Could a dealership and leasing-management group discontinue Florida consolidated filing after major organizational and strategic changes?

Plain-English summary

The group had elected consolidated filing when its dealership operations were more concentrated. It later reorganized, expanded brands and locations, changed customer demographics and services, and developed separately managed dealership and leasing-management lines.

Florida found sufficient changed circumstances and allowed separate corporate income-tax returns for years beginning on or after January 1, 2008.

Approval required no realized-but-unrecognized intercompany items or deferred income or expense omitted by separate filing, no participation in a Florida consolidated return before tax year 2013, and full reporting by December 31, 2007 of federal gains that had been realized but not recognized.

What this means for you

Permission to deconsolidate can be retroactive to specified years but may accelerate deferred items and restrict later reconsolidation. The accounting conditions are as important as the business-change showing.

Common questions

When did separate filing begin? Tax years beginning on or after January 1, 2008.

When could the group reconsolidate? Not before tax year 2013.

What happened to deferred federal gains? The ruling required full reporting for the period ending December 31, 2007.

Citations and references

• Fla. Stat. § 220.131 and Fla. Admin. Code r. 12C-1.0131(3)(b), as quoted and applied in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10C1-006

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER : 10C1-006
ISSUE : Request for Authority to Discontinue Consolidated Filing
STATUTE CITES: SS. 220.131(1), and 220.131(3), F.S.
RULE CITES: Rules 12C-1.013(3)(b), F. A. C.
QUESTION: May a parent company be granted permission to cease filing Florida consolidated tax
returns based upon changes in business circumstances.
ANSWER: The parent company was granted permission to cease filing Florida consolidated tax returns
based on provisions of the F. A. C. which addresses changes in business circumstances.

June 21, 2010

XXX
XXX
XXX

Re:

Technical Assistance Advisement 10C1-006
Request for Authority to Discontinue Consolidated Filing
XXX (“Taxpayer”)
XXX (“COMPANY 1”)
XXX (“COMPANY 2”)
XXX (“COMPANY 3”)
Section 220.131, (F.S.)
Rule 12C-1.0131(3)(b), (F.A.C.)

Dear XXX:
Your letter of XXX, requests permission 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
Taxpayer is a XXX corporation established in XXX. Taxpayer and its XXX subsidiaries are
primarily engaged in one of two businesses: owning and operating XXX dealerships, and XXX
leasing and management. Taxpayer and its subsidiaries elected to file their Florida income tax
returns on a consolidated basis during the XXX as a result of the company’s concentration of
XXX dealerships in XXX, and its desire to mirror its consolidated filing methodology for federal
income tax purposes.

Technical Assistance Advisement 10C1-006
Page 2
Since electing to file on a consolidated basis, the Taxpayer consolidated group has undergone
significant organizational and strategic changes while operating within the rapidly changing
business arenas of XXX sales, and XXX leasing/management industries. Taxpayer’s changes
have significantly altered many key aspects of the company’s business including its corporate
structure, customer demographics, and product and service lines. In addition, Taxpayer has
initiated the evolution of two distinct service lines managed independently of one another.
Taxpayer subsidiaries now own and operate XXX dealerships (XXX located in XXX and located
in XXX) which offer a diverse variety of XXX brands ranging from XXX to XXX, and from
XXX to XXX. Taxpayer’s current status overshadows its humble XXX beginning with its one
XXX , two XXX, and its XXX (XXX.) which occupied a corner of its XXX showroom.
Since that time, Taxpayer has undergone two reorganizations, during the first reorganization, it
began functioning as the parent holding company with direct management duties. During the
second reorganization, Taxpayer transferred its XXX leasing/management operations to
COMPANY 1. At that time, Taxpayer began operating two distinct lines of business with its
XXX leasing/management under COMPANY 1, and its XX dealerships under Taxpayer.
Taxpayer’s XXX Dealerships became especially prosperous following its reorganization, and it
continued its expansion throughout the XXX by acquiring numerous franchises and dealerships
in XXX and XXX. At the same time, Taxpayer’s XXX experienced several significant changes.
The most important of these changes was the addition of XXX management services to
COMPANY 1’s existing business activities. In addition, COMPANY 1 acquired COMPANY 2
and COMPANY 3. The acquisition of COMPANY 2 allowed COMPANY 1 to design and build
special purpose XXX for commercial clients, while the purchase of COMPANY 3 Lease brought
the company into the market for leasing XXX and XXX.
Prior to the XXX COMPANY 1 did not offer significant ancillary services to its clients aside
from XXX maintenance. The dramatic technological advances of the decade, such as the
Internet and computers, provided COMPANY 1 with opportunities to greatly expand the scope
of its business activities beyond its traditional leasing activities. Over the years, COMPANY 1
has placed tremendous focus on developing and expanding service offerings, which have
allowed the company to become both a XXX leasing and management company. Consequently,
COMPANY 1 now manages entire XXX by utilizing proprietary software, the Internet, and a
network of qualified service technicians. COMPANY 1 now offers numerous comprehensive
services, some of which include, XXX, XXX, XXX, Licensing, Information Technology, XXX
Remarketing, and Custom Maintenance Programs, to its XXX customers. From XXX to XXX,
COMPANY 1’s annual gross revenues from its XXX management services have grown from
approximately XXX to XXX. The company’s service revenue, as a percentage of total company
revenues, has more than doubled during this same period, and management expects this trend to
continue as COMPANY 1 focuses on growing its service and technology offerings. These
service and technology offerings, which were neither feasible nor contemplated at the time
Taxpayer made its XXX consolidated filing election, have allowed COMPANY 1 to evolve from

