How did Florida require a qualifying business to compute project income for a Capital Investment Tax Credit project held in a separate corporation?

Plain-English summary

The qualifying project had moved from a disregarded single-member LLC into a separate corporation that held no other project location's taxable income. That entity separation simplified the required project-income agreement.

The project corporation had to compute separate-company Florida taxable income under U.S. GAAP, the Internal Revenue Code, and Florida Chapter 220, beginning with a separate-company pro forma federal return. It then had to apportion Florida adjusted taxable income using only that corporation's property, payroll, and sales.

Only income generated at the certified new Florida facility entered project taxable income; income from other company locations was excluded. The annual credit was limited to 50% of corporate income tax liability generated by the project, and the entire computation remained subject to audit.

What this means for you

A legally separate project entity can provide a clean income perimeter, but the taxpayer still needs project-only pro forma reporting, entity-specific factors, certification compliance, and audit support.

Common questions

What return started the computation? A separate-company pro forma federal income tax return for the project corporation.

Whose apportionment factors applied? Only the project corporation's property, payroll, and sales.

Could income from other facilities enter the credit calculation? No.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-004

Original ruling text

Executive Director
Lisa Echeverri

TAX: Corporate Income-Capital Investment Tax Credit
TAA NUMBER: 12C1-004
ISSUE: Requests a written agreement with FDOR for income determination
STATUTE CITE(S): Sections 220.11, 220.13, 220.15, 220.191, F.S.
QUESTION: Taxpayer requests a written agreement with the Department, concerning the method by which
income generated by or arising out of the taxpayer’s project shall be determined for purposes of applying the
capital investment tax credit.
ANSWER: The agreement between the Taxpayer and the Department states that the income generated by
or arising out of the qualifying project is defined as the qualifying project’s annual taxable income, as
determined by generally accepted accounting principles, and by the definition and language of Section
220.13, Florida Statutes. Additionally, Taxpayer’s qualifying project is contained in a separate
corporation, and will use a pro-forma style return to report the project’s annual Florida corporate income
tax liability.

February 02, 2012
XXX
XXX
XXX
Re: Technical Assistance Advisement 12C1-004
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 “Taxpayer”), requestor
XXX (hereinafter referred to as “Corporation A”)
XXX (hereinafter referred to as “Corporation B”)
XXX (hereinafter referred to as “Corporation C”)
XXX (hereinafter referred to as “LLC”)
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
Taxpayer, concerning the method by which income generated by or arising out of the Taxpayer’s
qualifying project (XXX (“Project”)) shall be determined for purposes of the Capital Investment Tax
Child Support Enforcement – Ann Coffin, Director z General Tax Administration – Jim Evers, Director
Property Tax Oversight – James McAdams, Director z Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 12C1-004
Page 2

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 s. 213.22, Florida Statutes.
FACTS SUPPLIED BY TAXPAYER
This application for the written agreement, referenced above, involves the Florida Department of
Revenue, the Taxpayer, and its Project. Taxpayer is located in XXX and is a member of a worldwide
affiliated group that is one of the leading manufacturers of XXX, XXX, and XXX in the world. Taxpayer
was formed as a wholly owned subsidiary of its XXX parent company, XXX., (“Parent”), to become the
XXX for the XXX group’s XXX operations. Taxpayer’s primary activity is to provide executive, general,
and administrative support for its parent and its U.S. subsidiaries.
On XXX, Taxpayer submitted an application to EFI/OTTED requesting participation and certification in
Florida’s Capital Investment Tax Credit (CITC) Program for its investment in XXX, Florida. That
investment has been certified as a “qualifying project” under the Florida CITC Program (see Section
220.191, Florida Statutes). EFI found that the investment in the Project is in a High Impact Performance
Incentive Sector, that it is expected to create at least 100 new jobs in Florida, and that the investment is
expected to exceed $25 million. As of XXX, the project had created XXX new jobs and had already
invested $XXX.
The OTTED certification letter states that the Project will be eligible for an annual corporate income tax
credit of up to 5% of the “eligible capital costs,” for a period not to exceed 20 years, and not to exceed $10
million on the tax liability arising out of that investment. Approval of the annual tax credit is dependent
upon confirmation that the project creates and maintains the required number of new XXX jobs and the
investment in the Project is at least $25 million.
Taxpayer has completed construction of an XXX square foot business XX facility, a XXX square foot
XXX, and a XXX square foot XXX building for the Project. This manufacturing operation will produce
up to XXX each month for U.S. delivery. In addition to the manufacturing, the Project will also house a
XXX square foot XXX center and showroom.
As noted in your original advisement request dated XXX, and supplemental information provided in a
letter dated XXX, the Project consists primarily of an XXX facility in XXX, Florida. The Project was
formerly housed within LLC, a single member limited liability company treated as a disregarded entity for
Florida and federal corporate income tax purposes. LCC did not have any activity or assets other than the
Project. On XXX, LLC was incorporated and became Corporation C. This change in business structure
and legal entity was made to comply with XXX related to the operation XXX in the United States (U.S.),
and to allow Corporation C to perform XXX of its manufactured XXX. As a result, beginningXXX,
Corporation C is a separate corporation for federal and Florida income tax purposes. This change
simplifies the determination of the project’s annual Florida corporate taxable income, as it places all of the
Project’s business activities completely within the domain of the now separate corporate entity known as
Corporation C. As a result, Taxpayer proposes the following methodology for the calculation of income
generated by or arising out of its Project:

