Could a corporate group end its Florida consolidated-return election after major business growth and industry-law changes?

Plain-English summary

Florida allowed the corporate group to stop filing consolidated returns and begin filing separately. The Department found that the group's substantial growth, changed market focus, and new lines of business, considered together with legal changes affecting its industry, established sufficient cause. Neither category of change would have been enough by itself.

The approval had four conditions: deconsolidation began in the redacted effective year; the taxpayer had no realized but unrecognized income or expense items; separate-return tax for the specified comparison years had to be substantially the same as or greater than the pro forma consolidated liability; and the group could not join another Florida consolidated return before the redacted future year.

What this means for you

Florida treated deconsolidation as discretionary relief, not a routine election. A group seeking it needed material changed circumstances and could be required to protect the state against deferred-item shifts, tax reductions, and rapid reconsolidation.

Common questions

Q: Were business changes alone sufficient? No.

Q: Were industry-law changes alone sufficient? No. The Department relied on their combined effect with the group's growth and changed business focus.

Q: Could the group immediately join a new consolidated return? No. A redacted waiting period was one of the four conditions.

Citations and references

• Fla. Stat. § 220.131 — Florida consolidated returns
• 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 02C1-009

Original ruling text

SUMMARY

QUESTION: May a consolidated group be granted permission to
cease filing Florida consolidated corporate income tax
returns based upon changes in law combined with fundamental

changes in business operations?

ANSWER - Based on Facts Below: The consolidated group was

granted permission to cease filing Florida consolidated
corporate income tax returns based on the Rule provisions
which address changes in law and changes in business

activities.

Sep 19, 2002

Re: Technical Assistance Advisement 02C1-009
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
s. 220.131, F.S.

XXX (hereinafter referred to as "Taxpayer")

Dear:

Your letter of XX, requests permission for the Taxpayer 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 SUPPLIED BY TAXPAYER

The Taxpayer, along with its consolidated group, currently
reports its income on a consolidated basis for Florida corporate
income tax purposes. Taxpayer initially made its Florida

consolidated return election in XX.

Taxpayer began as a XXX in XX, and it was engaged in XXX

activities. By XX, Taxpayer had XXX in assets and consisted of
XXX entities. Subsequent to making its consolidated election,
Taxpayer greatly expanded its network of XXX and purchased XXX.
Taxpayer's asset base has grown XXX, and total assets have grown
from XXX to XXX since making the consolidated reporting

election. Taxpayer has also entered a completely new line of
business, XXX, which is outside traditional XXX. In addition,

Taxpayer has expanded into XXX, and XXX.

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.

ISSUE PRESENTED

Has sufficient reasonable cause been established for the
Executive Director to grant permission to Taxpayer to stop

filing consolidated Florida corporate income tax returns?

DISCUSSION AND ANALYSIS

Taxpayer relies upon Rule 12C-1.031(3)(b)2.a., F.A.C., which
permits the Executive Director to consider "[c]hanges in law or
circumstances, including changes which do not affect income tax
liability". Taxpayer contends that the business of the

affiliated group has changed significantly since it made its
consolidated return election in XX. In addition, Taxpayer cites
changes in the law relating to the XXX industry, including the

passage of XXX, which allows XXX to XXX and XXX, and XXX.

The information provided by Taxpayer shows substantial growth in

the consolidated group since XX, when Taxpayer first elected
Florida consolidated reporting. Taxpayer has grown XXX since
making its initial election, and there have been changes in the
market segments it services. 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.

Taxpayer contends that changes in the law governing the XXX are
also a basis for deconsolidation. XXX allows XXX to compete in
the XXX and XXX industries. XXX provides additional
opportunities for XXX to do business beyond the XXX. This is

not a change in the law that directly affects Taxpayer's Florida
consolidated reporting, even though it does affect the XXX
industry and Taxpayer in general. Taxpayer has entered
additional lines of business, including XXX and XXX. These
changes in the XXX industry and Taxpayer's business can be
considered with Taxpayer's growth and change of business focus.
While neither of the grounds cited by Taxpayer standing alone is
a sufficient basis for deconsolidation, considering the legal
changes in the XXX industry together with the changes in
Taxpayer's business brought about by growth, these factors

establish a sufficient basis for granting deconsolidation.

Therefore, based on the following four conditions, the
Department grants permission to the Taxpayer to discontinue
filing consolidated corporate income tax returns for the XX tax

year and later years:

1. That the deconsolidation is effective for the tax year

ending on XX;

2. That Taxpayer has no realized but unrecognized income or

expense items that may be recognized at a later date;

3. That the amount of tax liability for the tax years ended
   XX, and XX, for the separate tax returns filed as compared
   to a pro forma consolidated return for the same period is

substantially the same or greater;

4. That the Taxpayer Group does not become part of a

consolidated Florida corporate income tax return prior to

the tax year ending XX.

CONCLUSION

Taxpayer has met the requirements for granting permission to
discontinue the Florida corporate income tax consolidated filing
election. Accordingly, Taxpayer's request for permission to

file separate income tax returns for the tax year ended XX, is

granted.

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, your request and
related back-up 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 that 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 the
identification of the Taxpayer. Your response should be
received by the Department within 15 days of the date of this

letter.
Sincerely,
Gary A. Moreland
Technical Assistance and

Dispute Resolution

GAM/gm

Control No.: 50879