General Electric Company & Subsidiaries

18-12

On September 11, 2014, the Department assessed the Taxpayer for corporate income tax, penalty, and interest for the reporting periods from December 31, 2008 through December 31, 2010. On October 21, 2014, the Taxpayer filed a timely protest with the Department. On April 29, 2016, the Department assessed the Taxpayer for corporate income tax, penalty, and interest for the reporting periods from December 31, 2011 through December 31, 2103. On July 25, 2016, the Taxpayer filed a timely protest with the Department. On September 5, 2017, the parties jointly moved to consolidate the second protest with the original protest. The parties stated that the cases involved the same legal issue. The request was granted on September 18, 2017. During the time in question, the Taxpayer was a diversified technology and financial services company with operations and subsidiaries around the world. Of those subsidiaries 419 were foreign subsidiaries with received dividends and most were more than fifty percent owned by the Taxpayer or one of the United States subsidiaries owned by the Taxpayer. During the periods in questions, the Taxpayer elected to be a consolidated group for corporate filings. Both of the assessments in protest are the result of audits by the Department. During the audits, the Department recalculated the Taxpayer’s corporate income tax base, including dividends received from the Taxpayer’s foreign subsidiaries. The Department’s auditors asked that the Taxpayer prepare and submit the “Controlled Foreign Corporate Detroit Formula Factor Representation” worksheet for each year of the audit. The Department did allow some deductions based on the Detroit Formula factor relief. The main issue in the protest is whether the Department’s corporate income tax assessment discriminated against foreign commerce under the United States Constitution’s Commerce Clause by taxing the Taxpayer’s dividends and Subpart F income received by foreign affiliates while treating domestic dividends more favorably by excluding them from the base income of the consolidated group. The Taxpayer argues that penalty should be abated as its tax filings for the periods in question were done on good-faith and in mistake of the law. Lastly, the Taxpayer asks to be awarded the costs and fees if it is successful in the protest. The Hearing Officer determined that the Department methods used during the audit to determine base income for the consolidated group does not violate the Foreign Commerce Clause. The Taxpayer was able to establish that it made a mistake of law, in good faith and on reasonable grounds. The Hearing Officer determined that the penalty should be abated. However, the Taxpayer is liable for the tax and interest due. Interest due continues to accrue until the tax principal is paid in full. As the Taxpayer was not the prevailing party, the Taxpayer is not entitled to costs and fees. For the foregoing reasons, the Taxpayer’s protest is partially granted and partially denied.