Could a changed multistate group end Florida consolidated filing, and how would its disregarded single-member LLC be treated?

Subject

Request For Authority to Discontinue Consolidated Filing

Plain-English summary

Florida allowed the affiliated group to stop filing consolidated corporate income tax returns beginning with the year ending December 31, 1997. Over roughly ten years, the parent had expanded from a Florida manufacturer into a primarily multistate wholesale distributor with personnel-services and HVAC/R distribution businesses. Florida treated those evolving business lines as a qualifying change in circumstances even though the group did not show a substantial adverse tax effect or an apportionment-factor change.

Approval carried four conditions:

1. Deconsolidation took effect for the year ending December 31, 1997.
2. Realized but unrecognized income or expense items benefiting a group member could not exceed $100,000.
3. The 1997 difference between filed separate returns and a pro forma consolidated return was approximately $9,774.
4. The group could not enter another Florida consolidated return before the year ending December 31, 2003.

The ruling also addressed a planned single-member limited liability company. Because it would be disregarded as a separate entity for federal purposes, Florida would not treat it as a separate company. The parent's factors were not separately pushed into the LLC; instead, the LLC's apportionment factors were included with the parent's factors as part of the same corporation.

What this means for you

The ruling combined two entity-structure points: deconsolidation required permission and negotiated safeguards, while a federally disregarded single-member LLC followed its corporate parent for Florida reporting and apportionment under the law then in effect.

Common questions

Q: Did the group prove consolidated filing caused a large tax disadvantage? No. Florida relied on established changes in business circumstances that did not substantially affect tax liability or apportionment.

Q: Could deferred items exceed the stated limit? No. The approval was conditioned on those realized but unrecognized items not exceeding $100,000.

Q: Was the single-member LLC a separate Florida corporate taxpayer? No. It was disregarded because it was disregarded federally.

Q: Where were the LLC's apportionment factors reported? They were combined with the parent's factors to reflect the corporation's income.

Citations and references

• Fla. Stat. § 220.131(1), (3) — consolidated election and continued filing unless the director consents
• Fla. Admin. Code r. 12C-1.0131(3) — timing, changed circumstances, and conditions for discontinuing consolidated returns
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98C1-005

Original ruling text

Jul 27, 1998

Re: Technical Assistance Advisement 98(C)1-005
Request For Authority to Discontinue Consolidated Filing
XXX ("Parent")
s. 220.131, F.S., Consolidated Filing Election

Dear :

Your letter of XX, requested a Technical Assistance Advisement
to seek permission to discontinue filing consolidated returns
for Florida corporate income tax purposes. Additionally, you
requested rulings on the Florida corporate income tax treatment
of a single member limited liability company. 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 AS PRESENTED BY THE TAXPAYER

Your letter of XX, states that Parent is the parent corporation
of an affiliated group of corporations. Parent is domiciled in
Florida and historically 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 1988 it has experienced a substantial
growth of its business. Moreover, the Parent is a development
oriented company that has expanded into new business lines.
Specifically, the Parent has added new businesses which include
personnel services and heating, ventilation, air conditioning,
and refrigeration unit ("HVAC/R") distributorships. Parent has
evolved from being a Florida-based manufacturer to being
primarily a multistate wholesale distributor. Consequently,
Parent's income attributable to Florida decreased from 100
percent to 34 percent in a nine-year period.

Parent stipulates that there are 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.
Further, parent stipulates that the amount of this deferred
income is less than $100,000. Additionally, Parent states that
the appropriate extension of time to file a corporate income tax
return was filed for the fiscal year ended December 31, 1997,
and Parent asserts that the submission was made within the
required 90 days of the extended due date of the return.

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, [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 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 lines in which the group
engages. The shifts appear to have been evolving over the last
10 years and do not appear to affect the apportionment factors
used in the preparation of the corporate income tax return.
Under Rule 12C-1.0131(3)(b), F.A.C., the Department may grant
permission to a group to discontinue consolidated filing of the
corporate income tax return when there is a change of
circumstance which does not affect tax liability. Here, there
appears to be an established change in circumstances which does
not substantially affect tax liability or apportionment factors.

Therefore, based on the following four conditions, the
Department grants permission to discontinue filing consolidated
corporate income tax returns for the 1997 tax year and later
years:

1. That the deconsolidation is effective for the tax year
   ending on December 31, 1997, and
2. That Parent has realized but unrecognized income or
   expense items that may be recognized at a later date
   which would benefit a member of the Parent affiliated
   group and the deferred amount will not exceed
   $100,000, and
3. That the difference in tax liability for the tax year
   ended December 31, 1997, between the separate tax
   returns filed and a pro forma consolidated return for
   the same period is approximately $ 9,774, and
4. That the affiliated group does not become part of a
   consolidated Florida corporate income tax return prior
   to the tax year ending December 31, 2003.

FACTS AS PRESENTED BY TAXPAYER

Parent is contemplating the formation of a single member limited
liability company. The new limited liability company will be
taxed as a division of Parent for federal purposes.

QUESTIONS

1. Will the limited liability company be treated as a separate
   company for Florida income tax purposes?

2. Will Parent's apportionment factors be included in the
   limited liability company's apportionment factors?

3. Will the limited liability company's apportionment factors
   be included in Parent's apportionment factors?

ANSWERS

1. No. As of July 1, 1998, a single member limited liability
   company that is disregarded as a separate entity for federal
   purposes would not be treated as a separate company for Florida
   corporate income tax purposes.

2. No.

3. Yes. As a division of Parent, the single member limited
   liability company should include its apportionment factors with
   those of Parent in order to properly reflect the income earned
   by the corporation.

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 interpretation 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 may wish made to
the request or the response.

Sincerely,

Beverly L. Hayes
Attorney
Technical Assistance and Dispute Resolution
Office of General Counsel

BLH/