Time Warner Cable, Inc. v. City of Cincinnati

• Decision Date: 26 August 2020
• Docket Number: NO. C-190375,C-190375
• Parties: TIME WARNER CABLE, INC., & Subsidiaries, Plaintiff-Appellee, v. CITY OF CINCINNATI, and Ted Nussman, Tax Commissioner City of Cincinnati Income Tax Division, Defendants-Appellants.
• Court: Ohio Court of Appeals

157 N.E.3d 941

2020 Ohio 4207

TIME WARNER CABLE, INC., & Subsidiaries, Plaintiff-Appellee,

v.CITY OF CINCINNATI, and Ted Nussman, Tax Commissioner City of Cincinnati Income Tax Division, Defendants-Appellants.

NO. C-190375

Court of Appeals of Ohio, First District, Hamilton County.

Date of Judgment Entry on Appeal: August 26, 2020

Eversheds Sutherland (US) LLP, Michael R. Nelson and Michael J. Hilkin, for Plaintiff-Appellee Time Warner Cable, Inc., & Subsidiaries.

Paula Boggs Muething, City Solicitor, and Shuva J. Paul, Assistant City Solicitor, for Defendants-Appellants City of Cincinnati and Ted Nussman.

OPINION.

Bergeron, Judge.

{¶1} Although nothing may be as certain as death and taxes, perhaps cable bills fall in close behind. This case involves two of those three eventualities, with a cable provider trying to escape certain taxation imposed by the city of Cincinnati. More broadly, however, this case involves a clash between a municipality's right to tax pursuant to the constitutionally-engrained Home Rule Amendment and the General Assembly's ability to curtail that right. After careful review, we conclude that aspects of the city's municipal code must yield to the state statute, and we accordingly affirm the judgment below.

I.

{¶2} In late 2014, Time Warner Cable, Inc., and various subsidiaries (collectively, "Time Warner") filed its city of Cincinnati income tax return for the 2013 tax year. After its initial filing in 2014, Time Warner subsequently amended its return in 2015. Upon review of that filing, however, the city's Department of Finance Income Tax Division balked, notifying Time Warner that due to an adjustment, it owed a large sum in outstanding taxes and penalties. Time Warner protested, appealing this assessment to the local board of review as provided by former Cincinnati Municipal Code 311-97. Although Time Warner initially challenged three aspects of the city's assessment, the parties managed to resolve two of these issues, leaving the local board of review to sort out the interplay between the Cincinnati Municipal Code 311-11's and Regulation R11's (promulgated to aid the enforcement of Cincinnati Municipal Code Chapter 311) consolidated income tax return requirements, on the one hand, and the mandates of R.C. 718.06, on the other. The local board ultimately upheld the assessment, which required that Time Warner's consolidated return exclude certain subsidiaries that did not do business in Cincinnati from the 2013 filing, resulting in hundreds of thousands of dollars in outstanding tax liability.

{¶3} The dispute, at its core, involves the federal tax concept of an "affiliated group" entitled to file "consolidated" tax returns. At the risk of oversimplifying these matters, the IRS permits "an affiliated group of corporations to file a consolidated federal return. See 26 U.S.C. § 1501. This serves as a convenience for the government and taxpayers alike." Rodriguez v. FDIC , ––– U.S. ––––, 140 S.Ct. 713, 716, 206 L.Ed.2d 62 (2020). The consolidated filing essentially simplifies the tax reporting process, particularly for corporations with subsidiaries scattered across geographic boundaries (like Time Warner) and it enables an "affiliated group" to offset losses by certain corporate family members against others. In this case, Time Warner sought to file a consolidated return with the city that mirrored the affiliated group that it used for its federal tax filing, but the city objected. Pointing to its ordinance, it told the cable conglomerate that its "affiliated group" could only encompass affiliated corporate entities actually doing business in Cincinnati.

{¶4} Unsatisfied with the local board's disposition of this question, Time Warner next turned to the Ohio Board of Tax Appeals ("BTA") for relief as provided by R.C. 5707.011, maintaining that the municipal code and accompanying regulation conflicted with former R.C. 718.06. Time Warner asserted that the General Assembly enjoyed the right to limit the municipal tax authority, and that it effectuated exactly that by virtue of the plain language of the statute that enabled Time Warner to file a consolidated filing replicating the members in its federal consolidated return. Before the BTA, the city of Cincinnati and Ted Nussman, Tax Commissioner for the City of Cincinnati Income Tax Division (collectively, the "City") countered that no such conflict existed because former R.C. 718.06 did not expressly preempt the municipal ordinance, and therefore, the ordinance constituted a valid exercise of local taxation (with a nod to the Home Rule Amendment). The BTA, however, ultimately agreed with Time Warner, finding that the statute's plain language expressly required that a municipality accept a consolidated return from an affiliated group of corporations where the affiliated group as a whole (and not each individual corporation) was subject to the municipality's income tax.

