Could the affiliated corporate group stop filing consolidated Florida income tax returns?

Subject

Request for Authority to Discontinue Consolidated Filing

Plain-English summary

Florida allowed the corporate group to stop filing consolidated state income tax returns beginning with 1997. The parent had elected consolidated filing for 1990, then acquired or merged with more than 100 entities, nearly tripled group revenue, expanded foreign operations to about 25% of the business, and absorbed its main Florida subsidiary into the parent.

The group did not prove that continued consolidation would substantially increase its tax and did not identify a harmful tax-law change. Even so, the Department found good cause because the seven years of major business changes could affect Florida apportionment and the original election had been made without professional accounting or legal advice.

Permission carried four conditions: deconsolidation began with the year ending December 31, 1997; no deferred item could later benefit a former consolidated member; the 1997 separate returns could not produce different tax from the pro forma consolidated return; and the group could not join a Florida consolidated return before the year ending December 31, 2002.

What this means for you

A Florida consolidated-return election generally continues for later years unless the Department consents to separate filing. Significant changes in a group's organization and operations may support good cause, but permission can include conditions preventing timing or tax advantages.

Common questions

Q: Did the group show that consolidated filing caused more tax? No. The Department said it had not established a substantial adverse tax effect.

Q: Why was permission granted anyway? The scale of the reorganization, acquisitions, growth, foreign expansion, and Florida operating change established good cause.

Q: Could the group immediately rejoin another Florida consolidated return? No. The ruling barred that through tax years ending before December 31, 2002.

Citations and references

• Fla. Stat. § 220.131(1) — consolidated-return election
• Fla. Stat. § 220.131(3) — continuing election unless the Department consents to separate returns
• Fla. Admin. Code r. 12C-1.0131(3)(b) — applications, good-cause factors, and conditions for revocation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98C1-009

Original ruling text

Oct 12, 1998

Re: Technical Assistance Advisement 98(C)1-009
Request for Authority to Discontinue Consolidated Filing
s. 220.131, F.S., Consolidated Filing Election
XXX (hereinafter "Corporation")

Dear :

Your letter of XX, requests a Technical Assistance Advisement
for 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 authority of s. 213.22, Florida Statutes.

FACTS

Corporation is the parent corporation of an affiliated group of
corporations domiciled in another state. Corporation has been
filing consolidated Florida corporate income tax returns since
electing consolidated reporting for the tax year ended December
28, 1990. The decision to make the consolidated return election
was made without the benefit of professional advice from a
public accounting or law firm. Since then, Corporation and its
affiliated group has undergone a substantial reorganization of
its business. Corporation has merged with or acquired over 100
entities, has expanded into foreign markets, and has experienced
substantial business growth. Net revenues for the Corporation
and its affiliated group have nearly tripled, and foreign
operations now constitute approximately twenty-five percent
(25%) of the Corporation's business. Additionally, in 1996,
Corporation's main operating unit within the State of Florida
merged into Corporation, and it is no longer functioning as an
independent subsidiary corporation. For the 1997 tax year,
Corporation's Florida operations are now being conducted as a
division of the Corporation.

Corporation attests 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 which would not be included on separately filed
returns. Corporation states that separately filed returns will
not distort Florida taxable income, but, in fact, should more
accurately reflect Florida income. Because of a NOL carry
forward and tax credits, Corporation estimates that it will owe
no Florida corporate income tax on either a consolidated or a
separate return basis. Finally, Corporation states that it has
received an extension of time to file its 1997 Florida corporate
income tax return.

LEGAL AUTHORITY

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

(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.

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

Corporation has not established that continuing to file
consolidated Florida corporate income tax returns would have a
substantial adverse effect on Corporation and its affiliated
group. Further, the Corporation has not cited any changes in the
Florida Income Tax Code or the Internal Revenue Code, which
negatively affect Corporation and its affiliated group.

However, the information provided by Corporation establishes
that significant changes have occurred in the business of the
Corporation and its affiliated group. These changes have
evolved over the past seven years, and may have affected the
apportionment factors used in the preparation of the Florida
corporate income tax return. Additionally, the Corporation
asserts that the election to file a consolidated income tax
return was made without benefit of professional advice from a
public accounting or law firm. We believe that good cause has
been shown to discontinue the filing of consolidated Florida
corporate income tax returns.

CONCLUSION

Subject to the following four conditions, the Department grants
permission to discontinue filing consolidated Florida corporate
income tax returns beginning with the calendar year ending
December 31, 1997 and later tax years:

1. That the deconsolidation be effective for calendar years
   ending on December 31, 1997 and later years;
2. That Corporation has no realized but unrecognized income
   or expense items that may be recognized at a later date
   which would benefit any member of Corporation's affiliated
   group which has been included within the consolidated
   Florida corporate income tax returns that have been filed;
3. That there is no difference in the tax liability between
   the separate returns filed and the pro forma consolidated
   return for the same period, for the tax year ended December
   31, 1997; and
4. That Corporation and its affiliated group not become
   part of a consolidated Florida corporate income tax return
   prior to the tax year ending December 31, 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 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,

Gary A. Moreland
Technical Assistance and Dispute
Resolution
Office of General Counsel
GAM/gm
Control No. 34614