Dana Corp. v. Testa (Slip Opinion) , 152 Ohio St. 3d 602 ( 2018 )

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Dana Corp. v. Testa, Slip Opinion No. 2018-Ohio-1561.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2018-OHIO-1561
DANA CORPORATION, N.K.A. DANA HOLDING CORPORATION, APPELLANT AND
CROSS-APPELLEE, v. TESTA, TAX COMMR., APPELLEE AND CROSS-APPELLANT.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Dana Corp. v. Testa, Slip Opinion No. 2018-Ohio-1561.]
Taxation—Commercial-activity-tax credit—R.C. 5751.53(F) does not authorize an
adjustment of the amortizable amount—Board of Tax Appeals’ decision
reversed and amortizable amount modified.
(No. 2015-0460—Submitted December 5, 2017—Decided April 24, 2018.)
APPEAL and CROSS-APPEAL from the Board of Tax Appeals, No. 2011-2287.
____________________
Per Curiam.
{¶ 1} In this appeal we confront an issue arising out of the special credit
against the commercial-activity tax (“CAT”) set forth at R.C. 5751.53 (the “CAT
credit”). One factor in calculating the CAT credit is the net operating losses
(“NOLs”) that were incurred by the corporation before the enactment of the CAT.
To take the credit, a company was required to file a report with appellee and cross-
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appellant, the tax commissioner, that calculated, based on a formula set forth in
R.C. 5751.53(A)(9), an amount that would be applied gradually over a period of up
to 20 years (“amortizable amount”) against the CAT. Appellant and cross-appellee,
Dana Corporation, now known as Dana Holding Corporation, filed its report
indicating that its amortizable amount was $12,493,003. Based on his audit of Dana
Corporation’s amortizable-amount report, the tax commissioner ordered two
reductions that decreased the amortizable amount to $4,728,051. Dana agreed with
the first of the two adjustments, which reduced the amortizable amount to
$10,935,324, but contested the second reduction from $10,935,324 to $4,728,051.
Dana argues that the second adjustment, a percentage reduction consistent with the
percentage reduction of Dana’s federal NOLs on account of its cancellation-of-debt
income (“CODI”) that resulted from its bankruptcy, was not authorized by R.C.
5751.53(F). The Board of Tax Appeals (“BTA”) disagreed with Dana’s position
and affirmed the tax commissioner’s full reduction. This issue forms the principal
basis for Dana’s appeal to this court. In the alternative, Dana argues that even if it
was proper for the tax commissioner to reduce the amortizable amount, his
calculation of the reduction was erroneous.
{¶ 2} On cross-appeal, the tax commissioner faults the BTA for rejecting
his post-final-determination calculation of the amortizable amount that relies on the
testimony of the tax commissioner’s expert witness, who opined that the
amortizable amount ought to be zero. Additionally, the tax commissioner contends
that the BTA ought to have entertained his alternative theory, raised for the first
time shortly before the hearing at the BTA, that Dana’s NOLs were fully offset by
a properly recomputed valuation allowance.
{¶ 3} We agree with Dana’s main contention on appeal, and we reject the
arguments advanced by the tax commissioner on cross-appeal. We therefore
reverse the decision of the BTA and, pursuant to R.C. 5717.04, order modification
of the amortizable amount to $10,935,324.
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I. Nature of the CAT Credit
{¶ 4} Ohio’s 2005 tax reform provided for a phase out of the corporation
franchise tax and a phase in of the CAT. We discussed the relationship between
the two in Navistar, Inc. v. Testa, 143 Ohio St. 3d 460, 2015-Ohio-3283, 39 N.E.3d
509.
{¶ 5} Ohio’s corporation-franchise-tax law permitted a carryforward of
NOLs, so that those losses could constitute a tax benefit by offsetting otherwise
taxable income in later years. See R.C. 5733.04(I)(1)(b); Navistar at ¶ 9. And
because the potential tax benefit of NOLs constitutes a type of corporate asset,
NOLs are reflected as deferred tax assets on a corporation’s books and records.