{¶5} The City then commenced this appeal, framing a single assignment of error. Insisting that the BTA erred by reversing the decision of the local board of review, the City maintains that no express conflict existed between former Cincinnati Municipal Code 311-11 and Regulation R11 with former R.C. 718.06 and that Time Warner must file in accordance with those local requirements.

II.

{¶6} In reviewing a decision of the BTA, we generally do not sit as a de novo trier of fact, but where, as here, our task entails statutory construction, this constitutes a legal issue that we decide de novo on appeal. New York Frozen Foods, Inc. v. Bedford Hts. Income Tax Bd. of Rev. , 150 Ohio St.3d 386, 2016-Ohio-7582, 82 N.E.3d 1105, ¶ 8 ; Gesler v. Worthington Income Tax Bd. of Appeals , 138 Ohio St.3d 76, 2013-Ohio-4986, 3 N.E.3d 1177, ¶ 10. Therefore, under the circumstances presented here, we need not defer to the BTA's determination, but rather undertake our review de novo.

A.

{¶7} We begin our statutory interpretation journey with a prefatory stop at Article XVIII, Section 3 of the Ohio Constitution, known as the "Home Rule Amendment," which allows municipalities to exercise "all powers of local self-government." Central to this self-governing authority lies the power to tax. Gesler at ¶ 18 ; Cincinnati Bell Tel. Co. v. Cincinnati, 81 Ohio St.3d 599, 605, 693 N.E.2d 212 (1998), quoting Zielonka v. Carrel , 99 Ohio St. 220, 227, 124 N.E. 134 (1919) ("The municipal taxing power is one of the ‘powers of local self-government’ expressly delegated by the people of the state to the people of municipalities."). But this power is not absolute (as the City readily acknowledges), as the Ohio Constitution also allows the General Assembly to pass laws "to limit the power of municipalities to levy taxes," Article XVIII, Section 13, Ohio Constitution, and to "restrict [municipal] power of taxation[.]" Article XIII, Section 6, Ohio Constitution. These provisions help frame the debate, as our "analysis turns on whether the General Assembly exercise[d] its power to limit or restrict the municipal taxing authority" through former R.C. 718.06. Gesler at ¶ 19.

{¶8} But the Supreme Court teaches us that, in exercising its power to restrict or limit municipal taxation, the General Assembly must do so expressly. Cincinnati Bell at 599, 693 N.E.2d 212 ("The taxing authority of a municipality may be preempted or otherwise prohibited only by an express act of the General Assembly."). Such a requirement flows from the constitutional division of labor: "the Constitution presumes that both the state and municipalities may exercise full taxing powers, unless the General Assembly has acted expressly to preempt municipal taxation, pursuant to its constitutional authority to do so." Id. at 607, 693 N.E.2d 212. Therefore, the power to preempt is not implicated "merely by virtue of the state's entering a particular area of taxation[.]" Panther II Transp., Inc. v. Seville Bd. of Income Tax Rev. , 138 Ohio St.3d 495, 2014-Ohio-1011, 8 N.E.3d 904, ¶ 11, citing Cincinnati Bell at 605, 693 N.E.2d 212. In other words, no concept of implied preemption exists for purposes of regulating the municipal taxing authority by the General Assembly. Id. at ¶ 20 ("[I]n the context of Cincinnati Bell's reasoning, the requirement of ‘an express act of restriction’ means only that the state does not preempt local taxes merely by enacting a similar tax of its own.").

{¶9} With the analytical table set, we now turn to the dueling statutory and municipal code provisions. Former R.C. 718.06 (in effect during time periods germane to this appeal) provided:

[A]ny municipal corporation that imposes a tax on the income or net profits of corporations shall accept for filing a consolidated income tax return from any affiliated group of corporations subject to the municipal corporation's tax if that affiliated group filed for the same tax reporting period a consolidated return for federal income tax purposes pursuant to section 1501 of the Internal Revenue Code.

On the other side of the ledger, former Cincinnati Municipal Code 311-11(a) allowed an affiliated group of corporations to file a consolidated return if that affiliated group filed "for the same taxable year a consolidated return for federal income tax purposes pursuant to Section 1501 of the Internal Revenue Code." The ordinance further explained, however, "[o]nly corporations subject to the tax imposed by this chapter may be included in such consolidated return filed for Municipal income tax purposes." Former Cincinnati Municipal Code 311-11(a). Underscoring the point, Regulation R11 provided that "[a] consolidated return must include all companies that are so affiliated and that conduct business in the Municipality." Former Regulation R11(A). The municipal code thus sharply limited the array of entities that could constitute part of a corporation's "affiliated group."

{¶10} In the City's eyes, this limitation ushers in no conflict with former R.C. 718.06 because the General Assembly failed to spell...