Did extensive growth and changes in a corporate group's business focus and product lines justify Florida deconsolidation?

Plain-English summary

The Florida Department of Revenue granted a corporate parent's request to discontinue consolidated Florida corporate income tax filing.

After the original election, the group expanded through acquisitions, added locations and product lines, entered additional businesses, and changed its name to reflect its broader operations. The Department found the changed business focus and substantial growth sufficient under Rule 12C-1.0131(3)(b).

Approval was subject to four redacted-date conditions: a specified effective year, no realized-but-unrecognized income or expense items remaining for later recognition, no participation in another Florida consolidated return before a specified year, and full reporting of deferred federal gains in the required returns.

What this means for you

Growing corporate groups

Business evolution after a consolidated election can support a deconsolidation request when the record shows meaningful changes in operations, markets, and products.

Corporate tax teams

Document the before-and-after group structure and business model. Approval may require cleanup of deferred items and a waiting period before future Florida consolidation.

Common questions

Q: What business changes mattered?
A: The ruling cites expanded activities, new product lines, acquisitions, and substantial overall growth.

Q: Was permission automatic once the group grew?
A: No. The Department exercised its authority on the specific record and imposed conditions.

Q: Could deferred federal gains remain unreported?
A: No. The approval required them to be reported in total for the specified period.

Citations and references

• Fla. Stat. §§ 220.131 and 213.22
• Fla. Admin. Code r. 12C-1.0131(3)(b)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17C1-009

Original ruling text

Executive
Director
Leon M. Biegalski

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 ADDRESS CHANGES IN BUSINESS CIRCUMSTANCES.
July 10, 2017
XXXXX
XXXXX
XXXXX
XXXXX
Re: Technical Assistance Advisement 17C1-XX
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXXXX (“the taxpayer”)
FEIN: XXXXX
Dear XXXXX:
This is in response to your request dated XXXXX, for a Technical Assistance Advisement
(“TAA”) pursuant to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding permission to
discontinue filing consolidated corporate income tax returns. An examination of your letter has
established that you have complied with the statutory and regulatory requirements for issuance of
a TAA. Therefore, the Department is hereby granting your request for a TAA.
FACTS SUPPLIED BY TAXPAYER
The taxpayer is headquartered in XXXXX. The taxpayer files as part of a consolidated group for
both federal and Florida purposes, and has been filing as part of a consolidated group since
XXXX. At that time, the taxpayer had XXXXX that generated XXXXX percent of its revenue.
It now operates more than XXXXX and has operations XXXXX, as well.
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
Additionally, between XXXX and XXXX, the taxpayer expanded its business into XXXXX. In
XXXX, the taxpayer acquired XXXXX and XXXXX from one of its major competitors, making
it the largest XXXXX. Following that acquisition, the taxpayer had more than XXXXX
locations in XXXXX, and XXXXX approximately XXXXX of all XXXXX.

With its XXXX acquisition, the taxpayer also entered the XXXXX business which involves
XXXXX; managing the XXXXX; negotiating XXXXX; providing XXXXX; and XXXXX. In
XXXX, the taxpayer greatly expanded this line of business through a XXXXX with another
entity offering XXXXX, which resulted in the taxpayer being the second largest XXXXX. At
that time the taxpayer changed its name to better reflect the extent of its operations.1
In XXXXX, the taxpayer opened XXXXX. In XXXX, it expanded that offering to XXXXX. It
currently operates over XXXXX in XXXXX.
In XXXXX, the taxpayer acquired the XXXXX of another competitor, adding an additional
XXXXX to is operation, primarily in XXXXX and XXXXX. In XXXX, the taxpayer purchased
another XXXXX in XXXXX, and XXXXX from XXXXX. In XXXX, the taxpayer acquired the
XXXXX of another of its competitors, adding another XXXXX in XXXXX, and XXXXX. The
taxpayer intends to XXXXX within XXXXX of that purchase.
Additionally, in XXXX, the taxpayer added a product line when it acquired XXXXX for
XXXXX. In XXXX, it added another product line when it acquired XXXXX for XXXXX. In
anticipation of the XXXX acquisition, the taxpayer changed its name in XXXX, to better reflect
its operations and product offerings.
In XXXX, the taxpayer introduced XXXXX to help increase sales, the first XXXXX to do so. In
XXXX, the taxpayer XXXXX.
ISSUE
Whether the taxpayer has established sufficient reasonable cause for the Executive Director to
permit it to stop filing consolidated Florida corporate income tax returns?
LAW
Section 220.131(1), F.S., states:

In XXXXX, the taxpayer’s XXXXX generated $XXXXX, XXXXX percent of its revenue, while its XXXXX
business segment generated $XXXXX. In XXXX, the taxpayer’s XXXXX business segment generated $XXXXX,
XXXXX percent of its revenue, while its XXXXX segment generated $XXXXX. (The XXXXX revenue figure
includes revenue generated by the taxpayer’s XXXXX segment.)
1

Technical Assistance Advisement
Page 3
(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 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:
(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., provides:
(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 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

Technical Assistance Advisement
Page 4
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.
   ANALYSIS
   The taxpayer relies on Rule 12C-1.0131(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."2 The taxpayer contends that the business focus of the affiliated group has changed
   significantly since XXXX, the year for which the taxpayer made its consolidated filing election.
   The information provided by the taxpayer shows growth and change in its lines of business since
   the taxpayer made its consolidated filing election in XXXX. The activities conducted by the
   taxpayer, and its product line, have expanded greatly between XXXX and XXXX.
   The taxpayer’s overall business focus, along with its substantial growth, taken together, are a
   sufficient basis for granting the taxpayer’s request for deconsolidation.
   CONCLUSION
   Based on the following four conditions, the Department grants permission to the taxpayer to
   discontinue filing consolidated corporate income tax returns beginning with tax year ended
   XXXXX:
4. That the deconsolidation is effective for the year ending on XXXXX.
5. That the taxpayer has no realized but unrecognized income or expense items that may be
   recognized at a later date.
6. That the taxpayer group does not become part of a consolidated Florida corporate income
   tax return prior to the tax year ending XXXXX.

2

The taxpayer estimates that its Florida corporate income tax liability for the XXXXX tax year, based on XXXXX
data, on a separate return basis will be approximately $XXXXX less than it would have been on a consolidated
basis.

Technical Assistance Advisement
Page 5

4. That any deferred gains which are realized for Federal tax purposes, but which have not
   yet been recognized, are required to be reported in total, on the income tax returns filed
   by the taxpayers, for the period ending XXXXX.
   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 predicated 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 documents are public records
   under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s.
   213.22, F.S. Your name, address, and any other details, which might lead to identification of the
   taxpayer, must be deleted before disclosure. In an effort to protect the confidentiality of such
   information, we request you provide the undersigned with an edited copy of your request for
   Technical Assistance Advisement, backup material and response within fifteen days of the date
   of this advisement.
   Sincerely,

Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6794
SCP/
cc: XXXXX
XXXXX
XXXXX
XXXXX
Control No.: 212754