Navistar at ¶ 10. However, because the CAT is a gross-receipts tax under which
the tax rate is applied to gross revenues rather than net income, the Ohio-related
NOL asset on the corporate books would lose its value as the 2005 tax reform was
phased in. Id. at ¶ 2.
{¶ 6} To address this concern, the General Assembly included R.C.
5751.53, the CAT credit, in the CAT legislation. The statute has two main features.
First, an “amortizable amount” had to be calculated and reported to the tax
commissioner by the taxpayer by June 30, 2006, R.C. 5751.53(D); that amount is
based on the NOL carryforwards and other deferred tax assets on the company’s
books as of the fiscal year ending 2004 (the last taxable year under the franchise
tax before enactment of the 2005 tax reform). R.C. 5751.53(A)(5) through (9); see
Navistar at ¶ 12. The tax commissioner was authorized to audit and modify the
amortizable amount reported by the taxpayer by issuing a final determination no
later than June 30, 2010 (unless the deadline was extended by consent, as it was in
this case). R.C. 5751.53(D).
{¶ 7} Second, R.C. 5751.53(B) sets forth how the credit may be taken (i.e.,
how the “amortizable amount” is amortized) over a 10- to 20-year period to offset
CAT liability. The amortizable amount is a factor in the calculation that determines
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how much credit can be used each year and constitutes a cap on the total amount of
credit available to the taxpayer.
II. Course of Proceedings
A. From “old Dana” to “new Dana”
{¶ 8} In this case, the tax commissioner ordered a reduction of the
amortizable amount reported by Dana because of a tax-free reorganization of the
corporation that was consummated on January 31, 2008. The parties use the term
“old Dana” when referring to the corporation before the reorganization and “new
Dana” when referring to the corporation after the reorganization. We adopt that
terminology herein.
{¶ 9} Old Dana timely filed the amortizable-amount report on June 30,
2006. Old Dana was a consolidated group of affiliated corporations, meaning that
the group reported income and deductions as a single taxpayer. The total
amortizable amount reported was $12,493,003. Around the same time that old
Dana filed the report, the old Dana consolidated group went into Chapter 11
bankruptcy, during which it reorganized. It emerged from bankruptcy on January
31, 2008, as new Dana, a consolidated group that had all the NOLs transferred from
old Dana pursuant to 26 U.S.C. 381, subject to whatever reduction occurred as a
result of the realization of CODI.
{¶ 10} Like old Dana, new Dana is a consolidated group of affiliated entities
for federal income-tax purposes. Consolidated filing “systematically affects the
computation of taxable income by aggregating transactions of individual members
of the consolidated group,” while “eliminat[ing] the tax effect of transactions within
the affiliate group.” 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, ¶ 21, citing 26
C.F.R. 1.1502-11 through 1.1502-28. Thus, “Dana’s NOLs” refers to the aggregate
NOLs of the constituent corporations. See 26 CFR 1.1502-21 and 1.1502-28.
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B. The tax commissioner’s audit and adjustment
{¶ 11} R.C. 5751.53(D) afforded the tax commissioner until June 30, 2010,
to audit and adjust the amount reported in the amortizable-amount report. In this
case, the parties extended the audit period by one year to June 30, 2011, which was
permitted under R.C. 5751.53(D).
{¶ 12} As a result of the audit, the tax commissioner reduced the
amortizable amount for two separate reasons. First, the tax commissioner reduced
the amortizable amount from the reported $12,493,003 to $10,935,324 based on
information contained in amended tax reports filed by Dana. Dana accepted that
adjustment as appropriate. Second, the tax commissioner reduced the amortizable
amount from $10,935,324 to $4,728,051 based on a percentage reduction that
matched the percentage reduction of Dana’s federal NOLs by CODI that Dana
realized as a result of the bankruptcy. Dana appealed from the tax commissioner’s
final determination and seeks a return to an amortizable amount of $10,935,324.1
III. The BTA Decision
{¶ 13} The BTA began its analysis by rejecting Dana’s argument that R.C.
