Two months after our oral argument, the Appellate Court of Illinois on October 7th reversed a Circuit Court decision and held that Wendy's International did not have to include its insurance subsidiary in its Illinois combined income tax returns. The Appellate Court found that Wendy's had established that Scioto Insurance Company's business was the furnishing of insurance, and Scioto's ownership of Oldemark, a disregarded entity that earned royalty income from the licensing of intangibles, did not change this result. The Court held that Scioto was a bona fide insurance company, that it had been so treated by the Internal Revenue Service after two federal income tax audits, and had engaged in the necessary risk shifting and risk distribution required of an insurance company. Since Illinois law does not permit insurance companies to be included in combined returns with companies taxed under the corporate income tax, the Department of Revenue's effort to include Scioto in Wendy's combined returns was rejected.
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