Could a corporation that moved from New York to Florida during one fiscal year use separate accounting instead of Florida's three-factor apportionment formula?

Plain-English summary

Florida denied the corporation's request to use separate accounting for the portions of its fiscal year before and after moving from New York to Florida.

The New York corporation dissolved into a Florida corporation through a Type F reorganization. The Department treated the Florida entity as an absolute continuation of the New York entity: the federal identification number and corporate identity continued, tax attributes carried over, and one federal and Florida tax year covered the full 12 months.

The company had not maintained separate records for the two periods and had continued the same business operation in two locations. It also assigned a pension-plan adjustment to the earlier period when calculating the later Florida loss.

The Department found that the standard three-factor formula—50% sales, 25% property, and 25% payroll—reasonably and equitably apportioned the year's income. The company had not shown the gross distortion or taxation of extraterritorial value needed for an alternative method.

What this means for you

A midyear move and unfavorable apportionment result did not by themselves justify separate accounting. The ruling required clear evidence that the standard formula operated unreasonably and arbitrarily, plus proof that the proposed alternative fairly reflected Florida activity.

Common questions

Q: Why was the pre-move New York income included in the apportionable tax base?
A: The Type F reorganization continued the same corporation and tax year, and Florida applied its apportionment formula to the corporation's adjusted federal income.

Q: Did the company keep separate books for the two periods?
A: No. The ruling said the records did not separately distinguish the pre-move and post-move operations.

Q: Was a different apportionment percentage enough to justify an alternative method?
A: No. The quoted rule required gross distortion and clear evidence of extraterritorial taxation.

Q: What method did Florida require?
A: The standard three-factor property-payroll-sales formula described in section 220.15.

Citations and references

• Fla. Stat. § 220.11 — Florida corporate income tax
• Fla. Stat. §§ 220.15, 220.152 — standard and alternative apportionment
• Fla. Admin. Code r. 12C-1.0152 — departure from standard apportionment
• I.R.C. § 368(a)(1)(F) — Type F reorganization
• Roger Dean Enterprises, Inc. v. Department of Revenue, 387 So.2d 358 (Fla., 1980) — nexus and fairly apportioned income
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C1-009

Original ruling text

Oct 18, 1995

Re: Technical Assistance Advisement No. 95(C)1-009
XXX (Corporation) Separate Accounting

Dear :

Your letter of June 22, 1995, requested a Technical Assistance
Advisement on the application of corporate income tax on the
above referenced matter. This response to your request
constitutes a Technical Assistance Advisement under Chapter
12-11, Florida Administrative Code, and is issued to you under
the authority of s. 213.22, Florida Statutes.

Discussion Of Facts

The Corporation sells XXX equipment, primarily at retail with
some wholesales. The Corporation was formed in New York in 1976
and operated a showroom and retail store exclusively in New York
until August, 1994. In August of 1994, the New York operation
was sold and the company was moved to Florida. A Florida
corporation was formed and the New York corporation was
dissolved in a type F re-organization per section 368(a)(1)(F),
I.R.C. Operations began in Florida in September of 1994. For
the year ended January 31, 1995, there were no Florida sales
until after the move to Florida.

Your request states the company has operated at a loss while in
Florida, due to slower sales resulting from starting up in a new
location, and the Corporation's taxable income for the year
ended January 31, 1995, is entirely attributable to the
operation while in New York and the sale of the business in New
York.

The information provided includes an income statement for the 12
months ended January 31, 1995 and a trial balance through August
31, 1994. The net loss of $XX for the period September 1, 1994
to January 31, 1995 (Second Period), was achieved by subtracting
the January 31, 1995 fiscal year net income from the trial

balance net income on August 31, 1994. However, an excess
Defined Benefit Pension Plan contribution returned to the
corporation in December, 1994, was applied to the February 1,
1994 to August 31, 1994 (First Period) income. Accordingly, no
pension expense is included for the Second Period.

