[Cite as Time Warner Cable, Inc. v. Cincinnati, 2020-Ohio-4207.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO
TIME WARNER CABLE, INC., & : APPEAL NO. C-190375
SUBSIDIARIES, TRIAL NO. 2017-1448
:
Plaintiff-Appellee,
: O P I N I O N.
vs.
CITY OF CINCINNATI, :
and :
TED NUSSMAN, TAX :
COMMISSIONER CITY OF
CINCINNATI INCOME TAX :
DIVISION
:
Defendants-Appellants. :
Appeal From: Ohio Board of Tax Appeals
Judgment Appealed From Is: Affirmed
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.
OHIO FIRST DISTRICT COURT OF APPEALS
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
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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
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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
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¶ 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 (“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. 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. 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
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OHIO FIRST DISTRICT COURT OF APPEALS
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 out all of the details for an
“affiliated group” in the statute (an omission that the legislature corrected in a
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subsequent enactment, 2014 Sub.H.B. 5). Bolstering this point, the City focuses on
two aspects of the statute (1) the use of the indefinite article “a” before the phrase
“consolidated income tax return,” and (2) the phrase “subject to the municipal
corporation’s tax” as a restrictive modifier.
{¶11} In addressing the City’s assertions, we are reminded that “[t]he first
rule of statutory construction requires courts to look at the statute’s language to
determine its meaning. * * * Courts may not delete words used or insert words not
used.” Cincinnati Community Kollel v. Testa, 135 Ohio St.3d 219, 2013-Ohio-396,
985 N.E.2d 1236, ¶ 25. Therefore, while we acknowledge the statute’s use of “a
consolidated income tax return,” we must also read that in conjunction with the
phrase “from any affiliated group of corporations subject to the municipal
corporation’s tax,” and the statute’s anchoring these points with “pursuant to section
1501 of the Internal Revenue Code.” See Hauser v. Dayton Police Dept., 140 Ohio
St.3d 268, 2014-Ohio-3636, 17 N.E.3d 554, ¶ 9 (noting that in construing statutes,
courts do not pick out one sentence and disassociate it from context but construe the
statute as a whole). Construing these aspects together, the statute ultimately
identifies what type of consolidated return the City shall accept for filing, i.e., a filing
from “any affiliated group of corporations” so long as that “affiliated group filed for
the same tax reporting period a consolidated return for federal income tax
purposes[.]” While the City imagines a multitude of “affiliated groups” within a
corporation structure, the statute links the affiliated group to the one that made a
federal income tax filing, refuting the City’s interpretation. In our case, there is no
dispute that the “affiliated group” presented by Time Warner comported with the
affiliated group that filed a consolidated federal return. The statute blesses this exact
maneuver and requires that municipalities “shall accept” such a return, whereas the
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municipal code (in these circumstances) proscribes it. That showcases the direct
conflict between the two.
{¶12} Endeavoring to portray harmony rather than conflict, the City features
the phrase “subject to the municipal corporation’s tax” as ratifying that the
consolidated return may include only those entities doing business in the City by
modifying the word “corporation” in this manner. But we are unconvinced by the
City’s grammatical parsing—after all, its conceptualization of “affiliated group”
would render the General Assembly’s later reference to the affiliated group having
filed as such for federal purposes during the same taxable year meaningless. See
State ex rel. Carna v. Teays Valley Local School Dist. Bd. of Edn., 131 Ohio St.3d
478, 2012-Ohio-1484, 967 N.E.2d 193, ¶ 19 (courts should avoid a construction of a
statute that would render a provision meaningless or superfluous). The later
reference to affiliated group by the statute as “that affiliated group” indicates that the
affiliated group filing a consolidated return for municipal purposes is synonymous
with the group filing for federal income tax purposes, not merely some subset of
corporations subject to the municipal tax. That also strikes us as the most logical
reading of the statute.
{¶13} We find our conclusion supported further by the General Assembly’s
particular utilization of “affiliated group” and reference to the Internal Revenue
Code. While the General Assembly neglected to define “affiliated group” in former
R.C. 718.06, it represents a term of art for federal tax purposes. See 26 U.S.C. 1504
(defining “affiliated group” as certain includible corporations connected through
stock ownership with a parent company). In construing a statute, we must generally
assign words their common usage, but “[w]ords and phrases that have acquired a
technical or particular meaning * * * shall be construed accordingly.” R.C. 1.42;
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Youngstown Sheet & Tube Co. v. Lindley, 56 Ohio St.2d 303, 309, 383 N.E.2d 903
(1978) (applying the long-standing federal treatment of term to undefined statutory
term); Hoffman v. State Med. Bd. of Ohio, 113 Ohio St.3d 376, 2007-Ohio-2201, 865
N.E.2d 1259, ¶ 26 (noting that, in construing statutes, where a word has a technical
definition the statute shall be construed accordingly). Thus, the conspicuous
appropriation of “affiliated group” while referencing federal tax principles further
elucidates the statute’s purpose, reinforcing our conclusion in the preceding
paragraph. Conversely, the City’s vision of “affiliated group” requires a definition cut
from whole cloth.
