How would a qualifying project calculate income and its Florida capital investment tax credit, including after joining a consolidated return?

Subject

Request for Written Agreement for Determination of Income

Plain-English summary

Income from the qualifying project was defined as its annual taxable income under generally accepted accounting principles and section 220.13. During the initial one-entity, one-site stage, project income, Florida liability, and the capital investment tax credit could be determined directly from the taxpayer's separate return.

If the project later expanded or the taxpayer joined affiliates on a Florida consolidated return, it had to use a separate pro forma calculation to isolate project annual taxable income and the portion of tax liability against which the credit could be claimed.

What this means for you

A certified project's credit needed project-specific income accounting that survived organizational and filing changes. Consolidation did not eliminate the need to isolate the qualifying project's own income and tax.

Common questions

Q: What was qualifying-project income? Annual taxable income under GAAP and section 220.13.

Q: Could the taxpayer later file a consolidated return? Yes.

Q: What additional calculation would consolidation require? A separate pro forma project-income calculation.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, and 220.191 — corporate tax, taxable income, apportionment, and capital investment credit
• Fla. Admin. Code r. 12C-1.015(7) — consolidated-return tax computation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01C1-002

Original ruling text

SUMMARY

QUESTION: A taxpayer requested a written agreement with the
Department concerning the method by which income generated
by or arising out of the taxpayer's project shall be
determined, for purposes of applying the capital investment
tax credit.

ANSWER - Based on Facts Below: The agreement between the
taxpayer and the Department states that the income
generated by or arising out of the qualifying project is
defined as the qualifying project's annual taxable income,
as determined by generally accepted accounting principles,
and by the definition and language of s. 220.13, F.S.
Additionally, it shall be necessary for the taxpayer to
separately account for using the "pro forma" format, the
taxpayer's annual taxable income directly relating to the
activities of the project.

Feb 27, 2001

Re: Technical Assistance Advisement 01C1-002
Corporate Income Tax
Request for Written Agreement for Determination of Income
Sections 220.11, 220.13, 220.15, 220.191, Florida Statutes
Rule 12C-1.015, F.A.C.
XXX (hereinafter referred to as "Corporation A")
XXX (hereinafter referred to as "Corporation B")
XXX (hereinafter referred to as "taxpayer")
XXX (herein referred as the "project")
XXX (herein referred to as the "site")
XXX (hereinafter referred to as "E")
XXX (hereinafter referred to as "O")

Dear :

Your letter of XX, requests a written agreement between the
Florida Department of Revenue and the taxpayer, concerning the

method by which income generated by or arising out of the
taxpayer's project shall be determined for purposes of applying
the capital investment tax credit. This response to your
request constitutes a Technical Assistance Advisement under
Chapter 12-11, Florida Administrative Code, and is issued to you
under authority of s. 213.22, Florida Statutes.

FACTS SUPPLIED BY TAXPAYER

Corporation A is a publicly XXX company for a diverse group of
affiliates. It offers an array of financial and service
products throughout the world. In XX, Corporation A proposed
investment in XX, Florida, referred to as the project, be
certified as a project in a High Impact Performance Incentive
Sector. The requested certification would thereby qualify the
project for an annual tax credit against its Florida corporate
income tax liability.

By letter of Certification dated XX and certified the project.
XXX provides eligibility for a tax credit of up to five (5)
percent of XXX, each year, for up to twenty years to be used
against the taxpayer's corporate income tax liability generated
by, or arising out of the project.

The project site ("Site") will consist of XXX buildings of XXX,
which are currently being constructed. The target date for
commencement of substantially full operations is XX.

As specified in the Certification Letter, the capital investment
tax credit is dependent upon confirmation of the new capital
investment in the project. The capital investment subject to
the credit will include all "eligible capital costs," as defined
in Section 220.19(1)(c), F.S., that are incurred by the taxpayer
or its affiliates or by any other vendor or contractor in
connection with the development, construction and equipping of
the facilities that constitute the project. In addition, the
annual tax credit is dependent upon the creation and
maintenance, on a phased-in basis over a six year period, of
specified new full-time equivalent jobs at the Project site.
These full-time equivalent on-site jobs will be confirmed on an
annual basis by O.

The taxpayer is a wholly owned direct subsidiary of the
Corporation B. It was formed as the legal entity to encompass
the entire project. On XX, Corporation B assigned its option to
purchase the buildings, then being constructed at the project
Site to the taxpayer, who thereafter exercised that option to
purchase. Taxpayer closed on the buildings on XX.

