How could a partnership successor calculate and pass through a Capital Investment Tax Credit after combining the qualifying project with another program?

Plain-English summary

Florida approved a historical-cost and separate-accounting method for a partnership that succeeded to a certified Capital Investment Tax Credit project and combined it operationally with another program.

The qualifying project had to retain distinct accounting within the combined general ledger. Its pro forma income calculation had to apply GAAP and Florida Chapter 220, separately capture revenue, direct and indirect costs, book-to-tax items, and other adjustments, and use the specified allocation methods for corporate ledger accounts not directly assigned to the project.

The partnership would apply the Florida apportionment factor to project income, report the credit through footnotes on its Florida partnership return and Schedules K-1, and have its corporate partners claim their shares on Forms F-1120 with the pro forma calculations attached. Florida also allowed the partnership and partners to amend specified earlier returns because no credit had yet been claimed.

All methods, allocations, project income, and associated credits remained auditable.

What this means for you

A successor does not lose project-level discipline when a qualifying operation is merged into a larger venture. Historical-cost allocation must still reproduce the project's actual GAAP economics and trace the credit through partnership and corporate returns.

Common questions

Could the successor use historical costs? Yes, to the extent project income reflected actual GAAP expenses.

Who claimed the credit? The corporate partners, using amounts reported by the partnership.

Could earlier returns be amended? Yes, for the specified unclaimed-credit years described in the ruling.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, and 220.191, and Fla. Admin. Code r. 12C-1.015, as cited and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10C1-003

Original ruling text

TAX: Corporate Income – Capital Investment Tax Credit
TAA NUMBER: 10C1-003
ISSUE: Request for written agreement for determination of project income
STATUTE CITE(S): Sections 220.11, 220.13, and 220.191, F.S.
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 its 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. 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.

February 26, 2010
Re: Technical Assistance Advisement 10C1-003
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 “PROJECT”)
XXX (hereinafter referred to as “COMPANY B”)
Office of Tourism, Trade, and Economic Development (hereinafter referred to as
“OTTED”)
Enterprise Florida, Inc. (hereinafter referred to as “EFI”)
XXX (hereinafter referred to as “CORPORATION C”)
XXX (hereinafter referred to as “CORPORATION D”)
XXX (hereinafter referred to as “CORPORATION E”)
XXX (hereinafter referred to as “CORPORATION F”)
Dear XXX:
Your letter of XXX, requests a written agreement between the Florida Department of
Revenue and COMPANY B, concerning the method by which income generated by or
arising out of COMPANY B’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, F.A.C., and is issued to you under authority
of section 213.22, F.S.
FACTS SUPPLIED BY TAXPAYER
This application for the written agreement referenced above, involves the Florida
Department of Revenue, COMPANY B and its qualifying project, the PROJECT. This
project is the successor and combination of two former XXX programs which were
owned by CORPORATION A and CORPORATION C. In XXX CORPPORATION A
submitted an application to EFI/OTTED requesting participation and certification in
Florida’s Capital Investment Tax Credit (CITC) Program for its investment in XXX.
That investment was referred to as the XXX project, and was later certified as a
“qualifying project” under Florida’s CITC Program (see section 220.191, F.S.). In XXX,
in response to a request for a written agreement for the determination of taxable income
and the associated CITC, the Department issued on August 26, 2004, TAA 04C1-005.
This document specified the manner in which the Taxpayer’s project would account for
its annual taxable income, and the subsequent CITC.

Technical Assistance Advisement 10C1-003
Page 2

Later, the XXX determined that it was not cost effective to operate these two separate
programs, and XXX consented to the merger of the two programs into a separate joint
venture company, a Limited Liability Company (LLC), under the name of COMPANY
B. Effective XXX, CORPORATION A contributed all of its PROJECT assets and
employees, and CORPORATION C contributed all of its XXX assets and employees into
COMPANY B. Under this agreement CORPORATION A and CORPORATION C each
were granted a 50 percent ownership interest in the new joint venture (COMPANY B).
For federal income tax and Florida corporate income tax purpose COMPANY B was
treated as a partnership and will continue to be treated as a partnership.
On XXX, the Governor’s Office of the State of Florida recognized CORPORATION A’s
contribution of its PROJECT to COMPANY B and recertified COMPANY B as the legal
successor to the former qualifying CITC project called the “XXX.” CORPORATION
A’s eligible capital costs of $XXX ($XXX) were to be used as the basis for the annual
credit.
Since its formation, COMPANY B’s financial accounting and tax records have been
compiled using separate general ledger accounting systems maintained by
CORPORATION A and CORPORATION C. Beginning in XXX, COMPANY B
implemented its new financial reporting system that combines both the PROJECT and the
XXX project into one general ledger system. This new general ledger system continues
to provide for the separate tracking of revenues, direct costs, and indirect costs of the
PROJECT and the XXX project, which will allow for separate accounting between the
PROJECT and the XXX projects.
COMPANY B indicates that it will determine the PROJECT’s annual taxable income
using Generally Accepted Accounting Principles (GAAP), provisions contained in
Chapter 220, F.S., and will separately account for the project’s taxable income using a
“pro forma” format. This “pro forma” format will separately account for all revenues,
direct and indirect costs, book to tax adjustments, and any other adjustments made in the
determination of the PROJECT’s annual taxable income. The amount of the Florida
income tax liability and the amount of the associated annual CITC credit will be readily
determinable.
In addition, to the above proposed methodology, there are miscellaneous corporate
general ledger accounts which COMPANY B indicates are not directly allocated to the
PROJECT. If book to tax adjustments are necessary for these accounts they will be
allocated using the method listed in the following schedule. These accounts, and their
XXX/XXX balances are listed below:

