How did a certified division expansion calculate project income for Florida's Capital Investment Tax Credit?

Plain-English summary

The Florida Department of Revenue required a company expanding a Florida division to calculate its Capital Investment Tax Credit with separate division accounting and a project-specific pro forma calculation.

Only Florida taxable income generated by the division's new facility could enter the project calculation. Income from the taxpayer's other divisions or other states could not increase the credit.

The division had to separately record all direct and indirect revenues and expenses, determine pro forma federal taxable income under GAAP and Florida adjustments, and then apply the division's Florida apportionment factor to determine project tax. Annual certification and the project requirements described in the ruling still had to be maintained.

What this means for you

CITC division expansions

Build separate books and factor records around the qualifying facility rather than using broader company or division-wide income indiscriminately.

Corporate tax teams

Attach and preserve the pro forma support, annual certification, and allocation methodology for audit.

Common questions

Q: Could income from other divisions increase the credit?
A: No.

Q: What accounting method was required?
A: Separate division books and a project-specific pro forma calculation.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, 220.191, and 213.22
• Fla. Admin. Code r. 12C-1.0191

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-013

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 calculating the income generated by or arising from the Qualifying Project, 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 and expenses
included in the determination of its Florida annual taxable income.
November 29, 2012

XXX
XXX
XXX

Re: Technical Assistance Advisement 12C1-013
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 (DEO), formerly Office of Trade, Tourism and
Economic Development (OTTED)
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 s. 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.
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
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 12C1-013
Page 2

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
s. 213.22, F.S.
FACTS SUPPLIED BY TAXPAYER
Taxpayer is a XXX and XXX company serving XXX and XXX markets in over XXX countries.
Headquartered in XXX, the company generates over $XXX in annual revenue, and has more than XXX
employees.
Taxpayer is creating a new $XXX at a XXX that will become the centerpiece for some of the company’s
most advanced XXX efforts. The XXX center will expand the headquarters and operating facilities of
the Taxpayer’s XXX Division (the “Division”). That Division conducts advanced research studies and
produces highly reliable, XXX and XXX that solve mission-critical challenges of our XXX customers.
The Division’s primary facilities and headquarters are located on the XXX campus, with total revenues
exceeding $XXX.
Taxpayer submitted an application to DEO 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 that is expected to be at least
$XXX; however, the DEO approval letter indicates that “commencement of operations” will not be
deemed to occur before the Taxpayer has made a capital investment of $XXX, (2) created XXX new
jobs in XXX, and (3) obtained a certificate of occupancy for one new building constructed in [XXX].
EFI issued a letter approving Taxpayer’s project for participation in Florida’s CITC program and
indicated in its report that the “Qualifying Project” was located in a High Impact Performance Incentive
Sector pursuant to s. 288.108, F.S. On XXX, DEO issued a Letter of Certification providing final
approval for Taxpayer’s CITC application. This certification approval entitles the project to 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 XXX percent of the annual corporate income tax liability generated by or arising
out of the Qualifying Project, provided the Taxpayer makes a capital investment of at least $XXX
(investment of a lesser amount will restrict the percentage of Florida taxable income that may be offset
by the CITC, if the project is still approved by DEO - see s. 220.191, F.S.). In addition, the capital
investment subject to the credit will include all “eligible capital costs,” as defined in s. 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 XXX net new jobs arising out of the Qualifying Project.
Taxpayer files federal and Florida corporate income tax returns on a XXX basis. Taxpayer files a
federal consolidated return and a separate Florida return. Taxpayer has separate divisions located XXX
and XXX XXX. Each division maintains separate books and records, which are prepared in accordance

