Could a corporate group stop filing Florida consolidated returns after extensive changes in its business?

Plain-English summary

A parent asked to end its Florida consolidated-return election after its affiliated group changed substantially. Few of the original subsidiaries remained, and acquisitions, divestitures, diversified product lines, geographic expansion, and growth had transformed the group's business and Florida profile.

Florida found sufficient changed circumstances and permitted the parent and subsidiaries to file separate corporate income tax returns. The permission was conditioned on the approved effective period, proper treatment of intercompany and deferred items, a bar on reconsolidating before the specified year, and recognition of specified deferred gains.

What this means for you

A prior consolidated election generally continues, but Florida may permit deconsolidation for good cause based on major changes in law or business circumstances. Approval can carry detailed transition conditions.

Common questions

What changes supported approval? Acquisitions, divestitures, diversification, geographic expansion, growth, and the disappearance of most original group members.

Was approval unconditional? No. It imposed four conditions addressing timing, intercompany and deferred items, future reconsolidation, and deferred gains.

Could the group immediately elect consolidation again? No. The approval prohibited participation in a Florida consolidated return before the specified later tax year.

Citations and references

• Fla. Stat. § 220.131(1), (3) (consolidated-return election and continuation)
• Fla. Admin. Code r. 12C-1.0131(3)(b)2.a. (permission to discontinue for changed circumstances)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 06C1-004

Original ruling text

SUMMARY
QUESTION: May a parent company be granted permission to cease filing Florida consolidated corporate income tax
returns upon changes in business circumstances.
ANSWER - Based on Facts Below: The parent company was granted permission to cease filing Florida consolidated
corporate income tax returns based on provisions of the F.A.C. which addresses changes in business circumstances.

July 6, 2006

Re: Technical Assistance Advisement 06C1-004
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3)(b)2.a., F.A.C.
XX (FEIN: XXX) (hereinafter referred to as "Parent")
XX (FEIN: XXX) (hereinafter referred to as
Parent's Consolidated Filing Group)
Dear :
Your letter of XX, requests permission for the above referenced Parent and its subsidiaries, which comprises the
Parent's Consolidated Filing Group, and includes the companies provided in Attachment A, to discontinue filing
consolidated returns for Florida corporate income tax purposes. In addition, your letter details the changes in
circumstance that have prompted your request. 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 REQUESTOR
Parent is a XXX corporation XXX. It began its business activities in XX. Parent and subsidiaries comprise the Parent's
Consolidated Filing Group for both federal and Florida purposes. Parent indicates that its consolidated filing group has
filed consolidated F-1120's since XX. In that year the consolidated group was comprised of XXX. In addition to XXX,
Parent's Consolidated Filing Group was also involved in XXX.
Beginning in XX, Parent began its first major XXX outside Florida when it acquired XXX. Subsequent to that first outof-Florida venture, Parent continued to expand by acquiring XXX in XX, and also by purchasing XXX and XXX. In the
early XX's, Parent's business model shifted away from XXX and XXX. During this period, Parent divested itself of its
XXX, and in XX, began diversification into XXX by starting its own XXX. Parent focused on XXX and on the XXX. By
XX, Parent and its subsidiaries completely ceased direct XXX. Although Parent was now XXX activities, it continued to
acquire assets of out of state XXX in an effort to position itself as a leader in the XXX.

