How could a certified project calculate the income attributable to it for Florida's Capital Investment Tax Credit?

Plain-English summary

A manufacturer had a certified Florida expansion project for the Capital Investment Tax Credit and needed a written method for identifying the corporate income generated by that project. The project involved new production capacity, existing-line improvements, shipping and warehousing additions, and research-and-development enhancements.

Florida allowed the taxpayer to use its proposed "new product" methodology and a pro-forma schedule. The schedule had to separately show all project revenues, direct and indirect expenses, and federal Schedule M adjustments. Indirect expenses had to be allocated through a reasonable, inclusive method consistent with generally accepted accounting principles.

After calculating the project's annual taxable income under that method and section 220.13, the taxpayer had to apply its Florida apportionment factor to determine Florida project income and the associated credit.

What this means for you

A certified project cannot simply use the company's total taxable income as the credit base. The taxpayer needs records that isolate the qualifying project's own revenues and expenses, document indirect allocations and book-to-tax adjustments, and then apply Florida apportionment.

Common questions

Did Florida accept the taxpayer's new-product approach? Yes, together with the required pro-forma accounting described in the advisement.

What had to appear in the pro-forma schedule? Project revenues, direct and indirect expenses, and federal Schedule M adjustments used to determine annual taxable income and the credit.

How were indirect expenses treated? They had to be allocated using a reasonable and inclusive method consistent with generally accepted accounting principles and procedures.

When was Florida apportionment applied? After the project's annual taxable income was determined under the approved method.

Citations and references

• Fla. Stat. § 220.11 (corporate income tax)
• Fla. Stat. § 220.13 (adjusted federal income)
• Fla. Stat. § 220.15 (Florida apportionment)
• Fla. Stat. § 220.191(1)(d), (2), (4), (5), and (8) (Capital Investment Tax Credit and project-income method)
• Fla. Admin. Code r. 12C-1.0191 (Capital Investment Tax Credit)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08C1-001

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: When filing their “stand-alone” Florida corporate income tax return, 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.

February 21, 2008

Re:

Technical Assistance Advisement 08C1-001
Request for Written Agreement for Determination of Income
Sections 220.11, 220.13, 220.15, and 220.191, Florida Statutes, (F.S.)
Rule 12C-1.0191, Florida Administrative Code (F.A.C.)
XXX (hereinafter referred to as “Taxpayer”)
Office of Tourism, Trade, and Economic Development
(hereinafter referred to as “OTTED”)
Enterprise Florida, Inc. (hereinafter referred to as “EFI”)

Dear :
Your letter of XXX, requests a written agreement between the Florida Department of Revenue,
hereinafter referred to as the Department, and the Taxpayer, concerning the method by which
income generated by or arising out of its qualified capital investment project shall be determined
for purposes of applying the Capital Investment Tax Credit (CITC). 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 section 213.22, Florida Statutes.
FACTS SUPPLIED BY TAXPAYER
This application for the written agreement, referenced above, involves the Department and the
Taxpayer. The Taxpayer XXX and XXX. Due to Taxpayer’s continued growth and new
product development, Taxpayer is expanding its manufacturing, and research and development
(R and D) facilities in Florida. Taxpayer currently files as a stand-alone Taxpayer for Florida
corporate income tax purposes.