5751.53(F) does not apply to Dana’s nondivisive reorganization. The BTA stated
that because division (F) constitutes the only statutory provision that permits the
CAT credit to be transferred from one entity to another, it must apply to Dana’s
transfer of the credit from old Dana to new Dana. Next, the BTA rejected Dana’s
argument that although division (F) incorporated 26 U.S.C. 381 and 26 CFR
1.1502-21, which address transfer of NOLs in the context of corporate acquisitions
or reorganizations, it did not incorporate 26 U.S.C. 108 and 26 CFR 1.1502-28,
1
Because we agree with Dana that R.C. 5751.53(F) does not authorize a reduction of the amortizable
amount, we need not discuss the relative merit of the different methods advanced in this case for
calculating that reduction.
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which address offsetting CODI against tax attributes, such as NOLs.2 The BTA
concluded that “R.C. 5751.53(F) is not restrictive as to the applicability of any
particular Internal Revenue Code section; any/all sections of the code shall apply,
as warranted.” BTA No. 2011-2287, 2015 WL 971051, *4 (Feb. 18, 2015).
{¶ 14} Finally, the BTA rejected the tax commissioner’s “revised
calculation of the credit to zero dollars” as “inconsistent with and an improper
application of [26 U.S.C.] 108.” Id. Making no mention of Dana’s proposed
alternative method of computing the offset of Ohio NOLs, the BTA affirmed the
tax commissioner’s final determination. Dana and the tax commissioner appealed.
IV. Standard of Review
{¶ 15} In reviewing decisions of the BTA, we determine whether its
decision is reasonable and lawful. Satullo v. Wilkins, 111 Ohio St. 3d 399, 2006-
Ohio-5856, 856 N.E.2d 954, ¶ 14. Although the BTA is responsible for
determining factual issues, the court “ ‘will not hesitate to reverse a BTA decision
that is based on an incorrect legal conclusion.’ ” Id., quoting Gahanna-Jefferson
Local School Dist. Bd. of Edn. v. Zaino, 93 Ohio St. 3d 231, 232, 754 N.E.2d 789
(2001).
V. The BTA Erred in Affirming the Reduction of the Amortizable
Amount Based on CODI Offset of Federal NOLs
A. The parties’ arguments
{¶ 16} R.C. 5751.53(F) provides:
If one entity transfers all or a portion of its assets and equity
to another entity as part of an entity organization or reorganization
or subsequent entity organization or reorganization for which no
2
The cited statute sections respectively address the general subjects of carryovers in corporate
acquisitions and offsetting CODI against tax attributes. The cited regulations address the manner
in which the statutes operate in the context of a consolidated group.
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gain or loss is recognized in whole or in part for federal income tax
purposes under the Internal Revenue Code, the credits allowed by
this section shall be computed in a manner consistent with that used
to compute the portion, if any, of federal net operating losses
allowed to the respective entities under the Internal Revenue Code.
The tax commissioner may prescribe forms or rules for making the
computations required by this division.
{¶ 17} The focal point of the dispute in this case is the meaning of the phrase
“the portion, if any, of federal net operating losses allowed to the respective entities
under the Internal Revenue Code.” For his part, the tax commissioner argues that
this language means that the successor entity or entities after a tax-free
reorganization should be subjected to a reduction of the amortizable amount to the
same extent that the NOLs are offset by CODI under the Internal Revenue Code
and treasury regulations. The BTA’s decision reflects its agreement with this
position.
