How must a consolidated Florida corporation calculate income and the credit generated by a certified Capital Investment Tax Credit project?

Plain-English summary

Florida required the consolidated group to calculate its Capital Investment Tax Credit from a separate pro forma schedule of the certified project's annual taxable income. The Department rejected the company's proposed “with and without” comparison of consolidated tax liabilities because it did not precisely segregate the project's revenues and expenses from the rest of the group.

The certified project involved a parent corporation, one of its operating divisions, and a subsidiary. Enterprise Florida found the project was in a High Impact Performance Incentive Sector, projected at least the required 100 new jobs with a 150-job target, and expected capital investment above $50 million. The state economic-development office certified it for potential annual credits.

The credit was limited to project-generated tax

Section 220.191 provided an annual credit of up to 5% of eligible capital costs for up to 20 years after operations began. The credit could apply only against corporate income tax liability generated by or arising from the qualifying project and was subject to the certified investment and employment requirements.

The project had to maintain at least 80% of its applicable job target and never fall below 100 jobs. The certification described 100 jobs before state fiscal year 2005-06 and 150 thereafter. Failure to meet the target could proportionally reduce the credit, and discontinuing project operations could terminate the remaining term.

The taxpayer proposed a with-and-without method

The group filed a consolidated Florida return. Its proposed method calculated normal consolidated liability and compared it with liability recomputed without the project's apportionment factors and without its taxable income or loss. The company estimated that difference would approximate one-sixth of Florida liability.

The Department found that comparison insufficiently precise. A consolidated tax difference could reflect interactions elsewhere in the group and did not accurately isolate the project's own income and expense components.

The approved method required separate project accounting

With each consolidated F-1120, the taxpayer had to attach a pro forma project schedule showing:

• All project revenues.
• All direct expenses.
• All indirect expenses.
• Every book-to-tax adjustment.
• The resulting annual project taxable income.
• The resulting Capital Investment Tax Credit.

Project income was defined as annual taxable income determined under generally accepted accounting principles and section 220.13.

What this means for you

Certified investment projects

Build project-level accounting from the start. A broad consolidated-liability comparison may not establish how much Florida tax was generated by the qualifying project.

Consolidated corporate groups

Track revenue, direct cost, shared indirect cost, apportionment inputs, and book-to-tax differences at the project level even when the division and subsidiary have no standalone Florida return.

Corporate tax and economic-development teams

The credit depends on both financial and operational compliance. Coordinate tax schedules with certified investment costs, annual job reports, and project-continuity requirements.

Common questions

Q: Did Florida accept the with-and-without method?
A: No. It lacked the precision needed to isolate project income and expense.

Q: What filing was required?
A: A pro forma attachment to the consolidated F-1120 separately calculating project taxable income and credit.

Q: What had to appear on the schedule?
A: All revenues, direct and indirect expenses, book-to-tax adjustments, annual taxable income, and the credit.

Q: How long could the credit run?
A: Up to 20 years from commencement of operations, subject to the statute, certification, eligible costs, jobs, and project-generated tax liability.

Citations and references

• Fla. Stat. § 220.11 — Florida corporate income tax
• Fla. Stat. § 220.13 — adjusted federal income and project taxable income reference
• Fla. Stat. § 220.15 — apportionment
• Fla. Stat. § 220.191 — Capital Investment Tax Credit eligibility, amount, employment, certification, and written agreement
• Fla. Admin. Code r. 12C-1.015 — apportionment rules
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04C1-005

Original ruling text

SUMMARY

QUESTION: Taxpayer requests a written agreement between themselves and the Florida Department of Revenue,
concerning the method by which income generated by or arising out of a qualified capital investment project, shall be

determined for purposes of applying the Florida Capital Investment Tax Credit.

ANSWER - Based on Facts Below: When filing their Consolidated F-1120, it shall be necessary for the taxpayer to

separately account for, using a "pro forma" format, the project’s annual taxable income. This "pro forma" attachment
will indicate separately all revenues, expenses, either direct or indirect, and any book to tax adjustments made in the

determination of the project's annual taxable income and the subsequent Capital Investment Tax Credit.

August 26, 2004

Re:Technical Assistance Advisement 04C1-005
Request for Written Agreement for Determination of IncomeSections 220.11, 220.13, 220.15, 220.191,
Florida Statutes
Rule 12C-1.015, F.A.C.
XXX (hereinafter referred to as "Corp. A")
XXX (hereinafter referred to as "Div. B")
XXX (hereinafter referred to as "Corp. C")
Office of Tourism, Trade, and Economic Development (hereinafter referred to as "OTTED")Enterprise Florida, Inc.

