Did major restructuring, acquisitions, sales growth, and expanding markets justify ending a Florida consolidated-return election?

Plain-English summary

The Florida Department of Revenue granted a corporate parent's request to stop filing consolidated Florida corporate income tax returns.

Since the original election, the group had undergone substantial restructuring and acquisitions, expanded its markets, and experienced exponential sales growth. The Department found those changes in business circumstances sufficient under Rule 12C-1.0131(3)(b).

The permission carried four redacted-date conditions: a specified effective year, no realized-but-unrecognized income or expense items remaining for later recognition, no return to a Florida consolidated group before a specified year, and full reporting of deferred federal gains in the required return.

What this means for you

Corporate parents

A Florida consolidated election generally continues, but the Department may permit revocation for documented changes in law or business circumstances.

Corporate tax teams

Build the request around evidence of how the group changed after its election. Plan for conditions governing deferred items and future reconsolidation.

Common questions

Q: Was lower separate-return tax liability alone the stated reason?
A: No. The ruling focused on restructuring, acquisitions, growth, and expanding markets taken together.

Q: Was approval unconditional?
A: No. The Department imposed four conditions.

Q: Could the group immediately join another Florida consolidated return?
A: No. One condition barred that result until a redacted future tax year.

Citations and references

• Fla. Stat. §§ 220.131 and 213.22
• Fla. Admin. Code r. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17C1-008

Original ruling text

Executive
Director
Leon M. Biegalski

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 ADDRESS CHANGES IN BUSINESS CIRCUMSTANCES.
July 10, 2017
XXXXX
XXXXX
XXXXX

Re: Technical Assistance Advisement 17(C)1-0XX
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXXXX (FEIN: XXXXX) (hereinafter “taxpayer”)
Dear XXXXX:
This is in response to your request dated XXXXX, for a Technical Assistance Advisement
(“TAA”) pursuant to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding permission to
discontinue filing consolidated corporate income tax returns. An examination of your letter has
established that you have complied with the statutory and regulatory requirements for issuance of
a TAA. Therefore, the Department is hereby granting your request for a TAA.
FACTS SUPPLIED BY TAXPAYER
The taxpayer is headquartered in XXXXX. The taxpayer files as part of a consolidated group for
both federal and Florida purposes, and has been filing as part of a consolidated group since
XXXX. The taxpayer began as a XXXXX, and has expanded its business globally, to become a
leader in XXXXX.

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
When the taxpayer began filing a consolidated corporate income tax return in Florida, in XXXX,
its worldwide sales were $XXXXX, and its affiliated group consisted of the taxpayer and
XXXXX which held the stock of XXXXX. At that time, the taxpayer had fewer than XXXXX,
whose purpose was to XXXXX. Since that time, the taxpayer has significantly expanded its
global operations through growth and acquisitions. In XXXX, the taxpayer acquired XXXXX;
in XXXX, it acquired XXXXX; in XXXX, it acquired XXXXX; and in XXXX, it acquired
XXXXX, all well-known XXXXX.

The taxpayer now has XXXXX U.S. subsidiaries, over XXXXX foreign subsidiaries, and more
than XXXXX within the U.S., with XXXXX global sales in excess of $XXXXX. Additionally,
the taxpayer has not had nexus with Florida since XXXX, and has converted its XXXXX from
XXXXX to XXXXX.
ISSUE
Whether the taxpayer has established sufficient reasonable cause for the Executive Director to
permit it to stop filing consolidated Florida corporate income tax returns?
LAW
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 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:
(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

Technical Assistance Advisement
Page 3
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., provides:
(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 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.
   ANALYSIS

Technical Assistance Advisement
Page 4
Taxpayer relies on Rule 12C-1.0131(3)(b)2.a., F.A.C., which permits the Executive Director to
consider “[c]hanges in law or circumstances, including changes which do not affect income tax
liability.”1 Taxpayer contends that the business focus of the affiliated group has changed
significantly since XXXX, the year for which the taxpayer made its consolidated filing election.
The information provided by the taxpayer shows substantial growth in the consolidated group
since XXXX, with significant restructuring, acquisitions, and exponential increases in sales. The
taxpayer’s overall restructuring, growth, and expanding markets, taken together, are a sufficient
basis for granting the taxpayer’s request for deconsolidation.
CONCLUSION
Based on the following four conditions, the Department grants permission to the taxpayer to
discontinue filing consolidated corporate income tax returns beginning with the tax year ended
XXXXX:

1. That the deconsolidation is effective for the year ending on XXXXX.
2. That the taxpayer has no realized but unrecognized income or expense items that may
   be recognized at a later date.
3. That the taxpayer group does not become part of a consolidated Florida corporate
   income tax return prior to the tax year ending XXXXX.
4. That any deferred gains which are realized for Federal tax purposes, but which have
   not yet been recognized, must be reported in total, on the income tax return filed by the
   taxpayers for tax year ending XXXXX.
   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 predicated 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 documents are public records
   under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s.
   213.22, F.S. Your name, address, and any other details, which might lead to identification of the
   taxpayer, must be deleted before disclosure. In an effort to protect the confidentiality of such
   information, we request you provide the undersigned with an edited copy of your request for
   Technical Assistance Advisement, backup material and response within fifteen days of the date
   of this advisement.
   Sincerely,
   1

The taxpayer estimates that based on XXXX tax return data, its Florida corporate income tax liability on a
consolidated basis of $XXXXX would have decreased to $XXXXX on a separate return basis. The taxpayer further
estimates that based on XXXX tax return data, its Florida corporate income tax liability on a consolidated basis of
$XXXXX would decrease to $XXXXX.

Technical Assistance Advisement
Page 5

Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6794

SCP/
Control No.: 212928