Technical Assistance Advisement 10C1-006
Page 3
a traditional XXX lessor into a leading full-service XXX leasing/management company that
serves clients throughout XXX, XXX, XXX, and XXX. Since Taxpayer made its XXX
consolidation election in the XXX, COMPANY 1 has evolved into an autonomous business that
conducts a variety of leasing/management activities that are independent from the operation of
the XXX dealerships owned and operated by Taxpayer.
Since Taxpayer made its XXX consolidation election on the XXX, the company’s XXX
dealerships have evolved into largely autonomous businesses that offer a very diverse variety of
XXX brands (XXX) to the local markets in which they are located. Furthermore, the retail XXX
sales industry has undergone significant consolidation during the past two decades. The
proliferation of electronic commerce has permanently changed this business model by allowing
consumers from many different markets to browse the inventory of a given dealership. This
search capability, which was traditionally reserved only for XXX, has permanently changed the
way in which consumers purchase XXX.
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

Technical Assistance Advisement 10C1-006
Page 4
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

Technical Assistance Advisement 10C1-006
Page 5
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 Taxpayer
and its subsidiaries permission to stop filing consolidated Florida corporate income tax returns?
DISCUSSION AND ANALYSIS
In its request for permission to discontinue filing a consolidated Florida corporate income tax
return, Taxpayer relies on Rule 12C-1.0131(3)(b) 2.a., F.A.C., which permits the Executive
Director to consider "changes in law or circumstances, including changes that do not affect
income tax liability." Taxpayer indicates that since the 1980’s, when Taxpayer first elected to
file its consolidated Florida corporate income tax return, it has experienced major changes in its
business circumstances, reflected in significant and numerous changes in both its business mix
and corporate structure, while operating within the rapidly changing business arenas of XXX
sales, and XXX leasing/management industries. These changes have drastically altered many
key aspects of the company’s business, including customer demographics, product and service
lines, and the evolution of distinct services lines managed independently of one another. Since
the initiation of the company’s Florida consolidated filing election, Taxpayer has undergone
significant changes in its business processes and environment. Based on the following four
conditions, the Department grants permission to discontinue filing consolidated Florida
corporate income tax returns for the taxable years beginning on or after January 1, 2008.

1. That the deconsolidation is effective for the income tax returns for the taxable
   years beginning on or after January 1, 2008.
2. That the Taxpayer Group has no intercompany items realized, but not
   recognized, nor any deferred income or expenses that would normally be reported
   on a consolidated basis, but would not be included in separately filed corporate
   income tax returns.
3. That the Taxpayer Group does not become part of a consolidated Florida
   corporate income tax return prior to the tax year ending in 2013.
4. That any deferred gains which are realized for Federal tax purposes, but which
   have not yet been recognized, are required to be reported in total, on the income
   tax returns filed by the taxpayers, for the period ending December 31, 2007.

Technical Assistance Advisement 10C1-006
Page 6
CONCLUSION
Taxpayer has met the requirements for granting permission to discontinue the Florida corporate
income tax consolidated filing election. Accordingly, Taxpayer's request for permission to file
separate Florida corporate income tax returns for the taxable years beginning on or after January
1, 2008, is granted subject to the provisions in the preceding paragraph.
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,

Charles J. Dunning
Technical Assistance and Dispute Resolution
Record ID: 61329