Could an affiliated group stop filing Florida consolidated corporate income-tax returns after major business expansion?

Plain-English summary

Florida allowed the affiliated group to stop filing consolidated corporate income-tax returns because its acquisitions, size, and market had changed substantially since the original election. The parent sold office supplies and equipment and had expanded through additional subsidiaries into the United States, Canada, and Europe.

The Department found no substantial adverse tax effect from continued consolidation, no material distortion of Florida income, and no relevant tax-law change. Even so, the magnitude of the group's business and organizational changes affected the prudence of continuing the election and supported permission under the administrative rule.

Approval carried four conditions: a specified effective year, no realized but unrecognized intercompany income or expense items that could later benefit a member, the represented pro forma tax difference, and a prohibition on returning to a Florida consolidated group before a specified later year. The source redacts the dates and amounts.

What this means for you

A Florida consolidated filing election continued until the Department consented to separate returns. Major changes in the affiliated group's size and business could support consent even without an adverse tax-law change.

Common questions

Q: Could the parent simply revoke the election? No. Department permission was required.

Q: Did the group show consolidated filing increased its tax? No substantial adverse effect was shown in this case.

Q: Why was permission granted anyway? The group's acquisitions, scale, and geographic market had changed substantially.

Q: Was approval unconditional? No. Four conditions applied.

Citations and references

• Fla. Stat. § 220.131(1) and (3) — consolidated election and continued-filing requirement
• Fla. Admin. Code r. 12C-1.0131(3) — permission to discontinue consolidated filing
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00C1-003

Original ruling text

SUMMARY
QUESTION: May a parent company be granted permission to
cease filing Florida consolidated tax returns based on

changes in its organizational structure?

ANSWERS - Based on Facts Below: In this case, the parent

company was granted permission to cease filing Florida
consolidated tax returns based on the provisions of the
Florida Administrative Code, which address changes in

business activities.

Jan 31, 2000

Re: Technical Assistance Advisement 00(C)1-003
Corporate Income Tax - Consolidated Filing Election
s. 220.131, F.S.

XXX, hereinafter referred to as "A"

Dear:

Your letter of XX, requested a Technical Assistance Advisement
granting the taxpayer referenced above permission to cease
filing its Florida corporate income tax returns on a

consolidated basis. This response to your request constitutes a
Technical Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you under the authority of

s. 213.22, Florida Statutes.

FACTS

Your letter of XX, states that "A" is the parent corporation of
an affiliated group of corporations that sells office supplies

and equipment.

In XX, "A" opened its first store in Florida. In XX, "A"
acquired its first subsidiary, and elected to file its Florida

corporate income tax returns on a consolidated basis.

Subsequently, "A" has acquired XXX additional subsidiaries and
expanded its market throughout the United States, Canada, and

Europe.

Through its acquisitions of stores, a warehouse management and
order entry system, and use of the Internet, "A's" worldwide

sales increased XX% from XX to XX, and XX% from XX to XX.

"A" stipulates that there are no intercompany transactions, or
deferred income or expense items that may be recognized at a
later date, which would normally be included on a consolidated

return but would not be included on separately filed returns.

On the basis of the facts presented in the letter dated XX,
additional information presented in your letter dated XX, and
the letter faxed on XX, permission is requested for "A" and its
subsidiaries to cease filing Florida corporate income tax
returns on a consolidated basis, beginning with the tax year

ending XX.

LAW

Section 220.131(1), F.S., states:

Notwithstanding any prior election made with respect to
consolidated returns, and subject to subsection (5), for
taxable years beginning on or after September 1, 1984, any
corporation subject to tax under this code which
corporation is the parent company of an affiliated group of
corporations may elect, not later than the due date for

filing its return for the taxable year, including any
extensions thereof, to consolidate its taxable income with
that of all other members of the group, regardless of
whether such member is subject to tax under this code, and
to return such consolidated taxable income hereunder, in
which case all such other members must consent thereto in
such manner as the department may by rule prescribe,

provided:

(a) Each member of the group consents to such filing by

specific written authorization at the time the consolidated

return is filed;

(b) The affiliated group so filing under this code has
filed a consolidated return for federal income tax purposes

for the same taxable year; and

(c) The affiliated group so filing under this code is
composed of the identical component members as those which
have consolidated their taxable incomes in such federal

return.

