Could a multinational franchisor stop filing Florida consolidated returns after disproportionate international growth and major changes in business lines?

Plain-English summary

Since its Florida consolidated-return election, the franchisor and licensor had experienced disproportionate international growth and deliberately sold and added major business lines. Its revenue streams and worldwide store footprint had changed substantially, making continued Florida consolidation burdensome and impractical.

The Department granted permission to discontinue consolidated filing based on those changed circumstances.

The approval imposed four conditions: deconsolidation began with specified taxable years; intercompany, unrecognized, or deferred items could not fall outside the new separate returns; the group could not join another Florida consolidated return before a stated year; and identified gains realized federally but still deferred had to be reported in full for the specified transition period.

What this means for you

Major deliberate changes in markets and business lines can support deconsolidation, but the Department can tightly control effective dates, deferred items, and later reentry into consolidated filing.

Common questions

What changes supported the request? Disproportionate international growth and substantial acquisition, disposition, and business-line changes.

Could deferred items disappear after the filing change? No.

Could the group quickly join another Florida consolidated return? No, not before the year specified in the TAA.

Citations and references

• Fla. Stat. § 220.131(1) and (3) and Fla. Admin. Code r. 12C-1.0131(3)(b), as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-003

Original ruling text

Executive Director
Lisa Echeverri

TAX: Corporate Income
TAA NUMBER: 12C1-003
ISSUE: Request for authority to discontinue consolidated filing
STATUTE CITES: Subsections 220.131(1) and 220.131(3), F.S.
RULE CITES: Rule 12C-1.0131, F.A.C.
QUESTION: May a consolidated group be granted permission to cease filing Florida consolidated corporate
income tax returns based upon changes in law or circumstances?
ANSWER: The consolidated group was granted permission to cease filing Florida consolidated corporate
income tax returns based on the rule provisions that address changes in law or circumstances.

February 02, 2012
XXX
XXX
XXX
Re:

Technical Assistance Advisement 12C1-003
Corporate Income Tax
Request for Authority to Deconsolidate
Section: 220.131, F.S.
Rule: 12C-1.0131(3)(b), F.A.C.
XXX (hereinafter referred to as “Taxpayer”)

Dear XXX:
Your letter of XXX states that the Taxpayer 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
Taxpayer is a franchisor and licensor of XXX stores, with more than XXX worldwide. Taxpayer is a US
subsidiary of a XXX firm and headquartered in XXX. Taxpayer currently reports its income on a
consolidated return basis for both federal and Florida income tax purposes. Taxpayer has stores in XXX
countries, with its largest markets being XXX, the United States, XXX, XXX, XXX, XXX, XXX and
XXX. Taxpayer made its initial Florida consolidated return election for the calendar year ending XXX.

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Tallahassee, Florida 32399-0100

Technical Assistance Advisement 12C1-003
Page 2

Taxpayer asserts that certain changes have occurred with respect to its businesses since its XXX election
to file consolidated Florida corporate income tax returns. Those changes can be attributed, in part, to the
acquisition and the disposition of certain businesses owned by Taxpayer. Specifically, those changes
include the following:
•
•
•
•