Technical Assistance Advisement 12C1-013
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with Generally Accepted Accounting Principles (GAAP). The Taxpayer states that the books and
records of each separate division are adjusted for federal income tax purposes, resulting in “pro forma”
federal corporate taxable income for each division. Each division’s pro forma federal taxable income is
combined to generate a single entity for Florida corporate income tax returns purposes. The pro forma
federal taxable income of the combined entity is further adjusted under the provisions of Florida
Corporate Income Tax Law (Chapter 220, F.S.). The Florida apportionment factor and tax rate is then
applied to determine Florida corporate taxable income. Taxpayer has consistently applied the above
method to calculate its Florida tax liability, and intends to continue this methodology in future years.
Taxpayer asserts that the only income that can be considered to be generated from the qualifying project,
is the Florida corporate taxable income produced by the Division. The qualifying project involves the
expansion of the headquarters and XXX operating facilities for the entire Division, with the vast
majority of those operations located in XXX (XXX). The expansion will directly benefit the operations
of the Division and will result in additional revenues and income for the entire Division. Taxpayer’s
proposed income determination method will include only the income applicable to Florida, and income
apportioned to other states will not serve to increase the amount of the Florida CITC. The Division will
maintain separate books and records, which will account for all revenues and expenses (direct/indirect)
in accordance with GAAP. The pro forma income amount will be adjusted to determine federal taxable
income and further adjusted under Chapter 220, F.S., to determine Florida taxable income. The Florida
apportionment factor for the separate Division operations will be applied to determine Taxpayer’s
apportioned Florida corporate taxable income, and that income will be used to calculate the Florida
corporate income tax liability and CITC.
ISSUES PRESENTED
In its letter dated XXX, Taxpayer requests a written agreement to determine how the Qualifying
Project’s income will be computed based upon s. 220.191, F.S., and Rule 12C-1.0191, F.A.C.
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:

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(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.

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:

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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.

(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.
Rule 12C-1.0191, F.A.C., states in part:
(1) Qualifying projects defined in Sections 220.191(1)(h)1. and 2., F.S.
(a) Section 220.191, F.S., requires an application process for the capital investment tax credit, which
includes review and recommendation by Enterprise Florida, and a certification from the Department
of Economic Opportunity, Division of Strategic Business Development. Once the applicant has been
recommended by Enterprise Florida and certified by the Department of Economic Opportunity, the
applicant is required to reach a written agreement with the Florida Department of Revenue on how
the taxable income from the qualifying project is to be determined or calculated. The Department
adopts a Technical Assistance Advisement, which the applicant requests from the Department, as the
method for entering into such written agreement. When requesting the Technical Assistance
Advisement, the applicant is required to follow the guidelines provided in Rule 12-11.003, F.A.C.,
and in addition, to include how the applicant proposes to determine the taxable income generated by
or arising out of the qualifying project.
1. In situations where the applicant is using a separate corporate entity to account for the activities of
the qualifying project, the taxable income generated by that entity as reported on the return filed
pursuant to Section 220.22(1), F.S., will be used to determine the amount of income tax due and the
subsequent amount of the credit that will be available for use. If the applicant has other activities not
related to the project reported on this return, a pro forma attachment will be required to separately
account for the taxable income generated by the project, the resulting amount of tax due, and the
subsequent amount of the credit that will be available for use.

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2. Where the activities of the qualifying project are included within preexisting multiple corporate
   structures, such as several affiliates or divisions, or the activities of the project are included within a
   corporation or corporations that are included in a consolidated income tax return filed pursuant to
   Section 220.131, F.S., the applicant will be required to separately account for, using a “pro forma”
   format, the qualifying project’s taxable income, the amount of income tax due, and subsequent
   credit. This pro-forma attachment will indicate separately all revenues, expenses, either direct or
   indirect, and any other adjustments made in the determination of the project’s annual taxable
   income, and the subsequent annual amount of the Capital Investment Tax Credit that may be claimed
   on the Florida corporate income tax return. This computation requires the qualifying project’s annual
   taxable income to be determined by generally accepted accounting principles (GAAP) and to
   conform to the provisions contained in Florida Corporate Income Tax Law under Chapter 220, F.S.
3. In situations where the activities of the project are included within other types of corporate
   structures, the applicant will be required to separately account for, using a “pro forma” format, the
   qualifying project’s taxable income, the amount of income tax due, and subsequent credit. This proforma attachment will indicate separately all revenues, expenses, either direct or indirect, and any
   other adjustments made in the determination of the project’s annual taxable income, and the
   subsequent annual amount of the Capital Investment Tax Credit that may be claimed on the Florida
   corporate income tax return. This computation requires the qualifying project’s annual taxable
   income to be determined by generally accepted accounting principles (GAAP) and to conform to the
   provisions contained in Florida Corporate Income Tax Law under Chapter 220, F.S.
   (b) The maximum annual amount of Capital Investment Tax Credit is limited to 5 percent of the
   certified eligible capital costs of the qualifying project, for a period not to exceed 20 years,
   beginning with the commencement of the project’s operations. The tax credit may not be carried
   forward or backward. The sum of all capital investment tax credits cannot exceed 100 percent of the
   eligible capital costs of the project.

