Could a corporate group abandon Florida's consolidated apportionment result in favor of separate accounting because the outcomes differed substantially?

Plain-English summary

The affiliated group had elected to file Florida corporate income tax returns on a consolidated basis. It later argued that separate accounting produced much less Florida income because much of the group's income came from entities and activity outside the state.

Florida denied alternative apportionment. A different or less favorable result did not establish distortion, and the taxpayer had not shown by clear and cogent evidence that the consolidated property-payroll-sales formula operated unreasonably or arbitrarily, failed to reflect Florida activity, or taxed extraterritorial value.

The Department also emphasized that the group had chosen consolidated filing and used different filing bases in other states. Taxpayers generally remained bound by the consequences of their chosen form.

What this means for you

Separate accounting cannot replace the statutory formula merely because it yields a lower Florida amount. Alternative apportionment requires proof of a grossly distorted result and a fair, accurate replacement method.

Common questions

Did a large difference from separate accounting prove distortion? No.

What evidentiary standard did the ruling apply? Clear and cogent evidence that the regular formula taxed extraterritorial values or operated unreasonably and arbitrarily.

Did the prior consolidated election matter? Yes. The Department treated the taxpayer as bound by the consequences of that choice.

Citations and references

• Fla. Stat. §§ 220.131, 220.15, and 220.152 and Fla. Admin. Code r. 12C-1.0152, as discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09C1-001

Original ruling text

SUMMARY
QUESTION: Does the standard apportionment factor fairly represent the extent of a taxpayer’s
tax base attributable to Florida?
ANSWER: The Taxpayer has not shown by clear and cogent evidence that Florida’s
consolidated apportionment calculation results in taxation of extraterritorial values. The
Taxpayer receives the benefits and protections of Florida law and has made an election to file on
a consolidated basis, and there is no question that Florida may constitutionally tax the
Taxpayer’s business as a whole. The Taxpayer has not demonstrated that the apportionment
formula operates unreasonably and arbitrarily in apportioning the Taxpayer’s consolidated
income to Florida, or that the apportionment formula is inaccurate and does not fairly reflect the
Taxpayer’s business activity in Florida. Therefore, the Taxpayer is not entitled to alternative
apportionment relief under section 220.152, F.S. The Florida consolidated apportionment factor,
which the Taxpayer elected to use, is not distortive and does not tax extraterritorial values.
May 11, 2009
Re:

Technical Assistance Advisement 09C1-001
Corporate Income Tax - Apportionment - Other Methods
Section 220.152, Florida Statutes (F.S.)
Rule 12C-1.0152, Florida Administrative Code (F.A.C.)
XXX, hereinafter referred to as “Taxpayer”

Dear :
Your letter dated XXX, requests a second Technical Assistance Advisement concerning whether
the Taxpayer may use an alternative apportionment formula. 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 section 213.22, Florida Statutes.
FACTS
The Taxpayer is headquartered in XXX. The Taxpayer is XXX consisting of many XXX,
several XXX companies, XXX company, XXX company, and XXX company. Some of the
companies in the Taxpayer’s affiliated group are inactive. The Taxpayer’s XXX are located in
Florida. One of the Taxpayer’s XXX companies does business within and without Florida, and
another XXX company does business solely outside Florida. The Taxpayer’s federal
consolidated taxable income for tax year ending XXX, is XXX.
The Taxpayer elected to file Florida corporate income tax returns on a consolidated basis. Under
the apportionment calculation provided for in section 220.15, F.S., for affiliated groups electing
to file on a consolidated basis, the Taxpayer’s consolidated apportionment factors and
consolidated taxable net income for Florida are:

Technical Assistance Advisement 09C1-001
Page 2

Sales Factor
Payroll Factor
Property Factor
Apportionment Factor
Taxable Net Income 1

XXX
XXX
XXX
XXX
XXX
XXX

The Taxpayer provided computations showing that its XXX only generated XXX of the federal
consolidated taxable income on a separate basis. The Taxpayer also provided computations
showing that its XXX company that does business within and without Florida generated a loss of
XXX within Florida and income without/outside Florida of XXX. The XXX company that does
business solely outside Florida generated XXX of the federal consolidated taxable income on a
separate basis. The Taxpayer’s figures show that Florida income on a separate accounting basis
was only XXX (XXX of consolidated federal income), while the income generated outside
Florida was XXX (XXX of consolidated federal income).
The Taxpayer did not specifically propose an alternative apportionment method, but it appears
by the Taxpayer’s use of separate accounting that the Taxpayer is asserting that separate
accounting is an appropriate alternative apportionment. 2
QUESTION
Does the standard apportionment formula fairly represent the extent of a taxpayer’s tax base
attributable to Florida? If the answer is no, is the Taxpayer’s alternative apportionment
methodology appropriate in this situation?
LAW
Section 220.131(4) and (5), state in part:
(4) The computation of consolidated taxable income for the members of an
affiliated group of corporations subject to tax hereunder shall be made in the same
manner and under the same procedures, including all intercompany adjustments
and eliminations, as are required for consolidating the incomes of affiliated
corporations for the taxable year for federal income tax purposes in accordance
with s. 1502 of the Internal Revenue Code, and the amount shown as consolidated
taxable income shall be the amount subject to tax under this code.