{¶14} Based on the statute’s plain language, we find that the General
Assembly took clear and affirmative measures to limit the City’s authority to impose
the income tax in the manner it sought. Cincinnati Bell, 81 Ohio St.3d at 606, 693
N.E.2d 212 (municipal power to levy tax is to be considered valid “unless the General
Assembly has acted affirmatively by exercising its constitutional prerogative.”); S.B.
Carts, Inc. v. Put-in-Bay, 161 Ohio App.3d 691, 2005-Ohio-3065, 831 N.E.2d 1052, ¶
11 (6th Dist.) (ordinance was valid exercise of taxing power where General Assembly
had not acted affirmatively to limit that power). This represents an appropriate
exercise of the General Assembly’s constitutional power, which extends to not only
limit the imposition of taxes but “endows the General Assembly with the capability to
circumscribe the imposition, raising, and collection of a municipal tax.” City of
Athens v. Testa, 2019-Ohio-277, 119 N.E.3d 469, ¶ 44 (10th Dist.) (interpreting the
word “levy” in Article XVIII, Section 13, Ohio Constitution to permit the General
Assembly to limit municipal power to impose, collect, and administer taxes);
Cincinnati Imaging Venture v. City of Cincinnati, 116 Ohio App.3d 1, 4, 686 N.E.2d
528 (1st Dist.1996) (General Assembly allowed to regulate the levy and collection of
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municipal tax as well as limiting the imposition of those taxes). To that point, the
City does not protest that the General Assembly exceeded its constitutional bounds
here.
{¶15} In short, the City urges us to adopt a construction of former R.C.
718.06 that would render aspects of the statute a hollow letter. But we “must
presume that the language chosen by the General Assembly was intended to be
effective.” State ex rel. Cincinnati Enquirer v. Pike Cty. Coroner’s Office, 153 Ohio
St.3d 63, 2017-Ohio-8988, 101 N.E.3d 396, ¶ 22; Griffith v. Aultman Hosp., 146
Ohio St.3d 196, 2016-Ohio-1138, 54 N.E.3d 1196, ¶ 18 (in interpreting a statute, the
court’s paramount concern is legislative intent, which should be sought first from the
language of the statute and the words used). Thus, the statute expressly preempts
aspects of former Cincinnati Municipal Code 311-11, because it specifically required
municipalities to accept a consolidated income tax return from the same affiliated
group which filed for federal income tax purposes.
B.
{¶16} Alternatively, the City posits that former R.C. 718.06 impermissibly
compels the City to exercise a power of taxation. Contrary to the City’s contention,
however, it already exercised its power of taxation by imposing an income tax under
Cincinnati Municipal Code Chapter 311. Former R.C. 718.06 constituted a valid
limitation on that power, rather than any sort of impermissible compulsion. See
New York Frozen Foods, Inc., 150 Ohio St.3d 386, 2016-Ohio-7582, 82 N.E.3d 1105,
at ¶ 30 (“Former R.C. 718.06 did limit local taxing authority[.]”).
{¶17} Similarly (relying on 90-year-old caselaw) the City contends that the
statute unlawfully forces it to exercise extraterritorial power by taxing beyond its
borders. Even if former R.C. 718.06 required a municipality to tax extraterritorially
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(which strikes us as a dubious proposition), a municipality may act extraterritorially
where granted such authority by statute. Springfield v. All Am. Food Specialists,
Inc., 85 Ohio App.3d 464, 469, 620 N.E.2d 120 (2d Dist.1993) (territorial limitations
of the Home Rule Amendment may be overcome where expressly granted by
statute). Prudential Co-op. Realty Co. v. City of Youngstown, 118 Ohio St. 204, 211-
212, 160 N.E. 695 (1928) (ordinance constitutional where statute conferred on
municipality extraterritorial authority); Tatco Dev., Ltd. v. Montgomery Cty., Ohio,
2d Dist. Montgomery No. 18387, 2001 WL 28674, *6 (Jan. 12, 2001) (municipality
may only exercise extraterritorial authority if granted such by the legislature). As we
already concluded above, the statute requires the City to accept a consolidated filing
from an affiliated group that filed as such for federal purposes, negating any
concerns that the City might transgress the limits of its authority.
{¶18} Finally, the City asserts that even if Time Warner “submitted the
consolidated return it preferred * * * it would still have to abide by the City’s
accounting and apportionment methods” under Regulation R11. But to the extent
that Regulation R11 limited the filing of a consolidated return by an affiliated group,
it too stands in conflict with R.C. 718.06 and suffers the same preemptive fate.
Regardless, we need not ponder the nuances of Time Warner’s tax liability with the
City—we need only decide the statutory interpretation question presented to us.
{¶19} In light of the preceding analysis, we affirm the decision of the BTA
and overrule the City’s sole assignment of error.
Judgment affirmed.
MYERS, P.J., and CROUSE, J., concur.
Please note:
The court has recorded its own entry this date.
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