Could Florida CAPCO insurance-premium-tax credits be sold before transfer rules were adopted?

Plain-English summary

Florida's 2005 CAPCO amendment allowed premium-tax credits to be transferred or sold and directed the Department to adopt facilitating rules. No transfer rule had yet been adopted when the requester asked whether a sale could proceed.

Florida said the credits could be sold immediately because the statute itself authorized sales. Until rules were adopted, either the buyer or seller should notify the Department of Revenue and the Office of Tourism, Trade, and Economic Development within 30 days.

The notice had to identify the original CAPCO investor, seller if different, and purchaser by name and federal identification number, and include a schedule tracking the original credit amount and its use through the sale date.

What this means for you

This was interim 2005 procedure for a historical credit program. The ruling's quoted statute said section 288.99 would stand repealed December 31, 2010, so the notice process should not be treated as current CAPCO guidance.

Common questions

Could a CAPCO credit be sold before transfer rules existed? Yes, because the 2005 statute authorized sales.

Who had to notify the government? Either the purchaser or seller.

When and where was notice due? Within 30 days to both the Department of Revenue and OTTED.

What information was required? Names and federal identification numbers for the original investor, seller, and buyer, plus a credit-usage schedule through the sale date.

Citations and references

• Fla. Stat. § 288.99(11) (2005 CAPCO credit transferability)
• Chapter 2005-91, Laws of Florida (2005 CAPCO amendments)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05B8-001

Original ruling text

SUMMARY
QUESTION: Given that all CAPCO credits can be sold, and at this point, there are no Department of Revenue Rules
governing the sale of CAPCO credits, if a sale of CAPCO credits is made at this time, will written notification, including
appropriate identification numbers, from the transferor or buyer within thirty (30) days of the transaction to the
Department of Revenue with a copy to OTTED be sufficient notification of the sale at this point in time until the
Department of Revenue officially adopts rules?
ANSWER - Based on Facts Below: CAPCO credits may be sold at this time. Until rules are adopted by the
Department of Revenue facilitating the sale of CAPCO credits, either the purchaser or the seller of the CAPCO credit
should notify the Department of Revenue and OTTED that the sale occurred, within 30 days of the sale. The
notification should contain the name and federal identification number of the original CAPCO investor, the name and
federal identification number of the seller (if different from the original CAPCO investor), the name and federal
identification number of the purchaser, and a schedule tracking the amount of CAPCO credit granted the original
investor and the use of such credit through the date of sale.

October 13, 2005

Re: Technical Assistance Advisement 05B8-001
Insurance Premium Tax - Certified Capital Investment Company (CAPCO) Program - Transferability Provision
Subsection 288.99(11), F.S., as amended through Chapter 2005-91, L.O.F.
Dear :
Your letter dated XX, requests a Technical Assistance Advisement concerning the changes made to section 288.99,
F.S., by HB 1817 during the 2005 legislative session (Chapter 2005-91, L.O.F.). Your questions mainly concern the
transferability/sale provision contained in subsection 288.99(11), F.S. This response to your request constitutes a
Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the
authority of s. 213.22, Florida Statutes.
FACTS
Section 288.99, F.S. (2004), provided for two CAPCO programs. The first was enacted into law in 1998, and the
second was enacted into law in 2002. The first CAPCO program (Program One) was funded by the Legislature, but
the second CAPCO program (Program Two) was not.
When Program Two was created, Section 11 of Chapter 2002-404, L.O.F, specifically provided that the provisions of
this bill shall apply only to "Program Two," except as otherwise specifically provided. Therefore, many of the changes
made to s. 288.99, F.S., by Section 11 of Chapter 2002-404, L.O.F., did not change the law related to CAPCO
Program One.

