How was a certified project's Florida taxable income to be calculated for the Capital Investment Tax Credit?

Plain-English summary

Florida approved a separate-accounting method for determining a certified manufacturing project's annual Florida taxable income and associated Capital Investment Tax Credit.

The corporation filed a separate Florida return but operated several divisions. Each division, including the project, was to keep its own books, begin with GAAP reportable income, and apply federal tax adjustments to produce pro forma federal taxable income. The divisions would then consolidate for the entity's federal and state filings.

The project had to separately account for every revenue, direct and indirect expense, and book-to-tax adjustment. It would determine adjusted federal income under Florida law, apply the project's Florida apportionment fraction, and calculate the Florida income, tax liability, and credit attributable only to the certified site. Income from other locations could not enter the project amount.

The credit remained subject to the ruling's investment and employment requirements, a stated annual limit of 50% of project corporate income-tax liability, and audit of the project-income calculation.

What this means for you

A project-based credit requires accounting that can isolate the certified site's economics inside a larger company. Divisional books, allocation of indirect expenses, tax adjustments, and apportionment must all reconcile to the entity return.

Common questions

Could income from other company sites increase the project credit base? No.

Did the project account only for direct expenses? No. It had to include both direct and indirect expenses.

Could Florida audit the method? Yes.

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 10C1-005

Original ruling text

TAX: Corporate Income – Capital Investment Tax Credit
TAA Number: 10C1-005
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 itself 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 the 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 Florida annual taxable income.
The qualifying project will separately account for all revenues, expenses, and book to tax adjustments
included in the determination of its Florida annual taxable income. The CITC is based on a statutory
percentage of t income.

March 22, 2010
XXX
XXX
XXX
Re: Technical Assistance Advisement 10C1-005
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”) requestor
XXX (hereinafter referred to as “The Project”)
Office of Tourism, Trade, and Economic Development (hereinafter referred to as
“OTTED”)
Enterprise Florida, Inc. (hereinafter referred to as “EFI”)
Dear XXX:
Your letter of XXX, requests a written agreement between the Florida Department of
Revenue and Corporation A, concerning the method by which income generated by or
arising out of 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 section 213.22, Florida Statutes.
FACTS SUPPLIED BY TAXPAYER
This application for the written agreement referenced above, involves the Florida
Department of Revenue, Corporation A, and its qualifying project, the Project.
Corporation A is a XXX corporation with its headquarters located in XXX. Corporation
A is owned by a publicly traded foreign corporation (XXX) and maintains various other
sales and manufacturing locations throughout the United States. The company
(Corporation A) files a federal consolidated income tax return and a separate Florida
corporate income tax return (F-1120).
On XXX, Corporation 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.

Technical Assistance Advisement 10C1-005
Page 2
That investment, herein referred to as the Project, has been certified as a “qualifying
project” under Florida’s CITC Program (see section Section 220.191, Florida Statutes).
On XXX, OTTED issued a certification letter approving The Project as qualified for
participation in Florida’s CITC program. In its report, EFI stated that Corporation A will
build a new manufacturing facility in XXX, and that it will be located XXX, as
designated under Section 288.108, Florida Statutes. The certification provides The
Project eligibility for the CITC’s annual tax credit against the corporate income tax
imposed, of up to five (5) percent of the eligible capital costs for up to twenty years on
the Florida corporate income tax liability arising out of that investment.
Approval of its annual tax credit shall be dependent upon confirmation that the new
capital investment in The Project in XXX is at least $25 million. The capital investment,
subject to the CITC pursuant to this certification, shall include all “eligible capital costs,”
as defined under section 220.191(1)(c), F.S., that are incurred by Corporation A or its
affiliates, or by any other vendor or contractor in connection with the development,
construction, and equipping of the facilities that will constitute The Project. Furthermore,
the granting of the credit will be dependent upon the creation and maintenance of at least
XXX net new jobs at The Project.
With the addition of The Project’s new facility in XXX, Corporation A will consist of
XXX separate, divisions each representing a location and/or operating division of the
company. Corporation A applies Generally Accepted Accounting Principles (GAAP) in
the determination of reportable income for financial statement purposes in the United
States, which is the starting point for determining the company’s federal taxable income.
Each division maintains it own set of books and records, with federal tax adjustments
applied to each individual division, leading to a pro forma federal taxable income by
division. The divisions are then consolidated to generate a single entity filing for both
federal and state tax purposes. The Project’s accounting records will conform to this
method and will be a separate accounting division within the company.
Corporation A states that The Project will separately account for all revenues and
expenses, direct and indirect, and will make separate book and tax adjustments in the
determination of its annual taxable income. Furthermore, The Project’s Florida taxable
income will be determined beginning with its federal taxable income and application of
the provisions contained in Florida Corporate Income Tax Law under Chapter 220 of the
Florida Statutes. The Florida apportionment factor, as determined for Corporation A,
will then be applied to The Project's adjusted federal income to determine its Florida
apportioned taxable income, tax liability, and associated CITC. Corporation A
anticipates that all Project activities will be limited to the XXX site, and no other
company locations, either within or without Florida will be included.