{¶ 18} On the other hand, Dana asserts that “R.C. 5751.53(F) does not
authorize a recalculation of the amortizable amount in the event of an entity
reorganization.” Instead, it argues, the statute “requires that the credits allowed
under R.C. 5751.53(B), based on the amortizable amount calculated on the basis of
the 2004 books and records and the 2005 franchise tax report, be allocated to the
reorganized entities in the same proportion that the federal NOLs are allocated to
the respective entities.” Under Dana’s reading of the phrase, “the portion, if any,
of federal net operating losses allowed to the respective entities under the Internal
Revenue Code” would require an additional adjustment only in the context of what
Dana refers to as a “divisive” reorganization: the situation in which a successor
entity acquires some but not all assets (including the NOLs) of the entity that filed
the amortizable-amount report. In that case, an entity would claim only a
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percentage of the amortizable amount rather than claiming the amortizable amount
in its entirety. Under this reading of the statute, the amortizable amount itself would
not change.
B. The BTA’s holding that under R.C. 5751.53(F) all provisions of the
Internal Revenue Code are applicable is inconsequential
{¶ 19} In addition to claiming that R.C. 5751.53(F) does not apply here
because Dana’s was not a “divisive” reorganization, Dana claims that even if it does
apply, R.C. 5751.53(F) does not “incorporate” 26 U.S.C. 108 and 26 CFR 1.1502-
28, which are provisions that relate to offsetting CODI against NOLs. The BTA
sensibly found that “any/all sections of the [United States Code] shall apply, as
warranted.” 2015 WL 971051 at *4.
{¶ 20} Indeed, contrary to Dana’s argument, the offset of CODI against
NOLs is a routine computation under 26 CFR 1.1502-21. See 26 CFR 1.1502-
21(b)(2)(iv)(B)(2)(ii) (whenever a member of a consolidated group “realizes
discharge of indebtedness income that is excluded from gross income under section
108(a) and such amount reduces any portion of the consolidated NOL attributable
to any member pursuant to section 108 and § 1.1502-28, the percentage of
consolidated NOL attributable to each member as of immediately after the
reduction of attributes pursuant to sections 108 and 1017 and § 1.1502-28 shall be
recomputed pursuant to paragraph (b)(2)(iv)(B)(2)(v) of this section”).
{¶ 21} But the question whether R.C. 5751.53(F) incorporates specific
provisions of the United States Code simply begs the question whether R.C.
5751.53(F) authorizes an adjustment of the amortizable amount. Because we
conclude below that R.C. 5751.53(F) does not authorize an adjustment of the
amortizable amount, we conclude that the BTA’s finding related to this dispute is
inconsequential.
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C. R.C. 5751.53(F) does not authorize adjustment
of the amortizable amount
{¶ 22} Close scrutiny of the statutory language reveals that it can plausibly
be cited in support of either position. On the one hand, the tax commissioner can
reasonably assert that the phrase “the portion, if any, of federal net operating losses
allowed to the respective entities under the Internal Revenue Code” in R.C.
5751.53(F) refers to the reduced amount of federal NOLs resulting from the NOLs’
being offset by CODI. On the other hand, the phrase could refer, as Dana contends,
to nothing more than the percentage of the amortizable amount claimed by a part
successor entity, without implying that the amortizable amount itself should be
reduced. We find that division (F) neither unambiguously prescribes nor
unambiguously precludes an adjustment of the amortizable amount by the tax
commissioner.
{¶ 23} We therefore conclude that the parties’ conflicting readings of
division (F), both plausible, expose an ambiguity in the statute. See Pittsburgh
Steel Co. v. Bowers, 173 Ohio St. 74, 77, 179 N.E.2d 915 (1962) (in addition to
“the indefiniteness of the meaning of a word or phrase,” ambiguity may result from
a word or phrase that by itself is “perfectly clear in its meaning” but that becomes
“clouded with obscurity when considered in relation to other words in a statement
containing the word or phrase”). Given the ambiguity, we must interpret the statute.
First, we must determine the rules of construction that apply in this case.
{¶ 24} The tax commissioner maintains that the principle that tax
exemptions and reductions should be strictly construed against the claimant
requires Dana to demonstrate its entitlement to the R.C. 5751.53(F)
“successor/transferee” credit, which the tax commissioner claims is distinct from
and more limited than the credit based on the original amortizable-amount report.
