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Court Rules Nexus Statute Trumps Consolidated Return Statute

The Jefferson Circuit Court recently held in an appeal from the Kentucky Board of Tax Appeals that an affiliated group of businesses filing a Kentucky consolidated tax return may take the position that their out-of-state subsidiaries should not be included in the return.

Greenebaum represented AT&T in AT&T Corp. v. Department of Revenue, in which the Jefferson Circuit Court held that the elective consolidated corporation income tax return statute (KRS 141.200 as in effect for tax years and elections made prior to 2005) did not trump the nexus provisions of KRS 141.040. In so holding, the Court ordered the Department of Revenue to pay refunds to AT&T computed by not including AT&T subsidiaries without a physical presence in Kentucky in AT&T's Kentucky consolidated income tax returns. The Court also found violations of the Commerce Clause and Due Process and also invalidated 103 KAR 16:200, the administrative regulation concerning the Kentucky consolidated income tax return method.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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