Technical Assistance Advisement 12C1-004
Page 3

1) Compute Corporation C’s separate company Florida taxable income in accordance with the
Internal Revenue Code and Chapter 220, F. S., based on Corporation C’s separate company proforma federal income tax return.
2) Apportion Corporation C’s pro-forma separate company Florida adjusted taxable income using
only Corporation C’s property, payroll, and sales.
Taxpayer states this method has multiple benefits, to both the Department and itself, including the
following:
1) Taxable income computations are in direct accordance with United States Generally Accepted
Accounting Principles (GAAP), the Internal Revenue Code, and the Florida Income Tax Code.
2) Taxable income computations can be traced directly back to Taxpayer’s federal and Florida
consolidated income tax returns.
3) The apportionment computation is in direct accordance with the Florida Income Tax Code.

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 s.
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:

Technical Assistance Advisement 12C1-004
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(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 subsection, 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 s. 288.061. The Department of
Economic Opportunity [previously Office of Tourism, Trade, and Economic Development], 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 proforma
annual taxable income is determined.
ISSUE PRESENTED

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Taxpayer 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 corrected certification letter approving the Project as qualified for participation
in Florida’s CITC program. That letter indicates that the approval was based on the application that was
determined complete on XXX, and submitted to OTTED on XXX. In its report, EFI stated that Taxpayer
will develop and equip a new facility located at the XXX in XXX, Florida, for its qualifying CITC project
(see Section 220.191, F.S.). The Project is located in a High Impact Performance Incentive Sector, and
the certification provides for an investment of at least $25 million. The Project will receive a maximum
tax credit of up to five (5) percent of the investment in the aviation/aerospace project each year for up to
twenty (20) years, not to exceed $10 million, on the tax liability arising out of that investment. 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 Taxpayer 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. The XXX, letter also provides that the approval of such annual tax credit shall
also be dependent upon the creation and maintenance of not less than 100 total net new XXX jobs at the
facility by XXX.
The taxpayer provided a letter dated XXX from the Office of the Governor detailing a schedule of job
creation for purposes of the Quick Action Closing Fund and a letter regarding the Qualified Target
Industry Tax Refund program. Neither of these letters addresses the CITC nor modify the requirements
provided in section 220.191, F.S.
In its letter dated XXX, Taxpayer requested the issuance of a Technical Assistance Advisement as a
means of satisfying the requirement in s. 220.191 (5), F.S., for a written agreement specifying how income
generated by or arising out of its Project will be determined. The Department’s response and specifics of
the requested agreement are set forth below.
CONCLUSION
The Project was formerly housed within LLC, a single member limited liability company treated as a
disregarded entity for Florida and federal corporate income tax purposes. LCC did not have any activity
or assets other than the Project. On XXX, LLC was incorporated and became Corporation C. This change
in business structure and legal entity was made to comply with XXX related to the operation XXX in the
United States. As a result, beginning XXX, the Project is now within Corporation C and is now a separate
corporation for federal and Florida income tax purposes. This change simplifies the determination of the
project’s income determination. Taxpayer shall use the following methodology for the calculation of
income generated by or arising out of its Project:
1) Compute Corporation C’s separate company Florida taxable income in accordance with United
States Generally Accepted Accounting Principles (GAAP), the Internal Revenue Code, and

Technical Assistance Advisement 12C1-004
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Chapter 220, F. S., be based on Corporation C’s separate company pro-forma federal income tax
return.
2) Apportion Corporation C’s pro-forma separate company Florida adjusted taxable income using
only Corporation C’s property, payroll, and sales.
The Project’s Florida taxable income is limited to income generated only at the new facility, located at the
XXX in XXX, Florida, and no other taxable income from other company locations, either within or
without Florida, should be included in that amount. This credit is also limited on an annual basis to fifty
(50) percent on the annual corporate income tax liability generated or arising out of the Project.
Furthermore, all aspects of the foregoing taxable income determination may be audited to determine
whether they accurately calculate the Florida taxable income generated from the Taxpayer’s Project, and
whether all provisions contained in s. 220.191, F.S., have been met.
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
Tax Law Specialist
Technical Assistance and Dispute Resolution
Record ID: 102483