In XX, Parent completed the divestiture of the XXX and XXX through a XXX of XXX. This XXX marked the end of
Parent's XXX, as Parent entered into a XXX agreement which was in force through XXX, and was later extended
through XXX. While leaving the XXX, Parent was at the same time expanding its XXX outside of Florida, by acquiring
companies with operations in XXX, and a number of other states. Furthermore, by XX, Parent had again diversified its
product lines by offering XXX and XXX to both Parent-XXX and others. These services were provided by Parent's
subsidiaries in Florida and XXX other states. In the XX operating period, these subsidiaries XXX.
In the early XX's, Parent continued to expand its previous diversification into XXX by acquiring XXX Parent also
continued to expand its XXX division by providing a variety of XXX. These products were offered through XXX in
those states, and in XX, Parent's subsidiaries XXX.
In conjunction with the XXX, and in an effort to further diversify its product lines, Parent now provides XXX. As of XXX,
Parent's subsidiary had XXX.
As noted above, Parent and its consolidated filing group have undergone significant growth, major geographic
expansion, and numerous changes in market strategy and product mix since XX. During those years Parent and its
consolidated group have evolved from that of a vertically integrated XXX, with operations almost exclusively in Florida,
to that of a XXX. In addition, to these changes in circumstances, Parent's income attributable to Florida has decreased
from approximately XX in XX, to approximately XX in XX, to approximately XX in XX.
In requesting permission to deconsolidate, Parent states that there are minimal intercompany unrealized or
unrecognized deferred items of income or expense, between Parent and any of its subsidiaries, or between any of its
subsidiaries, and that such items will be recognized for Florida income tax purposes if permission to deconsolidate is
granted. Parent further states that by filing separate Florida corporate income tax returns, the members of Parent's
consolidated filing group would have paid approximately XX more in Florida corporate income tax than what was paid
on a consolidated basis for its taxable year ending XX. Parent also expects that a greater XX in Florida income tax will
occur if permission to deconsolidate is granted for the taxable year ending XX. In addition, Parent indicates that if
permission to deconsolidate is granted, Parent will not elect to re-consolidate for a period of 5 years from the year of
deconsolidation.
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
   Has sufficient reasonable cause been established for the Executive Director to grant the Parent's Consolidated Filing
   Group permission to stop filing consolidated Florida corporate income tax returns?
   DISCUSSION AND ANALYSIS
   This request for deconsolidated corporate filing relies on Rule 12C-1.0131(3)(b)2.a., F.A.C., which permits the
   Executive Director to consider "changes in law or circumstances, including changes which do not affect income tax
   liability." Parent cites major changes in circumstance, since initially electing to file a consolidated Florida corporate
   income tax return in XX. Only XX of the original XX subsidiaries included in Parent's first consolidated return exist
   today. In the XX's and XX's Parent's consolidated group business model focused on efficient XXX. Parent's current
   business model is drastically different from its original, with only XXX surviving the numerous acquisitions and
   divestitures. Parent now has XX distinct operating and reporting segments: XXX. Parent's XXX activities are limited to
   XXX, but Parent no longer XXX.
   Since XX, Parent has divested itself of all but XX of its original subsidiary operations (XXX) and has diversified its
   business activities into XXX. Through its strategic acquisitions, divestitures, and product line diversification, Parent
   and its consolidated filing group have experienced extensive changes to its business product lines, dramatic
   geographic expansion, and a substantial increase in size. In XX, Parent was primarily a Florida XXX with
   approximately XX of it operations outside of Florida. At that time, the Parent and its consolidated group generated
   revenues of approximately XXX. Today it has operations in over XX states, and in XX generated over XX in revenues.
   The degree of Parent's shift in business circumstance is even more revealing, when considering that in XX, Parent
   attributed XX of its income to Florida operations, but by XX, that percentage had decreased to approximately XX. In
   the past XX years, Parent's consolidated filing group has evolved from that of a vertically integrated XXX almost
   exclusively in Florida, to that of a XXX. Parent's consolidated group is now operating in XXX states other than Florida,
   and generates nearly XX of its revenue from sources outside of Florida.
   Based on the facts and circumstances, and pursuant to subsection 220.131(3), F.S., the Parent has met the
   requirements necessary for the granting of deconsolidated filing of its Florida Corporate Income Tax return. Therefore,
   subject to the following four conditions, the Department grants permission to the Parent and Subsidiary consolidated
   filing group to discontinue filing a consolidated Florida Corporate Income Tax return.
4. That the deconsolidation is effective for the income tax returns beginning with the period ending XX;
5. That the Parent and Subsidiary Consolidated Filing Group has no intercompany items realized, but not recognized,
   nor any deferred income or expenses that would normally be reported on a consolidated basis, but would not be

included in separately filed corporate income tax returns.

3. That the Parent and Subsidiary Consolidated Filing Group does not become part of a consolidated Florida
   corporate income tax return prior to the tax year ending in XX.
4. That any deferred gains which are realized for Federal tax purposes, but which have not yet been recognized, are
   required to have been reported in total, on the income tax returns filed by the taxpayers, for the period ending XX.
   CONCLUSION
   The Parent and Subsidiary Consolidated Filing Group have met the requirements for granting permission to
   discontinue the Florida Corporate Income Tax consolidated filing election. Accordingly, Parent and Subsidiary’s
   request for permission to file separate Florida Corporate Income Tax returns for the tax year ended XX, is granted,
   subject to the provisions stated in the preceding paragraph.
   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 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,
   Charles J. Dunning
   Technical Assistance and Dispute Resolution
   Record ID: 21218