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