How did Florida require a consolidated taxpayer to compute Capital Investment Tax Credit project income for joint-venture and existing-affiliate investments?

Plain-English summary

The Department approved bifurcating the potential Capital Investment Tax Credit in proportion to capital invested through two parts of the qualifying project: a joint venture with an unrelated partner and investments made through the taxpayer's existing affiliates. The consolidated filer had to account for the two parts separately using pro forma reporting and generally accepted accounting principles.

For the joint venture, annual project income determined the venture-level credit, limited to the lesser of the annual potential credit or tax generated by project income and never more than 5% of the venture's capital investment. The partners then received their shares, each limited by its Florida corporate income tax liability after earlier-priority credits.

For the existing affiliates, project income was the increase in identified current-year income streams over a pre-investment base year, including qualifying Florida cost savings but excluding savings from actions outside Florida and pre-investment net operating losses. The advisement's pro forma example applied the 5.5% corporate rate to the increase. It also required the taxpayer to calculate Florida taxable income using Florida apportionment; because the specified new project income arose entirely from Florida assets and resources, no separate apportionment factor reduced that project-income amount in the CITC computation.

Delayed use in years 21 through 30 was available when project income supported the credit but a partner or the taxpayer lacked enough Florida tax liability to use its share. It was not available merely for the difference between the annual capital-investment cap and a lower credit supported by project income.

What this means for you

The TAA did not establish one blended project-income formula. It required separate calculations for the joint venture and affiliate investments, followed by the applicable tax, allocation, credit-ordering, and liability limitations.

Common questions

How was joint-venture project income handled? The venture computed the project-supported credit, then allocated shares to the partners subject to each partner's Florida tax liability.

How did the affiliates measure project income? By comparing current project-related income streams with a pre-investment base year on a pro forma basis.

When could an unused amount be used in years 21 through 30? When project income generated an otherwise allowable credit that could not be used because the claimant lacked sufficient Florida corporate income tax liability.

Citations and references

• Fla. Stat. §§ 220.02(8), 220.11, 220.13, 220.15, 220.191, and 288.108 and Fla. Admin. Code r. 12C-1.0191, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-011R

Original ruling text

Interim
Executive Director
Marshall Stranburg

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 purposes of applying the Florida Capital Investment Tax Credit.
ANSWER: When filing its consolidated Florida corporate income tax return, it shall be necessary for
the Taxpayer to adhere to the methodologies of the two stated separate methods contained in the TAA,
and to use a pro forma format to determine the project’s annual taxable income. Taxpayer will apply its
Florida apportionment fraction to the Project’s annual taxable income, and apply the Florida corporate
income rate of 5.5% for the determination of the Project’s Florida taxable income and associated Capital
Investment Tax Credit.

October 5, 2012
XXX
XXX
XXX

Re: Technical Assistance Advisement 12C1-011R
Request for Written Agreement for Determination of Income
Sections 220.11, 220.13, 220.15, 220.191, Florida Statutes (F.S.)
Rule 12C-1.0191, Florida Administrative Code (F.A.C.)
XXX. (hereinafter referred to as “Taxpayer”)
Florida Department of Economic Opportunity (hereinafter referred to as “DEO”)
Enterprise Florida, Inc. (hereinafter referred to as “EFI”)

Dear XXX:
This is in response to your request dated XXX, for a Technical Assistance Advisement (TAA) pursuant
to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding your request for an agreement
concerning the method by which income generated by or arising out of Taxpayer’s qualified capital
investment project shall be determined for purposes of applying the Capital Investment Tax Credit
(CITC). An examination of your letter has established that you have complied with the statutory and
regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your
request for a TAA.

Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

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

Technical Assistance Advisement 12C1-011R
Page 2

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, F.A.C., and is issued to you under authority of
section 213.22, F.S.
FACTS SUPPLIED BY TAXPAYER
Taxpayer is a XXX with assets that include XXX, XXX, and XXX. Taxpayer and its affiliated group
currently file calendar year ending Florida and federal corporate income tax returns on a consolidated
basis. The Taxpayer, the corporate parent, numerous affiliates, and a joint venture with an unrelated
third party partner will comprise the legal entities that will carry out the qualifying project operations.
Taxpayer submitted an application to EFI requesting participation and certification in Florida’s CITC
program, based upon its proposed capital investment and job creation in Florida. This investment is
referred to as the “Qualifying Project” and includes (1) an investment of approximately $XXX in the
joint venture, and (2) a $XXX investment in Taxpayer’s affiliated group XXX entities, hereinafter
referred to as “XXX Entities.” XXX Entities are comprised of a XXX holding company owning two
“C” corporations, a number of single-member LLC’s and a partnership owned by the XXX holding
company and its parent corporation.
EFI issued a letter approving Taxpayer’s project for participation in Florida’s CITC program, and on
XXX, DEO issued a certification letter approving the Taxpayer’s Project as qualified for participation in
Florida’s CITC program, as well as designating it as a High Impact Performance Incentive Sector
pursuant to section 288.108, F.S. 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
up to twenty years, beginning with the commencement of operations. The annual credit will be limited
to one hundred (100) 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 $XXX. 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 by the Taxpayer, or by
any other vendor or contractor in connection with the development, construction, and equipping of the
facilities that will constitute the new “Qualifying Project.” In addition, the annual tax credit is
dependent upon the creation and maintenance of not less than 100 net new jobs arising out of the
Qualifying Project.
Taxpayer suggests allocating the potential capital investment tax credit into two separate parts based on
the amount invested: (1) $XXX potential credit per tax year to the joint venture, and (2) $XXX potential
credit per tax year to the investment in XXX Entities. Following the investment bifurcation, Taxpayer
proposes that all annual taxable income arising from the newly created joint venture operation be
considered income generated by or arising out of the qualifying project. Since the joint venture will be

Technical Assistance Advisement 12C1-011R
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treated as a partnership for federal and Florida corporate in tax purposes, Taxpayer suggests that once
the amount of the credit is determined (lesser of income generated by the partnership or the annual credit
cap for this portion of the investment, $XXX), the partnership will distribute the credit based on each
partner’s partnership interest or as decided in the joint venture agreement. This credit distribution will
take place at the same time the income/loss of the partnership is distributed to the partners.
For the investment in XXX Entities, Taxpayer proposes that the new Qualifying Project’s income be
defined as the increase in the XXX Entities’ overall income over a base year income, with the base year
being the tax year prior to the tax year in which the eligible capital investment is made. The income of
the project would then be multiplied by Florida’s corporate income tax rate to arrive at the tax generated
by or arising out of the Project.
Taxpayer has XXX that will have to be used prior to the application of any CITC. As a result, Taxpayer
is questioning what credit amounts are actually carried forward to the 21st through 30 tax years after
commencement of operations under section 220.192(2)(d), F.S.
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 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 220.15, F.S., states in pertinent part:
(1) Except as provided in ss. 220.151, 220.152, and 220.153, 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:

Technical Assistance Advisement 12C1-011R
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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.

(f) “Qualifying business” means a business which establishes a qualifying project in this state and
which is certified by the Department of Economic Opportunity to receive tax credits pursuant to this
section.

(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:

1. One hundred percent for a qualifying project which results in a cumulative investment of at least
   $100 million.

(d) If the credit granted under subparagraph (a)1. is not fully used in any one year because of
insufficient tax liability on the part of the qualifying business, the unused amounts may be used in
any one year or years beginning with the 21st year after the commencement of operations of the
project and ending the 30th year after the commencement of operations of the project.

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(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, upon 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.