You are requesting that the Department use its discretion under
s. 220.152, F.S., and Rule 12C-1.0152, F.A.C., to allow an
allocation of the operations of the corporation from February 1,
1994, to August 31, 1994, to New York and the operations from
September 1, 1994 to January 31, 1995 to Florida.

The Corporation believes that the conditions causing the three
factor formula to distort the income earned in Florida are nonrecurring, and the taxpayer anticipates using the standard
formula for future years.

Statutory Authority

Section 220.11 F.S., provides that "[a] tax measured by net
income is hereby imposed on every taxpayer for each taxable
year... for the privilege of conducting business, earning or
receiving income in this state, or being a resident or citizen
of this state."

Section 220.15(1), F.S., provides that "[e]xcept as provided in
ss. 220.151 and 220.152, adjusted federal income as defined in
s. 220.13 shall be apportioned to this state by taxpayers doing
business within and without this state by multiplying it by an
apportionment fraction..." This section goes on to articulate
the "three-factor" (property, payroll and sales) apportionment
methodology.

Section 220.152, F.S., states that:

"If the apportionment methods of ss. 220.15 and 220.151 do
not fairly represent the extent of a taxpayer's tax base
attributable to this state, the taxpayer may petition for, or
the department may require, in respect to all or any part of the
taxpayer's tax base, if reasonable:
"(1) Separate accounting;

"(2) The exclusion of any one or more factors;
"(3) The inclusion of one or more additional factors which
will fairly represent the taxpayer's tax base attributable to
this state; or
"(4) The employment of any other method which will produce
an equitable apportionment."

Rule 12C-1.0152(2), F.A.C., provides: "A departure from the
applicable method of apportionment required under the provisions
of ss. 220.15 or 220.151, F.S., shall be permitted only where
the method does not accurately and fairly reflect business
activity in Florida. An alternative method may not be invoked,
either by the Department of Revenue or the taxpayer, merely
because it reaches a different apportionment percentage than the
regularly applicable formula. However, if the applicable
formula will lead to a grossly distorted result in a particular
case, a fair and accurate alternative method is appropriate (see
Norfolk and Western Railway Co. v. Missouri State Tax
Commission, 390 U.S. 217, 88 S. Ct. 995, 19 L. Ed. 2d 1201
(1968), which is incorporated by reference in Rule 12C-1.0511,
F.A.C.).
"(b) The party (Department of Revenue or the taxpayer)
seeking to utilize an alternative apportionment method must show
by clear and cogent evidence that the regularly applicable
formula would result in taxation of extraterritorial values (see
Butler Bros. v. McColgan, 315 U.S. 501, 62 S. Ct. 701, 86 L. Ed.
991 (1942), which is incorporated by reference in Rule 12C1.0511, F.A.C.). This can be shown only if the regularly
applicable formula is demonstrated to operate unreasonably and
arbitrarily in apportioning to Florida a percentage of income
which is out of all proportion to the business transacted in
Florida (see Hans Rees' Sons, Inc. v. North Carolina ex rel
Maxwell, 283 U.S. 123, 51 S. Ct. 385, 75 L. Ed 879 (1931), which
is incorporated by reference in Rule 12C-1.0511, F.A.C.).
"(3) The party seeking to use an alternative formula must
prove that the alternative formula fairly and accurately
apportions income to Florida based upon business activity in
this state.
"(4) A departure from the regularly applicable
apportionment method will be authorized only in limited and
specific cases where unusual fact situations (which ordinarily

