Did acquiring and later spinning off companies justify ending a Florida consolidated return election when the group's core business remained the same?

Plain-English summary

Florida denied the parent's request to stop filing consolidated returns because acquisitions and later spinoffs did not significantly change the nature of its business. The group continued its core business and was substantially in the same form as when it elected consolidated Florida reporting.

The Department described mergers, acquisitions, sales, consolidations, liquidations, dissolutions, and dispositions as common corporate reorganizations that often change only organizational form. The taxpayer's structural changes therefore did not establish the required change in circumstances.

What this means for you

A corporate group should distinguish a true change in business nature from ordinary restructuring. This ruling treated buying and later spinning off businesses as insufficient when the parent continued essentially the same activity.

Common questions

Q: Did the spinoff create a new operating environment?
A: The taxpayer argued that it did, but Florida found the core business unchanged.

Q: Could the group simply switch filing methods?
A: No. The consolidated election remained binding without Department permission.

Q: Did federal filing change?
A: No. The group planned to continue consolidated federal returns.

Citations and references

• Fla. Stat. § 220.131 — Florida 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 03C1-005

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing Florida consolidated tax returns without
showing changes in law or the organizational structure of
the consolidated group?

ANSWER - Based on Facts Below: No. The parent company was
not granted permission to cease filing Florida consolidated
tax returns. Changes in the organizational structure of
the consolidated group, such as mergers, acquisitions,
liquidations, dissolutions, and sales of subsidiaries,
divisions, or assets, were not a sufficient basis for
deconsolidation when the nature of the business remains the
same.

Sep 23, 2003

Re: Technical Assistance Advisement 03C1-005
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S., Consolidated Filing Election
XXX (hereinafter referred to as "Taxpayer")
XXX (hereinafter referred to as "Corporation A")

Dear :

This letter is in response to your request for permission to
discontinue filing a consolidated Florida income tax return for
the tax year ending XX. This response 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.

STATEMENT OF FACTS

The Taxpayer and its subsidiaries, including Corporation A,
first elected consolidated Florida corporate income tax

reporting for the tax year ending XX. The Taxpayer is in the
business of providing XXX of goods and materials. The
activities of Corporation A represented the vast majority of the
affiliated group's revenue. In the early XX's, the Taxpayer
acquired XX companies. In XX, the Taxpayer spun off these XX
companies. During the XX tax year, Corporation A accounted for
approximately XX of the affiliated group's revenue.

TAXPAYER'S ARGUMENT

Taxpayer contends that the spin-off of the XXX companies create
a completely new multi-state operating environment. In
addition, the Taxpayer suggests that the disposition of the XXX
has materially changed the Taxpayer's affiliated group.

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(2), F.S., states:

Subject to subsection (5), the director may require a
consolidated return for those members of an affiliated
group of corporations which are subject to tax and which
would be eligible to elect to consolidate their incomes
under subsection (1), if the filing of separate returns for
such corporations would improperly reflect the taxable
incomes of such corporations or of such group.

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.

DISCUSSION AND ANALYSIS

The Taxpayer seeks permission to deconsolidate based upon a
change in circumstances. Rule 12C-1.0131(3)(b)2.a. F.A.C. The
Taxpayer will continue to file consolidated federal income tax
returns.

Taxpayer contends that there have been substantial changes in
business circumstances since the Florida consolidated reporting
election was made in XX. The facts presented however, do not
support this contention. Corporate reorganizations, such as
mergers, acquisitions, sales or consolidations, are commonplace
and are often no more than changes in the form or structure of
the corporate organization. The Taxpayer bought some XXX
companies and then spun them off. The Taxpayer continues in the
business of providing XXX of goods and materials. The Taxpayer
is substantially in the same form as it was when it made the
consolidated election.

CONCLUSION

The information presented by Taxpayer does not establish that
there has been a significant change in the nature of Taxpayer's
business. Therefore, the Department cannot grant the Taxpayer's
request to discontinue filing a consolidated Florida income tax
return.

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,
Florida Statutes, 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 materials and this response,
deleting the 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/
Control No. 56593