Could a Florida consolidated group switch to separate returns after substantial expansion through new products, markets, locations, and acquisitions?

Plain-English summary

Florida allowed a longstanding consolidated group to switch to separate corporate income-tax returns after substantial changes in its business.

Since the original election, the taxpayer had added operations, introduced products, entered markets, expanded services and locations, made acquisitions, and significantly increased sales and other redacted business measures. The Department found that the changed business focus and growth together provided good cause.

The permission imposed four redacted conditions: an effective tax year, no realized but unrecognized income or expense items, a period before the group could join another Florida consolidated return, and current reporting of specified deferred federal gains.

What this means for you

Corporate groups seeking deconsolidation

Document concrete operational changes from the year of the original election, not merely the tax savings expected from separate filing.

Corporate tax teams

Approval is taxpayer-specific and can require recognition adjustments and restrictions on future consolidated filing.

Common questions

Did Florida approve separate returns? Yes.

What supported the request? Major expansion in operations, products, markets, sales, and acquisitions.

Was the approval unconditional? No. Four taxpayer-specific conditions applied.

Citations and references

• Fla. Stat. Sec. 220.131
• Fla. Admin. Code R. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 21C1-003

Original ruling text

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 Florida Administrative Code which address changes in
business circumstances.
June 23, 2021
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 21C1-003
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXX (“the taxpayer”)
FEIN: XXX

Dear XXX:
This is in response to your request dated XXX, 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.
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.
FACTS SUPPLIED BY TAXPAYER
The taxpayer is headquartered in XXX. It files its tax returns on a consolidated basis for both federal and
Florida purposes, and has been filing its tax returns on a consolidated basis since making its consolidated
filing election for the XXXX tax year. The taxpayer operates XXX.

June 23, 2021
Florida Department of Revenue
Page 2
At the time the taxpayer’s consolidated filing election was made it operated XXX within XXX. Since
XXXX, the taxpayer has added an additional XXX. Additionally, from XXXX through XXXX, the taxpayer’s
sales have increased from $XXX to $XXX, while its XXX have increased from XXX to XXX. The taxpayer
has further expanded its business through acquisitions, introduction of new products, entry into new
markets, and expansion of its services, all of which have served to change its business.

Specifically, the taxpayer XXX. In XXXX, it opened XXX. In XXXX, it began XXX. In XXXX, the taxpayer
XXX.
In XXXX, the taxpayer opened XXXX. From XXXX, through XXXX, the taxpayer opened XXX.
The taxpayer continued its expansion in XXXX, opening XXX. In XXXX, the taxpayer acquired XXX. It also
purchased XXX.
In XXX, the taxpayer had become XXX. By XXXX, XXX of its net sales were generated through XXXX. The
taxpayer has plans to expand its operations further XXX.

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:
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

June 23, 2021
Florida Department of Revenue
Page 3
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
   The 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
   The taxpayer contends that the business focus and operations of the affiliated group have changed
   significantly since XXXX, the tax year for which the taxpayer made its consolidated filing election.
   The information provided by the taxpayer shows growth in the consolidated group since the taxpayer
   made its consolidated filing election for XXXX. The activities conducted by the taxpayer and its product
   line have expanded greatly between XXXX and XXXX.
   1

The taxpayer estimates that its Florida corporate income tax liability for the XXXX tax year on a separate return
basis will be approximately $XXX less than it would have been on a consolidated basis.

June 23, 2021
Florida Department of Revenue
Page 4

The taxpayer’s overall business focus, along with its substantial growth, 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 XXXX:

1. That the deconsolidation is effective for the tax year ending on XXXX.
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 XXXX.
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 XXXX.
   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,

Suzanne C. Paul
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution

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