Could a Florida parent revoke its consolidated-return election after changing its core business and expanding into out-of-state operations?

Subject

Consolidated Filing Election

Plain-English summary

The Department allowed the group to stop filing Florida consolidated returns after its core business and geographic focus substantially changed. It had disposed of legacy segments, entered new lines, reorganized its affiliates, and increased activities outside Florida.

Separate filing was expected to produce the same or more Florida tax, so the request was not viewed as tax avoidance. Approval remained subject to a redacted effective year, absence or later full recognition of beneficial deferred items, the stated separate-versus-consolidated tax difference, and a redacted period before reconsolidation.

What this means for you

A genuine shift in an affiliated group's core business and operating footprint could establish good cause to revoke a consolidated election, but Florida could attach detailed tax and reentry conditions.

Common questions

Q: Was deconsolidation approved? Yes.

Q: Did separate filing reduce Florida tax? No; it was expected to produce the same or more tax.

Q: Was the approval conditional? Yes.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01C1-001

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing consolidated tax returns based on changes in
its core business activities business focus?

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.

Feb 07, 2001

Re: Technical Assistance Advisement 01C1-001
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S., Consolidated Filing Election
XXX (hereinafter referred to as "the Taxpayer")

Dear :

Your letter of XXX, requests permission for the Taxpayer to
discontinue filing consolidated returns for Florida corporate
income tax purposes. This response to your request constitutes
a Technical Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you under authority of s.
213.22, Florida Statutes.

FACTS SUPPLIED BY TAXPAYER

The Taxpayer is a Florida corporation that, together with its
consolidated group, currently reports its income on a
consolidated basis for Florida corporate income tax purposes.
The Taxpayer initially made its election to file consolidated
returns many years ago. From XX through the XX, the Taxpayer
expanded into several lines of business XXX. Through such
acquisitions, the Taxpayer became an XXX engaged in the XXX and
XXX. During this time period, the Taxpayer's assets and
operations were concentrated in the state of Florida.

In the XXX, the Taxpayer began to focus on its XXX holdings and
to become a XXX. In XXX, the Taxpayer sold part of its XXX
business. In XXX, the Taxpayer sold its XXX and XXX. In XXX,
the Taxpayer hired a new XXX and other senior members with
backgrounds in XXX and XXX. The Taxpayer classified its XXX
segments as non-strategic and has disposed of those segments as
it has been able to extract the embedded value from those
assets.

From XXX to the present, the Taxpayer has made numerous
purchases or investments in entities relating to XXX operations,
including XXX, and XXX. Many of these entities operate outside
Florida. The Taxpayer Group has no realized but unrecognized
income or expense items that may be recognized at a later date
which would benefit any member of the Taxpayer Group which has
been included within the filed consolidated Florida corporate
income tax returns. If the Taxpayer Group files on a separate
return basis, rather than a consolidated basis, it is expected
to pay approximately XXX more in Florida corporate income taxes
for the XXX tax year. For tax year XXX separate entities are
projected to have nexus with Florida and to file separate
Florida income tax returns.

LEGAL AUTHORITY

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

(1) 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 the 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:

(3) 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.

Rule 12C-1.0131 (3)(b), F.A.C., states:

(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 had a substantial
   adverse effect on the consolidated tax liability of a 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.

ISSUE PRESENTED

Has sufficient reasonable cause been established for the

Executive Director to grant the Taxpayer permission to stop
filing consolidated Florida corporate income tax returns?

DISCUSSION AND ANALYSIS

The first issue is whether Taxpayer has shown the existence of a
substantial adverse effect by reason of filing consolidated
returns. There are two bases in the Florida Administrative Code
for allowing a taxpayer to revoke its consolidated reporting
election. Rule 12C-1.0131(3)(b)2., F.A.C., provides that
permission to deconsolidate may be granted if the net result of
all amendments to the Florida Income Tax Code or the Internal
Revenue Code or regulations had a substantial adverse effect on
the consolidated tax liability of a 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. The Taxpayer
Group would pay more Florida corporate income tax on a separate
return basis, as compared to a consolidated return. The
Taxpayer has not cited any tax law changes as the basis for its
request, and further discussion of the main portion of Rule 12C1.0131(3)(b)2., F.A.C., is unnecessary.

Instead, the Taxpayer has relied upon Rule 12C-1.031(3)(b)2.a.,
F.A.C., which permits the Executive Director to consider changes
in law or circumstances, including changes which do not affect
income tax liability. There is no evidence of a change in law,
either federal or state, which has greatly affected the
Taxpayer's business activities or the business environment in
which it operates. Rather, the Taxpayer contends that the
business of the affiliated group has changed significantly since
it began filing consolidated Florida income tax returns.
According to the Taxpayer, it has evolved from an XXX to a XXX
with significant activities both within and without Florida.
When the Taxpayer elected consolidated filing, it was engaged in
XXX and XXX. As of XXX, the Taxpayer had terminated its XXX and
XXX activities, along with some of its XXX and XXX activities,
and had concentrated all of its business activities in XXX.

Since electing consolidated reporting, the Taxpayer has
substantially reorganized its affiliated group. The Taxpayer's
core business has effectively changed, and it has moved into new

lines of business. The Taxpayer Group will pay the same or more
tax by filing separate returns. This is not a situation where
Taxpayer has received the benefits of consolidated reporting,
and wishes to change its reporting methods for tax avoidance
reasons. Therefore, based on the following four conditions, the
Department grants permission to discontinue filing consolidated
corporate income tax returns for tax years XXX and thereafter:

1. that the deconsolidation is effective for the tax year
   ending on XXX;

2. that the Taxpayer has no realized but unrecognized
   income or expense items that may be recognized at a later
   date which would benefit a member of the affiliated group;

3. that the difference in tax liability for the tax year
   ended XXX, between the separate tax returns filed and a pro
   forma consolidated return for the same period is greater
   than the amount of tax on the pro forma consolidated
   return; and

4. that the Taxpayer does not become part of a consolidated
   Florida corporate income tax return prior to the tax year
   ending XXX.

CONCLUSION

The Taxpayer has met the requirements for granting permission to
discontinue the Florida corporate income tax consolidated filing
election. Accordingly, the Taxpayer's request for permission to
file separate income tax returns for the tax year ended XXX, is
granted.

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 specific situation summarized above.
You are advised that subsequent statutory or administrative rule
changes or judicial interpretations of the statutes or rules
upon this advice is based may subject 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,

Robert DuCasse
Technical Assistance and Dispute
Resolution

RCD/rd
Control No. 43498