ISSUES PRESENTED

1. Taxpayer requests a written agreement to determine how the Project’s income will be computed
   based upon section 220.191, F.S., and Rule 12C-1.0191, F.A.C.
2. Based upon Taxpayer’s current use of net operating losses, what portion of the unused CITC
   may be used in the 21st through 30th tax years after commencement of operations pursuant to
   section 220.191(2)(d), F.S.?
   DISCUSSION AND ANALYSIS
   EFI issued a letter approving Taxpayer’s project for participation in Florida’s CITC program, and on
   XXX, DEO issued a certification letter indicating that Taxpayer’s Project is qualified for Florida’s CITC
   program, as well as designating it as a High Impact Performance Incentive Sector pursuant to section
   288.108, F.S. This certification provides the project eligibility for an annual tax credit against the
   corporate income tax under section 220.191, F.S., which is based on the Florida corporate income tax
   liability generated by or arising out of the Qualifying Project.
   The capital investment may include all “eligible capital costs” as defined in section 220.191(1)(c), F.S.,
   that are incurred by the Taxpayer, or by any other vendor or contractor in connection with the
   development, construction, and equipping of the facilities that will constitute the new “Qualifying
   Project.” In addition to the investment requirement, the annual tax credit is dependent upon the creation
   and maintenance of not less than 100 net new jobs arising out of the Qualifying Project.

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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 Qualifying Project will be determined.
Taxpayer has projected a capital investment of approximately $XXX in the Qualifying Project. Based
on that amount, the Qualifying Project could potentially receive an annual credit of $XXX for twenty
years. However, section 220.191(2)(d), F.S., permits some unused credit amounts to carry forward and
be used in the 21st through 30th tax years after the commencement of operations. Of the entire $XXX
capital investment, a projected $XXX will be invested in a joint venture by Taxpayer and an unrelated
third party, with the remaining $XXX investment being made entirely by the Taxpayer in its existing
affiliates. The Department concurs with Taxpayer on the bifurcation of the credit in proportion to the
cumulative capital investment.
Joint Venture
Under current estimates, the CITC generated by the joint venture would be the lesser of (1) the $XXX
annual potential credit per tax year or (2) the income generated by or arising out the joint venture. This
determination of the CITC would then be attributed to each of the partners. Each partner will then be
entitled to claim its share of the CITC for that tax year. The partner’s share of the CITC will be limited
to the lesser of: (1) the percentage of the partner’s share of the joint venture CITC for the year, or (2) the
tax liability of the partner’s Florida corporate income tax return after application of credits prior to the
CITC in the order provided in section 220.02(8), F.S. Under no circumstances may the partners of the
joint venture claim an annual CITC exceeding 5% of the capital investment for the joint venture. A
further explanation of how unused credits may be carried forward pursuant to section 220.191(2)(d),
F.S., is provided below.
Investment in Existing Entities
For the $XXX to be invested solely by the Taxpayer and its affiliates (specifically the following XXX
Entities: XXX EIN: XXX, XXX EIN: XXX, XXX EIN: XXX, and XXX EIN: XXX), a pro forma
calculation will be made to determine the income generated by and out of the qualifying project. 1 The
taxpayer will calculate the income arising out of the project by comparing the current tax year income
streams to the prior base year income streams. The current tax year income streams shall include the
total increase in XXX revenue streams such as XXX, XXX, and other content monetization initiatives
relating to XXX activities, in addition to cost savings related to the investment amounts within Florida.
However, cost savings related to actions taken outside of Florida would not be considered. The
Taxpayer would then multiply this additional income (difference between pre and post income streams)
by the tax rate for that year to arrive at the tax liability generated by and arising out of the project. 2 Due
1

The Taxpayer indicated that it has XXX. For purposes of computing the base year and subsequent years, the income of the
project shall exclude net operating losses generated prior to the capital investment. This exclusion will allow the Taxpayer to
determine the income of the project without taking into consideration losses that were incurred prior to the capital
investment.
2
For C-corporations purposes, Taxpayer will produce federal and Florida pro forma 1120s. For partnership purposes, XXX
will produce federal and FL 1065s.

