Could the affiliated group stop filing Florida consolidated returns under TAA 24C1-002?

Plain-English summary

The Department found sufficient reasonable cause to let the affiliated group stop filing consolidated Florida corporate income tax returns.

The ruling relied on significant changes in the group's business, acquisitions, segment combinations, geographic footprint, business focus, and profit margin after its consolidated election. Permission was subject to four conditions addressing the effective year, intercompany items, reentry into a Florida consolidated group, and deferred gains.

The Department also explained that losing Florida nexus at the parent-company level does not by itself terminate a consolidated election.

What this means for you

A Florida consolidated-return election generally continues. An affiliated group seeking deconsolidation must obtain permission and demonstrate sufficient changed circumstances under the rule.

Common questions

Was permission granted? Yes, subject to four conditions.

Did the parent's loss of Florida nexus automatically end the election? No.

What supported reasonable cause? The group's documented, significant business transformation after making the election.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 24C1-002

Original ruling text

:
/ . Florida Department of Revenue Jim Zingale
: Technical Assistance and Dispute Resolution Executive Director
&
FLORIDA
5050 West Tennessee Street, Tallahassee, FL 32399 floridarevenue.com
Question: Whether Taxpayer has established sufficient reasonable cause for the Executive
Director to permit it to stop filing consolidated corporate income tax returns
beginning with the tax year nin
Answer: Taxpayer has established sufficient reasonable cause for the Executive Director

to grant Taxpayer permission to cease filing consolidated Florida corporate income
tax returns.

May 15, 2024

Re: — Technical Assistance Advisement — TAA #: 24C1-002
Corporate Income Tax — Consolidated Criteria

ections . an , Florida Statutes (F.S.)
Rule 12C-1.0131(3), Florida Administrative Code (F.A.C.)
FEIN:
BP#:

This is in response to your initial letter dated, , the revised letter dated,
a supplemental letter dated, , and several in-person meetings",
requesting this Department’s issuance of a Technical Assistance Advisement (TAA) pursuant to

Section (s.) 213.22, F.S., and Rule Chapter 12-11 F.A.C., regarding the matter discussed below.
Your request has been carefully examined, and the Department finds it to be in compliance with
the requisite criteria set forth in Chapter 12-11, F.A.C. This response to your request constitutes
a TAA and is issued to you under the authority of s. 213.22, F.S.

ISSUE PRESENTED

Whether Taxpayer has established sufficient reasonable cause for the Executive Director to
_ it to _ -_ consolidated corporate income tax returns beginning with the tax year ending

Technical Assistance Advisement
May 15, 2024
Page 2

FACTS SUPPLIED BY TAXPAYER

Taxpayer is the parent company of an affiliated group of corporations that files consolidated
federal and Florida corporate income tax returns. Taxpayer made an election to file on a
consolidated basis with its Florida corporate income tax return for its fiscal tax year ending

It is Taxpayer's belief that its significant business transformation, as it has evolved from a

changes to support aeconsoiiaation.

Since making a Florida consolidated filing election for its Fiscal Year Ending Pra

( ”) Taxpayer has undertaken numerous steps with the overall goal of transforming Itself into
an Industrial service provider and disposing of many of its more a

to fund this business transformation.

Taxpayer's significant business changes have resulted in lower overall revenues as well as
significantly ; and , but also significant
increases in as well as and other .

In addition, although many of the corporate entities in Taxpayer’s U.S. federal consolidated filing
group have remained in existence since A the makeup of Taxpayer's consolidated filing group
ela

does not fairly reflect the changes to t xpayer’s business as many of its acquisitions and
sepocione ware feted trough Ee

LEGAL AUTHORITY
Section 220.131(1), F.S., provides,

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.

Technical Assistance Advisement
May 15, 2024
Page 3

Section 220.131(3), F.S., provides:

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.

KKK

Rule 12C-1.0131(3)(a), F.A.C, provides that,

1. A group which filed, or was required to file, a consolidated return for the immediately
   preceding taxable year is required to file a consolidated return for the taxable year unless
   it has permission to discontinue filing consolidated returns under paragraph (b) or (c) of
   this subsection; or as long as a federal consolidated return is filed.

2. The requirement set forth in section 220.131(1), F.S., that the parent company of an
   affiliated group must be subject to the Florida Income Tax Code is a condition that is
   necessary for an affiliated group to make an election to file a Florida consolidated return.
   There is no requirement in section 220.131, F.S., that the parent be subject to the Florida
   Income Tax Code in each subsequent year. Therefore, the affiliated group may not break
   its consolidated election because the parent company no longer has nexus with Florida.

Rule 12C-1.0131(3)(b), F.A.C., provides, in part,

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

Technical Assistance Advisement
May 15, 2024
Page 4

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

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." Taxpayer contends that the business nature of the affiliated group has changed
significantly since its fiscal year end a. on or about the year for which Taxpayer made its
consolidated filing election.

The information provided by Taxpayer demonstrates significant business changes in the
consolidated group since Taxpayer made its consolidated filing election. Significant acquisitions
and business segment combinations undertaken by Taxpayer have also expanded its geographic
footprint considerably between J and I.

Taxpayer's overall shift in business focus, to include

orida
consolidated election was made. is shift, along with significant increases in profit margin,

rane amrad and other ia. taken together, are a sufficient basis for granting
axpayer's request for deconsolidation.

CONCLUSION

Taxpayer has established sufficient reasonable cause for the Executive Director to grant
Taxpayer permission to cease filing consolidated Florida corporate income tax returns.

Based on the following four conditions, the Department grants permission to Taxpayer to
discontinue _ consolidated corporate income tax returns beginning with the tax year ending

1. That the deconsolidation is effective for the tax year ending i
2. Taxpayer and its subsidiaries have no intercompany unrealized or unrecognized items

or deferred income or expenses that would normally be reported on a consolidated
basis but may not be included in separately filed corporate income tax returns.

3. That Taxpayer group does not become part of a consolidated Florida corporate income
   tax return prior to the tax year ending ee

Technical Assistance Advisement
May 15, 2024
Page 5

4. That any deferred gains which are realized for federal purposes, but which have not
   yet been recognized, must be reported in total, on the income tax return filed by
   Taxpayer's group for tax year ending

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 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 ten (10) days of the date of this letter.

If you have any further questions regarding this matter and wish to discuss them, you may contact
me directly at 850-717-6326.

Kind Regards,
Denise L. Smith, MPM

Tax Law Specialist
Technical Assistance & Dispute Resolution

cc:

Record ID # 7001076095

Technical Assistance Advisement
May 15, 2024
Page 6

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