Technical Assistance Advisement 10C1-003
Page 3

Miscellaneous Income
Interest Income-other
Gain/Loss Derivatives
FAS/CAS Pension Exp.
Historical
Interest Exp.
Purchase Discounts
Inputed Income/Loss

Income (Expense)
XXX
XXX

Allocation Method

$XXX
$XXX
($XXX)
($XXX)

XXX
$XXX
($XXX)
($XXX)

Indirect Cost of Sales
Sales Revenue
100% to XXX
Pre COMPANY B-

($XXX)
$XXX
($XXX)

($XXX)
$XXX
($XXX)

Indirect Cost of Sales
Indirect Cost of Sales
Indirect Cost of Sales

After the PROJECT’s taxable income is determined using the methods described above,
the Florida Apportionment factor, as determined under section 220.15, F.S., will then be
applied to the PROJECT’s taxable income to determine the project’s Florida taxable
income and the associated CITC. The allowable CITC will be limited to the lesser of the
amount calculated or the $XXX limitation. That amount will be reported via footnote on
the partners’ Florida Partnership Information Returns (Form F-1065), and Schedule K1’s. The COMPANY B partners are listed below:
CORPORATION A - XXX% ownership (XXX)
CORPORATION E - XXX% ownership (XXX)
CORPORATION F - XXX% ownership (XXX)
CORPORATION C - XXX% ownership (XXX)
CORPORATION D - XXX% ownership (XXX)
These partners will claim the credit on their Florida corporate income tax returns (F1120s) to offset their tax liability. Each year, the partners will attach copies of the “pro
forma” calculations used to determine the annual taxable income, and CITC to their F1120’s. COMPANY B anticipates that the CITC generated each year will be less than
$XXX due to historical and projected profitability limitations of the PROJECT.
COMPANY B has not reported any CITC on its previously filed F-1065’s. For this
reason, upon reaching an agreement with the Department of Revenue for the
determination of the method by which taxable income will be calculated, COMPANY B
plans to amend its XXX and XXX (if previously filed) F-1065s. In addition, the partners
listed above also plan to amend their respective F-1120s.
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

Technical Assistance Advisement 10C1-003
Page 4

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, 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. 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

Technical Assistance Advisement 10C1-003
Page 5

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:

1. One hundred percent for a qualifying project which results in a
   cumulative investment of at least $100 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
The Department issued TAA 04C1-005 to CORPORATION A dated August 26, 2004,
providing a written agreement which set forth the terms and conditions to report the
CITC on its form F-1120 relating to PROJECT. CORPORATIONS A, C, D, E and F

Technical Assistance Advisement 10C1-003
Page 6

formed COMPANY B in order to consolidate the PROJECT and the XXX Project due to
requirements imposed by the XXX.
COMPANY B indicated that the XXX previously entered into a contract for the
operations for the PROJECT and a separate contact for the XXX Project. In addition, the
XXX enters into contracts relating to the XXX. It is anticipated that the XXX will issue
one contract which will encompass both the operations for the PROJECT and the XXX
Project instead of continuing to maintain two separate contracts.
COMPANY B requests that it allocate the CITC based upon historical costs following the
contribution of the PROJECT and the XXX Project into COMPANY B.
CONCLUSION
The Department will permit COMPANY B to allocate the CITC credit using historical
costs to the extent the PROJECT’s annual taxable income reflects the actual expenses
incurred using GAAP. COMPANY B will determine the PROJECT’s annual taxable
income using GAAP, provisions contained in Chapter 220, F.S., and will separately
account for the project’s taxable income using a “pro forma” format. The “pro forma”
format will separately account for all revenues, direct and indirect costs, book to tax
adjustments, and any other adjustments made in the determination of the PROJECT’s
annual Florida taxable income, and the amount of the associated annual CITC credit
claimed.
In addition to the above, there are miscellaneous corporate general ledger accounts listed
below which the Taxpayer states are not directly allocated to the PROJECT. If book to
tax adjustments are necessary for these accounts they will be allocated using the method
listed in the subsequent schedule.
Ledger Account

Allocation Method

Miscellaneous Income
Interest Income-other
Gain/Loss Derivatives
FAS/CAS Pension Exp.
Interest Exp.
Purchase Discounts
Inputed Income/Loss

Indirect Cost of Sales
Sales Revenue
100% to XXX
Pre COMPANY B-Historical
Indirect Cost of Sales
Indirect Cost of Sales
Indirect Cost of Sales

The PROJECT’s taxable income is to be determined using the methods described above.
The Florida Apportionment factor will then be applied to the PROJECT’s taxable income
to determine the project’s Florida taxable income and the associated CITC. That amount
will be reported via footnote on the partners’ Florida Partnership Information Returns.
These partners will claim the credit on their annual F-1120s, and each partner will attach
a copy of the “pro forma” calculations used to determine the annual taxable income, and

Technical Assistance Advisement 10C1-003
Page 7

CITC. Furthermore, all of the above proposed methods for the determination of Florida
taxable income, and the associated CITC may be audited by the Florida Department of
Revenue, to determine whether they accurately calculate the Florida revenues, expenses,
“pro forma” corporate taxable income, and the associated CITC.
As COMPANY B has not taken any CITC, it may amend its XXX and XXX (if
previously filed) F-1065s. In addition, the partners listed above may amend their
respective F-1120s.
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. 71667