The tax commissioner goes so far as to argue that implementing R.C. 5751.53(F)
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involves computing a new credit for new Dana as the transferee entity and that the
computation of that transferee credit is equivalent to a “grant” of a brand new credit.
{¶ 25} In rejecting the tax commissioner’s position on this point, we do not
question the basic proposition that because the CAT credit is a tax-reduction
provision, Dana must show that R.C. 5751.53 “ ‘clearly expresses’ ” the tax break
“ ‘in relation to the facts’ ” of its claim. Veolia Water N. Am. Operating Servs.,
Inc. v. Testa, 146 Ohio St. 3d 52, 2016-Ohio-756, 51 N.E.3d 613, ¶ 19, quoting
Anderson/Maltbie Partnership v. Levin, 127 Ohio St. 3d 178, 2010-Ohio-4904, 937
N.E.2d 547, ¶ 16. Dana easily discharged that burden here: old Dana filed its
amortizable-amount report consistent with R.C. 5751.53(D), and new Dana
emerged from a tax-free reorganization as contemplated by R.C. 5751.53(F). That
Dana is entitled to claim the CAT credit—whether the amount is $12 million, $10
million, $4 million, or $0—is neither doubted nor disputed on this record. The
question here is not whether the tax break applies to Dana’s circumstances but
whether R.C. 5751.53(F) authorizes or requires an adjustment to the amortizable
amount because of the CODI Dana realized as a result of the bankruptcy.
{¶ 26} Because the question here is one of credit computation, not credit
applicability, we are be guided by the more general aids for construing ambiguous
statutes that are generally employed when construing allocation and apportionment
provisions. See Gulf Oil Corp. v. Kosydar, 44 Ohio St. 2d 208, 216-217, 339 N.E.2d
820 (1975) (in construing the ambiguous “business-done” apportionment formula
the court sought to give effect to the paramount object of the statute as a whole
while avoiding unreasonable or absurd consequences); Rio Indal, Inc. v. Lindley,
62 Ohio St. 2d 283, 285, 405 N.E.2d 291 (1980) (using general statute-construing
aids to construe allocation provision). Specifically, under this case law, we must
construe the computation required under R.C. 5751.53(F) in light of the “ ‘object
sought to be attained” and the “consequences of a particular construction,”
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Internatl. Paper Co. v. Testa, 150 Ohio St. 3d 348, 2016-Ohio-7454, 81 N.E.3d
1225, ¶ 14-15, quoting R.C. 1.49(A) and (E).
{¶ 27} For five reasons, those principles militate toward adopting Dana’s
interpretation of R.C. 5751.53(F).
{¶ 28} First, R.C. 5751.53(B) states that “[f]or each calendar period
beginning prior to January 1, 2030, there is hereby allowed a nonrefundable tax
credit against the tax levied by this chapter [the CAT].” Significant is the
parallelism between the phrase “there is hereby allowed a nonrefundable tax credit”
in division (B) and the phrase “the credits allowed by this section shall be computed
in a manner” in division (F). This parallelism implies that just as division (B)
describes how the credit is “allowed” over a period of years, division (F) describes
how the credit is computed over those years. Notably absent from both (B) and (F)
is any direction regarding how to calculate or adjust the amortizable amount—the
amortizable amount is determined exclusively under the definitional provisions of
R.C. 5751.53(A) and the audit procedure set forth in R.C. 5751.53(D). Moreover,
it is significant in this regard that division (F) makes no explicit reference to
adjusting the amortizable amount, nor does the definition of “amortizable amount”
and related terms in division (A) allude to a possible adjustment for the offset of
NOLs by CODI.
{¶ 29} Second, the procedure required under R.C. 5751.53 generally
militates against reading R.C. 5751.53(F) to require a reduction of the amortizable
amount. As discussed, the statute requires first determining the amortizable amount
and then determining year by year how much of the amortizable amount may be
used as a credit in the current tax year. By construing R.C. 5751.53(F) to require
adjustment of the amortizable amount, the tax commissioner potentially destroys
this two-part procedural scheme.
