Opinion ID: 1990251
Heading Depth: 2
Heading Rank: 2

Heading: Procedural and Legislative History of KRS 141.120 and KRS 141.200

Text: Two statutes actually lie at the heart of this controversy: KRS 141.120 and KRS 141.200. Because they have been subject to significant amendment and shifting interpretations, some recounting of that history will be helpful in understanding this case.
GTE read the version of KRS 141.120 in effect at that time to authorize multiple corporations engaged in a unitary business to file combined income tax returns. GTE, 889 S.W.2d at 791. As noted above, this meant that related corporations (e.g., a parent and subsidiary) could effectively file a single tax return. The Court so held despite the fact that KRS 141.200(1) at the time required that [c]orporations that are affiliated must each make a separate return. The Court read corporation as used in KRS 141.200 to mean both individual corporations and groups of corporations that operated as a unitary business. GTE, 889 S.W.2d at 793. [1] This meant that GTE and its subsidiaries would be treated as a single business under the unitary business concept and they could therefore file a combined return.
The General Assembly amended KRS 141.120 substantially in 1996, directly in response to the Court's decision in GTE , with the change having retrospective effect to any tax year ending on or after December 31, 1995. See 1996 Ky. Acts ch. 239, §§ 1, 3. A section was added that read, Nothing in this section shall be construed as allowing or requiring the filing of a combined return under the unitary business concept or a consolidated return. KRS 141.120(11). KRS 141.200 was amended in its entirety, with its changes having retrospective effect to any tax year ending on or after December 31, 1995. See 1996 Ky. Acts ch. 239, §§ 2, 3. The [c]orporations that are affiliated must each make a separate return language was removed. In its place, the General Assembly included definitions of affiliated group and consolidated returns, both of which referenced the federal Internal Revenue Code. The General Assembly also included language allowing affiliated groups to file consolidated returns. The effect of this legislation was to undo the unitary business concept injected into the law by GTE while allowing parent-subsidiary groups of corporations, like those involved in the GTE litigation, to file what amounted to a single return going forward from 1995. In other words, the General Assembly technically undid GTE , at least going forward, but implemented a substantially similar scheme under the affiliated group approach. This allowed the General Assembly to follow the national trend that GTE had recognized while giving it more control over the process than the judiciary.
Sometime in 1996 to 1998, the Revenue Cabinet realized that GTE 's interpretation of KRS 141.120 was creating substantial tax refund liabilities for the state for the years prior to 1995. The General Assembly was not apprised of, or at least was not able to address, these problems until late in the 1998 Regular Session, when it was well into the budgeting process. Because legislative sessions were only held every other year then, the first chance to deal with the problem with direct legislation would come two years later. To at least temporarily patch the problem, the General Assembly inserted a provision in the 1998 Budget Bill barring the state treasury from paying out any refunds sought pursuant to the theory announced in GTE . The Budget Bill would only be in effect for two years, meaning the problem would have to be addressed fully in 2000.
In 2000, the General Assembly finally had a chance to deal directly with the emerging problem created by those corporations trying to file amended returns for years before 1995 to take advantage of GTE 's interpretation of the version of KRS 141.120 in effect in those years. It amended KRS 141.120 to remove the express bar on filings under the unitary business concept found in the 1996 version at KRS 141.120(11). See 2000 Ky. Act. ch. 543, § 2. This was not a rollback of the disapproval of the unitary business concept, however. Instead, the General Assembly again amended KRS 141.200 substantially to address the problem. See 2000 Ky. Act. ch. 543, § 1. The amendment added the following language: (7) For any taxable year ending on or after December 31, 1995, except as provided under subsection (3) of this section, nothing in this chapter shall be construed as allowing or requiring the filing of: (a) A combined return under the unitary business concept; or (b) A consolidated return. (8) No assessment of additional tax due for any taxable year ending on or before December 31, 1995, made after December 22, 1994, and based on requiring a change from any initially filed separate return or returns to a combined return under the unitary business concept or to a consolidated return, shall be effective or recognized for any purpose. (9) No claim for refund or credit of a tax overpayment for any taxable year ending on or before December, 31, 1995, made by an amended return or any other method after December 22, 1994, and based on a change from any initially filed separate return or returns to a combined return under the unitary business concept or to a consolidated return, shall be effective or recognized for any purpose. (10) No corporation or group of corporations shall be allowed to file a combined return under the unitary business concept or a consolidated return for any taxable year ending before December 31, 1995, unless on or before December 22, 1994, the corporation or group of corporations filed an initial or amended return under the unitary business concept or consolidated return for a taxable year ending before December 22, 1994. (11) This section shall not be construed to limit or otherwise impair the cabinet's authority under KRS 141.205. KRS 141.200. The bill also had language stating that subsection (7) shall apply retroactively for taxable years ending on or after December 31, 1995, and that subsections (8) to (11) shall apply retroactively for all taxable years ending before December 31, 1995. 2000 Ky. Acts ch. 543, § 3. The effect of this amendment was to maintain the bar on combined returns under the unitary business concept and to retrospectively apply that bar to years before 1995. Because there was no alternative for filing consolidated returns for affiliated groups in those years, as had been allowed beginning in 1995 under the 1996 amendments, this new amendment purported to undo any effect GTE might have had prior to 1995.
Subsequent amendments of KRS 141.120 and .200 left the 1996 and 2000 amendments substantially intact. Also, KRS 141.200 has been amended to include provisions related to affiliated groups and consolidated returns for the tax years 2004 to 2007. This has had the effect of moving KRS 141.200(7)(11), as found in the 2000 version of the statute, to KRS 141.200(15)(19). For present purposes, however, the law appears to be substantially the same as it appeared in 2000.