as follows: Where a corporation, pursuant to Section 5379, General Code, elected to file a consolidated tax return for itself and certain subsidiaries located within the state of Ohio, but did not include therein its subsidiaries located outside the state of Ohio, and therefore did not eliminate the inter-company accounts between it and such foreign subsidiaries, did the Tax Commissioner act unreasonably or unlawfully in reopening and modifying the returns as filed by the appellant, and at the same time ruling that such omitted foreign subsidiaries could not be included in a revised or substituted consolidated return?
In the absence of the exercise of an option to make returns under Section 5379, General Code, a corporate taxpayer is required to file a return in the same manner as an individual and must list its taxable credits. See Section 5370, General Code.
Section 5379, General Code, provides for an optional method of making a corporate return where one corporation is the owner of the controlling interest in one or more subsidiary corporations. This section, in part, provides:
"A corporation which owns or controls at least 51 per centum of the common stock of another corporation or corporations may, under uniform regulations to be prescribed by the commission, make a consolidated return or returns for the purpose of this chapter. In such case all the taxable property mentioned in Section 5328 of the General Code, belonging to the corporation making the return and to each of its subsidiaries shall be listed and assessed in the name of the separate owners thereof, respectively; but the parent corporation making such return, shall not be required to list any of its investments in the stocks, securities and other obligations of its subsidiaries, and in computing the amount of taxable credits, the inter-company accounts shall be eliminated."
Where a taxpayer makes a certain form of tax return permitted under the law, the Tax Commissioner has not only the right but the duty to amend or correct the return so as to reflect therein all the taxable credits with which the taxpayer may be charged as required by the form or character of the return made. And if the form of return chosen by the taxpayer requires him, under the law, to include certain items which he has omitted, it follows as a matter of course that the return may be corrected by the taxing authorities.
The question remains as to whether, where the taxpayer has attempted to make a consolidated return but did not include therein all of its subsidiaries in which it owns or controls 51 per cent or more of the common stock, it may amend the return so as to include all of such subsidiaries. The Tax Commissioner and the Board of Tax Appeals held that, since the return of the appellant as made included some but not all of its qualified subsidiaries, it was not entitled to amend the return so as to include all of such subsidiaries, and was not entitled to take advantage of the statute which does not require it to list any of its investments in the stocks, securities and other obligations of such subsidiaries and which permits it to eliminate inter-company accounts in computing the amount of its taxable credits.
It is to be observed that while the statute gives the parent company the option to make its own independent return or a consolidated return, if it makes the latter it must include "all the taxable property mentioned in Section 5328 of the General Code, belonging to the corporation making the return and to each of its subsidiaries * * *." (Italics ours.)
Since the return of the appellant did not include "each of its subsidiaries" qualified under the statute, the return was defective and did not comply with the statute. Under such circumstances the Tax Commissioner had no power or authority to crystallize the defective return made by the appellant and to assess it accordingly. On the other hand, the appellant had the right to correct what it claims was a mistake on its part in making the return, and to file an amended return which would comply with the statute. In denying this request the Tax Commissioner was not within his rights and the Board of Tax Appeals, in making its order affirming the Tax Commissioner's finding, acted unlawfully.
The decisions of the Board of Tax Appeals in denying appellant the right to correct its returns are therefore reversed, and the causes, in such respect, are remanded to the Board of Tax Appeals for further proceedings in accordance with this opinion.
Judgments accordingly.
WEYGANDT, C.J., MATTHIAS, ZIMMERMAN, BELL and WILLIAMS, JJ., concur.