{¶ 30} To be sure, that disruptive effect does not occur here, because the
reorganization at issue came early enough to permit the tax commissioner to
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perform his adjustment during the prescribed period for auditing the amortizable
amount. But if the reorganization had occurred later, the tax commissioner’s
position implies that R.C. 5751.53(F) would require him to adjust the amortizable
amount in connection with auditing the CAT returns on which the credit is claimed.
Indeed, at oral argument, when asked what would happen if the reorganization
occurred after the period for auditing the amortizable amount, the tax
commissioner’s counsel stated that the “transferee’s credit” would have to be
adjusted. This disregards the procedural structure of the statute by reopening the
question of the amortizable amount after the period for auditing and determining
that amount under R.C. 5751.53(D) has closed.
{¶ 31} This aspect of the tax commissioner’s interpretation of division (F)
conflicts with our holding in Internatl. Paper Co. In that case, we squarely rejected
the theory that the amortizable amount could be adjusted outside the procedure set
forth in division (D). Internatl. Paper Co., 150 Ohio St. 3d 348, 2016-Ohio-7454,
81 N.E.3d 1225, ¶ 11-17. The intent of the legislature was to “require the tax
commissioner to formalize his decision” and to fulfill the purpose of the credit to
“permit the taxpayer to account for the tax asset on its books going forward.” Id.
at ¶ 15. That logic cuts against the tax commissioner’s reading of R.C. 5751.53(F)
here.
{¶ 32} Third, our decision in Navistar acknowledged that the CAT credit
was intended to reflect the deferred tax assets and valuation allowance of a
company as of a specific point in time, as reported on the amortizable-amount
report, subject only to corrections of errors or inaccuracies. Navistar, 143 Ohio
St.3d 460, 2015-Ohio-3283, 39 N.E.3d 509, ¶ 6, 35. Because the tax
commissioner’s audit authority under R.C. 5751.53(D) is limited to “making
changes that reflect a correction of an inaccuracy or error in the original reported
amount,” id. at ¶ 6, any change in accounting after the filing of an amortizable-
amount report that does not constitute the correction of inaccuracy or error in the
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2004 books is precluded by the limitation of the tax commissioner’s audit authority
under division (D).
{¶ 33} This limited authority in adjusting the CAT credit militates strongly
against the tax commissioner’s position in this appeal. The offset of CODI against
NOLs that resulted from the bankruptcy reorganization is an adjustment arising
from an event that occurred entirely after 2004, the year that is the reference point
for determining the amortizable amount, R.C. 5751.53(A)(6); Navistar, ¶ 11.
Moreover, the offset as a matter of federal law operates as a reduction of NOLs in
a purely prospective way, see 26 U.S.C. 108(b)(2)(A) (reduction applied to “any
net operating loss carryover to such taxable year”); 26 C.F.R. 1.108-7(b) (tax
attributes such as NOLs are to be taken into account for prior years “before such
attributes are reduced pursuant to section 108(b)(2) and paragraph (a)(1) of this
section”).3 In light of this, the offset does not involve the correction of a past
inaccuracy or error that underlay the amortizable amount as reported. Therefore,
interpreting division (F) to require a reduction constitutes a departure from the
Navistar doctrine.
{¶ 34} Fourth, R.C. 5751.53(F)’s reference to computing in terms of federal
NOLs rather than Ohio NOLs militates in favor of construing the provision against
an adjustment of the amortizable amount. That is so because the overriding purpose
of the CAT credit was, as discussed above, to soften the blow of the loss of value
of Ohio NOLs on the corporate books. Navistar at ¶ 10. Ohio NOLs, as opposed
to federal NOLs, relate to those losses that arose from Ohio operations that Ohio
3
Dana’s expert witness Richard Ward testified before the BTA that the offset of CODI against
NOLs was prospective only under federal law, meaning that in spite of any reduction of NOL
carryforwards in a later year, the NOLs carried forward from earlier years were fully available in
earlier years, in their unreduced form, if a revenue agent ordered a retroactive increase of taxable
income in an earlier year. 26 C.F.R. 1.108-7(b) supports that statement, and Ward testified that
“ ‘[cancellation-of-debt] attribute reduction should affect only the future, not the present or past.’ ”
Quoting Henderson & Goldring, Tax Planning for Troubled Corporations, Bankruptcy and
Nonbankruptcy Restructurings, Section 404.2, at 96 (2007).