Technical Assistance Advisement 10C1-005
Page 3
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.

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 section 220.131, for
the taxable year, adjusted as follows:

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 section 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

Technical Assistance Advisement 10C1-005
Page 4
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:

3. Fifty percent for a qualifying project which results in a cumulative
   investment of a 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 section
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.

Technical Assistance Advisement 10C1-005
Page 5
ISSUE PRESENTED
Corporation A has requested a written agreement for the determination of The Project’s
annual Florida corporate taxable income, and the amount of the associated annual Capital
Investment Tax Credit.
DISCUSSION AND ANALYSIS
On XXX, OTTED issued a letter of certification which approved the application, and
certified Corporation A's Project as CITC 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. The capital investment subject to the CITC, pursuant to this
certification shall include all “eligible capital costs,” as defined under section
220.191(1)(c), F.S., that are incurred by Corporation A or its affiliates, or by any other
vendor or contractor in connection with the development, construction, and equipping of
the facilities that will constitute The Project.
Approval of the annual tax credit shall also be dependent upon confirmation that the new
capital investment in The Project will be at least $25 million. 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 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 The Project are XXX net new jobs, at the
new facility constructed in XXX.
In its letter of XXX, Corporation A 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 Project will
be determined. The Department’s response and specifics of the requested agreement are
set forth in the subsequent section entitled “CONCLUSION.”
CONCLUSION
To determine The Project’s annual Florida corporate taxable income, and the associated
Capital Investment Tax Credit (CITC), Corporation A must apply Generally Accepted
Accounting Principles (GAAP) in the determination of all reportable income for financial
statement purposes in the United States, and those principles will be the starting point for
determining the company’s federal taxable income. The Project division and the other
company divisions will maintain their own set of books and records, with federal tax
adjustments applied to that division, leading to a pro forma federal taxable income for

Technical Assistance Advisement 10C1-005
Page 6
each division. The divisions are then consolidated to generate a single entity filing for
both federal and state tax purposes. The Project’s accounting records will conform to this
method and will consist of a separate accounting of each division within the company.
Consequently, The Project will separately account for all revenues, expenses (direct and
indirect), and book to tax adjustments, included for the determination of its annual
taxable income. The Project’s Florida taxable income will be determined beginning with
its adjusted federal taxable income and application of the provisions provided for in
Florida Corporate Income Tax Law under Chapter 220 of the Florida Statutes. The
Florida apportionment fraction for the project will then be applied to its adjusted federal
taxable income to determine its apportioned Florida taxable income, Florida tax liability,
and associated CITC. The Project’s Florida taxable income will be limited to income
generated only at the XXX site, and no other taxable income from any other company
locations, either within or without Florida, will be included in that amount. Furthermore,
all aspects of the foregoing taxable income determination may be audited to determine
whether accurate calculations of the Florida taxable income generated from The Project
are made.
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 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: 74738
CD/tlg