How could affiliated Florida banks allocate one consolidated intangible-tax liability when claiming credits on separate franchise-tax returns?

Subject

Bank Franchise Tax: Intangible Tax Credit

Plain-English summary

The Florida bank holding company and its five wholly owned banking subsidiaries qualified as an affiliated group for a consolidated 1998 intangible-tax return. The holding company directly owned 100% of each subsidiary on January 1, 1998, exceeding the statute's 80% voting and nonvoting stock thresholds.

The group planned to file one consolidated intangible-tax return but separate Florida corporate income or bank-franchise-tax returns. Florida law then allowed a credit against bank franchise tax generally equal to the lesser of the annual intangible tax imposed and paid by the taxpayer or 65% of the bank franchise tax imposed for the period.

No state provision directly explained how to divide that credit when one group liability fed several separate returns. Using federal consolidated-return concepts for guidance, the Department required the group to allocate its consolidated intangible-tax liability according to the proportion of total group liability attributable to each affiliate. Each member's allocated share supplied the basis for its separate credit calculation.

What this means for you

The ruling separated two questions. Common ownership determined whether the banks could file a consolidated intangible return; each affiliate's contribution to the actual intangible-tax liability determined how that group amount was divided for separate franchise-tax returns.

The Department did not simply split the liability equally among six entities or allocate it according to stock ownership. The method followed each affiliate's attributable share of the consolidated liability.

Common questions

Q: Did the new outside parent prevent the Florida holding company and its subsidiaries from being an affiliated group? No on the stated facts. The Florida holding company still directly owned 100% of its five banking subsidiaries on the relevant date.

Q: Could the banks file one intangible return but separate income-tax returns? Yes. The TAA addressed that exact combination for 1998.

Q: How was the consolidated liability divided? Each affiliate received the proportion represented by its own attributable intangible-tax liability divided by the group's total liability.

Q: Was the credit always equal to intangible tax paid? No. The ruling described the credit as generally limited to the lesser of intangible tax imposed and paid or 65% of the bank franchise tax imposed for the period.

Citations and references

• Fla. Stat. §§ 199.023(8)-(9), 199.052(10) — affiliated banking organizations and consolidated intangible-tax returns
• Fla. Stat. §§ 220.62(4), 220.63, 220.68 — bank franchise tax and the annual-intangible-tax credit
• Fla. Stat. § 220.02(3) — use of federal income-tax concepts for guidance
• I.R.C. § 1552(a) — federal allocation analogy used by the Department
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98C2-008

Original ruling text

Jun 02, 1998

Re: Technical Assistance Advisement 98(C)2-008 XXX (the "Taxpayer") XXX ("Company X") Bank Franchise Tax: Intangible Tax Credit Section 220.68, F.S.

Dear :

Your letter requesting a Technical Assistance Advisement, dated XXX, has been received by this office. The factual scenario for which the response is being written is presented below.

STATEMENT OF FACTS

The Taxpayer is a Florida domiciliary bank holding company and is the parent of five wholly owned subsidiaries ("Subsidiaries") each operating as a "banking organization" in Florida within the meaning of ss. 199.023(9) and 220.62(4), F.S.

On XXX, the Taxpayer was acquired via merger by Company X. As of the date of the merger, Company X was the new common parent with the Taxpayer as a wholly owned subsidiary. For tax years ended December 31, 1996 and prior, as well as for the shortperiod ended XXX, the Taxpayer and the Subsidiaries filed a Consolidated Florida Income Tax Return. For TYE 12/31/97, and for all future years, the Taxpayer and the Subsidiaries will file separate Florida Corporate Income Tax Returns. Company X will not file a Florida Corporate Income Tax Return based on its belief that it lacks nexus with the state of Florida.

REQUESTED ADVISEMENTS

Based upon the scenario above, you have requested technical assistance on the following issues:

Question 1: Do Taxpayer and the Subsidiaries constitute an affiliated group for purposes of filing a 1998 Consolidated

Intangible Tax Return?

Response: The provisions of law governing this issue are found under s. 199.052(10), F.S., which provides that only an "affiliated group of corporations" can file a consolidated return. For purposes of this provision of law, "affiliated group of corporations" is defined under s. 199.023(8), F.S., to mean one or more chains of corporations connected through ownership with a common parent corporation providing that:

(a) Stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of each corporation, except for the common parent corporation, is owned directly by one or more of the other corporations; and (b) The common parent corporation directly owns stock possessing at least 80 percent of the voting power of all classes of stock and at least 80 percent of each class of the nonvoting stock of at least one of the other corporations.

Thus, since the Taxpayer directly owned 100% of the Subsidiaries' stock as of January 1, 1998, the Taxpayer and the Subsidiaries do in fact constitute an affiliated group for purposes of filing a 1998 Consolidated Intangible Tax Return.

Question 2: Can the Taxpayer and the Subsidiaries utilize a reasonable allocation methodology for purposes of claiming the consolidated intangible tax credit on their separate TYE 12/31/98 Florida Corporate Income Tax Returns.

Response: Section 220.63, F.S., imposes a tax measured by net income on each bank and savings association for each taxable year commencing on or after January 1, 1973, and for each taxable year which begins before and ends after January 1, 1973. Section 220.68, F.S., provides for a credit against the tax which is generally equal to the lesser of (1) the amount of the annual intangible tax imposed on, and paid by, the taxpayer during the period or (2) 65% of the amount of income tax imposed for the period under s. 220.63, F.S. There is, however, no provision of law which specifically addresses how intangible tax

credit is to be claimed in a situation such as this where an affiliated group of corporations chooses to file a consolidated return for intangible tax purposes and separate returns for corporate income tax purposes.

The Department, therefore, has reverted to the concepts of federal income tax law for guidance on this issue as required by s. 220.02(3), F.S. A somewhat analogous situation is addressed by s. 1552(a) of The Internal Revenue Code, which identifies the methods by which the consolidated income tax liability of an affiliated group is to be allocated for purposes of determining the separate earnings and profits of each affiliate. While the federal statute outlines three alternative methods to accomplish this purpose, each of the three employs the same general underlying principle that the consolidated tax liability should be allocated based on the proportion that the affiliate's taxable income bears to the total taxable income for the entire consolidated group.

Thus, by applying this same general principle to the facts of this case, the affiliated group's consolidated intangible tax liability should be allocated based on the share that the intangible tax liability attributable to each affiliate bears to the total liability reported for the entire group.

This response constitutes a Technical Assistance Advisement under section 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 section 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which 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 section 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 you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

George D. Turner
Senior Tax Specialist
Technical Assistance & Dispute Resolution Office of General Counsel