STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SCHINE ENTERPRISES, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 76-1619

)

DEPARTMENT OF REVENUE, )

STATE OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in the above-captioned matter, after due notice, at Tallahassee, Florida, on March 9, 1977, before the undersigned Hearing Officer.

APPEARANCES

For Petitioner: Alan L. Reinstein, Esquire

30 North LaSalle Street Chicago, Illinois 60602

For Respondent: E. Wilson Crump, II, Esquire

Department of Legal Affairs The Capitol

Tallahassee, Florida 32304 ISSUE PRESENTED

Petitioner's liability for alleged deficiencies of corporation income tax for fiscal years 1972 and 1973, under Chapter 220, Florida Statutes.

The parties stipulated that the facts set forth in the petition are correct, and that the proposed assessment of deficiencies in corporate income tax under Chapter 220, Florida Statutes, in the amounts of $35,174.49 for fiscal year 1972 and $151,669.68 for fiscal year 1973, is correctly computed and due if liability of the Petitioner is determined.

FINDINGS OF FACT

1. The Petitioner is, and during the years in question was, a corporation organized under the laws of the State of Delaware, properly qualified and authorized to do business in the State of Florida, and the parent company of a consolidated group of corporations that kept its books and records and filed its federal and state income tax returns on the basis of a fiscal year ending August 31.

   
   

2. During the tax years in question, the consolidated group consisted of

   36 corporations, of which 15 (including Petitioner) had Florida transactions or were otherwise separately subject to taxation under the Florida Corporate Income

   Tax Code (the "Florida members"). The other 21 corporations had no such transactions or were not subject to taxation under the Florida Code (the "non- Florida members").

   
   

3. For both years 1972 and 1973, petitioner filed federal and Florida income tax returns on behalf of the entire group. On the Florida return's, it duly elected under the second sentence of Subsection 220.131(1), F.S., to include both the Florida and non-Florida members. As required by Subsections 220.131(1)(a), (b) and (c), each member of the group consented to such filing, the group filed a consolidated federal return for each year, and the component members of the Florida return group were identical to the members of the federal return group.

   
   

4. Petitioner protested the proposed corporate income tax assessment for 1972 and 1973, but, by letter, dated July 7, 1976, T. H. Swindal, Chief, Corporation Income Tax Bureau, Florida Department of Revenue, adhered to the original determination that for a parent corporation to include all of its subsidiary corporations for the purposes of consolidating its taxable income, it must be incorporated in Florida. The letter further explained:

   
   

   ". . . The Florida Legislature obviously considered these classifications justified and constitutionally permissible.

   
   

   Any regulation, therefore, which is so drafted as to permit an interpretation which in substance changes or strikes

   the statutory classification is a nullity. It appears that the Department's regulation may have been inadvertently so drafted as

   to invite an unintended and contrary-to-the- statute interpretation. When the Department became aware of the situation it proceeded, in accordance with the prescribed statutory requirements of Chapter 120, to amend the regulation by striking those words being misinterpreted."

   
   

   The regulation referred to in Swindal's letter was Rule 12C-1.131(1), F.A.C., the first sentence of which had read as follows:

   
   

   "12C-1.131 Adjusted Federal Income; Affiliated Groups.

   1. The term "Florida parent company" as

      used in the second sentence of Code subsection 220.131(1) shall mean any corporation qualified to do business in Florida or otherwise subject to tax under the Code, irrespective of its place of incorporation "

      
      

      The aforesaid rule was in effect during 1972 and 1973, and was amended on August 4, 1975, to delete the above-mentioned sentence.

      
      

      CONCLUSIONS OF LAW

5. The controversy in this case arises due to conflicting interpretations by the parties of the term "Florida parent company" as used in subsection 220.131(1), Florida Statutes. That provision provides as follows:

   
   

   "220.131 Adjusted federal income; affiliated groups.-

   1. Subject to subsection (5), any corpora- tion subject to tax under this code which 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 subject to tax under this code and to return such con- solidated taxable income hereunder, in which case all such other members must consent thereto in such manner as the department may by regulation prescribe. Any Florida parent company of an affiliated group of corpora- tions may elect to consolidate its taxable income with all other members of the affiliated group, even though some of its members are

      not subject to tax under this code, provided:

      1. Each member of the group consents to such filing by specific written authorization at

         the time the consolidated return is filed;

      2. The affiliated group so filing under this code has filed a consolidated return for federal income tax purposes for the same taxable year; and

      3. The affiliated group so filing under this code is composed of the identical component members as have consolidated their taxable incomes in said federal return.

