Mississippi Supreme Court Holds Combined Group Could Use Affiliates’ Tax Credits To Offset Income

The Mississippi Supreme Court recently has held that a combined group could offset its corporate income tax liability with gaming license fee tax credits earned by some of its affiliates.1 Under the tax credit statute, each affiliate that earned the credit could use it to offset its income tax liability. Because each affiliate was jointly and severally liable for the tax liability of the entire group, each affiliate's tax liability was the same as the group's tax liability. Therefore, the credits earned by the affiliates could be used by the combined group. The Court also held that the taxpayer satisfied the statutory surety bond requirements.

Background

The taxpayer, which owned and operated a group of Mississippi casinos, elected to compute its Mississippi corporate income tax on a combined basis with its affiliated entities.2 Four entities in the affiliated group held Mississippi gaming licenses and paid license fees based on their monthly gross revenue from gaming operations. The taxpayer used the license fees as a credit to offset its combined corporate income tax liability for the 2007 tax year. Applying the credits in the same manner, the taxpayer filed amended returns for the 2004 through 2006 tax years. After auditing the taxpayer's returns for the 2004 through 2007 tax years, the Mississippi Department of Revenue assessed over $4 million in taxes, penalties and interest. The assessment was based on the Department's determination that only the tax liability of the four entities that actually held the licenses was eligible for offset. According to the Department, the credit belonged exclusively to the entities that paid the license fee and could not be used to benefit the combined group as a whole.

The Mississippi Board of Review and Mississippi Board of Tax Appeals both affirmed the Department's assessment with minor changes. The taxpayer appealed to a county chancery court and filed a surety bond for half the assessment as required by statute. The chancery court granted summary judgment for the taxpayer and overturned the Department's assessment. The Department appealed the chancery court's decision.

Combined Group Could Use Credits

The Mississippi Supreme Court affirmed the chancery court and held that the taxpayer could use its affiliates' credits to offset the income tax liability of the entire combined group. In reaching its decision, the Court rejected the Department's argument that the tax liability of the group must be...