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

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