How could a certified Florida project calculate its taxable income for the Capital Investment Tax Credit when its operations supported the broader enterprise?

Plain-English summary

Florida approved a two-step allocation method for determining a certified project's Florida income and Capital Investment Tax Credit where the Florida operation supported the company's broader enterprise.

First, the company divided Florida project expenses by total company expenses and applied that percentage to total company revenue. Subtracting the project's direct and indirect expenses produced pro forma project income. Second, it added or subtracted book-to-tax adjustments using the same allocation percentage.

The method had to follow U.S. GAAP and Florida tax law, provide the closest approximation of actual project revenue and expense, and accurately reflect project taxable income. Applying the then-stated 5.5% Florida corporate rate produced project tax liability and the associated credit.

The ruling also described an annual credit limit of 50% of project corporate tax liability, at least 100 net new jobs at the Tampa facility, and audit of the allocation method.

What this means for you

Project credits inside integrated operations need a defensible allocation key. The chosen ratio should connect the Florida project's real operating contribution to enterprise revenue and apply consistently to tax adjustments.

Common questions

What allocation key did Florida approve? Project expenses as a percentage of total company expenses.

Were indirect expenses included? Yes.

Could the Department audit the method? Yes.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, and 220.191, and Fla. Admin. Code r. 12C-1.0191, as cited and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 09C1-004

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 a separate 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. Taxpayer will begin by determining the percentage of expense in Florida
relative to all Taxpayer expenses and then using that percentage to determine the associated
revenues. After determining the Project’s annual taxable income, Taxpayer will apply the
Florida tax rate to Project’s annual taxable income, for the determination of the Project’s Florida
tax liability, and associated Capital Investment Tax Credit.

November 9, 2009

Re:

Technical Assistance Advisement 09C1-004
Corporate Income Tax - Request for Written Agreement for Determination of Income
Sections 220.11, 220.13, 220.191, Florida Statutes (F.S.)
Rule 12C-1.0191, Florida Administrative Code (F.A.C.)
XXX FEIN: XXX (herein-after 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. 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. Taxpayer is a member-owned XXX for several businesses that consists of a XXX,
XXX, and XXX, XXX. Through its subsidiaries, Taxpayer provides XXX, XXX, and XXX for
virtually all XXX, XXX, XXX, XXX, and XXX in the U.S. It is also a XXX for XXX and
XXX, XXX and XXX.

Technical Assistance Advisement 09C1-004
Page 2

On XXX, Taxpayer submitted an application to EFI/OTTED requesting participation and
certification in Florida’s Capital Investment Tax Credit Program, for its proposed investment in
Florida. That certified “Qualifying Project” is referred to as the “Taxpayer Project.”
As specified in the Certification Letter, the project is expected to create at least XXX new jobs in
Florida, and the investment to exceed XXX. As of XXX, the Taxpayer Project has created XXX
new jobs, and it has invested XXX.
Taxpayer’s main operating subsidiaries are XXX (FEIN: XXX), XXX (FEIN: XXX), and XXX
(FEIN: XXX). XXX, XXX, and XXX are included in the Taxpayer’s consolidated federal
income tax return. In Florida, Taxpayer and its XXX subsidiaries each file a separate Florida
corporate income tax return.
Taxpayer’s Florida facility located in XXX (Southern Business Center) is capable of handling its
full operational requirements and those of its subsidiaries. The development and sophistication
of Taxpayer’s Florida facility had led to a dual operating center configuration, with transaction
processing capacity shared between XXX and Florida. In the event of any business interruption
in XXX, Taxpayer’s overall business would continue to operate through the redundant
infrastructure created at the Southern Business Center (XXX). Taxpayer and subsidiaries
manage XXX of participant XXX and XXX. This activity is performed jointly by the XXX and
XXX offices, and either location is capable of managing the activity on its own.
Taxpayer states that all of its activities in Florida are related to the Taxpayer Project. For the
determination of the qualifying project’s annual Florida taxable corporate income, and the
associated Capital Investment Tax Credit, Taxpayer proposes a two-step process. First,
Taxpayer will determine the percentage that Florida Taxpayer Project expenses bear to total
Taxpayer expenses, and then apply that percentage to total Taxpayer revenues to determine
Florida revenues for the Taxpayer Project. The difference between the Florida Taxpayer Project
revenues and expenses represent the Taxpayer Project’s pro forma income. Next Taxpayer
proposes to determine the Taxpayer Project’s taxable income by adding and subtracting book to
tax adjustments computed using the same allocable percentage. Taxpayer states that the
determination of the Taxpayer Project’s revenues, expenses, and the percentage relationship
between the two, is readily determinable under U.S. GAAP. Taxpayer explains that this is true,
as described above, as Florida activities interchangeably support all of the Taxpayer Project’s
business activities. Furthermore this methodology provides the closest approximation of the
Taxpayer Project’s overall contribution to the total enterprise and accurately reflects the taxable
income of the Taxpayer Project.
LEGAL AUTHORITY
Section 220.11, F.S., 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

