Could a corporate group stop filing Florida consolidated returns because of routine reorganizations, the parent's lost Florida nexus, and administrative cost?

Subject

Request for Permission to Deconsolidate

Plain-English summary

The Department denied permission to stop filing Florida consolidated returns. The affiliated group had experienced mergers, acquisitions, sales, and dissolutions, and its parent no longer had Florida nexus, but the underlying manufacturing and distribution business remained the same.

The group would continue filing a federal consolidated return, and Florida consolidation caused neither a favorable nor an adverse tax effect. Routine corporate reorganizations, the parent's lost nexus, and the administrative cost of preparing the return did not establish good cause to revoke the election.

What this means for you

Once a Florida consolidated-return election continues under section 220.131, ordinary organizational changes or filing expense alone may not justify deconsolidation when the nature of the business remains unchanged.

Common questions

Q: Was deconsolidation approved? No.

Q: Were mergers and subsidiary dispositions enough? No.

Q: Did the parent's loss of Florida nexus change the result? No.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01C1-005

Original ruling text

SUMMARY

QUESTION: May a parent company be granted permission to
cease filing Florida consolidated tax returns without
showing changes in law or the organizational structure of
the consolidated group?

ANSWER: Based on the Facts below - No. The parent company
was not granted permission to cease filing Florida
consolidated tax returns. Changes in the organizational
structure of the consolidated group, such as mergers,
acquisitions, liquidations, dissolutions, and sales of
subsidiaries, divisions, or assets, were not a sufficient
basis for deconsolidation when the nature of the business
remains the same.

May 21, 2001

RE: Technical Assistance Advisement 01C1-005
XXX ("Taxpayer")
Request for Permission to Deconsolidate
s. 220.131, F.S.; Rule 12C-1.0131

Dear :

This letter is in response to your request for permission to
discontinue filing a consolidated Florida income tax return for
the tax year ending XX. This response 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.

STATEMENT OF FACTS

Taxpayer and its affiliated group are engaged in the manufacture
and distribution of XXX. Manufacturing facilities are located
in XXX. Sales are made throughout the United States, but
consummated in XXX. The affiliated group includes entities with

and without Florida nexus. Prior to XX, those affiliated
entities that were subject to Florida corporate income tax filed
separate company returns. Taxpayer, the parent corporation of
the affiliated group, rented property in Florida in XX, thereby
creating nexus with the State of Florida. At that time,
Taxpayer made an election to file consolidated Florida corporate
income tax returns.

Certain changes have occurred with respect to Taxpayer and its
affiliated group since its XX election to file consolidated
Florida corporate income tax returns. Those changes have been
due to mergers, acquisitions, or the disposition of certain
affiliated group members. Specifically, those changes include:

Taxpayer's wholly owned subsidiary, an operating entity,
acquired XXX several years ago. That XXX was formed as a
single member, limited liability company and treated as a
disregarded entity for federal and Florida corporate tax
return purposes. Both entities have property, payroll, and
sales in Florida;

Taxpayer's XXX subsidiary was dissolved several years ago.
The XXX subsidiary was owned XX% by Taxpayer and XX% by its
operating subsidiary;

Taxpayer, the parent of the affiliated group, no longer has
any presence or activity in Florida. Its lease of the
rented property expired approximately XX years ago;

An operating entity was merged into another operating
entity of Taxpayer approximately XX years ago;

An operating company, XXX, was sold to XXX approximately XX
years ago;

A holding company was dissolved in XX. The company was a
wholly owned subsidiary of Taxpayer's main operating
entity;

An XXX and operating company was sold to XXX in XX. The
operating company was owned by the holding company that was

dissolved in the latter part of XX.

The changes described above all occurred within the Florida
consolidated filing period. The nature of Taxpayer's business
remains the same. Filing on a consolidated basis causes neither
an adverse tax affect nor a beneficial tax affect on the
affiliated group. Taxpayer will continue to file consolidated
federal income tax returns. Taxpayer itself no longer has nexus
with the State of Florida, and Taxpayer must prepare XXX
separate returns in order to prepare the consolidated Florida
corporate income tax return. Filing separate Florida corporate
income tax returns would reduce administrative costs.

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(2), F.S., states:

Subject to subsection (5), the director may require a
consolidated return for those members of an affiliated
group of corporations which are subject to tax and which
would be eligible to elect to consolidate their incomes
under subsection (1), if the filing of separate returns for
such corporations would improperly reflect the taxable
incomes of such corporations or of such group.

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, Tax Policy 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 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

Taxpayer seeks permission to deconsolidate based upon changes in
law or changes in circumstances that do not affect corporate

income tax liability. Rule 12C-1.0131(3)(b)2.a. F.A.C.
Taxpayer's request is not based upon changes in the tax laws or
changes that affect Taxpayer's net operating losses. Filing on
a consolidated basis does not have either a positive or a
negative tax affect on the consolidated group. Taxpayer will
continue to file consolidated federal income tax returns. See
Statement of Facts.

Taxpayer contends that there have been substantial changes in
business circumstances since the Florida consolidated reporting
election was made in XX. We disagree. Corporate
reorganizations, such as mergers, acquisitions, sales or
consolidations, are commonplace and are often no more than
changes in the form or structure of the corporate organization.
Taxpayer sold XXX and then bought another. It merged one
operating subsidiary into another and dissolved an operating
subsidiary. Taxpayer's business continues to be the manufacture
and distribution of XXX.

Finally, the administrative burden associated with preparing a
consolidated return is not a basis for deconsolidation.
Likewise, the fact that the parent of the affiliated group no
longer has nexus with the State of Florida is not a basis for
granting permission to deconsolidate.

CONCLUSION

The information presented by Taxpayer does not establish that
there has been a significant change in the nature of Taxpayer's
business. It is not an unreasonable exercise of discretion to
require the continued filing of consolidated Florida returns.

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. 213.122, 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,
Florida Statutes, 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 materials and this response,
deleting the 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.

If you have further questions with regard to this matter and
wish to discuss them, you may contact Gary A. Moreland at
Technical Assistance and Dispute Resolution, (850) 922-4700. If
you have specific questions and would like a written response,
the request should be addressed to the Office of General
Counsel, Technical Assistance and Dispute Resolution, Department
of Revenue, P.O. Box 7443, Tallahassee, Florida 32314-7443.

Sincerely,

Gary A. Moreland
Technical Assistance and
Dispute Resolution

GAM
Control No. 43878