Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
Coca-Cola Enterprises Inc. could offset affiliated group income on its consolidated group return with net operating losses incurred during the 1999 and later tax years, even though the affiliated group did not elect to file a consolidated return in those years, an Alabama administrative law judge ruled. [Ala. Dept. of Rev., Administrative Law Judge Ruling Docket No. 09-641, 8/15/12]
Alabama first allowed consolidated returns for the 1999 tax year under Ala. Code § 40-18-39 and followed federal provisions that generally allow for the sharing of NOLs between affiliated group members, according to the decision.
Ala. Code § 40-18-39, as originally enacted, included the federal single return limitation year (SRLY) rule, which limits the deductibility of a loss incurred by a corporation before it became a member of a consolidated group to the amount necessary to reduce to zero the taxable income of the corporation as calculated on a separate return basis.
Administrative Law Judge Bill Thompson determined that the SRLY rule did “not apply if the corporation that incurred the loss was a group member in the year of the loss,” under a 2001 amendment to Ala. Code § 40-18-39(h) that Judge Thompson said clarified the SRLY rule for tax years beginning in or after 1999.
Judge Thompson's “analysis of the Alabama SRLY rule could be beneficial to any affiliated group of Alabama taxpayers that incurred separate company losses beginning in 1999 and subsequent tax years, provided the group elects to file a consolidated Alabama return,” Jimmy Long, an associate at Bradley Arant Boult Cummings LLP in Birmingham, Ala., told Bloomberg BNA. Long noted that the Administrative Law Division will not issue a final order until after the Department of Revenue recalculates the refund due to the taxpayer.
Long and Chris Grissom, a partner at the Birmingham office of Bradley Arant Boult Cummings LLP, were co-counsel to the taxpayer in the appeal.
Judge Thompson found that the 2001 amendment also had the effect of removing from the general SRLY rule the federal “lonely parent” exception under Treas. Reg. § 1.1502-1(f)(2)(i), which allows a parent's NOL from a year when it was not a member of a consolidated group to be shared by the group in a later year when the parent is a member of the group.
Judge Thompson concluded that the legislature intended to remove the “lonely parent” exception to prohibit the sharing of NOLs incurred before 1999 between affiliated group members.
Long believes that, “there may still be challenges to the ruling's holding on the ability to share losses prior to 1999 and there is some question as to whether the lonely-parent exception can be invalidated.”
“Both of these turn, in large part, on the long-standing regulations the department had in place parroting the federal rules and the stated intent of the legislature to follow those federal rules,” Long added referring to Ala. Admin. Code r. 810-3-35.1-.03. The department adopted the regulation in 2001 and repealed it in 2010, after the tax years at issue in the decision.
In addition, the decision partially overruled the Administrative Law Division's prior decision in Weyerhaeuser USA Subsidiaries v. Alabama, No. 04-511 (Ala. Admin. Law Div. March 11, 2005), in which the division had determined that NOLs incurred before 1999 could be shared between group members.
Long told Bloomberg BNA that the department appealed Weyerhaeuser, but the parties subsequently settled. Long was not certain whether the department would appeal this decision.
Full text of the opinion is available at http://taxandaccounting.bna.com/btac/core_adp/get_object/Coca-Cola.pdf.
By Erin McManus
For a discussion of the NOL deduction in Alabama, see 1200 T.M., Income Taxes: State Treatment of Net Operating Losses, at 1200.04.B.1.b.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)