Technical Assistance Advisement 09C1-004
Page 3

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, F.S., 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:

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:

(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)(a) 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. Unless assigned
as described in this section, 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

Technical Assistance Advisement 09C1-004
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percentages of the annual corporate income tax liability or the premium tax
liability generated by or arising out of a qualifying project:

3. Fifty percent for a qualifying project which results in a cumulative 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) Applications shall be reviewed and certified pursuant to s.288.061. 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.

(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 requested a written agreement for the determination of the Florida qualifying
project’s annual Florida corporate taxable income, and the amount of the associated Capital
Investment Tax Credit.
DISCUSSION AND ANALYSIS
On XXX, Taxpayer submitted an application to EFI/OTTED, requesting participation and
certification in Florida’s Taxpayer program, for its project in XXX, Florida. Such certification,
would qualify the investment project for an annual credit against its corporate income tax
liability. The project application was later deemed complete by EFI, with a cumulative capital
investment that is expected to be at least XXX.

Technical Assistance Advisement 09C1-004
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On XXX, OTTED issued a letter of certification that approved the application and certified the
project as Capital Investment Tax Credit qualified. 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
section 220.191 (2), F.S. Furthermore, the sum of all credits provided pursuant to section
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 section 220.191(2)(a), 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 50 percent of the Project’s annual corporate income
tax liability, as prescribed by section 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 the Taxpayer Project 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 Taxpayer Project are not less than the creation of at least
100 net new jobs at the Tampa facility.
In its letter dated XXX, Taxpayer requested the issuance of a Technical Assistance Advisement
as a means of satisfying the requirement in section 220.191(5), F.S., for a written agreement
specifying how income generated by or arising out of the Taxpayer’s Project will be determined.
In making that determination, the Taxpayer explains that in Florida it files a separate Florida
corporate income tax return.
CONCLUSION
To determine the qualifying project’s annual Florida corporate taxable income, and the
associated Capital Investment Tax Credit, Taxpayer may use its proposed two-step process.
First, Taxpayer will determine the percentage that Florida Taxpayer Project expenses bear to
total Taxpayer expenses, and then apply that percentage to total Taxpayer revenues to determine
Florida revenues for the Taxpayer Project. The difference between the Florida Taxpayer Project
revenues and expenses will represent the Taxpayer Project’s Florida pro forma income. Next,
Taxpayer will determine the Taxpayer Project’s taxable income by adding and subtracting book
to tax adjustments computed using the same allocable percentage. Taxpayer will make the
taxable income determination of the Taxpayer Project’s revenues and expenses, and the
percentage relationship between the two under the applicable Florida Tax Statutes, and Generally
Accepted Accounting Principles (GAAP) in the United States. Furthermore, this methodology
must provide the closest approximation of the Taxpayer Project’s actual revenues and expenses,
either direct or indirect, and accurately reflect the Florida taxable income for the Taxpayer
Project. The completion of this process requires the Taxpayer to apply the Florida corporate
income tax rate (5.5%) to the Florida taxable income to determine the corporate income tax
liability generated by the Taxpayer Project, and the associated Capital Investment Tax Credit.
The proposed two-step process may be audited to determine whether it accurately calculates
Florida revenues and the Florida proforma taxable income for Taxpayer’s project.

Technical Assistance Advisement 09C1-004
Page 6

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
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 which 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: 70102