Could a corporate group stop filing Florida consolidated returns because the parent withdrew from Florida, the subsidiary became inactive, and separate filing would reduce administration?

Subject

Request For Authority to Discontinue Consolidated Filing

Plain-English summary

The Department did not permit the corporate group to stop filing Florida consolidated returns on the facts submitted. The parent had elected consolidated filing beginning with its 1991 tax year, later withdrew its certification to do business in Florida, and had an inactive subsidiary. It wanted to file separately to reduce administrative burden while continuing to file federal consolidated returns.

Florida law made the consolidated election continuing for later years while the group remained affiliated or continued federal consolidated filing, unless the Department consented to separate returns. The cited rule expressly said that a group could not break its election merely because the parent no longer had Florida nexus.

The Department also found no regulatory good cause. The parent did not show tax-law changes causing a substantial adverse consolidated-tax effect, a material change in circumstances beyond leaving Florida, a substantial reduction in consolidated net operating loss, or earlier legal changes newly producing an adverse result. Its own documents indicated that neither consolidated nor separate filing would produce tax liability.

Without additional supporting information, the parent had to continue filing consolidated Florida returns.

What this means for you

Under the law applied in this 1997 ruling, a Florida consolidated-return election was not freely revocable. Loss of nexus by the parent, inactivity of a subsidiary, and lower administrative burden did not by themselves establish good cause.

A request to deconsolidate needed timely Department approval and clearly documented facts fitting the rule's adverse-change or changed-circumstances factors.

Common questions

Q: Did the parent's withdrawal from Florida end the consolidated election? No. The rule said loss of the parent's Florida nexus did not allow the affiliated group to break the election.

Q: Did an inactive subsidiary establish good cause? Not on the information presented.

Q: Was avoiding administrative burden enough? No. The Department required facts tied to the regulatory good-cause standards.

Q: Was the request permanently impossible? The ruling required continued filing unless the parent provided additional information supporting permission to discontinue.

Citations and references

• Fla. Stat. § 220.131(3) — continued consolidated filing unless the Department consents to separate returns
• Fla. Admin. Code R. 12C-1.0131(3)(a) — continued filing while federal consolidated returns continue and no termination solely for loss of parent nexus
• Fla. Admin. Code R. 12C-1.0131(3)(b) — application procedure and good-cause factors for discontinuing consolidated filing
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C1-004

Original ruling text

Apr 30, 1997

Re: TAA 97(C)1-004
Request For Authority to Discontinue Consolidated Filing
XXX ("Parent")
XXX ("Subsidiary")
s. 220.131, F.S., Consolidated Return Election

Dear :

Your letter of November 18, 1996, 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 1211, Florida Administrative Code, and is issued under authority
of s. 213.22, Florida Statutes.

FACTS PRESENTED BY THE TAXPAYER

Parent has been filing consolidated Florida corporate income tax
returns since it made the election for the tax year ended
December 31, 1991. In 1995, Parent withdrew its certification
to do business in the State of Florida. Further, in 1995,
Subsidiary became inactive.

Parent requests permission to discontinue filing consolidated
Florida corporate income tax returns in order to reduce its
administrative burden. However, Parent will continue filing
federal consolidated returns.

REGULATORY AUTHORITY

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 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.
(emphasis supplied)

Rule 12C-1.0131 (3)(a), F.A.C., states:

(a)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 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 s. 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 s. 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., states:

(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 the Office
of General Counsel, Tax Policy 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 had a substantial
adverse effect on the consolidated tax liability of a 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 OF LAW

Rule 12C-1.0131(3)(a)1., F.A.C., and s. 220.131(3), F.S.,
illustrates the preliminary considerations in determining
whether a taxpayer must continue to file a consolidated Florida
Corporate Income Tax return. In the instant case, the taxpayer,
at this point, will continue filing a consolidated federal
return. As a result, Parent may only be granted permission to
deconsolidate with the consent of the Department.

Further, according to Rule 12C-1.0131(3)(a)2., F.A.C., a
taxpayer may not break a consolidated filing election solely
because it lacks nexus with Florida. Parent has asserted that
it would have no nexus with Florida due to the fact that Parent
no longer does business in Florida. Notwithstanding this, there
must be clearly articulated facts which support a
deconsolidation request.

Presently, under Rule 12C-1.0131(3)(b)2., F.A.C., there are four
factors that are considered in evaluating whether good cause
exists to support a deconsolidation request. First, is whether
the net result of all amendments to the Florida Income Tax Code
or the Internal Revenue Code in a given tax year have a
substantial adverse effect on the consolidated filing group
relative to the same group filing separately. In the instant
case, changes to either Code have not been shown to have a
substantial adverse effect. In fact, documentation provided by
Parent indicates that no tax liability would accrue in either
case.

Next, the Department must consider any changes in law or
circumstances, including changes which do not bear upon tax
liability. Here, Parent has indicated no change in circumstance
which would justify discontinuation of the filing of
consolidated returns. Again, the only assertion by Parent is
that Parent has withdrawn its certification to do business in
Florida.

As well, there have been no changes in law which result in a
substantial reduction in net operating loss available due to
consolidated filing. Lastly, Parent has not asserted any prior
changes to the Florida Income Tax Code or the Internal Revenue
Code which in future years would produce a substantial adverse
effect on the consolidated filing group relative to the filing
of separate returns by the group.

In sum, a taxpayer must show that good cause exists in order for
the Department to grant a deconsolidation request. Taken
together, s. 220.131(3), F.S. and Rule 12C-1.0131(3)(b), F.A.C.,
make it clear that the Department, can not grant your request
for permission to discontinue filing consolidated returns

starting with the tax year ended December 26, 1996, unless
additional information is provided to support such a request.
As a result, the Parent must continue filing consolidated
returns for Florida tax purposes.

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, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Beverly L. Hayes
Attorney
Technical Assistance and Dispute Resolution

BLH/kk