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franchise-tax law permitted to be used to offset income in a different year.
Accordingly, the definition of “amortizable amount” ties the calculation of that
amount to Ohio NOLs. See R.C. 5751.53(A)(5), (6), (9).
{¶ 35} Dana’s proposed alternative recalculation shows that an adjustment
of the amortizable amount in light of the reduction of Ohio NOLs for franchise-tax
purposes would be drastically different from the federal calculation, not only
because the amount of Ohio NOLs may differ in relation to Ohio-related CODI but
also because Ohio’s franchise tax does not prescribe a “short taxable year” for old
Dana as transferor in conjunction with the bankruptcy reorganization. In opposing
Dana’s alternative calculation, the tax commissioner argues that division (F)
incorporates federal-law provisions that are inconsistent with the franchise-tax law
that Dana relies on for its calculation. But this argument points out the illogic of
reading division (F) to require the adjustment at all. Had the General Assembly
intended such reductions, it would have linked them to adjustments relevant for
Ohio franchise-tax purposes, consistent with the overall purpose of the CAT credit.
{¶ 36} Finally, the disputed phrase in R.C. 5751.53(F) uses the word
“portion,” which means “[a] share or allotted part.” Black’s Law Dictionary 1349
(10th Ed.2014). This word choice more naturally supports Dana’s interpretation,
under which “portion” refers to the percentage of a fixed amortizable amount that
a successor to some but not all of the NOLs might claim. By requiring that the
CAT credit be allowed “in a manner consistent with that used to compute the
portion, if any, of federal net operating losses allowed to the respective entities
under the Internal Revenue Code,” R.C. 5751.53(F) calls for apportioning the
amortizable amount if there is more than one successor; it does not call for reducing
the amortizable amount itself.
{¶ 37} For all these reasons, we conclude that R.C. 5751.53(F) does not
authorize an adjustment of the amortizable amount on account of the occurrence of
a tax-free reorganization. Instead, division (F) first permits the credit to transfer in
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that limited context and then prescribes apportionment of the credit among
successors to the extent that those successors obtain only a part, rather than all, of
the NOLs of the predecessor.
{¶ 38} Our conclusion that the amortizable amount should not have been
reduced on account of CODI obviates the need to address the relative merits of the
various methods of computing the reduction of the amortizable amount that have
been advanced. We therefore turn to that aspect of the tax commissioner’s cross-
appeal that calls for a recalculation of Dana’s valuation allowance.
VI. The Tax Commissioner’s Argument Proposing Adjustment of the
Valuation Allowance Has Been Waived
A. The tax commissioner is aggrieved only to a limited extent
{¶ 39} Earlier in this appeal, we granted in part and denied in part Dana’s
motion to dismiss the tax commissioner’s cross-appeal. We dismissed the cross-
appeal to the extent that the tax commissioner was “advanc[ing] an affirmative
challenge to the decision of the Board of Tax Appeals,” but declined to dismiss it
“to the extent that the cross-appeal is purely protective.” 145 Ohio St. 3d 1441,
2016-Ohio-1596, 48 N.E.3d 581. Our disposition of the motion rested on the settled
doctrine that the tax commissioner is not aggrieved by a BTA decision to the extent
that the decision affirms his final determination. Newman v. Levin, 116 Ohio St. 3d
1205, 2007-Ohio-5507, 876 N.E.2d 960, ¶ 3; Equity Dublin Assocs. v. Testa, 142
Ohio St. 3d 152, 2014-Ohio-5243, 28 N.E.3d 1206, ¶ 23.