The business has grown internationally out of proportion to domestic growth.
A large number of companies have been acquired.
A large number of companies and divisions have been sold.
Substantial lines of business have changed.
As of XXX, Taxpayer had approximately XXX U.S. locations and almost XXX international locations.
By the end of XXX, Taxpayer was steeped in vertical integration. Taxpayer owned its own distribution
supply chain XXX, providing XXX and XXX supply chain solutions for its XXX stores throughout the
United States. In addition, Taxpayer had its own XXX division and XXX. Taxpayer owned an XXX
company that produced the XXX sold in its stores. Taxpayer also manufactured its own XXX sold at
retail. Additionally, Taxpayer invented systems to XXX and XXX, such as the XXX that most XXX
stores use today.
In XXX, Taxpayer began to streamline its operations by divesting itself of several business lines to focus
on its main business, XXX retailing. In XXX, Taxpayer filed a XXX and was rescued from XXX by a
XXX XXX. Taxpayer emerged XXX. The XXX XXX was a longtime XXX of Taxpayer’s Parent in
XXX. The XXX company gained a controlling share of Taxpayer after acquiring XXX percent of its
common stock. The XXX XXX formed Parent Company, and Taxpayer became its subsidiary in XXX.
Taxpayer has had a marked expansion of its international locations. In XXX, Taxpayer celebrated its XXX
international location. Today Taxpayer’s international locations have increased more than XXX percent to
XXX of its world-wide locations. Most of this expansion has been accomplished via acquisitions and
corporate restructurings.
In recent years, Taxpayer has endeavored to reverse course in the U.S. and has embarked on returning to
acquisitions for domestic growth. Since XXX, the following acquisitions occurred:
•
•
•
•

XXX - A chain of XXX stores in XXX and XXX stores in XXX.
XXX - A chain of XXX stores in XXX.
XXX - XXX station locations and XXX additional stores.
XXX - Taxpayer announced growth plans for XXX, XXX, XXX, XXX, XXX and XXX.

Taxpayer states that the only members of its group that have Florida nexus are an entity established for
licensing purposes that reflects virtually no income or expense and itself.
Taxpayer reports that it has no deferred intercompany transactions as of XXX. In addition, Taxpayer
reports that it has no realized but unrecognized income or expense items that may be recognized at a later
date that would benefit a Taxpayer group member. Taxpayer also provides that income from its foreign
stores was included in its federal income and was not deducted as a payment to its foreign parent.

Technical Assistance Advisement 12C1-003
Page 3

ISSUE
Whether the Taxpayer should be granted permission to cease filing consolidated Florida corporate income
tax returns?

LEGAL AUTHORITY
Section 220.131, F.S., provides in part:
(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 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.
(2) 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.
(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 in part:
(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… 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

Technical Assistance Advisement 12C1-003
Page 4

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
The Taxpayer seeks permission to deconsolidate based upon a change in circumstances. Taxpayer will
continue to file consolidated federal income tax returns. 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 which do not affect income tax liability." Taxpayer cites a significant change in circumstance
occurring as a result of disproportionate international growth and substantial changes in business lines.
Due to these changes, Taxpayer states that the filing of a consolidated Florida return has become
burdensome. Taxpayer states that the difference in tax between filing on a consolidated basis and on a
separate basis will only be approximately $XXX for tax year ending XXX.
Based on the information provided, Taxpayer shows significant international growth since XXX.
Taxpayer’s current revenue streams look completely different from its revenue streams in XXX. In XXX,
Taxpayer was approaching XXX international locations, which amounted to approximately XXX% of its
locations. Currently, Taxpayer’s international presence has increased over XXX percent to over XXX,
with its international locations comprising XXX% of its stores world-wide.

The changes in Taxpayer’s business were not merely a natural business progression based on market
changes. Taxpayer set forth a plan to sell and add several major lines of business, in an attempt to return to
its initial business, XXX operations. As a result of the changes listed above, Taxpayer and its affiliated

Technical Assistance Advisement 12C1-003
Page 5

group have undergone significant changes which affect the practicality of continuing to file on a
consolidated basis for Florida corporate income tax purposes.
CONCLUSION
Based on the following four conditions, the Taxpayer is granted permission to discontinue filing
consolidated Florida corporate income tax returns for the taxable years ending on or after XXX:

1. That the deconsolidation is effective for the income tax returns for the taxable years
   ending on or after XXX.
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 XXX.
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 XXX.
   This response constitutes a Technical Assistance Advisement under section 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 section 213.122, 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, 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,

Pamela K. Slater
Senior Attorney
Technical Assistance and Dispute Resolution

Technical Assistance Advisement 12C1-003
Page 6

Record ID: 105898