Could a Florida affiliated group revoke its consolidated-return election after major business expansion and industry regulatory changes?

Plain-English summary

Florida granted a parent company permission to stop filing consolidated Florida corporate income tax returns and move its affiliated companies to separate returns. The Department found good cause only after considering the group's substantial business growth and diversification together with changes in the laws regulating its industry.

The ruling is heavily redacted. It does not identify the company, industry, years, business lines, revenue figures, tax differences, or the full transition adjustments. What remains clear is that the group had filed both federal and Florida consolidated returns, had materially expanded its market and products, reorganized its business segments, sold some operations, and experienced industry regulatory changes affecting its policies and reporting.

A consolidated election normally continues

Section 220.131 allowed a parent of an affiliated group to elect a Florida consolidated return when the same group filed federally and all members consented.

Once made, section 220.131(3) generally required consolidated filing in later years while the taxpayers remained affiliated or continued federal consolidation. Separate Florida returns required the director's consent.

Rule 12C-1.0131(3) authorized the Department to permit deconsolidation for good cause and allowed it to impose terms, conditions, and adjustments. The rule included changes in law or circumstances, even changes that did not directly affect income-tax liability, among the factors that could be considered.

The combined changes established good cause

The company argued that its affiliated group had changed substantially since the original election. The record showed major growth in market size, additional lines of business, a different business focus, and regulatory changes affecting the industry.

The Department said the regulatory changes did not directly alter Florida consolidated reporting. It also said neither the regulatory changes nor the company's voluntary business expansion was sufficient standing alone. Considered together, however, they established a sufficient basis to approve the request.

Approval came with six redacted conditions

The visible portions of the six conditions show that:

• Separate filing would begin with a specified tax year, which is redacted.
• A specified transaction had to be recognized on the final consolidated return.
• Any later-recognized deferred items had to be reported in full by the appropriate entity on its separate return.
• Tax differences between separate and consolidated filing for three redacted years were part of the transition terms, but the operative amounts and language are removed.
• The group could not become part of another Florida consolidated return before a specified future year, which is also redacted.

Because those details are unavailable, the page cannot state the precise adjustments or waiting period.

What this means for you

Affiliated corporate groups

A Florida consolidated-return election is not freely revocable. A group needs Department consent and must show good cause under the rule.

Companies undergoing major transformation

Growth, acquisitions, new product lines, reorganized segments, and regulatory changes may be considered together. This ruling did not treat any one of those facts as automatically sufficient.

Corporate tax teams

Expect transition conditions addressing deferred items, tax differences, the effective year, and when the group may consolidate again. The application generally must be made at least 90 days before the consolidated return's due date, including extensions.

Common questions

Q: Could the group simply elect separate filing on its next return?
A: No. Its prior consolidated election continued unless the Department consented.

Q: Were regulatory changes alone enough?
A: No. The Department said they did not directly affect Florida consolidated reporting and were insufficient by themselves.

Q: Was business expansion alone enough?
A: No. The ruling said the business and legal changes established good cause only when considered together.

Q: What transition adjustments applied?
A: The ruling identifies categories—final consolidated recognition, later deferred items, three years of tax differences, and a no-reconsolidation period—but the essential years and amounts are redacted.

Citations and references

• Fla. Stat. § 220.131(1) — requirements for electing a Florida consolidated corporate income tax return
• Fla. Stat. § 220.131(3) — continued consolidated filing unless the director consents to separate returns
• Fla. Admin. Code r. 12C-1.0131(3) — application timing, good-cause factors, and transition conditions for deconsolidation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04C1-007

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, expansion of its business lines, and regulatory changes applicable to the
industry?
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 and laws.

November 16, 2004

Re: Technical Assistance Advisement 04C1-007
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. The letter dated XX, provides
additional information requested in the Department's letter dated XX. 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" provides information to businesses which engage in XXX. "A" made its consolidated
filing election in XX, as the result of the acquisition of a subsidiary on XX, which was based in XXX. This acquisition
also resulted in "A's" ownership of additional XXX based companies related to the subsidiary it had acquired.
"A" and its subsidiaries presently file a consolidated federal income tax return and consolidated Florida corporate
income tax return.
In XX, "A" was reorganized into XXX business groups consisting of XXX, and XXX. The XXX group was composed of
XXX, which was managed by XXX, and XXX.
The XXX customer base included XXX and XXX. "A's" XXX provided XXX, and XXX.
"A's" XXX segment provided XXX, and other information to XXX nationwide.

