STATES cannot make it hard for companies to file consolidated tax returns, the Missouri Supreme Court reaffirmed in late February.
Missouri used to require that a group of affiliated companies must earn at least 50% of its income in Missouri before the group will be allowed to file a consolidated — or single — income tax return for the entire group. The advantage of a consolidated return is that it lets losses in one company be used to shelter income in an affiliated company. The Missouri Supreme Court struck down the requirement in 1998, in a case involving General Motors, on grounds that it violates a prohibition in the US Constitution against states adopting rules that impede interstate commerce.
After the General Motors decision, the clothing company Spiegel applied for a tax refund of back taxes that it paid on grounds that it should have been allowed to file a consolidated tax return for itself and such affiliates as Eddie Bauer. The state tax department refused the refund on the procedural ground that Spiegel should have refused to pay the taxes in the first place and challenged the tax statute as General Motors had done.
The state Supreme Court ordered the tax department to make the refunds, saying that the state had a duty to provide taxpayers with a “fair and meaningful” means of redress.