Technical Assistance Advisement 08C1-001
Page 2

In XXX of XXX, Taxpayer submitted an application to EFI/OTTED requesting participation and
certification in Florida’s CITC Program, for its proposed investment in Broward County, Florida.
This investment is referred to as the “Project.”
Taxpayer’s multi-phased expansion project will include “production milestones,” such as the
addition of a state-of-the-art manufacturing line, improvements to the existing manufacturing
line, additions to shipping and warehousing, and enhancements to R and D. Upon the
commencement of the operations of this multi-phased expansion project, Taxpayer will be able
to produce several new products that are currently under development, in addition to products
that were recently launched, which are all part of the project. Furthermore, the expansion of
R and D will enable the Taxpayer to continue developing new products in the future.
On XXX, OTTED issued a certification letter approving the Taxpayer’s Project as qualified for
participation in Florida’s CITC program. In reviewing the Taxpayer’s application, it was
determined that the project is located in a High Impact Performance Incentive Sector designated
under section 288.108, F.S. (XXX). The 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 (at least $25,000,000), for up to twenty years, beginning with the
commencement of operations. Pursuant to Florida Statutes, the annual credit will be limited to
fifty (50) percent of the annual corporate income tax liability generated by or arising out of the
qualifying Project.
As specified in the Certification Letter, the CITC is dependent upon confirmation of the new
capital investment in the project of at least $25,000,000. 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 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 100 net new full-time XXX manufacturing and
R and D related jobs at the facility.
Your letter states that Taxpayer currently accounts for each product separately in calculating
gross revenue and direct costs to determine product gross profit. Taxpayer plans to continue to
track the revenues for each product separately for the purpose of determining revenues resulting
from the Project. Furthermore, Taxpayer indicates that the basis for determining direct revenues
and costs resulting from the Project will be revenue and costs from new products produced as a
result of the Project. In addition, the Project’s annual taxable income shall be determined
pursuant to generally accepted accounting principles and the applicable Florida statutes.
Taxpayer also indicates that it will separately account for the annual income directly related to
the business activities of the Project using a “pro forma” format. This “pro forma” format will
separately account for all revenues, expenses, either direct or indirect, and any book to tax
adjustments made in the determination of the project’s annual taxable income. Furthermore,
Taxpayer’s representative indicates that Taxpayer will allocate indirect costs, and Federal
Schedule-M adjustments, related to the Project based upon a reasonable method. After
determining the Project’s annual taxable income in the manner previously described, Taxpayer’s
Florida apportionment factor will be applied to the Project’s taxable income for determination of

Technical Assistance Advisement 08C1-001
Page 3

the Project’s Florida taxable income and associated Capital Investment Tax Credit. Taxpayer
states that the credit will be limited to fifty (50) percent of the annual corporate income tax
liability.
LEGAL AUTHORITY
Section 220.11(1), F.S., states:
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(1), F.S., states:
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(1), F.S., states:
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, F.S., 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:

Technical Assistance Advisement 08C1-001
Page 4

(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:

(c) Fifty percent for a qualifying project which results in a cumulative capital
investment of at least $25 million but less than $50 million.

(4) 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.
(5) The office [OTTED], 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.

(8) 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 Department, for the determination of the Project’s taxable income. This agreement concerns
the method by which income generated by, or arising out of, Taxpayer’s Project shall be
determined for purposes of applying Florida’s capital investment tax credit rules under section
220.191, F.S., and Rule 12C-1.0191, F.A.C.

Technical Assistance Advisement 08C1-001
Page 5

DISCUSSION AND ANALYSIS
In its request for an agreement for the determination of the Project’s taxable income, Taxpayer
plans to continue to track the revenues for each product separately for the purpose of determining
revenues resulting from the Project. Taxpayer indicates that the basis for determining direct
revenues and costs resulting from the Project will be revenue and costs from “new products”
produced as a result of the Project. In addition, the Project’s annual taxable income shall be
determined pursuant to generally accepted accounting principles and applicable Florida statues.
Taxpayer will use a “pro forma” format to separately account for all revenues, expenses, either
direct or indirect, and book to tax adjustments made in the determination of the Project’s annual
taxable income. Furthermore, Taxpayer’s representative states that Taxpayer will allocate
indirect costs, and Federal Schedule-M adjustments, related to the Project based upon a
reasonable method. After determining the Project’s annual taxable income in the manner
previously described, Taxpayer’s Florida apportionment factor will be applied to the Project’s
taxable income for determination of the Project’s Florida taxable income and associated Capital
Investment Tax Credit.
The Department will allow the Taxpayer’s “new product” methodology and use of a “pro forma”
format. Taxpayer must separately account for all revenues, expenses, either direct or indirect,
and any Federal Schedule-M adjustments made in the determination of the project’s annual
taxable income and the subsequent Capital Investment Tax Credit. After determining the
Project’s annual taxable income as previously described, Taxpayer will apply its Florida
apportionment factor to the Project’s annual taxable income, for the determination of the
Project’s Florida taxable income and associated Capital Investment Tax Credit. Taxpayer must
be certain that the allocation of indirect expenses be inclusive and in agreement with generally
accepted accounting principles and procedures. This technique will aid in the isolation and
determination of the annual 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 by or arising out
of the CITC’s 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(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.
2. With the filing of a separate Florida 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 section 213.22, F.S., which
   is binding on the Department only under the facts and circumstances described in the request for

Technical Assistance Advisement 08C1-001
Page 6

this advice as specified in section 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 section 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

Record ID 39410