will be unique and nonrecurring) produce a result that is
incongruous with the results of previous tax years under the
regularly applicable apportionment method.
"(5) A taxpayer shall petition the Department for a
departure from the required apportionment method by filing, on
or before the due date for filing of the return for the taxable
year, with extension, either: a written request for a technical
assistance advisement under s. 213.22, F.S., and Department of
Revenue Rule Chapter 12-11, F.A.C.; or, a petition for a
declaratory statement under s. 120.565, F.S., and Department of
Revenue Rules 12-2.010, 12-2.011, 12-2.012, and 12-2.013, F.A.C.
"(a) The taxpayer shall file the request or petition with
the Division of Taxpayer Assistance, P.O. Box 7443, Tallahassee,
Florida 32314-7443.
"(b) The taxpayer's request or petition must include a
summary of the evidence to support the taxpayer's contention
that the applicable apportionment formula results in taxation of
extraterritorial values and to demonstrate that the regular
formula operates to unreasonably and arbitrarily attribute
income to Florida far out of proportion to the business
transacted in Florida. The taxpayer must also furnish evidence
that the use of an alternative method fairly and accurately
apportions income to Florida."

Discussion And Analysis Of Law

The Florida Supreme Court held in Roger Dean Enterprises, Inc.
v. Department of Revenue, 387 So.2d 358 (Fla., 1980): "The
requisite nexus is supplied when the corporation and some of its
income producing activities are connected with the taxing
jurisdiction. If this is the case, all of that corporation's
income may be included in a fairly apportioned tax base for
state income tax purposes. There is no requirement that each
increment of income have a relationship to the taxing
jurisdiction." (emphasis supplied).

In October of 1994, the Corporation (Newco) began business
operations in Florida after the New York corporation (Oldco) was
dissolved, in a type F re-organization, into a corporation
formed in Florida. In a type F re-organization, the tax
attributes carry over from Oldco to Newco. In fact, Newco is

treated as an absolute continuation of Oldco, such that the
taxable year continues and any net operating losses of Newco may
be carried back to a taxable year of Oldco. The federal
identification number has not changed and the Corporation has
not lost its identity.

Based on the facts presented, the Corporation's federal return
will include the results of its operations for the 12 months
ended January 31, 1995. The Corporation has not kept separate
records for the First Period and Second Period. The Corporation
has continued to operate its business without any specific
intent to distinguish its operation between the First Period and
the Second Period. Florida piggybacks the I.R.C., and
therefore, a Florida tax return will be required when a federal
tax return is required. The tax returns cover the same time
periods.

The business operation for the fiscal year ended January 31,
1995, is one operation in two locations. The Corporation, like
any other Company operating in Florida, enjoyed the benefits of
the state, both tangible and intangible.

A taxpayer doing business both within and without Florida would
apportion its adjusted federal income pursuant to s. 220.15(1),
F.S.,

"... by multiplying it by an apportionment fraction composed of
a sales factor representing 50 percent of the fraction, a
property factor representing 25 percent of the fraction, and a
payroll factor representing 25 percent of the fraction."

The property factor is defined by s. 220.15(2), F.S., as

"... a fraction the numerator of which is the average value of
the taxpayer's real and tangible personal property owned or
rented and used in this state during the taxable year or period
and the denominator of which is the average value of such
property owned or rented and used everywhere." (Emphasis
supplied.)

The payroll factor is defined by s. 220.15(4), F.S., as

"... a fraction the numerator of which is the total amount paid
in this state during the taxable year or period by the taxpayer
for compensation and the denominator of which is the total
compensation paid everywhere during the taxable year or period."
(Emphasis supplied.)

The sales factor is defined by s. 220.15(5), F.S., as

"... a fraction the numerator of which is the total sales of the
taxpayer in this state during the taxable year or period and the
denominator of which is the total sales of the taxpayer
everywhere during the taxable year or period." (Emphasis
supplied.)

This method and procedure will reasonably and equitably
determine the amount of income to be apportioned to Florida.

After carefully considering your request, we have determined,
from the facts that you have presented, that the three factor
method of apportioning income is reasonable and rationally
related to the values connected with Florida. Therefore, the
request for separate accounting is denied.

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 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 and your request 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 by the Department
before disclosure. In an effort to protect the confidentiality

of such information, your request for the deletion of specific
information will be observed.

Sincerely,

Val Poliuto
Statutory Compliance Section

Control #22035
VJP/kk
Enclosure (Not Included in TLL)