Could a corporate group end its grandfathered Florida nexus-group consolidated filing election after major business and structural changes?

Plain-English summary

A corporation with a grandfathered Florida nexus-group consolidated election merged with an unrelated corporation, and the surviving group inherited the election. The group had also grown from a small organization with limited business lines into a much larger and more diverse enterprise.

Florida found reasonable cause to end the old election. The changed business mix and corporate structure made the historical nexus-group filing less representative of the group's Florida operations than either separate returns or a full consolidated return.

The Department nullified the grandfathered election for the redacted later tax years. The taxpayer could then file separate Florida returns or elect a full consolidated return with the same entities included in its federal consolidated return, if section 220.131 was satisfied.

What this means for you

A historical consolidated-return election can survive a merger, but material changes in the group may support formal permission to revoke it. The taxpayer must obtain Department approval rather than simply switching methods.

Common questions

Why did Florida grant permission? The group had become significantly different in size, structure, and business lines from the group that made the original election.

What filing options remained? Separate returns or a qualifying full consolidated return.

Did the ruling disclose the effective tax years? No; they are redacted in the published text.

Citations and references

• Fla. Stat. § 220.131 and Fla. Admin. Code r. 12C-1.0131(3)(b), as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10C1-010

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER : 10C1-010
ISSUE : Request for Authority to Discontinue Consolidated Filing
STATUTE CITES: SS. 220.131(1), and 220.131(3), F.S.
RULE CITES: Rules 12C-1.013(3)(b), F. A. C.
QUESTION: May a parent company be granted permission to cease filing Florida consolidated tax
returns based upon changes in business circumstances.
ANSWER: The parent company was granted permission to cease filing Florida consolidated tax returns
based on provisions of the F. A. C. which addresses changes in business circumstances.

September 09, 2010
XXX
XXX
XXX
Re:

Technical Assistance Advisement 10C1-010
Request for Authority to Discontinue Consolidated Filing
XXX, hereinafter referred to as “the Taxpayer”
FEIN: XXX
XXX, hereinafter referred to as “Company A”
Section 220.131, Florida Statutes (F.S.)
Rule 12C-1.0131(3) (b), Florida Administrative Code (F.A.C.)

Dear XXX:
Your letter of XXX, requests permission 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
Company A has been filing its Florida corporate income tax returns with three other companies
under the “grandfather” consolidated filing election it made during the 1980’s. Three other
companies in its consolidated group were excluded from the Florida nexus group return. The
Taxpayer has been filing its Florida corporate income tax returns with the members of its
affiliated group under the standard consolidated return election.
Company A was merged with an unrelated corporation (the Taxpayer) on XXX. However, the
tax attributes and the federal consolidation election of Company A survived the merger. As a
result, the surviving entity must file a Florida consolidate return under the “grandfather”
consolidated election.
Since its Florida “grandfather” consolidated filing election, the Taxpayer, which now includes
Company A, has undergone significant changes in its business lines and in the size of its
operations. These changes have resulted in a significant difference in the size and business

Technical Assistance Advisement 10C1-010
Page 2
activities of the taxpayer. Consequently, filing Florida corporate income tax returns on a full
consolidated basis, rather than on the basis of a Florida nexus group under the “grandfather”
election would create a better reflection of the taxpayer’s business activities within the state
along with being more indicative of how its business lines are operated.
LEGAL AUTHORITY
Section 220.131, 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:
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:

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

Technical Assistance Advisement 10C1-010
Page 3
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 the
Taxpayer and its subsidiaries permission to stop filing Florida nexus group corporate income tax

Technical Assistance Advisement 10C1-010
Page 4
returns?

DISCUSSION AND ANALYSIS
In its request for permission to discontinue filing a consolidated Florida corporate income tax
return, the taxpayer 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 that do not affect
income tax liability." The Taxpayer indicates that it has experienced major changes in its
business circumstances that have resulted in significant and numerous changes in both its
business mix and corporate structure. These changes have drastically altered many key aspects
of the company’s business, including its product and service lines.
Many of these changes were not contemplated at the time the Taxpayer made its Florida
consolidated “grandfather” filing election. The Taxpayer has evolved from a small consolidated
group of corporations with a limited number of business lines into a large and diverse group of
corporations.
CONCLUSION
Since the initiation of the Taxpayer’s Florida consolidated filing election, it has undergone
significant changes in its business lines and environment, resulting in a significantly different
business organization than that which originally made the “grandfather” consolidated filing
election. Filing Florida corporate income tax returns on a full consolidated basis, rather than as a
Florida nexus group should create a better reflection of the taxpayer’s business activities within
the state, and be more indicative of how the taxpayer operates in Florida. Therefore, the
Department grants permission to discontinue filing Florida nexus group consolidated corporate
income tax returns for the taxable years ending on or after XXX. The Taxpayer’s “grandfather”
election is nullified for tax years ending on or after XXX.
For tax years ending on or after XXX, the Taxpayer may file Florida corporate income tax
returns on a separate basis, or may elect to file a full consolidated return with its entire affiliated
group (same entities as federal consolidated return), so long as it meets the requirements of
section 220.131, F.S.
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.

Technical Assistance Advisement 10C1-010
Page 5
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.:

85808