(hereinafter referred to as "EFI")

Dear :

Your letter of XX, requests a written agreement between the Florida Department of Revenue and Corp. A (Div. B),
concerning the method by which income generated by or arising out of Corp. A's (Div. B) project, XXX ("the 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

This application for the written agreement referenced above, involves the Florida Department of Revenue, the
applicant's parent corporation, Corp. A, a division of the parent corporation, Div. B, and a subsidiary of the parent
corporation, Corp. C. In late XX or early XX, Corp. A (Div. B) submitted an application to EFI requesting participation
and certification in Florida's Capital Investment Tax Credit (CITC) Program, for its proposed investment in Florida.
This investment is referred to as the Project and, if certified, would thereby qualify the investment project for an annual

tax credit against its Florida corporate income tax liability.

On XxX, the project application was determined complete, and an Application Review and Evaluation Report was
prepared by EFI, and submitted to OTTED on XxX. In that report, EFI found that the Project is in a High Impact
Performance Incentive Sector, that it will create at least 100 new jobs (150), and that the investment is expected to

exceed $50 million (at least XX).

By letter of certification dated XX, OTTED approved the application and certified the Project as a qualified CITC
project. This certification provides the Project eligibility, for an annual tax credit against the corporate income tax
imposed, of up to five (5) percent of the eligible capital costs (XX), for up to twenty years, beginning with the
commencement of operations. The tax credit shall be granted against only the corporate income tax liability generated

by or arising out of the qualifying project.

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 Corp. A (Div. B), by 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 of not less than the required
number of full-time jobs at that facility as specified in the application for this certification. The required number of jobs

must be at least 80 percent of the number of jobs or "Job Targets" listed below, but in no case less than 100 jobs:

Credit Years Prior to State Fiscal Year 2005-06100 Jobs
State Fiscal Year 2005-06 and Thereafter150 Jobs

In addition, the Certification Letter states that the company Corp. A (Div. B) shall make an annual report to OTTED
concerning its satisfaction of the applicable Job Target. In the event the company does not satisfy the job creation
targets set forth in the Letter of Certification, then the credit otherwise available to the company for the applicable
annual period shall be reduced proportionally, provided that the number of jobs shall not drop below 100.
Furthermore, if the company discontinues the operations set forth in the application at the project site, then OTTED

may terminate the credit for the remainder of its term.

Corp. A, the parent corporation files a consolidated federal income tax return that includes its related subsidiaries and
affiliates. A consolidated Florida corporate income tax return is also filed for the same group. There are two business
units within this group that conduct the qualified Project. First of these two is Div. B, which operates as a division of

the parent, and the second is Corp. C, which operates as a subsidiary of the parent, purchases XXX from Div. B, and
provides XXX services to the customer. Furthermore, XXX, Corp. A is required XXX to allocate state income taxes to

its business units.

Taxes that have been paid are allocated based on the contribution of each business unit to the apportionment factors
of the consolidated group as prescribed by the applicable statutes for each state. Using this method, Div. B and Corp.

C receive about one-sixth of the Florida corporate income tax liability.

Your letter states that the Program is not projected to be profitable during the next two years. However, because a

consolidated Florida income tax return is filed, the apportionment factors of Div. B and Corp. C increase the amount of

income apportioned to Florida, which increases the Florida corporate income tax liability. Accordingly, your letter
proposes that a "with and without" approach be utilized for the investment tax credit calculation. Under this
approach, the usual consolidated Florida tax liability is computed. The resulting tax is then compared to the
consolidated Florida tax liability determined without the Florida apportionment factors of the Project (Div. B and Corp.
C), and without the taxable income or loss associated with the program. Based on your current business structure, it is
estimated that use of this method will yield a tax credit of about one-sixth of the Florida liability over the duration of the

Program, a credit that is well under the XXX approved yearly amount.

LEGAL AUTHORITY

Section 220.11, Florida Statutes, states in pertinent part:

(1) 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.

KKK

Section 220.13, Florida Statutes, states in pertinent part:

(1) 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:

KKK

Section 220.15, Florida Statutes, states in pertinent part:

(1) 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:

KKK

Section 220.191, Florida Statutes, states in pertinent part:

(1) 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.

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(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:

(a) One hundred percent for a qualifying project which results in a cumulative investment of at least $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.

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(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 regarding the CITC project with the Florida
Department of Revenue. This agreement concerns the method by which income generated by or arising out of Corp.
A's (Div. B) Project shall be determined for purposes of applying Florida’s capital investment tax credit rules under

Section 220.191, F.S.