The XXX segment operated in XXX and XXX. "A" provided XXX, and XXX with XXX, and XXX. In XX, the XXX and
XXX.
In XX, "A" provided XXX, and XXX, and XXX. In XX, "A" offered access to a XXX.
Also, during XX, "A" signed an agreement to offer XXX.
"A's" XXX group offered XXX, including XXX, and XXX.
During XX and XX, "A" greatly expanded the products and services available to its customers. Also during this time,
"A" sold its XXX, and XXX. Additionally, the XXX was incorporated and became publicly traded.
By XX, "A" operated in XXX and had XXX. The greatest portion of its business, XXX, had tripled during the previous
XX years. "A's" business segments now consist of XXX, which XXX, and XXX; XXX, which XXX; and XXX, which
XXX.
In XX, "A's" XXX operations generated XXX of its revenue and XXX of its operating profit before expenses. "A's" XXX
operations generated XXX of its revenue, and its XXX operations generated XXX of its revenue.
The regulatory environment in which "A" operates has also changed since XX. Amendments to the XXX, caused a
change in "A"s" business policies.
The XXX, to which "A" is subject, imposed additional reporting requirements on the XXX. The XXX was amended in
XXX, to impose additional XXX.
"A" stipulates that there are no intercompany transactions, or deferred income or expense items that may be
recognized at a later date, other than a capital contribution of assets and liabilities made by "A's" XXX to another of its
XXX. For tax purposes, the event which resulted in a reporting requirement for the XXX related to this transaction
occurred in XX.
On the basis of the facts presented in the letter dated XX, and additional information presented in the letters dated XX,
and XX, and in the conference of 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 ending XX.
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... 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.
3. 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
   "A" relies upon Rule 12C-1.031(3)(b)2a., 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." "A" contends that the business of the
   affiliated group has changed significantly since it made its consolidated return election in XX. In addition, "A" cites
   changes in the law relating to the XXX, including amendments to the XXX which caused a change in its business
   policies, passage of the XXX, which imposed additional XXX requirements on the XXX of XXX, and amendments to
   the XXX which imposed additional XXX.
   The information provided by the taxpayer shows substantial growth in the consolidated group since XX, when the
   taxpayer first elected consolidated filing, both in terms of the size of its market and through the additional lines of
   business in which it is presently engaged.
   "A" states that changes in the law governing the XXX are also a basis for deconsolidation. However, the XXX which
   caused a change in "A's" business policies, and passage of the XXX, and amendments thereto, which imposed
   additional XXX requirements, do not represent changes in the law that directly affect "A's" Florida consolidated
   reporting, even though they do affect the XXX and "A" in general. "A" has taken affirmative steps to expand its
   business lines. These changes in the XXX and "A's" business can be considered with "A's" growth and change of
   business focus. While neither of the grounds cited by "A," standing alone, is a sufficient basis for deconsolidation,
   when the legal changes in the XXX are considered together with the changes in "A's" business, brought about by
   growth and expansion of the lines of business in which it engages, these factors establish a sufficient basis for
   granting "A's" deconsolidation request.
   Therefore, based on the following six conditions, the Department grants permission to discontinue filing consolidated
   corporate income tax returns for the tax year ending XX, and later years:

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

2. That the XXX from the XXX is to be recognized on the last consolidated Florida corporate income tax return filed by
   "A," and that "A" has no other realized but unrecognized income or expense items that may be recognized at a later
   date. 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 tax, on a separate and consolidated basis, for the tax year ending XX, and
4. That the difference in tax, on a separate and consolidated basis, for the tax year ending XX, and
5. That the difference in tax, on a separate and consolidated basis, for the tax year ending XX, and
6. That the affiliated group not become part of a consolidated Florida corporate income tax return prior to the tax year
   ending XX.
   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.: 61336