Section 220.131(3), F.S., states:

The filing of a consolidated return for any taxable year
shall require the filing of consolidated returns for all
subsequent taxable years so long as the filing taxpayers

remain members of the affiliated group or, in the case of a

group having component members not subject to tax under
this code, so long as a consolidated return is filed by

such group for federal income tax purposes, unless the

director consents to the filing of separate returns.

(emphasis added)

Rule 12C-1.0131(3), F.A.C., states in pertinent part:

(a)1. A group which filed, or was required to file, a
consolidated return for the immediately preceding taxable
year is required to file a consolidated return for the
taxable year unless it has permission to discontinue filing
consolidated returns under paragraph (b) or (c) of this
subsection; or as long as a federal consolidated return is
filed.

2. The requirement set forth in s. 220.131(1), F.S., that
   the parent company of an affiliated group must be subject
   to the Florida Income Tax Code is a condition that is
   necessary for an affiliated group to make an election to
   file a Florida consolidated return. There is no
   requirement in s. 220.131, F.S., that the parent be subject
   to the Florida Income Tax Code in each subsequent year.

Therefore, the affiliated group may not break its

consolidated election because the parent company no longer

has nexus with Florida.

(b)1. Notwithstanding that a consolidated return is

required for a taxable year, the Executive Director or the
Executive Director's designee is authorized to grant
permission to a group to discontinue filing consolidated
returns. Any such application shall be made to the Office

of General Counsel, Technical Assistance and Dispute
Resolution, P.O. Box 7443, Tallahassee, Florida 32314-7443,
and shall be made not later than the 90th day before the

due date for the filing of the consolidated return,

including extensions of time. Permission to revoke will be
contingent upon an agreement between the taxpayer and the
Executive Director or the Executive Director's designee to
the terms, conditions, and adjustment under which the

change will be effected.

2. The Executive Director or the Executive Director's
   designee is authorized to grant permission to a group to
   discontinue filing consolidated returns if the net result

of all amendments to the Florida Income Tax Code or the
Internal Revenue Code or regulations with effective dates
commencing within the taxable year has a substantial
adverse effect on the consolidated tax liability of the
group for such year relative to what the aggregate tax
liability would be if the members of the group filed
separate returns for such year. Other factors which will be
taken into account in determining whether good cause exists
for granting permission to discontinue filing consolidated

returns beginning with the taxable year include:

a. Changes in law or circumstances, including changes which

do not affect income tax liability;

b. Changes in law which are first effective in the taxable
year and which result in a substantial reduction in the
consolidated net operating loss for such year relative to
what the aggregate net operating losses would be if the
members of the group filed separate returns for such year;

and

c. Changes in the Florida Income Tax Code or the Internal
Revenue Code or regulations which are effective prior to
the taxable year but which first have a substantial adverse
effect on the filing of a consolidated return relative to

the filing of separate returns by members of the group in

such year.

3. Permission to revoke may be contingent upon an agreement
   between the taxpayer and the Executive Director or the
   Executive Director's designee to the terms, conditions, and

adjustment under which the change will be effected.

DISCUSSION AND ANALYSIS OF LAW

The information provided does not show that continuing to file
consolidated Florida corporate income tax returns would have a
substantial adverse effect on the consolidated group. Moreover,
the continued filing of consolidated returns would not produce a
material distortion of income apportioned to Florida. Further,

the Department is unaware of any changes in the Florida Income
Tax Code or the Internal Revenue Code that would negatively

affect the consolidated group.

However, the information provided by "A" does show that
substantial changes have occurred in the affiliated group from
XXX, when it first elected to file on a consolidated basis, and

XXX, both in terms of the size of the affiliated group and the

size of its market. As a result, the affiliated group has

undergone changes, the magnitude of which affect the prudence of
continuing to file on a consolidated basis for Florida corporate

income tax purposes.

Therefore, based on the following four conditions, the
Department grants permission to discontinue filing consolidated
corporate income tax returns for the tax year ended XXX, and

later years:

1. That permission to file Florida corporate income tax
   returns on a separate basis is effective for tax years

ending on XXX, and later, and

2. That "A" has no realized but unrecognized income or
   expense items that may be recognized at a later date which

would benefit any member of "A's" affiliated group, and

3. That the difference in tax liability, on a separate and
   consolidated pro forma basis, for the tax year ended XXX,

is approximately XXX, and

4. That the affiliated group not become part of a
   consolidated Florida corporate income tax return prior to

the tax year ending XXX.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
based on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than

expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department

within 15 days of the date of this letter.

Sincerely,

Suzanne C. Paul

Technical Assistance and

Dispute Resolution

SCP/
Control No.: 39802