Opinion ID: 1990251
Heading Depth: 1
Heading Rank: 6

Heading: Consolidated Returns.

Text: Kentucky's posture vis-a-vis combined reporting or the unitary business concept underlies the present controversy, but before turning to the specific facts of this case, a third legislative response to the taxing of multi-corporate enterprises deserves mention. Under federal tax law, an affiliated group of includible corporations may elect to file a consolidated return, i.e., a single return for the entire affiliated group. 26 U.S.C. §§ 1501-1504. Sutton, Comparison of Group Reporting Methods, supra. Affiliation for this purpose is not defined in terms of the member corporations' unified business, but solely in terms of ownership and control, generally including all inter-corporate connections where there is 80% or more of both ownership and control. [3] Id. A consolidated return is not the same as a combined or unitary report: A combined report is an accounting method whereby each member of a group carrying on a unitary business computes its individual taxable income by taking a portion of the combined net income of the group. A consolidated return is a taxing method whereby two corporations are treated as one taxpayer. Caterpillar Tractor Co. v. Dept. of Rev., 289 Or. 895, 618 P.2d 1261, 1262-63 (1980). Several states have adopted consolidated return provisions based on the federal model, and in 1996, the General Assembly amended KRS 141.200 by adding definitions of affiliated group and consolidated return that incorporate the corresponding federal definitions and by permitting affiliated groups to file consolidated returns, but only if the group consents to use consolidated status for eight years. Otherwise the 1996 version of KRS 141.200 requires separate entity reporting. The 1996 session of the General Assembly also amended KRS 141.120 by adding a provision expressly disavowing the unitary business concept. The 1996 amendments have since been updated, and the provision disavowing the unitary business concept has been moved to KRS 141.200(15), but its basic reporting options remain in effect. Since 1996 it has been clear that the UDITPA-based apportionment provisions of KRS 141.120 apply to single corporations with income both within and without Kentucky and to affiliated groups of corporations with such multi-state income, but not to multi-corporate unified businesses under the unitary business concept. Prior to 1996, however, the law in Kentucky was less clear, and it is that prior law which underlies this case.