CAPCO Program One:
CAPCO Program One provided a dollar for dollar insurance premium tax credit for insurers who invested in a CAPCO,
which in turn, was required to invest in small and expanding Florida businesses.
Each CAPCO was originally required to apply to the Office of Tourism, Trade, and Economic Development (OTTED)
for an allocation of premium tax credits ($150 million), which was based on the amount each certified investor
(insurance company) agreed to invest. Once the credit amount was allocated to each CAPCO, and in turn to each
insurer, the insurer had ten days in which to make its investment. Starting with the 2000 insurance premium tax return,
an insurer was entitled to claim 10% of its certified investment in the CAPCO as a credit on its insurance premium tax
return. These credits could be transferred to the insurer's parent company, a subsidiary, a brother/sister corporation,
or any other entity owning at least a 10% interest in the voting shares of such insurer. Any unused credits could be
carried forward and applied against the insurance premium tax liability through tax year 2017.
CAPCO Program Two:
The total amount of insurance premium tax credits that were to be available through this second program was $150
million. To be eligible for this second program, the CAPCO should have applied to OTTED for the allocation of
premium tax credits by the date outlined in the rules adopted by the Department of Banking and Finance (DBF).
OTTED was required to inform each CAPCO of its share of premium tax credits available to each of its potential
investors. The insurer then had ten days in which to make its investment. The Program Two credits were to be
claimed beginning with the insurance premium tax return due for tax year 2003 (return due 3/1/2004), at the earliest.
The installments for April 15, 2004, and June 15, 2004, were to be based on the net tax due in 2003. Program Two
credits, like Program One credits, were limited to 10% of the insurer's investment per year. CAPCO Program Two was
not funded by the Legislature, so no CAPCO credits were ever issued under Program Two.
CAPCO Program Two was to operate in the same manner as CAPCO Program One, with a few exceptions. The
credits for CAPCO Program Two could be sold or transferred to any other entity by the certified investor. The
Department of Revenue was required to adopt rules governing the sale and transfer of CAPCO credits for Program
Two.
The carryforward of unused CAPCO Program Two credits was indefinite. The credits in Program Two applied to both
the insurance premium tax under s. 624.509, F.S., and the retaliatory tax under s. 624.5091, F.S. The total Program
Two credits were limited to $22.5 million per affiliated group.
The language throughout s. 288.99, F.S., was updated to include the CAPCO Program Two. The dates within which
the CAPCO must invest the monies received through CAPCO Program Two into qualified investments were also
updated. In addition, the corporate ownership requirements were increased from 10 percent to 15 percent for an entity
to be considered an affiliate of an insurance company.
Chapter 2005-91, L.O.F.

HB 1817 eliminated the references to CAPCO Program One and CAPCO Program Two, so that the language
remaining in s. 288.99, F.S., applied to any CAPCO credits or programs. The language remaining in s. 288.99, F.S.,
also provides for an indefinite carryover of the CAPCO credits and allows the CAPCO credits to be sold.
QUESTION
Given that all CAPCO credits can be sold, and at this point, there are no Department of Revenue Rules governing the
sale of CAPCO credits, if a sale of CAPCO credits is made at this time, will written notification, including appropriate
identification numbers, from the transferor or buyer within thirty (30) days of the transaction to the Department of
Revenue with a copy to OTTED be sufficient notification of the sale at this point in time until the Department of
Revenue officially adopts rules?
LAW
Section 288.99, F.S. (2005), provides in part:
(1) SHORT TITLE.--This section may be cited as the "Certified Capital Company Act."
...
(6) PREMIUM TAX CREDIT; AMOUNT; LIMITATIONS.-(a) Any certified investor who makes an investment of certified capital shall earn a vested credit against premium tax
liability equal to 100 percent of the certified capital invested by the certified investor. Certified investors shall be
entitled to use no more than 10 percentage points of the vested premium tax credit, including any carryforward credits
under this act, per year beginning with premium tax filings for calendar year 2000. Any premium tax credits not
used by certified investors in any single year may be carried forward and applied against the premium tax
liabilities of such investors for subsequent calendar years.
(b) The credit to be applied against premium tax liability in any single year may not exceed the premium tax liability of
the certified investor for that taxable year.
(c) A certified investor claiming a credit against premium tax liability earned through an investment in a certified capital
company shall not be required to pay any additional retaliatory tax levied pursuant to s. as a result of claiming such
credit. Because credits under this section are available to a certified investor, s. does not limit such credit in any
manner.
(d) The amount of tax credits vested under the Certified Capital Company Act shall not be considered in ratemaking
proceedings involving a certified investor.
(7) ANNUAL TAX CREDIT; MAXIMUM AMOUNT; ALLOCATION PROCESS.-(a) The total amount of tax credits which may be allocated by the Office of Tourism, Trade, and Economic
Development shall not exceed $150 million. The total amount of tax credits which may be used by certified investors
under this act shall not exceed $15 million annually.

(b) The Office of Tourism, Trade, and Economic Development shall be responsible for allocating premium tax credits
as provided for in this act to certified capital companies.
(c) Each certified capital company must apply to the Office of Tourism, Trade, and Economic Development for an
allocation of premium tax credits for potential certified investors on a form developed by the Office of Tourism, Trade,
and Economic Development with the cooperation of the Department of Revenue. The form shall be accompanied by
an affidavit from each potential certified investor confirming that the potential certified investor has agreed to make an
investment of certified capital in a certified capital company up to a specified amount, subject only to the receipt of a
premium tax credit allocation pursuant to this subsection. No certified capital company shall submit premium tax
allocation claims on behalf of certified investors that in the aggregate would exceed the total dollar amount
appropriated by the Legislature. No allocation shall be made to the potential investors of a certified capital company
unless such certified capital company has filed premium tax allocation claims of not less than $15 million in the
aggregate.
(d) The Office of Tourism, Trade, and Economic Development shall inform each certified capital company of its share
of total premium tax credits available for allocation to each of its potential investors.
(e) If a certified capital company does not receive certified capital equaling the amount of premium tax credits
allocated to a potential certified investor for which the investor filed a premium tax allocation claim within 10 business
days after the investor received a notice of allocation, the certified capital company shall notify the Office of Tourism,
Trade, and Economic Development by overnight common carrier delivery service of the company’s failure to receive
the capital. That portion of the premium tax credits allocated to the certified capital company shall be forfeited. If the
Office of Tourism, Trade, and Economic Development must make a pro rata allocation under paragraph (f), that office
shall reallocate such available credits among the other certified capital companies on the same pro rata basis as the
initial allocation.
(f) If the total amount of capital committed by all certified investors to certified capital companies in premium tax
allocation claims exceeds the aggregate cap on the amount of credits that may be awarded, the premium tax credits
that may be allowed to any one certified investor shall be allocated using the following ratio:
A/B = X/>$150,000,000
Where the letter "A" represents the total amount of certified capital certified investors have agreed to invest in any one
certified capital company, the letter "B" represents the aggregate amount of certified capital that all certified investors
have agreed to invest in all certified capital companies, the letter "X" is the numerator and represents the total amount
of premium tax credits and certified capital that may be allocated to a certified capital company, and $150 million is the
denominator and represents the total amount of premium tax credits and certified capital that may be allocated to all
certified investors. Any such premium tax credits are not first available for utilization until annual filings are made in
2001 for calendar year 2000, and the tax credits may be used at a rate not to exceed 10 percent annually.
(g) The maximum amount of certified capital for which premium tax allocation claims may be filed on behalf of any
certified investor and its affiliates by one or more certified capital companies may not exceed $15 million.

