Could a reorganized corporate group stop filing Florida consolidated returns?

Subject

Permission to End Florida Consolidated Filing

Plain-English summary

The Department allowed the affiliated group to stop filing Florida consolidated returns beginning with the year ending November 3, 1996. Although no adverse tax-law change or substantial consolidated-tax harm was shown, the group had undergone a long reorganization, entered staffing and outsourcing businesses, and potentially changed its apportionment factors.

Approval required that no deferred income or expense later benefit a former consolidated member, that the separate-versus-consolidated liability difference was about $283,500, and that the group not join a Florida consolidated return before the tax year ending November 3, 2002.

What this means for you

A consolidated election continued until the Department consented to separate returns. Good cause could rest on substantial business changes even without a tax-law amendment or tax savings.

Common questions

Q: Did loss of the parent's Florida nexus end the election automatically? No. The cited rule said later loss of nexus did not break the election.

Q: When did separate filing begin? The tax year ending November 3, 1996.

Q: Could the group quickly reconsolidate? No. The ruling barred consolidated Florida filing before the year ending November 3, 2002.

Citations and references

• Fla. Stat. § 220.131(1), (3) — consolidated election and continued filing
• Fla. Admin. Code r. 12C-1.0131(3)(a), (b) — permission to discontinue
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C1-008

Original ruling text

Dec 03, 1997

Re: TAA 97(C)1-008
Request For Authority to Discontinue Consolidated Filing
XXX ("Parent")
s. 220.131, F.S., Consolidated Filing Election

Dear :

Your letter of April 30, 1997, requested a Technical Assistance
Advisement to seek permission to discontinue filing consolidated
returns for Florida corporate income tax purposes. 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, F.S.

FACTS PRESENTED BY THE TAXPAYER

Your letter of April 30, 1997, states that Parent is the parent
corporation of an affiliated group of corporations. Parent is
domiciled in Georgia and since 1985 has filed consolidated
Florida corporate income tax returns. The main operating
subsidiary has sales, property, and payroll, both within and
without Florida. Parent claims that since 1985 it has
experienced a substantial reorganization of its business.
Moreover, the Parent is a growth oriented company that has
expanded into new markets and business lines. Specifically, the
Parent has added new businesses which include managed staffing
solutions, outsourcing and management services.

Parent stipulates that there are no intercompany transactions,
deferred income or expense items that may be recognized at a
later date which would normally be included on a consolidated
return but would not be included on separately filed returns.
Additionally, Parent states that the appropriate extension of
time to file a corporate income tax return was filed for the
fiscal year ended November 3, 1996. Further, the Parent asserts
that the submission was made within the required 90 days of the
extended due date of the return. Lastly, in a letter received

by facsimile machine on October 9, 1997, Parent maintains that
the nexus required for the initial consolidated election arose
due to management activities in the State of Florida. Moreover,
the Parent affirms that those activities have since ceased
within the state.

REGULATORY AUTHORITY

Section 220.131(1), F.S., states in part:

(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 the 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 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 added)

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 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 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

The information provided does not show that continuing to file
consolidated Florida corporate income tax returns would have a
substantial adverse effect on the consolidated group. Further,
the Department is unaware of any changes in the Florida Income
Tax Code or the Internal Revenue Code that negatively affect the
consolidated group.

However, the information provided by Parent shows that numerous
changes have occurred in the business group and in the business
lines in which the group engages. The shifts appear to have
been evolving over the last 12 years and may have affected the
apportionment factors used in the preparation of the corporate
income tax return. Additionally, the taxpayer asserts that the
election to file a consolidated tax return was made without
benefit of professional advice.

Therefore, based on the following four conditions, the
Department grants permission to discontinue filing consolidated
corporate income tax returns for the 1996 tax year and later
years:

1. That the deconsolidation be effective for tax years
   ending on November 3, 1996, and
2. That Parent has no realized but unrecognized income or
   expense items that may be recognized at a later date
   which would benefit any member of the Parent
   affiliated group, and
3. That the difference in tax liability for the tax year
   ended November 3, 1996, between the separate tax
   returns filed and a pro forma consolidated return for
   the same period is approximately $ 283,500, and
4. That the affiliated group not become part of a
   consolidated Florida corporate income tax return prior
   to the tax year ending November 3, 2002.

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 specific situation summarized above.
You are advised that subsequent statutory or administrative rule
changes or judicial interpretations of the statutes or rules
upon 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 that 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
Office of General Counsel

BLH/kh