         
         

6. It is undisputed that Petitioner has met the requirements of subsection 220.131(1)(a), (b), and (c) for the consolidation of its taxable income with all other members of the affiliated group, even though some members are not subject to Florida tax.

   
   

7. Rule 12C-1.131(1), F.A.C., was in force in 1972-73 and provided that the term "Florida parent company included any corporation qualified to do business in Florida or otherwise subject to tax under the code, irrespective of its place of incorporation. That definition unquestionably controls the matter under consideration since it was applicable until deleted from the rule in 1975. It was binding upon Respondent in its determination of tax to be assessed against Petitioner and it is binding upon this Hearing Officer as representing the law of the case at the time tax liability accrued. It is fundamental that the law in force at the time a tax is levied continues in force during the period for its collection.

   
   

8. Respondent contends it was an erroneous definition that did not correctly reflect the true legislative intent. However, no persuasive argument has been presented to support this view. Even assuming Respondent's contention to be correct, it cannot be maintained in this administrative proceeding. Further, even if the current Rule 12C-1.131(1) were to be applied in determining

   petitioner's tax liability without reference to its former text, the resuit would not change. The mere deletion of a definition does not necessarily result in a change of meaning of the defined term, regardless of an agency's desire that it do so.

   
   

9. Petitioner points to several other criteria to support its position. Its reference to the meaning of a "Florida partnership" in Chapter 220 and its reliance on legislative history of the income tax code are not considered persuasive, nor is Respondent's analogy to the requirement in Chapter 199, F.S., the Intangible Tax Act, that the "common parent" of an "affiliated group," to be eligible for filing a consolidated return thereunder, must be incorporated in or have its principal place of business in Florida. However, Petitioner makes a telling point as to Role 12C-1.03(1) and the examples set forth therein that illustrate the definition of a Florida affiliated group of corporations. This rule reads in part:

   
   

   "A group of corporations which meet the federal tests of affiliation will not con- stitute an affiliated group for Florida tax purposes if the parent corporation is not subject to Florida tax. Additionally,

   a federal affiliated group having a Florida parent will not be identical with the

   Florida affiliated group if component members of the group are not subject to the Florida tax and the group does not make an election under the second sentence of subsection 220.131(1) and regulation 12C-1.131(1)." (Emphasis added)

   
   

   The above statement shows that the term "Florida parent" is used to denote a corporation subject to the Florida tax and no more.

   
   

10. Example 2 of the rule clearly shows that to consolidate its income with that of all its subsidiaries under subsection 220.131(1), the parent corporation need only be "subject to the Florida tax". Respondent asserts that the retention of Example 2 after the 1975 deletion of the definition of "Florida parent corporation" was inadvertent. This may be the case, but again Respondent's regulations are presumed valid and cannot be successfully attacked in this proceeding.

    
    

11. Petitioner also raises equal protection and public policy arguments, claiming that to preclude it from consolidating income because it is not a Florida corporation would constitute impermissible discrimination against a qualified foreign corporation and be contrary to state policy as set out in the Florida General Corporation Act. In view of the conclusion reached below, it is considered unnecessary to address these contentions.

    
    

12. It is concluded that Petitioner met the requirements for availing itself of the provisions of the second sentence of subsection 220.131(1) to consolidate its taxable income with all other members of its affiliated group and that, therefore, it is not liable for the proposed assessment.

RECOMMENDATION

That Petitioner not be held liable for the proposed assessment of corporate income tax deficiency for fiscal years 1972 and 1973.

DONE and ENTERED this 26th day of April , 1977, in Tallahassee, Florida.

THOMAS C. OLDHAM

Hearing Officer

Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304

COPIES FURNISHED:

E. Wilson Crump, II, Esquire Department of Legal Affairs The Capitol

Tallahassee, Florida 32304

Alan L. Reinstein, Esquire Dancona, Pflaum, Wyatt and Riskind

30 North LaSalle Street Chicago, Illinois 60602

Docket for Case No: 76-001619

Orders for Case No: 76-001619