{¶ 40} As a result of that doctrine, the tax commissioner lacks standing to
seek relief that reduces the amortizable amount below the amount determined in his
final determination: $4,728,051. However, his protective cross-appeal would
permit him to advance his valuation-allowance claim to restore the reduction of
Dana’s amortizable amount to $4,728,051 were that proposal not barred by the
doctrine of tax-commissioner waiver.
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B. The tax commissioner waived his argument proposing a valuation-allowance
adjustment to the amortizable amount
{¶ 41} Dana argues that the tax commissioner “had a full five years to audit
Dana’s Amortizable Amount Report, obviously had full access to Dana’s publicly
available Form 10-Ks, * * *, actually reviewed the valuation allowance recorded
on Dana’s audited financial statements for 2004, and issued a final determination
and never raised any question regarding the accuracy of the valuation allowance
recorded for that period until the hearing before the BTA.” As a result, Dana
asserts, the subject of the valuation allowance “is not relevant to the issues before
the BTA.”
{¶ 42} We agree with Dana on this point. We have stated that “[o]nce the
tax commissioner’s final determination omitted to address [an] issue as a ground
for denying [an] exemption, that official incurred the burden to timely notify [the
taxpayer] that it must prove the existence of a previously unaddressed element of
the exemption claim.” The Chapel v. Testa, 129 Ohio St. 3d 21, 2011-Ohio-545,
950 N.E.2d 142, ¶ 27; Kinnear Rd. Redevelopment, L.L.C. v. Testa, 151 Ohio St. 3d
540, 2017-Ohio-8816, 90 N.E.3d 926, ¶ 30, 34; compare Krehnbrink v. Testa, 148
Ohio St. 3d 129, 2016-Ohio-3391, 69 N.E.3d 656, ¶ 26-30 (tax commissioner was
not barred from making belated assertion that taxpayers were taxable as Ohio
residents, because taxpayers neither contested the assertion nor argued that it had
been waived). Under The Chapel, the tax commissioner had the minimal duty to
put Dana on notice in a timely manner that he intended to make an issue of the
valuation allowance. Id. at ¶ 27. This he manifestly failed to do; by his own
account, the tax commissioner first formally raised the valuation-allowance issue
in his “pre-[BTA-]hearing witness notification.” According to the BTA’s online
docket, that document was filed a mere two weeks before the hearing began and
more than two and a half years after the appeal was taken. And unlike the situation
in Krehnbrink, the taxpayer in this case objected to the tax commissioner’s attempt
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to insert the issue belatedly into the case; those objections were largely if not
completely sustained by the BTA.4 Accordingly, we reject the tax commissioner’s
argument on cross-appeal because it is barred by waiver.
VII. Conclusion
{¶ 43} For the foregoing reasons, we reverse the decision of the BTA and
order modification of the amortizable amount to $10,935,324.
Judgment accordingly.
O’CONNOR, C.J., and O’DONNELL, and FRENCH, JJ., concur.
KENNEDY and DEWINE, JJ., concur in judgment only.
FISCHER and DEGENARO, JJ., not participating.
_________________
Zaino, Hall & Farrin, L.L.C., Richard C. Farrin, Debora D. McGraw, and
Thomas M. Zaino, for appellant and cross-appellee.
Michael DeWine, Attorney General, Barton A. Hubbard, Assistant Attorney
General, for appellee and cross-appellant.
_________________
4
Because we find that a waiver has occurred under The Chapel, we need not address Dana’s
additional argument that Key Servs. Corp. v. Zaino, 95 Ohio St. 3d 11, 764 N.E.2d 1015 (2002), on
which the tax commissioner relies in this context, does not apply here, because of the special nature
of the procedure for determining the amortizable amount. We also need not address the issues
regarding the allegedly proffered testimony of the tax commissioner’s expert Ray Stephens.
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