United States: Supreme Court Of Ohio Decision Provides A Cautionary Tale For Taxpayers, And Highlights Opportunities For Future Statutory Interpretation

In a Commercial Activity Tax ("CAT") case involving several interesting procedural issues, the Supreme Court of Ohio yesterday reversed a Board of Tax Appeals ("BTA") decision and held that the tax commissioner's adjustments to a taxpayer's net operating losses ("NOLs") were timely, even though the taxpayer was not provided with notice of the adjustments prior to the statutory deadline for adjustments.1


In 2005, when the Ohio General Assembly enacted the phase-in of the CAT and the simultaneous phase-out of the corporate franchise tax,2 a "grand bargain" was struck between taxpayers and the commissioner, allowing taxpayers to retain the value of NOLs and other deferred tax assets that accrued under the corporate franchise tax as a credit usable to offset liability under the CAT, a gross receipts tax. Under the credit provision, taxpayers that had at least $50 million of Ohio NOLs available in 2006 were allowed to convert those NOLs into a credit that could be used to offset their CAT liability, subject to certain limitations, during the period 2010 through 2029.3

To qualify for the credit, a taxpayer was required to report to the commissioner its amortizable NOL carryforward amount by June 30, 2006.4 Thereafter, the commissioner had until June 30, 2010, to "audit the accuracy of the amortizable amount available to each taxpayer that will claim the credit, and adjust the amortizable amount or, if appropriate, issue any assessment or final determination, as applicable, necessary to correct any errors found upon audit."5

The Court's Decision

In International Paper Company v. Testa, the taxpayer timely reported its amortizable NOL carryforward of $17 million. The commissioner subsequently reduced the taxpayer's amortizable NOL carryforward to $927,513 in a final determination, which was "journalized"6 June 8, 2010—22 days before the statutory deadline. However, the commissioner did not mail notice of the final determination to the taxpayer until July 12, 2010—12 days after the deadline. The BTA held that the final determination was not timely and vacated the determination. On appeal, the Supreme Court of Ohio faced three issues:

  • Whether the commissioner had to issue notice of the final determination by the June 30, 2010, statutory deadline;
  • Whether the commissioner's "journalized" entry of a final determination constituted timely "issuance" of notice of the determination to the taxpayer; and
  • Whether the taxpayer was required to file a cross-appeal to preserve its substantive challenge to the commissioner's reduction of its NOL carryforward.

The court dispatched the first issue quickly by holding that the statute required the commissioner to issue a final determination, and that the commissioner must "afford taxpayer[s] an opportunity to contest any reduction" and allow taxpayers to account for their tax assets.7

Nonetheless, the court resolved the second issue by finding that the commissioner met his obligation of "issuing" a final determination by the statutory deadline. The court rejected dicta from a sales tax case that equated issuance of a notice of assessment with mailing the notice.8 Instead, the court found that the statute was a remedial statute that required the court to liberally construe the statutory language in favor of the tax assessor. Thus, the commissioner's journalized entry of the final determination was deemed to be sufficient to meet the statutory deadline for "issuing" a final determination.

Finally, the court determined that the taxpayer did not need to file a cross-appeal to preserve a substantive challenge to the commissioner's reduction of its NOL carryforward, because the BTA's decision did not address the substantive issue of the commissioner's reduction.

The case was remanded to the BTA to address the taxpayer's substantive challenge to the commissioner's reduction to the NOL credit. Currently, two other cases are pending at the Ohio Supreme Court that involve the commissioner's ability to adjust a taxpayer's NOL credit amount. The Supreme Court's handling of these cases may shed light on how the BTA will handle the substantive challenges in this case on remand.9


The Supreme Court of Ohio's decision in this case is a reminder that Ohio's procedural rules must be strictly followed. Although the court held that International Paper was not required to file a cross-appeal, taxpayers that win at the BTA should make sure to raise any and all alternative issues on cross appeal to the Supreme Court. Further, while the court liberally construed the statute to hold that the commissioner's adjustment to International Paper's NOL credit was timely issued, this does not mean that procedural rules will also be liberally construed in favor of taxpayers. For example, the BTA recently issued a fairly harsh decision against a taxpayer, dismissing its BTA appeal for improper service because the appeal was served on the commissioner's legal counsel, not the commissioner's main office address.10

Finally, taxpayers should consider parallels between the language in the CAT and sales tax statutes. In this case, the Supreme Court of Ohio rejected dicta from a decision in a sales tax case in which it had interpreted the word "issue" to mean "mailing date" for a sales-tax statute. While the court determined that the "specific legislative purposes" of the CAT and sales-tax statutes differed in this case, there may be other instances where those purposes are consistent. In those instances, it may benefit CAT taxpayers to seek guidance in the case law interpreting the sales-tax statute.

If you have questions about the court's decision in International Paper or about Reed Smith's Ohio Tax practice, please contact one of the authors of this Alert or the Reed Smith attorney with whom you usually work.


1International Paper Company v. Testa, Slip Opinion No. 2016-Ohio-7454 (Ohio Oct. 26, 2016).

2 See H.B. 66, 126th Gen. Assembly (Ohio 2005).

3 See O.R.C. § 5751.53(B). In tax year 2030, the taxpayer is entitled to a refundable credit "for any portion of the qualifying taxpayer's amortizable amount" that it did not use in the previous years. O.R.C. § 5751.53(C).

4 See O.R.C. § 5751.53(D).

5 Id.

6 The commissioner entered the determination in its journal, which is available for public review.

7 O.R.C. § 5751.53(D).

8 See Carstab Corp. v. Limbach, 532 N.E.2d 102, 104 (Ohio 1988) ("We hold that the commissioner both "made" and "issued" the assessment prior to the deadline . . . , since she placed it . . . in the United States mails, certified service" before the deadline date).

9 Navistar Inc. v. Testa, Case No. 2015-2055, and Dana Corporation v. Testa, Case No. 2015-0460.

10 Reet Inc. v. Testa, Case No. 2016-770 (BTA, October 25, 2016).ote1

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions