Comcast's $5.8M Franchise Tax Cut Upheld By Miss. High Court

Comcast won a $5.8 million reduction of its Mississippi franchise tax liability Thursday, as the state Supreme Court ruled the company could use an alternative apportionment formula that excluded capital from subsidiaries that didn't engage in any in-state activities.

In a unanimous ruling, the justices affirmed a Hinds County Chancery Court's finding that the state Department of Revenue's assessment against Comcast misrepresented the company's Mississippi tax base for tax years 2008 through 2010. The decision affirms the lower court's summary judgment in favor of one of the nation's largest cable television providers that slashed its tax liability from nearly $7 million to about $1.2 million for those years.

"The court agrees with the [state Board of Tax Appeals] and the chancellor that Comcast has shown that the [department's] tax assessment produced a distortive or an unreasonable result and did not fairly represent the true value of Comcast's capital employed in Mississippi," Justice Kenny Griffis wrote for the court.

In siding with Comcast last June, the chancery court permitted Comcast to exclude from its capital base certain non-unitary subsidiaries in which it held passive investments, then allowed Comcast to divide its capital base in two and apply an alternative apportionment method.

The department argued on appeal that Comcast didn't meet certain statutory criteria to exclude entities from its tax base. However, the justices said the tax agency had ignored another statutory provision that allows companies to present facts that better represent the value of the capital than the state's standard methods.

Comcast's subsidiaries that it excluded from its tax base had no connection to the company's business in Mississippi, and therefore it would be erroneous to include investments in them in the company's franchise tax base, the justices said.

The justice also sided with Comcast in holding that the department's assessment didn't properly apportion the company's capital to Mississippi because the tax agency's assessment failed to account for the apportionment factors of the Comcast's unitary subsidiaries. The department's apportionment method sought to tax about 340% more out-of-state value than the alternative apportionment method that Comcast offered, according to the opinion.

"Such a mismatch does not reflect a rational relationship between the values being taxed and the activities giving rise to the values," the court said. "As a result, the [department's] assessment resulted in a distortion in favor of the state by overattributing income to the state."

The justices declined to address Comcast's arguments that the department's assessment violated the U.S. Constitution's due process and interstate commerce clauses, saying there was no need to weigh on that issue because the department's tax assessment was incorrect.

According to the opinion, the department issued its assessment against Comcast in 2014 after disallowing the exclusion of capital and increasing Comcast's Mississippi apportionment ratios. The department's Board of Review upheld the assessment, which comprised nearly $7 million in taxes, penalties and interest, according to court documents.

Comcast then appealed to the state Board of Tax Appeals. The board and the chancery court both ruled in favor of Comcast, and the state Supreme Court agreed in February to take up the department's appeal. In Mississippi, tax disputes are typically appealed straight from the chancery court to the state Supreme Court, although the justices have the discretion to delegate cases to the appeals court.

Counsel for Comcast declined to comment.

Department spokesman Jacob Manley did not respond to questions about the ruling.

The Mississippi Department of Revenue is represented by its senior attorneys John Stringer and Bridgette Thomas.

Comcast is represented by Maria Todorova, Jeff Friedman, Dan Schlueter and Alla Raykin of Eversheds Sutherland and by Sheldon Alston and Louis Fuller of Brunini Grantham Grower & Hewes PLLC.

The case is Mississippi Department of Revenue v. Comcast of Georgia/Virginia Inc., case number 2019-CA-01134, in the Mississippi Supreme Court.

--Additional reporting by Maria Koklanaris. Editing by Joyce Laskowski. 

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