Could an affiliated group stop filing Florida consolidated returns after major growth, acquisitions, diversification, and geographic expansion changed the business?

Plain-English summary

The Florida Department of Revenue granted the affiliated group permission to stop filing consolidated Florida corporate income tax returns. The group had changed substantially since making its election through acquisitions, diversification, operational growth, and geographic expansion.

The parent could not identify the exact year of the original Florida election, but both its records and the Department's showed consolidated filing for many years. Since then, it had made numerous strategic acquisitions, expanded from a narrow business and one subsidiary into multiple product lines and companies, and developed manufacturing, sales, and service operations across more states and foreign countries.

The circumstances of the original election no longer matched the business

The cited regulation allowed the Department to consider changes in law or circumstances, including changes that did not directly affect income-tax liability. The taxpayer relied on that good-cause provision.

The Department found substantial changes in sales, income, the size and extent of operations, corporate structure, products, and geographic markets. Those changes were large enough to affect the prudence of continuing the old Florida consolidated election.

The group would continue filing a federal consolidated return, but it estimated that separate Florida returns would materially reduce its Florida liability, with several companies reporting losses. The taxpayer represented that the request was not connected to state tax planning and that it had no intangible holding company.

Permission came with four conditions

The Department allowed separate filing beginning with the redacted tax year only if:

1. The taxpayer had no realized but unrecognized income or expense items; any later-recognized item had to be reported fully on the last Florida consolidated return.
2. The difference between the separate-return liability and a pro forma consolidated return for the specified year approximated the redacted amount represented.
3. The group did not join another Florida consolidated return before the redacted future year.
4. Changes in Florida taxable income resulted from economic or organizational differences, not state tax planning.

The ruling also warned that incomplete disclosure of a material fact could adversely affect the advisement.

What this means for you

Affiliated groups with old Florida elections

Deconsolidation required Department consent. A long record of acquisitions, diversification, and material operational change could support good cause when documented in detail.

Corporate tax departments

Prepare a before-and-after record of legal entities, products, facilities, markets, sales, assets, income, and employees. General claims that the group has changed are weaker than quantified evidence.

Groups expecting lower separate-return tax

A lower liability did not prevent approval here, but the Department conditioned permission on the changes being economic or organizational rather than state tax planning. A pro forma consolidated comparison was part of the conditions.

Common questions

Q: Did the Department grant permission to deconsolidate?
A: Yes, beginning with the redacted tax year and subject to four conditions.

Q: What changes supported the request?
A: Acquisitions, expanded product lines, more affiliates, substantial growth, and broader domestic and international operations.

Q: Would the group keep filing a federal consolidated return?
A: Yes.

Q: Was the request allowed as a tax-planning strategy?
A: No. One express condition required the Florida income changes to arise from economic or organizational differences, not state tax planning.

Q: What happened to realized but unrecognized income or expense items?
A: Any realized but unrecognized item later recognized had to be reported in full on the final Florida consolidated return.

Citations and references

• Fla. Stat. § 220.131(1) — Florida consolidated-return election requirements
• Fla. Stat. § 220.131(3) — continued consolidated filing unless the director consents to separate returns
• Fla. Stat. § 220.15 — Florida taxable-income modifications referenced for future separate filing
• Fla. Admin. Code r. 12C-1.0131(3)(b) — application, good-cause factors, and conditions for discontinuing consolidated returns

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05C1-003

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 or circumstances?
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 or
circumstances.

June 7, 2005

Re: Technical Assistance Advisement 05C1-003
Corporate Income Tax
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S., Consolidated Filing Election
XXX (hereinafter referred to as "Taxpayer")
Dear :
Your letter of XXX, 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 is unable to determine from its records the exact year in which it elected to file on a consolidated basis
in Florida; however, it believes that it has filed on a consolidated basis since at least tax year ending XXX. The
Department's records concur that the Taxpayer has filed on a consolidated basis since at least tax year ending XXX.
The Taxpayer is a XXX, XXX, and XXX. Since tax year ending XX, the Taxpayer has experienced tremendous growth
in all aspects of its business. Strategic acquisitions and market changes have enormously changed the Taxpayer's
corporate structure and expanded its marked presence domestically and internationally. The Taxpayer has made XXX
acquisitions over the past XX years that have greatly diversified its business structure, product lines, and geographical
markets. These acquisitions are:
XXX
Prior to XX, the Taxpayer's principal operations and manufacturing facilities were located in XXX [outside Florida]. The
company also leased space for manufacturing and service facilities in other states, including XXX [5 states]. The