Your letter indicates that the taxpayer's activities and
operations will be limited to the Project at the Site, and it
will not have other locations either within or without the state
of Florida. Additionally, virtually all of the taxpayer's income
will consist of either directly-booked revenue from third
parties or inter-company fees from Corporation B determined
under generally accepted accounting principles. Taxpayer will
not have assets in the nature of interest bearing loans or
securities, but relatively small amounts of interest income may
result from its investing any short-term operating cash that may
arise in the normal course of the project's business. All of
the expenses of the taxpayer will relate solely to the project,
and the taxpayer will file a separate Florida corporate income
tax return. Also, taxpayer acknowledges that with capital
investments of between XXX, the credit granted will be limited
to seventy-five percent of its total annual corporate tax
liability imposed under s. 220.11, F.S.

Taxpayer notes that the certification letter was issued with the
understanding that the nature and content of the operations, and
associated employment, are expected to undergo significant
unforeseen changes. The changes envisioned are consistent with
ongoing technological developments over the twenty-year term of
the credit. Furthermore, taxpayer anticipates that employees of
other subsidiaries or affiliates may become part of the project,
or its operations may expand beyond the original project to
other locations within or without the state of Florida. In
addition, taxpayer, and other subsidiaries and affiliates may be
included on a Florida consolidated corporate income tax return.

Corporation A is not aware of any legislation, court decisions
or regulations contrary to the positions advanced in the
foregoing statements of fact. Furthermore, there are no tax

returns of Corporation A or any of its affiliates that involve
the identical issues presented in this request.

LEGAL AUTHORITY

Section 220.11, Florida Statutes, states in pertinent part:

A tax measured by net income is hereby imposed on every
taxpayer for each taxable year commencing on or after
January 1, 1972, and for each taxable year which begins
before and ends after January 1, 1972, for the privilege of
conducting business, earning or receiving income in this
state, or being a resident or citizen of this state. Such
tax shall be in addition to all other occupation, excise,
privilege, and property taxes imposed by this state or by
any political subdivision thereof, including any
municipality or other district, jurisdiction, or authority
of this state.

Section 220.13, Florida Statutes, states in pertinent part:

The term "adjusted federal income" means an amount equal to
the taxpayer's taxable income as defined in subsection (2),
or such taxable income of more than one taxpayer as
provided in s. 220.131, for the taxable year, adjusted as
follows:...

Section 220.15, Florida Statutes, states in pertinent part:

Except as provided in ss. 220.151 and 220.152, adjusted
federal income as defined in s. 220.13 shall be apportioned
to this state by taxpayers doing business within and
without this state by multiplying it by an apportionment
fraction composed of a sales factor representing 50 percent
of the fraction, a property factor representing 25 percent
of the fraction, and a payroll factor representing 25
percent of the fraction. If any factor described in
subsection (2), subsection (4), or subsection (5) has a
denominator that is zero or is determined by the department
to be insignificant, the relative weights of the other
factors in the denominator of the apportionment fraction

shall be as follows:...

Section 220.191, Florida Statutes, states in pertinent part:

DEFINITIONS. - For purposes of this section:...

(c) "Eligible capital costs" means all expenses incurred by
a qualifying business in connection with the acquisition,
construction, installation, and equipping of a qualifying
project during the period from the beginning of
construction of the project to the commencement of
operations, including, but not limited to:...

(d) "Income generated by or arising out of the qualifying
project" means the qualifying project's annual taxable
income as determined by generally accepted accounting
principles and under s. 220.13....

(2) An annual credit against the tax imposed by this
chapter shall be granted to any qualifying business in an
amount equal to 5 percent of the eligible capital costs
generated by a qualifying project, for a period not to
exceed 20 years beginning with the commencement of
operations of the project. The tax credit shall be granted
against only the corporate income tax liability or the
premium tax liability generated by or arising out of the
qualifying project, and the sum of all tax credits provided
pursuant to this section shall not exceed 100 percent of
the eligible capital costs of the project. In no event may
any credit granted under this section be carried forward or
backward by any qualifying business with respect to a
subsequent or prior year. The annual tax credit granted
under this section shall not exceed the following
percentages of the annual corporate income tax liability or
the premium tax liability generated by or arising out of a
qualifying project:...

(b) Seventy-five percent for a qualifying project which
results in a cumulative investment of at least $50 million
but less than $100 million....

(3) Prior to receiving tax credits pursuant to this
section, a qualifying business must achieve and maintain
the minimum employment goals beginning with the
commencement of operations at a qualifying project and
continuing each year thereafter during which tax credits
are available pursuant to this section.

(4) The office, upon a recommendation by Enterprise
Florida, Inc., shall first certify a business as eligible
to receive tax credits pursuant to this section prior to
the commencement of operations of a qualifying project, and
such certification shall be transmitted to the Department
of Revenue. Upon receipt of the certification, the
Department of Revenue shall enter into a written agreement
with the qualifying business specifying, at a minimum, the
method by which income generated by or arising out of the
qualifying project will be determined....

(7) The Department of Revenue may specify by rule the
methods by which a project's pro forma annual taxable
income is determined.