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to the fact that all of the new income is related one hundred percent (100%) to Florida assets and Florida
resources, a Florida apportionment factor does not apply to the taxpayer’s CITC calculation. For Florida
corporate income tax purposes, Taxpayer will calculate Florida taxable income by multiplying federal
taxable income (including pre apportioned state adjustments, such as depreciation, SIT, etc.) by Florida
apportionment.
For example: the base year of the XXX Entities’ pro forma income (defined above) is $200 million. If
the XXX Entities generate $300 million of overall pro forma income in the post income year, then the
total increase in new income generated by or arising out of the qualifying project would be $100 million;
thus, the entire $100 million will be considered income generated by or arising out of the qualifying
project ($300 million - $200 million). Applying the pro forma method, the available Florida corporate
income tax credit in the subsequent year would be $5.5 million ($100 million of income generated by or
arising out of the qualifying project multiplied by 5.5% Florida corporate income tax rate).
Given the Department’s understanding of the project (i.e. investment in XXX, XXX, and expansion of
XXX), the Department concurs with taxpayers methodology, so long as taxpayer adheres to GAAP. In
addition, the taxpayer should note that its computation will be subject to audit by the Department.
Section 220.191(2)(d), F.S.
For purposes of this advisement, the Taxpayer has asked how section 220.191(2)(d), F.S., will apply to
the joint venture and the investment in existing affiliates. The joint venture is the project. The two
partners are the owners of the joint venture and are each qualifying businesses. The joint venture first
needs to compute the corporate income tax liability generated by or arising out of the qualifying project.
If the qualifying project has income that generates a tax that is less than $XXX, the amount that is less
than $XXX will not be allowed to be carried forward. Next, if the qualifying project generates corporate
income tax that is equal to or greater than $XXX, but a partner has Florida corporate income tax after
application of credits prior to the CITC in the order provided in section 220.02(8), F.S., that is less than
its share of the CITC for the tax year, then the difference between its share of the CITC for the tax year
and partner’s Florida corporate income tax may be carried forward pursuant to section 220.191(2)(d),
F.S., for that partner. The following examples illustrate the above situations:
Example 1
A qualifying project is eligible for an annual credit of $1.9 million and has project income that generates
$1 million in Florida corporate income tax. Partner A has income generating $500,000 in corporate
income tax, and Partner B has income generating $20 million in corporate income tax. Partners A and B
are 50/50 partners. For purposes of section 220.191(2)(d), F.S., the joint venture has income that does
not exceed the $1.9 million annual CITC cap. Partner A is entitled to a CITC of $500,000. Partner B is
entitled to a CITC of $500,000. Partner A and Partner B are not entitled to carry forward any portion of
the $900,000 difference between the $1.9 million of eligible credit and the $1 million of credit allowed
under section 220.191(2)(a), F.S.
Example 2

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A qualifying project is eligible for an annual credit of $1.9 million and has project income that generates
$2 million in Florida corporate income tax, Partner A has income generating $500,000 in corporate
income tax, and Partner B has income generating $20 million in corporate income tax. Partners A and B
are 50/50 partners. For purposes of section 220.191(2)(d), F.S., the joint venture has income that
exceeds the $1.9 million annual CITC cap. Partner A is entitled to a CITC of $950,000, but is only able
to use $500,000. Partner A will be entitled to carry forward $450,000 pursuant to section 220.192(2)(d),
F.S. Partner B is entitled to claim the $950,000 CITC. Partner B will not be entitled to any carry
forward.
The investment in the existing affiliates will follow the same methodology as described above.
Therefore, to the extent that the CITC cannot be claimed because the Taxpayer does not have sufficient
Florida corporate income tax liability, the amount of credit that could have been claimed, but for this
limitation, may be claimed in the 21st through 30th tax years after the commencement of operations of
the project. Therefore, in the initial tax years where Taxpayer has a XXX and it may not have any tax
liability to apply the CITC towards, the credit that Taxpayer would have been able to claim [lesser of (1)
5% of the capital investment or (2) the income tax generated by or arising out of the qualifying project]
may be carried forward and used in the 21st through 30th tax years after the commencement of
operations.
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 discussion and analysis. In abbreviated form, they are
summarized 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 in accordance with Florida law as discussed herein.
2) With the filing of a consolidated Florida corporate income tax return, it shall be necessary for the
Taxpayer to strictly adhere to the methodologies (two stated separate methods, using a pro forma
basis) listed in the above section (Discussion and Analysis) to separately account for and determine
the CITC Qualifying Project’s annual taxable income and subsequent tax credit.
In addition, section 220.191(2)(d), F.S., is applicable to Taxpayer’s CITC, including both the joint
venture and the investment in existing subsidiaries, and is applied using the Department’s analysis
above.
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

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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, MBA
Technical Assistance and Dispute Resolution
Record ID 131284