(3) A copy of the Department of Economic Opportunity certification, Enterprise Florida documents,
and, as appropriate, any “pro forma” attachment required by the written agreement to provide the
calculations used in the determination of the annual taxable income generated by or arising out of the
qualifying project, is required to be included with the Florida Corporate Income Tax Return (Form
F-1120) when filing for and claiming the Capital Investment Tax Credit.

DISCUSSION AND ANALYSIS
EFI issued a letter approving Taxpayer’s Qualifying 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 s. 288.108, F.S. This certification approval entitles the project to 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 XXX percent of the annual corporate income tax liability generated by or arising out of the
Qualifying Project, provided the Taxpayer makes a capital investment of at least $XXX (investment of a
lesser amount will restrict the percentage of Florida taxable income that may be offset by the CITC if the

Technical Assistance Advisement 12C1-013
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project is still approved by DEO - see s. 220.191, F.S.). In addition, the capital investment subject to the
credit will include all “eligible capital costs,” as defined in s. 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, the annual tax
credit is dependent upon the creation and maintenance of not less than XXX net new jobs arising out of
the Qualifying Project. Beginning no later than XXX, Taxpayer shall make an annual report to DEO’s
Division of Strategic Business Development concerning its satisfaction of the job creation requirement.
No annual CITC may be claimed without a letter of certification from DEO’s Division of Strategic
Business Development stating that the appropriate annual requirements have been met and/or
maintained.
To determine the Qualifying Project’s annual Florida corporate taxable income, and the associated
CITC, Taxpayer must apply GAAP and the provisions of s. 220.13, F.S. See Rule 12C-1.0191, F.A.C.
The Florida corporate taxable income generated by or arising from the Qualifying Project may only be
Florida corporate taxable income generated by the Division, and only from Taxpayer’s new facility in
[XXX]. Income apportioned or generated by the Taxpayer’s divisions in other states may not be
included in the Qualifying Project’s annual taxable income nor can it increase the amount of the annual
CITC taken. The Qualifying Project is encompassed within the proposed expansion of the headquarters
and operating facilities of the Division. That Division will maintain separate books and records to
account for all revenue and direct and indirect expenses, and it must report, in a pro forma format, the
federal taxable income. That pro forma result will then be adjusted to determine the Florida portion of
the federal taxable income. The Florida apportionment factor for the separate Division operations will
then be applied to determine its apportioned Florida taxable income and the Florida corporate income
tax liability. Furthermore, all aspects of the foregoing taxable determination may be audited to
determine whether it accurately calculates the Florida corporate income tax generated from the
Taxpayer’s Qualifying Project and that the company has conformed to all provisions contained in s.
220.191, F.S.
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
Qualifying Project using the specifics provided for in the foregoing discussion and analysis. In
abbreviated form, they are summarized as follows:
1) In adherence to s. 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 s. 220.13, F.S.
2) Taxpayer is required to strictly adhere to the methodology (separate division accounting/pro
forma format) stated in the above section (Discussion and Analysis) to account for and determine the
CITC Qualifying Project’s annual taxable income and subsequent tax credit.
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

Technical Assistance Advisement 12C1-013
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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, MBA
Technical Assistance and Dispute Resolution
Record ID 130593