Could an expanded affiliated group stop filing Florida consolidated corporate returns?

Subject

Consolidated Filing Election

Plain-English summary

Florida granted the affiliated group permission to stop filing consolidated corporate income-tax returns and begin filing separately. Although the Department did not find a substantial adverse tax effect or material distortion, the group had changed substantially in size and business mix through mergers and acquisitions, making continued consolidated filing imprudent on the stated facts.

Approval was expressly conditional. The ruling required the specified effective years, no realized-but-unrecognized items that could later benefit a group member, accuracy of the stated pro forma tax comparison and material-entity assumptions, and no return to a Florida consolidated group before the stated year. Because the request may not have met the 90-day rule, the first separate return also depended on a timely extension; otherwise the group had to file one more consolidated return.

What this means for you

A Florida consolidated election generally continued until the Department consented to separate returns. Significant organizational change could support consent, but the permission could carry detailed transition and timing conditions.

Common questions

Q: Did Florida allow the group to deconsolidate? Yes, conditionally.

Q: Was tax harm the reason? No. The ruling relied on substantial changes in the group's size and market segments.

Q: Did the filing deadline matter? Yes. The ruling required a timely extension for the first separate-return year if the request missed the 90-day deadline.

Citations and references

• Fla. Stat. § 220.131 — Florida consolidated returns
• 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 00C1-013

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing Florida consolidated tax returns based on
changes in their organizational structure?

ANSWER - BASED ON FACTS BELOW: The parent company was
granted permission to cease filing Florida consolidated tax
returns based on the provisions of the F.A.C., which
addresses changes in business activities.

Nov 21, 2000

Re: Technical Assistance Advisement 00C1-013
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 provides a variety of
XXX services.

"A" elected consolidated filing for Florida corporate income tax
with its return for the tax year ended XX. At that time, "A"
provided XXX services. Since XXX, "A" has acquired in excess of
XXX entities, some of which have been merged into other

entities, and presently owns XXX subsidiaries. These entities
provide XXX, and XXX. As a result of these mergers and
acquisitions, "A's" revenues have nearly XX since its Florida
consolidated filing election was made.

"A" states that through XXX its Florida operations were
conducted principally through one subsidiary, and its
consolidated apportionment factor did not exceed XXX percent.
However, with the acquisition of one company in XXX, and a group
of affiliated corporations in XXX, all of which were domiciled
in XXX, "A's" Florida apportionment factor increased. For the
tax year ended XX of "A's" XXX affiliated entities had material
operations in Florida, and "A's" apportionment factor on a
consolidated basis was computed as XX percent.

"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,
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 ended 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 supplied)

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. (e.s.)

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
between 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 variety of market segments it services. 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 XX, and

later years:

1. That permission to file Florida corporate income tax
   returns on a separate basis is effective for tax years
   ending on XX, 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 XX, is
   approximately XXX, for the XXX entities the taxpayer
   asserts are material. Should the other XXX entities prove
   to be material, the response given in this Technical
   Assistance Advisement is invalid; and

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

Rule 12C-1.0131(3)(b)1., F.A.C., requires that deconsolidation
requests be submitted at least 90 days prior to the due date of
the return the taxpayer wishes to file on a separate basis. The
taxpayer's deconsolidation request is dated XX, and the due date
of the XXX, return is XX. In the absence of a valid extension
for the XXX, return, of which the Department shows no record, it
does not appear that this requirement has been met with regard
to the taxpayer's XXX, return. Therefore, permission to file
the taxpayer's XXX, corporate income tax return on a separate
basis is further contingent upon its filing an extension with
the Department no later than XX. If a valid extension for the
XXX, return is not filed, the taxpayer should file its XXX,
return on a consolidated basis, and begin filing on a separate
basis for the year ended XX.

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.: 42847