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Board Holds that Department Correctly Interpreted and Applied Consolidated Return Statute


In AT&T Corporation and Subsidiaries v. Finance and Administration Cabinet, File No. K01-R-18, Order No. K-19978 (KBTA Jan. 4, 2008), the Kentucky Board of Tax Appeals (“Board”) held that the Finance and Administration Cabinet (“Cabinet”) correctly interpreted and applied KRS 141.200 (effective generally for elections made during tax years 1995 through 2004) to AT&T Corporation and Subsidiaries (“AT&T”).

AT&T Corporation and its hundreds of Subsidiaries were all organized under the laws of states other than Kentucky, and neither AT&T Corporation nor the Subsidiaries were domiciled in Kentucky, nor have they ever been, such that they were all foreign corporations. And of the total, only AT&T Corporation and certain Subsidiaries (approximately twenty or so) had property or payroll in Kentucky during the years at issue (the “Kentucky Group”).

The Board found that AT&T filed a Kentucky Corporation Income Tax return, pursuant to the consolidated filing provisions of KRS 141.200, which included the entire AT&T group for the 1995 and 1996 tax years. Subsequently, AT&T filed a Corporation Income Tax Return which included only the Kentucky Group via amended returns for 1995 and 1996 and an original return for 1997 tax years.

The Board found that none of AT&T’s affiliates or subsidiaries fell within KRS 141.040(1)(i), which is sometimes referred to as the “printer nexus” provision. It also found that Revenue at the involved hearing agreed to adjust the returns to exclude an insurance company which was exempt from corporation income tax pursuant to KRS 141.040(1)(f).

The Board concluded that, “The clear legislative intent of the General Assembly, is that a consolidated return pursuant to KRS 141.200(3) is not limited to a nexus consolidated return, but instead includes all members of the affiliated group, other than those entities that are exempt from tax under KRS 141.040.” The Board went on to conclude that, “The phrase, ‘exempt from taxation under KRS 141.040,’ as used in KRS 141.200(3), means corporations exempted from Kentucky corporation income tax pursuant to KRS 141.040(1)(a) through (i).”

The Board also concluded that AT&T, by making the consolidated return election, had a “physical presence” in Kentucky and that various provisions of KRS 141.200 do not conflict with other statutes in KRS Chapter 141. Additionally, it found that AT&T lacks standing to challenge the regulation on the basis of KRS 141.040(1)(i), as it had no affiliates or subsidiaries that satisfy same, and that AT&T failed to prove that it was entitled to relief under either KRS 141.010(10)(a) or KRS 141.120(9).

The Board did not reach AT&T’s constitutional claims as it found that it did not have subject-matter jurisdiction over same and found that the Board of Claims has exclusive jurisdiction over AT&T’s Taxpayer Bill of Rights claim.

The authors’ law firm represents AT&T.

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