1

Taxable net income = (consolidated federal taxable income plus Florida additions, less Florida
subtractions) times apportionment factor less Florida exemption.
2
In its previous request, the Taxpayer’s alternative apportionment methodology was to allocate
to Florida all income not subject to tax outside Florida.

Technical Assistance Advisement 09C1-001
Page 3

(5) Each taxpayer shall apportion adjusted federal income under s. 220.15 as a
member of an affiliated group which files a consolidated return under this section
on the basis of apportionment factors described in s. 220.15. . . .
Section 220.15, F.S., states in part:
(1) Except as provided in ss. 220.151 and 220.152, adjusted federal income as
defined in s. 220.13 shall be apportioned to this state by taxpayers doing business
within and without this state by multiplying it by an apportionment fraction
composed of a sales factor representing 50 percent of the fraction, a property
factor representing 25 percent of the fraction, and a payroll factor representing 25
percent of the fraction. If any factor described in subsection (2), subsection (4), or
subsection (5) has a denominator that is zero or is determined by the department
to be insignificant, the relative weights of the other factors in the denominator of
the apportionment fraction shall be as follows:
(a) If the denominators for any two factors are zero or are insignificant, the
weighted percentage for the remaining factor shall be 100 percent.
(b) If the denominator for the sales factor is zero or is insignificant, the weighted
percentage for the property and payroll factors shall change from 25 percent to 50
percent, respectively.
(c) If the denominator for either the property or payroll factor is zero or is
insignificant, the weighted percentage for the other shall be 331/3 percent, and the
weighted percentage for the sales factor shall be 662/3 percent.
(2) The property factor is a fraction the numerator of which is the average value
of the taxpayer's real and tangible personal property owned or rented and used in
this state during the taxable year or period and the denominator of which is the
average value of such property owned or rented and used everywhere.
...
(4) The payroll factor is a fraction the numerator of which is the total amount paid
in this state during the taxable year or period by the taxpayer for compensation
and the denominator of which is the total compensation paid everywhere during
the taxable year or period.
...
(5) The sales factor is a fraction the numerator of which is the total sales of the
taxpayer in this state during the taxable year or period and the denominator of
which is the total sales of the taxpayer everywhere during the taxable year or
period.
...
Section 220.152, F.S., states:
If the apportionment methods of ss. 220.15 and 220.151 do not fairly represent
the extent of a taxpayer’s tax base attributable to this state, the taxpayer may
petition for, or the department may require, in respect to all or any part of the
taxpayer’s tax base, if reasonable:
(1) Separate accounting;
(2) The exclusion of any one or more factors;

Technical Assistance Advisement 09C1-001
Page 4

(3) The inclusion of one or more additional factors which will fairly represent the
taxpayer’s tax base attributable to this state; or
(4) The employment of any other method which will produce an equitable
apportionment.
Rule 12C-1.0152, F.A.C., states in part:
(1)(a) A departure from the applicable method of apportionment required
under the provisions of ss. 220.15 or 220.151, F.S., shall be permitted only
where the method does not accurately and fairly reflect business activity in
Florida. An alternative method may not be invoked, either by the
Department of Revenue or the taxpayer, merely because it reaches a
different apportionment percentage than the regularly applicable formula.
However, if the applicable formula will lead to a grossly distorted result in a
particular case, a fair and accurate alternative method is appropriate (see
Norfolk and Western Railway Co. v. Missouri State Tax Commission, 390 U.S.
317, 88 S. Ct. 995, 19 L. Ed. 2d 1201 (1968), which is incorporated by reference
in Rule 12C-1.0511, F.A.C.).
(b) A taxpayer seeking to utilize an alternative apportionment method must
show by clear and cogent evidence that the regularly applicable formula
would result in taxation of extraterritorial values (see Butler Bros. v.
McColgan, 315 U.S. 501, 62 S. Ct. 701, 86 L. Ed. 991 (1942), which is
incorporated by reference in Rule 12C-1.0511, F.A.C.). This can be shown only
if the regularly applicable formula is demonstrated to operate unreasonably
and arbitrarily in apportioning to Florida a percentage of income which is
out of all proportion to the business transacted in Florida and does not
accurately and fairly reflect business activity in Florida (see Hans Rees’ Sons,
Inc. v. North Carolina ex rel. Maxwell, 283 U.S. 123, 51 S. Ct. 385, 75 L. Ed 879
(1931), which is incorporated by reference in Rule 12C-1.0511, F.A.C.).
(2) The party seeking to use an alternative formula must prove that the
alternative formula fairly and accurately apportions income to Florida based
upon business activity in this state.
(3) A departure from the regularly applicable apportionment method will be
authorized only in limited and specific cases where unusual fact situations (which
ordinarily will be unique and nonrecurring) produce a result that is incongruous
with the results of previous tax years under the regularly applicable
apportionment method.
(4) A taxpayer shall petition the Department for a departure from the
required apportionment method by filing, on or before the due date for filing
of the return for the taxable year, with extension, either: a written request
for a technical assistance advisement under s. 213.22, F.S., and Department
of Revenue Rule Chapter 12-11, F.A.C.; or, a petition for a declaratory
statement under s. 120.565, F.S.