DISCUSSION AND ANALYSIS

Corp. A, the parent corporation, in conjunction with Div. B, a division of Corp. A, submitted an application to

EFI/OTTED, requesting participation and certification in Florida's CITC program, for its Project in Florida. Such

certification, would qualify the investment project for an annual credit against its corporate income tax liability. The
project application was deemed complete on XX, by EFI, which found that the project is in a High Impact Performance
Incentive Sector designated under s. 288.108, F.S., that it will create at least 100 new jobs in Florida (150), and that
the investment is expected to exceed $50 million (at least XX). The application was submitted to OTTED, which
approved the application, and certified the Project as a qualified CITC project on XX. This certification provides the
project eligibility, for an annual tax credit against the corporate income tax imposed, of up to five (5) percent of the
eligible capital costs for a period not to exceed twenty (20) years as provided in s. 220.191(2), F.S. Furthermore, the
sum of all credits provided pursuant to s. 220.191(2), F.S., shall not exceed 100 percent of the eligible capital costs of
this project. In no event may any credit granted under s. 220.191, F.S., be carried forward or backward by any
qualifying business with respect to a subsequent or prior year. This credit is also limited on an annual basis, in that it
shall not exceed 100 percent of the Project's annual corporate income tax liability, as prescribed by s. 220.191(2)(a),
F.S., and the credit may only be granted against the corporate income tax liability generated by or arising out of this
qualifying investment project. In addition to the above referenced limitations, the credit will be dependent upon Corp. A
(Div. B) achieving and maintaining the minimum employment goals at commencement, and for each year thereafter
(see Ss. 220.191(3), F.S.). The required minimum employment specifics, for this project are stated on page 2 of the

OTTED certification letter dated XX.

In its letter dated XX, Corp. A (Div. B) requested the issuance of a Technical Assistance Advisement as a means of
satisfying the requirement in s. 220.191(4), F.S., 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, Corp. A (Div. B) indicated that it
and other subsidiaries will be included on its Florida consolidated corporate income tax return. Within that
consolidated return, will be the two business units, Div B and Corp. C, that will "conduct" the qualified Project. Div. B
operates as a division of the parent, Corp. A. Corp. C, a subsidiary of Corp. A, purchases XXX from Div. B and
provides XXX services to the ultimate customer. Furthermore, the letter states that XXX, Corp. A is required XXX to
allocate state income taxes to its business units. Taxes that have been paid are allocated based on the contribution of
each business unit to the apportionment factors of the consolidated group as prescribed by the applicable statutes for

each state. Using this method, Div. B and Corp. C receive about one-sixth of the Florida corporate income tax liability.

Your letter states that the Program is not projected to be profitable for the next two years. However, because a
consolidated Florida income tax return is filed, the apportionment factors of Div. B and Corp. C increase the amount of
income apportioned to Florida, which increases the Florida corporate income tax liability. Accordingly, your letter
proposes that a "with and without" approach be utilized for the determination the Florida corporate income tax liability
and the subsequent investment tax credit for the qualified Project. Under this approach, the usual consolidated Florida
tax liability is computed. The resulting tax is then compared to the consolidated Florida tax liability determined without
the Florida apportionment factors of the Project business units (Div. B and Corp. C), and without the taxable income or
loss associated with the Program. Based on your current business structure, estimates that the use of this method will
yield a tax credit of about one-sixth of the Florida liability over the duration of the Program, a credit that is well under

the XXX approved yearly amount.

Although, the Department is aware of XXX, and understands Corp. A's (Div. B) desire to utilize the foregoing "with and
without" approach as a method of determining the income generated by or arising out of this investment project, this

method appears to lack the precision necessary to accurately segregate the project's income and expense

components from the remainder of the Corp. A's operations. For that reason, coupled with the fact the Corp. A, and
the two related business units (Div. B, Corp. C) slated to conduct the project are filing a consolidated return (F-1120),
the Department requests that the following guidelines be used in the determination of the project's annual taxable
income. When filing its Consolidated F-1120, it shall be necessary for Corp. A (Div. B) to separately account for, using
a"pro forma" format, the project's taxable income. This "pro forma" attachment will indicate separately all revenues,
expenses, either direct or indirect, and any book to tax adjustments made in the determination of the project's annual
taxable income, and the subsequent Capital Investment Tax Credit. This technique will aid in the isolation and

determination of the Corp. A's annual income that should be attributed solely to the Project.

CONCLUSION

Based on the information presented and the preceding discussion and analysis, it is the Department's position that
Corp. A shall determine the income generated by or arising out of the CITC project using the specifics provided for in

the foregoing analysis and discussion. In abbreviated form, they are again stated as follows:

1) In adherence to Section 220.191 (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.

2) 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 CITC 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 this advice is based

may subject 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. 60251