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Florida: Taxpayer permitted to discontinue filing of consolidated tax returns

In a move that is largely unprecedented in the state, the Florida Department of Revenue (the Department) permitted a taxpayer which had been filing as part of a consolidated group to discontinue filing consolidated returns. If your business is already a consolidated filer in Florida or is about to become one, Technical Assistance Advisement 13C1-008 (the Advisement) is perhaps the best non-binding precedent for ceasing to file as a consolidated group.

Under Florida Statutes § 220.131(3), once a consolidated return is filed for any taxable year, the affiliated group of taxpayers is required to file consolidated returns for all subsequent tax years. This law applies so long as the taxpayers remain members of such affiliated group or, in the case of a group having members not subject to the Florida tax code, so long as a consolidated return is filed by such group for federal tax purpose, unless the Director of the Department otherwise consents to the filing of separate returns.

Under Florida Administrative Code Rule 12C-1.0131(3), the first step to discontinue the requirement of filing a consolidated return (unless qualified to do so as discussed above pursuant to Florida Statutes § 220.131(3)) is to file an application with the Executive Director of the Department or his or her designee (the Director). The Director is authorized to grant permission to discontinue filing a consolidated return if the net result of all amendments to the Florida Income Tax Code or the Internal Revenue Code or regulations has a substantial adverse effect on the consolidated tax liability of the group for such year relative to what the liability would otherwise be for the members of the consolidated group if they were able to file separate returns. Additionally, the Director may find good cause for ceasing to require a group to file as a consolidated group if a change in law or circumstances exist, including changes not affecting income tax liability.

In the Advisement, the taxpayer showed the Director that a change in circumstances existed due to the continued growth of the consolidated group since the time the group initially filed a consolidated return. It was not disclosed in the Advisement what kind of business(es) the taxpayer was in, what business(es) each member of the consolidated group conducted or what growth occurred over which period. However, it is clear that the taxpayer showed the following:

  • Growth in total employees;
  • Growth in total income;
  • Growth in total assets; and
  • The addition of new services to the taxpayer’s business, including online and mobile services.

As a result, the Director found that the taxpayer showed a sufficient basis for deconsolidation. If you believe your business could benefit from deconsolidating, please feel free to call us to discuss this potential option.

Michigan: Legislature passes law modifying the addback on credits for tangible assets

On Feb. 25, 2014, the Michigan Legislature passed H.B. 5011, which modifies the addback calculation for certain credit amounts claimed under the Michigan Business Tax or the former Michigan Single Business Tax (each tax law will be generally referred to as the Business Tax Act).

Under this modified addback provision, a taxpayer that previously took the credit will have a percentage or the entire amount of the credit it claimed under the Business Tax Act added to the taxpayer’s tax liability in the tax year in which the triggering event occurred. A triggering event occurs when a taxpayer who claimed a credit under the Business Tax Act with respect to a tangible asset has sold, transferred out of Michigan or otherwise disposed of the tangible asset.

The amount to be added back to the taxpayer’s liability under H.B. 5011 is formulaic in nature and based on numerous factors specific to the triggering event and the taxpayer’s history with the underlying asset.

H.B. 5011 became effective on Feb. 25, 2014 and is retroactive to tax years beginning after Dec. 31, 2011.

New Jersey: Two new voluntary disclosure initiatives involving intangible assets and partnerships announced

On Feb. 20, 2014, the New Jersey Department of the Treasury (Department) announced two new voluntary disclosure initiatives that will be open on March 15, 2014 and close May 15, 2014. The two initiatives are called the “Intangible Asset Nexus Initiative” and the “Partnership Tax & Partner Fees Initiative.”

The Intangible Asset Nexus Initiative is available for companies that have nexus with New Jersey as a result of having derived income from the use of intangible assets (such as intellectual property) in New Jersey. The look-back period for this initiative will be limited to the later of periods beginning after July 1, 2010, or the date the business commenced. In addition, as part of this initiative, affiliates of a taxpayer that added back royalty payments made to the taxpayer to such affiliate’s New Jersey entire net income may submit amended returns for any period for which the statute of limitations remains open to claim an exception to the add back.

The Partnership Tax & Partner Fees Initiative is available to:

  • Partnerships that have New Jersey sourced income but have not filed the relevant returns or paid the relevant taxes and fees owed; and
  • Individual partners who have not satisfied their New Jersey tax filing and tax payment requirements.

The look-back period for this initiative will be limited to the period beginning on or after Jan. 1, 2010.

For both initiatives, the taxpayer must file all required returns and pay the full tax liability owed within 45 days of signing the Voluntary Disclosure Agreement (VDA) and must pay all interest due within 30 days of assessment. The Department will waive all penalties for both initiatives, but reserves the right to audit the returns with respect to issues not covered in the VDA.

While voluntary disclosure programs can be beneficial to most businesses with an undisclosed tax liability, there are consequences and risks involved in using any voluntary disclosure program—i.e., they are not one size fits all programs. It is also vital to evaluate whether your business and the taxes you owe qualify for the respective program, among other important considerations. As such, McDonald Hopkins strongly urges taxpayers to seek professional advice before filing an application or communicating with the Department.

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall
216.348.5812
dkall@mcdonaldhopkins.com

Susan Millradt McGlone
216.430.2022
smcglone@mcdonaldhopkins.com

Jeremy J. Schirra
216.348.5444
jschirra@mcdonaldhopkins.com 

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.

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