ISSUE PRESENTED

Taxpayer has presented information to facilitate a written
agreement between the taxpayer and the Florida Department of
Revenue. This agreement concerns the method by which income
generated by or arising out of the taxpayer's project shall be
determined for purposes of applying Florida's capital investment
tax credit rules under Section 220.191, F.S.

DISCUSSION AND ANALYSIS

The taxpayer is a wholly owned direct subsidiary of Corporation
B. On behalf of the taxpayer, the consolidated holding company
Corporation A submitted an application to E, requesting
certification of the taxpayer's project as a project in a High
Impact Performance Incentive Sector.

Such certification would qualify the project for an annual
credit against its corporate income tax liability. The project

application was later deemed complete by E, and was submitted to
O, which approved and certified it on XX. This certification
will allow the taxpayer to receive a tax credit of up to five
(5) percent of the anticipated XXX in generated "eligible
capital costs," for a period not to exceed twenty (20) years as
per Section 220.191(2), Florida Statutes. That credit will also
be limited to seventy-five percent of the annual corporate
income tax liability, as prescribed by Section 220.191(2)(b),
Florida Statutes. In addition to the limitation, the credit
will be dependent upon taxpayer's achieving and maintaining the
minimum employment goals at commencement and for each year
thereafter (see Section 220.191(3), F.S.). The required minimum
employment specifics for this project are stated on page 2 of
the O certification letter.

On XX, the taxpayer requested the issuance of a Technical
Assistance Advisement as a means of satisfying the requirement
in Section 220.191(4), Florida Statutes, for a written agreement
specifying how income generated by or arising out of the
qualifying project will be determined. In its request for an
agreement, taxpayer presents two scenarios, one involving
initial, and the other involving future, contemplated project
operating behaviors. Initially, taxpayer anticipates all project
activities to be limited to the Site with no other project
locations, either within or without Florida. Virtually all of
taxpayer's income will consist of either directly-booked revenue
from third parties or inter-company fee income from Corporation
B. Taxpayer will not have assets in the nature of interest
bearing securities or loans, and all of taxpayer's expenses will
relate solely to the project. Taxpayer will file a separate
Florida corporate income tax return.

Future scenarios anticipate significant unforeseen changes
consistent with ongoing technological developments. These
changes are expected to alter the nature and content of the
operations and the associated employment. Taxpayer foresees
that employees of other subsidiaries or affiliates may become
part of the taxpayer's project, and that the project operations
may expand to other locations within or without the state of
Florida. Additionally, taxpayer indicates that it and other
subsidiaries or affiliates may be included on a Florida

consolidated tax return.

In the event that the taxpayer elects to file a Florida
consolidated return, taxpayer states that its Florida tax
liability, against which the credit may be taken, should be
determined by applying Rule 12C-1.015(7), Florida Administrative
Code, in such a manner as to determine each entity's portion of
the consolidated Florida tax liability generated by the
operations at the project Site. Furthermore, taxpayer indicates
that, in determining the Florida tax liability, it will also
apply the apportionment rules provided in the Florida Statutes.

Whichever period of time the taxpayer's project is operating in,
the determination of the project's Florida tax liability,
against which the capital investment tax credit may be taken,
will remain the same. Pursuant to this agreement, and in
adherence to paragraph 220.191(1)(d), Florida Statutes, the
"income generated by or arising out of the qualifying project"
is defined as the qualifying project's annual taxable income as
determined by generally accepted accounting principles and by
the definitions and language of Section 220.13, Florida
Statutes.

During the initial stages of the project's operations, with one
location, one business entity, all expenses solely related to
the Site, and taxpayer filing a separate Florida corporate
income tax return, annual income and the resultant tax liability
and credit limitation will be easily determined. In the later
stages of operations, when the taxpayer, along with other
related subsidiaries and affiliates, may be filing a
consolidated Florida income tax return, the determination of the
project's annual taxable income and subsequent tax credit may
become XXX. With the filing of a Florida consolidated corporate
income tax return, it shall be necessary for the taxpayer to
separately account for, using a "pro forma" format, the
taxpayer's annual taxable income. This technique will aid in the
isolation and determination of the portions of the subsidiary
and affiliate income that should be attributed solely to the
taxpayer's project.

CONCLUSION

Based on the information presented and the preceding discussion
and analysis, it is the Department's position that the taxpayer
shall determine the income generated or arising out of their
project using the specifics provided for in the foregoing
analysis and discussion. In abbreviated form, they are again
stated as follows:

In adherence to Section 220.191(1)(d), F.S., income
generated by or arising out of the qualifying project is
defined as the project's annual taxable income as
determined by generally accepted accounting principles and
Section 220.13, F.S.

With the filing of a Florida consolidated corporate income
tax return, it shall be necessary for the taxpayer to
separately account for, using a "pro forma" format, its
project's annual taxable income and subsequent tax credit.

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
based on those facts and 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 backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Charles J. Dunning
Technical Assistance and Dispute Resolution

Control No. 43461