Could a parent corporation end a Florida consolidated filing election by arguing years later that it mistakenly lacked nexus when it elected?

Plain-English summary

Florida refused to let a corporate group end its consolidated filing election based only on a later claim that the parent mistakenly lacked Florida nexus when the election was made.

The subsidiary had Florida nexus, but the parent said it had no Florida property or payroll when it filed the original consolidated return. The Department acknowledged that the parent may not have had nexus at that time, but said old nexus facts are difficult to reconstruct and nexus is easily created.

Florida therefore left the election in effect and required continued consolidated filing. The ruling said the taxpayer could make a new request if it could show a qualifying later change in law or circumstances under Fla. Admin. Code R. 12C-1.0131(3)(b)2.

What this means for you

Corporate groups considering an election

Confirm parent nexus before filing the first consolidated return. Florida treated the election as continuing and was unwilling to undo it years later based on retrospective uncertainty.

Corporate tax teams

Loss of parent nexus in later years does not itself end the election while the group continues federal consolidated filing.

Common questions

Did Florida allow deconsolidation? No.

Did possible lack of nexus at the original election void it? Not under this TAA.

Could the taxpayer apply again? Yes, if it could show a qualifying change in law or circumstances.

Citations and references

• Fla. Stat. Sec. 220.131
• Fla. Admin. Code R. 12C-1.0131(3)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 21C1-006

Original ruling text

QUESTION: May a parent company be granted permission to cease filing Florida consolidated
tax returns, having made its consolidated filing election based on the mistaken belief that it had
nexus when the election was made?
ANSWER: The parent company should continue to file its Florida corporate income tax returns
on a consolidated basis. As it is often difficult to determine what occurred a number of years in
the past, and nexus is easily created, the Department is not in the practice of nullifying
consolidated filing elections or granting requests to deconsolidate under these circumstances.

July 14, 2021
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 21C1-006
Request for Authority to Discontinue Consolidated Filing
Section 220.131, F.S.
Rule 12C-1.0131(3), F.A.C.
XXX (“the taxpayer”)
FEIN: XXX

Dear XXX:
This is in response to your request dated XXX, 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.
ISSUE
Whether the taxpayer has established sufficient reasonable cause for the Executive Director to
permit it to cease filing consolidated Florida corporate income tax returns.

XXX
July 14, 2021
Florida Department of Revenue
Page 2

FACTS SUPPLIED BY TAXPAYER
The taxpayer is located in XXX and operates a XXX at its XXX headquarters. The taxpayer’s
subsidiary engages in XXX in various locations, including locations within Florida. The taxpayer
made a consolidated filing election for Florida by filing a consolidated Florida corporate income
tax return with its subsidiary for the tax year ended XXX.
The taxpayer has now determined that, although its subsidiary had nexus with Florida at the
time the consolidated filing election was made, the taxpayer did not, as it did not have any
property or payroll in Florida, and did not perform XXX outside XXX.

LAW
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 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:
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.

XXX
July 14, 2021
Florida Department of Revenue
Page 3

Rule 12C-1.0131(3), F.A.C., provides, in part:
(a)1. A group which filed, or was required to file, a consolidated return for the
immediately preceding taxable year is required to file a consolidated return for the
taxable year unless it has permission to discontinue filing consolidated returns under
paragraph (b) or (c) of this subsection; or as long as a federal consolidated return is filed.

2. The requirement set forth in section 220.131(1), F.S., that the parent company of an
   affiliated group must be subject to the Florida Income Tax Code is a condition that is
   necessary for an affiliated group to make an election to file a Florida consolidated return.
   There is no requirement in section 220.131, F.S., that the parent be subject to the Florida
   Income Tax Code in each subsequent year. Therefore, the affiliated group may not break
   its consolidated election because the parent company no longer has nexus with Florida.
   (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.
3. 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 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.
4. Permission to revoke may be contingent upon an agreement between the

XXX
July 14, 2021
Florida Department of Revenue
Page 4

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)1., F.A.C., in requesting that the Department grant
its request to cease filing consolidated Florida corporate income tax returns.

Section 220.131(1), F.S., allows “any corporation subject to tax under this code which
corporation is the parent company of an affiliated group of corporations” to elect to
consolidate its taxable income with that of all other members of the group. Rule 12C1.031(3)(a)2., F.A.C., provides that once such an election is made, the consolidated group is
required to continue filing a consolidated Florida return as long as it continues to file a
consolidated federal return, regardless of whether the parent corporation continues to have
nexus in Florida. The language of s. 220.131(1), F.S., clearly indicates that it is the parent
corporation that both makes the election to consolidate and files the consolidated return.
As stated in s. 220.131(1), F.S., the parent corporation that makes a consolidated filing election
must be subject to Florida corporate income tax, that is, have nexus with Florida, at the time it
makes a consolidated filing election. It is not required to maintain nexus in subsequent years,
but the group must continue to file a consolidated Florida corporate income tax return in all
subsequent years.
Based on the information provided by the taxpayer, it appears that the taxpayer may not have
had nexus at the time it made its Florida consolidated filing election. However, as it is often
difficult to determine what occurred a number of years in the past, and nexus is easily created,
the Department is not in the practice of nullifying consolidated filing elections or granting
requests to deconsolidate under these circumstances. Accordingly, the taxpayer’s consolidated
filing election remains in effect, and it should continue to file its Florida corporate income tax
returns on a consolidated basis.
CONCLUSION
The taxpayer’s consolidated filing election will remain in effect, and it should continue to file its
Florida corporate income tax returns on a consolidated basis. If the taxpayer is able to show a
change in law or circumstances sufficient to satisfy the requirements of Rule 12C1.0131(3)(b)2., F.A.C., it may request a TAA for deconsolidation on that basis.

XXX
July 14, 2021
Florida Department of Revenue
Page 5

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
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
cc: XXX
XXX
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