Corporate income tax--deconsolidation  
The filing of consolidated Florida corporate income tax returns is elective, Florida Statutes § 220.131(1). Not infrequently a group which has been filing consolidated Florida returns decides that it would like to deconsolidate, that is, to have those companies with Florida nexus file separate returns from that point forward. Permission to do so must be secured from the Department of Revenue, Florida Statutes § 220.131(3), and the Department has issued numerous rulings (Technical Assistance Advisements) on deconsolidation requests. Those rulings and FAC Rule 12C-1.0131(3)(b), detail the conditions under which deconsolidation will be granted. First among them is adverse changes in Chapter 220 or the Internal Revenue Code, but other changes in circumstances may constitute good cause for deconsolidation as well, especially changes in the groups’ structure (mergers, acquisitions, spinoffs, sale of divisions, etc.) or in the industry of which the group is a part.

The Department recently issued a ruling which concluded that a misunderstanding of the consequences of making the consolidated return election was not, however, a sufficient basis for authorizing separate return filing. TAA -5C1-004. At the time the consolidated return election was made, it effected a substantial reduction in Florida liabilities. Subsequent changes resulting from liquidations, acquisitions and other activities changed the picture with the result that income generated principally outside Florida was being subject to tax on the consolidated return. The Department rejected the argument that the failure to secure professional advice militated in favor of deconsolidation, pointing out that the taxpayer had for years enjoyed the tax savings benefits of its “mistake.” Moreover, the Department pointed out that the group business activities had remained essentially the same, notwithstanding the sales, liquidations and other corporate level changes, and insisted that “the sale of a subsidiary is not a basis for granting deconsolidation.”

An affiliated group filing consolidated Florida returns which finds itself in need of a change will need to review the many rulings on such requests carefully. While they cannot all be perfectly reconciled, they are certainly instructive of the arguments and factual circumstances in which the Department feels moved to allow deconsolidation.

Posted: 2005-11-03 00:00:00.0

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