Taxpayer's revenues were significantly dependent on XXX. The Taxpayer only had one subsidiary in XX. The
Taxpayer manufactured only XXX and XXX.
Today, the Taxpayer has manufacturing facilities in XXX [10 states], and foreign facilities in XXX [5 countries]. These
facilities manufacture a variety of products, including XXX, XXX, and XXX.
The Taxpayer also has XXX sales and service centers scattered throughout the U.S. The Taxpayer also owns and
leases additional facilities in several other states. The Taxpayer has XXX sales and service centers in XXX. The
Taxpayer owns facilities in the XXX [2 foreign countries], and leases facilities in XXX [8 foreign countries].
The Taxpayer, along with its affiliated group, reported its income on a consolidated basis for Florida corporate income
tax purposes since at least XX. Since XX, the Taxpayer has undergone many changes and experienced substantial
growth; some of both are described above. In addition, the table below details the substantial growth of the Taxpayer
since XX.
Total Sales

XX

Assets

XX

Net Income

XX

Number of Employees
Manufacturing Facilities

XX
XX

Number of Companies

XX

The Taxpayer's Group will continue to file consolidated federal income tax returns. The Taxpayer estimates that its
Florida tax liability for tax year ending XX, will decrease from XXX on a consolidated basis to XX with XXX companies
showing losses on a separate return basis. The Taxpayer states that it does not have any tax planning activities
related directly or indirectly to the Florida deconsolidation request. The Taxpayer also states that it does not have an
intangible holding company.
Although some data is provided on the future filing aspects of the Taxpayer and its affiliated group, the Department is
unable to provide specific guidance on these other years, other than the general statutory provisions of Chapter 220,
F.S., which require entities to report their share of federal taxable income modified by the provisions of s. 220.15, F.S.
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 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
   Whether the Taxpayer should be granted permission to cease filing consolidated Florida corporate income tax
   returns?
   DISCUSSION AND ANALYSIS
   The 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." The Taxpayer
   contends that the circumstances under which its initial election to file Florida consolidated returns was made have
   changed. The Taxpayer also contends that it has made significant changes in its organizational structure, operations,
   and geographical market; that it has acquired and developed several diverse lines of business; and that it has
   experienced substantial growth since its initial election to file Florida consolidated returns.
   The information provided by the Taxpayer shows substantial changes in the consolidated group since XX. The
   Taxpayer has grown significantly (sales, income, extent and size of its operations, etc.) since XX. As a result, the
   affiliated group has undergone changes the Technical Assistance Advisement 05C1-003 magnitude of which affect
   the prudence of continuing to file on a consolidated basis for Florida corporate income tax purposes.
   CONCLUSION
   Based on the following four conditions, permission is granted for the Taxpayer to discontinue filing consolidated
   corporate income tax returns beginning with tax year ending XX:
4. That Taxpayer has no realized but unrecognized income or expense items that may be recognized at a later date. If
   the Taxpayer should be required to recognize any such items at a later date, they should be reported in full on the last
   Florida consolidated return;
5. That the difference in tax liability for the tax year ended XX, between the separate tax returns filed and a pro forma
   consolidated return for the same period is approximately XXX;
6. That the Taxpayer Group does not become part of a consolidated Florida corporate income tax return prior to the
   tax year ending XX.
7. Changes in Florida taxable income are the result of economic or organizational differences and are not the result of
   state tax planning.

As a reminder, Technical Assistance Advisements are based on full disclosure of all relevant facts, and the lack of
disclosure of a material fact by the Taxpayer may adversely affect the response provided in this Technical Assistance
Advisement.
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,
Robert DuCasse
Technical Assistance and Dispute Resolution
RCD/rd
Record ID: 14278