Technical Assistance Advisement 09C1-001
Page 5

. . . (Emphasis Supplied)
DISCUSSION
This is the Taxpayer’s second request for alternative apportionment. In the previous advisement
TAA 08C1-006, the Department determined that even though the facts show the XXX company,
which generated a substantial portion of the Taxpayer affiliated group income, is paying tax on a
substantial portion of its separate company income in states outside Florida, that fact did not
result in a determination that the Florida apportionment formula was flawed. The Department
determined that alternative apportionment was not warranted in Florida because the Taxpayer
was filing on different bases, consolidated in Florida and separate in other states. If the
Taxpayer were filing consolidated income tax returns in all states in which it does business, there
would be no question about Florida’s apportionment methodology or any other state’s
apportionment methodology. Likewise, if the Taxpayer were filing separate income tax returns
in all states in which it does business, there would be no question about Florida’s apportionment
methodology or any other state’s apportionment methodology. The Taxpayer’s exercise of the
consolidated filing election in Florida was evidently beneficial to the Taxpayer at the time it was
made. It appears the consolidated election is now less beneficial to the Taxpayer. For tax year
ending XXX, the Taxpayer continues to file income tax returns on different bases in the states in
which it does business.
In the current request, the Taxpayer’s figures show federal taxable income generated from its
Florida activities is only XXX, while federal taxable income generated from its non-Florida
activities is XXX. Under the apportionment methodology for taxpayers that elect to file
consolidated returns in Florida, the Taxpayer’s figures show that of its adjusted federal income
of XXX, XXX is apportioned to Florida. 3 The Florida consolidated income is substantially
greater than the income the Taxpayer determined is attributable to Florida on a separate
accounting basis.
Although the Taxpayer’s figures show a disparity between Florida income on a consolidated
basis and on a separate accounting basis, this difference is caused by the election the Taxpayer
made many years ago to file consolidated returns in Florida, and the fact that the Taxpayer does
not file on the same basis in other states. Because taxpayers have been accorded less freedom
than tax authorities to disavow the form they have chosen, they are generally bound to the tax
consequences that follow from their choice. See Bradley v. United States, 730 F.2d 718, 720
3

The Florida consolidated return, which the Taxpayer elected to use, taxes the Taxpayer’s entire
affiliated group as a single enterprise with a consolidated apportionment formula. All sales,
payroll, and property of each of the entities in the affiliated group are consolidated into one
single apportionment factor, and all of the federal consolidated income of the Taxpayer, with
Florida additions and subtractions, is apportioned to Florida using the single consolidated
apportionment factor. The three factor apportionment formula required by Florida law has been
approved by the United States Supreme Court. See Amerada Hess Corporation v. Director,
Division of Taxation, New Jersey Department of the Treasury, 490 U.S. 66, 74, 109 S. Ct. 1617,
1622 (1989), citing Container Corporation of America v. Franchise Tax Board, 463 U.S. 159,
170, 103 S. Ct. 2933, 2942 (1983).

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(11th Cir. 1984); Illinois Power Co. v. Commissioner, 87 T.C. 1417, 1430 (1986), aff'd 896 F.2d
580 (D.C. Cir. 1990); Regal Kitchens, Inc. v. Department of Revenue, 641 So.2d 158 (Fla. 1st
DCA 1994). This rule seeks to avoid the uncertainty that would result from allowing the
taxability of a transaction to depend on whether an alternative form exists under which more
favorable tax consequences would result. National Alfalfa, 417 U.S. at 149; see Department of
Revenue v. McCoy Motel, Inc., 302 So.2d 440, 443 (Fla. 1st DCA 1974).
CONCLUSION
The Taxpayer receives the benefits and protections of Florida law and has made an election to
file on a consolidated basis, and there is no question that Florida may constitutionally tax the
Taxpayer’s business as a whole. As previously provided in TAA 08C1-006 and the above
analysis, the Taxpayer has not demonstrated that the apportionment formula operates
unreasonably and arbitrarily in apportioning the Taxpayer’s consolidated income to Florida, or
that the apportionment formula is inaccurate and does not fairly reflect the Taxpayer’s business
activity in Florida. Therefore, the Taxpayer is not entitled to alternative apportionment relief
under section 220.152, F.S. The Florida consolidated apportionment formula, which the
Taxpayer elected to use, is not distortive and does not tax extraterritorial values. Therefore, the
Taxpayer’s request for alternative apportionment is, hereby, denied.
This response constitutes a Technical Assistance Advisement under section 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 section 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 section 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,

Robert DuCasse
Technical Assistance and Dispute Resolution
RCD/

Technical Assistance Advisement 09C1-001
Page 7

Record ID 55308