Could an affiliated group stop filing Florida consolidated returns after substantial changes in its organization and business?

Subject

Consolidated Filing Election

Plain-English summary

The Department allowed the affiliated group to stop filing Florida consolidated returns because its organization, market, and activities had changed substantially. The group did not show that a tax-law change made consolidation substantially adverse, but the magnitude of its business changes made continued consolidated filing imprudent under the rule's broader good-cause factors.

Approval carried four conditions: a redacted effective year, full later recognition of any beneficial deferred items, the stated separate-versus-consolidated taxable-income difference, and a redacted period during which the group could not join another Florida consolidated return.

What this means for you

A Florida consolidated election generally continues. A major, documented change in an affiliated group's circumstances can support permission to revoke it, but the Department may impose tax-accounting and reentry conditions.

Common questions

Q: Was permission to file separately granted? Yes.

Q: Did the group prove an adverse change in tax law? No.

Q: Was the approval unconditional? No.

Citations and references

• Fla. Stat. § 220.131(1) and (3) — consolidated election and continuing filing requirement
• Fla. Admin. Code r. 12C-1.0131(3) — permission to discontinue consolidated filing
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00C1-014

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing Florida consolidated tax returns based on
changes in their organizational structure?

ANSWER - BASED ON FACTS BELOW: The parent company was
granted permission to cease filing Florida consolidated tax
returns based on the provisions of the F.A.C., which
addresses changes in business activities.

Dec 27, 2000

Re: Technical Assistance Advisement 00C1-014
Corporate Income Tax - Consolidated Filing Election
s. 220.131, F.S.
XXX, hereinafter referred to as "A"

Dear :

Your letter of XX, requested a Technical Assistance Advisement
granting the taxpayer referenced above permission to cease
filing its Florida corporate income tax returns on a
consolidated basis. 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, Florida Statutes.

FACTS

Your letter of XX, states that "A" is the parent corporation of
an affiliated group of corporations that operates XXX and XXX.

"A" is the parent of an affiliated group of corporations which
files a consolidated federal income tax return and consolidated
Florida corporate income tax return. "A's" activities include,
primarily, administrative functions which take place in XXX.
Additionally, "A" owns XXX of the stock of a corporation which

operates XXX in XXX and XXX. "A" also owns XXX of the stock of
the corporation in which the XXX resides, and XXX of a XXX
corporation formed, in XXX, as a XXX holding company.

In XXX, "A" opened a XXX in XXX, and began marketing XXX on a
XXX and XXX basis. In an effort to expand the market for its
XXX items, "A" opened a XXX in XXX, which XXX these XX.
Additional XXX were opened prior to the time "A" incorporated in
XXX and made its initial public offering (IPO) of stock.

At the time of the IPO XXX corporations were created. XXX
contained the management and headquarters operations, XXX
contained the XXX operations, and the XXX contained the XXX
operations.

"A" opened its first Florida XXX in XXX, when XXX sales to
unrelated parties represented approximately XXX of "A's" total
revenues. Today, "A" and its subsidiaries operate XXX and XXX
facility, with sales to unrelated parties representing less than
XXX of total revenues.

"A" stipulates that there are no intercompany transactions, or
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.

On the basis of the facts presented in the letters dated XXX,
and additional information presented in your letters dated XX,
and XX, permission is requested for "A" and its subsidiaries to
cease filing Florida corporate income tax returns on a
consolidated basis, beginning with the tax year beginning XXX.

LAW

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

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 this 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:

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), F.A.C., states in pertinent part:

(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.

(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 has a substantial
   adverse effect on the consolidated tax liability of the
   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 would negatively
affect the consolidated group.

However, the information provided by "A" does show that
substantial changes have occurred in the affiliated group from
XXX, when it first elected to file on a consolidated basis, and
XXX, in terms of the size of "A's" market and the extent of its
activities. As a result, the affiliated group has undergone
changes, the magnitude of which affect the prudence of
continuing to file on a consolidated basis for Florida corporate

income tax purposes.

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

1. That permission to file Florida corporate income tax
   returns on a separate basis is effective for tax years
   beginning XXX, and later, and

2. That "A" has no realized but unrecognized income or
   expense items that may be recognized at a later date which
   would benefit any member of "A's" affiliated group. If "A"
   should be required to recognize any such items at a later
   date, they should be reported in full on the separate
   Florida corporate income tax returns of the appropriate
   entities, and

3. That the difference in taxable income, on a separate and
   consolidated pro forma basis, for the tax year beginning
   XXX, is approximately XXX, and

4. That the affiliated group not become part of a
   consolidated Florida corporate income tax return prior to
   the tax year beginning XXX.

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 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, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the

conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Suzanne C. Paul
Technical Assistance and
Dispute Resolution

SCP/
Control No.: 43308