Could a growing affiliated group revoke its Florida consolidated-return election after major changes in market size and operations?

Subject

Consolidated Filing Election

Plain-English summary

The Department permitted the affiliated group to stop filing Florida consolidated returns. No tax-law change or substantial adverse tax effect was shown, but the group had undergone major growth in its market, operations, subsidiaries, employees, and activity outside Florida, reducing the prudence of continued consolidation.

Permission was conditional. Separate filing began in the redacted approved year; any later-recognized deferred items had to be fully reported by the appropriate entities; the ruling fixed a redacted pro forma tax difference; and the group could not reconsolidate before a redacted later year.

What this means for you

Substantial business and operational change could support deconsolidation even without a tax-law change, but Florida could impose recognition, tax-difference, effective-date, and reentry conditions.

Common questions

Q: Was deconsolidation approved? Yes.

Q: Was a tax-law change required here? No.

Q: Was approval unconditional? No.

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 01C1-003

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?

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.

Mar 01, 2001

Re: Technical Assistance Advisement 01C1-003
Corporate Income Tax - Consolidated Filing Election
s. 220.131, F.S.
XXX, hereinafter referred to as "A"

Dear :

Your letter of XXX, 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 XXX, states that "A" is the parent holding
company of a group of affiliated corporations that operate XXX.

"A" and its subsidiaries file a consolidated federal income tax
return and consolidated Florida corporate income tax return.
"A's" only assets are XXX. "A" has no employees, and conducts
no business operations. Its books and records are maintained by
a subsidiary located in XXX. "A's" subsidiaries' activities

include XXX, and XXX throughout the United States and a number
of foreign countries.

"A" was formed in XXX to acquire XXX. From XXX through XXX,
"A's" subsidiaries grew to a net total of XXX. As of the year
XXX, "A" was operating XXX, and had over XXX.

During the period from XXX to XXX, each XXX came to require
separate XXX, and XXX management. During the same period,
employment increased from XXX to over XXX employees, and
increased operations outside of Florida resulted in "A's"
Florida apportionment factor decreasing from XXX to XXX.

"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 your letter dated XXX,
and additional information presented in your letter dated XXX,
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 beginning XXX.

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. 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 to XXX, in terms of the size of "A's" market and the extent
of its operations. 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 beginning XXX, and
later years:

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

beginning 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. If "A"
   should be required to recognize any such items at a later
   date, they should be reported in full on the separate
   Florida corporate income tax returns of the appropriate
   entities, and

3. That the difference in tax, on a separate and
   consolidated pro forma basis, for the tax year beginning
   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 beginning 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 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.: 43511