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