Could a parent company stop filing Florida consolidated returns after its affiliated group expanded into new markets, services, and products?

Subject

Consolidated Filing Election

Plain-English summary

The parent company received permission to discontinue Florida consolidated filing. Since its election, the affiliated group had gained substantial market share, expanded to 48 states and foreign countries, entered new service and product lines, acquired or formed additional businesses, and joined a new venture.

The group did not show that tax-law changes made consolidation substantially adverse. Instead, the magnitude of its business and organizational changes affected the prudence of continuing. Permission applied from the specified year, required no deferred items benefiting members, depended on the represented separate-versus-consolidated taxable-income difference, and barred reconsolidation until the stated future year.

What this means for you

Major business expansion could support revoking a consolidated election even without a change in tax law, but the Department imposed safeguards around timing, deferred items, and later filing choices.

Common questions

Q: Was deconsolidation approved? Yes.

Q: Did the group rely on an adverse tax-law change? No.

Q: Could it immediately return to consolidated filing? No.

Citations and references

• Fla. Stat. § 220.131 — consolidated return election
• 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 01C1-008

Original ruling text

SUMMARY

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

ANSWER - Based on Facts Below: Yes. The parent company was
granted permission to cease filing Florida consolidated
corporate income tax returns based on provisions of the
F.A.C. which addresses changes in business activities.

Sep 11, 2001

Re: Technical Assistance Advisement 01C1-008
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 company of a
group of affiliated corporations that provide XXX services.

"A" was formed in XX to provide XXX services to XXX and other
XXX facilities. Following several mergers, "A" gained a large
share of the market, and now enjoys a market share in excess of
50 percent within the United States, with XXX providing its XXX
services. "A" also distributes XXX.

During the XX's "A" acquired assets which allow it to
manufacture and maintain a ready supply of XXX. "A" has also
expanded into the areas of governmental record keeping required
by state and federal governments, and technical consulting
services in relation to XXX services, as well as distribution of
other XXX products, and presently services XXX and XXX in 48
states within the United States. In XX, "A" further expanded
its activities into XXX through a joint venture with an LLC. In
XX, "A" acquired XXX companies that provided XXX services, and
continued the expansion into this area by acquiring or forming
additional businesses which provided this type of service. The
subsidiary which operates the XXX presently has XXX facilities
located predominately in XXX.

In XX, "A" further expanded its business operations into the
manufacture and distribution of XXX and XXX. "A" also has
operations in a number of foreign countries.

"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 XX, and
additional information presented in your 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 beginning 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. 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
the 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 XX, and
later years:

1. That permission to file Florida corporate income tax
   returns on a separate basis is effective for tax years
   beginning 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. 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 taxable income, on a separate and
   consolidated pro forma basis, for the tax year beginning
   XX, is approximately $XX, and

4. That the affiliated group not become part of a
   consolidated Florida corporate income tax return prior to
   the tax year beginning 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 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.: 45697