(h) To the extent that less than $150 million in certified capital is raised in connection with the procedure set forth in
paragraphs (c)-(g), the commission may adopt rules to allow a subsequent allocation of the remaining premium tax
credits authorized under this section.
(i) The Office of Tourism, Trade, and Economic Development shall issue a certification letter for each certified
investor, showing the amount invested in the certified capital company. The applicable certified capital company shall
attest to the validity of the certification letter.
...
(11) TRANSFERABILITY.--The premium tax credit established pursuant to this act may be transferred or sold.
The Department of Revenue shall adopt rules to facilitate the transfer or sale of such premium tax credits. A
transfer or sale shall not affect the time schedule for taking the premium tax credit as provided in this act. Any
premium tax credits recaptured shall be the liability of the taxpayer who actually claimed the premium tax credits. The
claim of a transferee of a certified investor's unused premium tax credit shall be permitted in the same manner and
subject to the same provisions and limitations of this act as the original certified investor.
...
(17) This section shall stand repealed December 31, 2010. (Emphasis Supplied)
DISCUSSION AND ANALYSIS OF LAW
Section 288.99, F.S., provides that the Department of Revenue shall adopt rules to facilitate the transfer/sale of
credits. This provision was placed in s. 288.99, F.S., when the Second CAPCO program was created. However, since
the Second CAPCO program was not funded and no credits were ever issued, the Department of Revenue did not
adopt any rules to facilitate the sale of CAPCO Program Two credits.
In 2005, the Florida Legislature reenacted s. 288.99, F.S. The Legislature removed the distinctions between CAPCO
Program One and CAPCO Program Two, so that the current language is applicable to all CAPCO credits/programs.
This reenactment changed the transferability provision for the CAPCO credits that had been issued under CAPCO
Program One, so that these credits could now be sold. Since CAPCO credits can now be sold, the Department of
Revenue has started the rule drafting process, as required under the reenactment of s. 288.99, F.S. However, at this
point, a rule has not been officially adopted.
The Taxpayer questions whether a sale can take place now, even though the Department of Revenue has not
adopted rules to facilitate the sale. Since s. 288.99, F.S., currently allows the sale of CAPCO credits, CAPCO credits
can be sold.
Next, the Taxpayer questions whether a notification of the sale of a CAPCO credit to the Department of Revenue and
OTTED within 30 days of the sale should be made. As noted above, at this point, the Department of Revenue has not
adopted rules to facilitate the sale of CAPCO credits. However, we anticipate the rules will at least require a
notification of the sale to the Department of Revenue. Therefore, until rules are adopted to facilitate the sale of
CAPCO credits, notification of the sale of CAPCO credits should be made to the Department of Revenue and OTTED
within 30 days of the sale. The notification to the Department of Revenue should be addressed to the undersigned.

The notification should contain the name and federal identification number of the original CAPCO investor, the name
and federal identification number of the seller (if different from the original CAPCO investor), the name and federal
identification number of the purchaser, and a schedule tracking the amount of CAPCO credit granted the original
investor and the use of such credit through the date of sale.(FN 1)
CONCLUSION
CAPCO credits may be sold at this time. Until rules are adopted by the Department of Revenue facilitating the sale of
CAPCO credits, either the purchaser or the seller of the CAPCO credit should notify the Department of Revenue and
OTTED that the sale occurred, within 30 days of the sale.
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 the 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,
Robert DuCasse
Technical Assistance and Dispute Resolution
RCD/
Record ID: 16557

FOOTNOTE 1. The purchaser of CAPCO credits may want to verify that the CAPCO credits it is purchasing are valid.
The schedule tracking the use of CAPCO credits may provide some assurances to the purchaser.