What project-income and carryforward method did Florida approve for a $100 million manufacturing expansion?

Plain-English summary

The Florida Department of Revenue approved a detailed project-income method for a manufacturer's certified facility expansion with at least $100 million of capital investment and at least 100 new Florida jobs.

The taxpayer would calculate actual gross profit for each new or renovated qualifying production line using units produced, average selling price, and standard production cost, then subtract associated incremental selling, marketing, and distribution expenses. It would use actual project depreciation and fixed-asset gains or losses for those Schedule M items and allocate other Schedule M adjustments using the project's share of income before tax.

After determining project taxable income under generally accepted accounting principles and section 220.13, the taxpayer would apply Florida apportionment to calculate project tax liability and the credit. The credit remained limited to the least of the annual investment percentage, project tax liability, or tax due on the parent's consolidated Florida return.

The $100 million investment level made a later carryforward possible, but only when the consolidated-return tax limitation—not the project-liability limit or annual 5 percent cap—prevented current use. Such carryforward would be used in years 21 through 30 after project operations began.

What this means for you

Manufacturers

Design project accounting around qualifying production lines, standard costs, incremental expenses, fixed assets, and Schedule M adjustments from the start of the expansion.

Corporate tax teams

Track which statutory cap limits the credit each year. That limiting factor determines whether an unused amount qualifies for the later carryforward described in the ruling.

Common questions

Q: What income method was approved?
A: Production-line gross profit minus project expenses, with specified Schedule M adjustments and Florida apportionment.

Q: Could every unused credit be carried forward?
A: No. The ruling allowed carryforward only when consolidated-return tax liability was the binding limitation.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, 220.191, 288.108, and 213.22
• Fla. Admin. Code r. 12C-1.0191

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14C1-008

Original ruling text

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 THE FLORIDA CAPITAL INVESTMENT TAX
CREDIT UNDER S. 220.191, F.S.
ANSWER: WHEN FILING ITS CONSOLIDATED FLORIDA CORPORATE INCOME TAX
RETURN, IT SHALL BE NECESSARY FOR THE TAXPAYER 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.
July 3, 2014

Re:

Technical Assistance Advisement – TAA 14C1-008
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.”)
XXXXXXX (“Taxpayer”)
FEIN: XXXXXXX
Project ID: XXXXXXX
XXXXXXX (“Parent”)
Florida Department of Economic Opportunity (“DEO”)
Enterprise Florida, Inc. (“EFI”)

Dear XXXXXXX:
This is in response to your request dated XXXXXXX, 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 how 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”). 1

1

Taxpayer’s request is attached to and incorporated into this TAA. Taxpayer’s request states schedules were included with
the request. No schedules were received by the Department. According to the Taxpayer, it did not intend to send schedules;
this statement was an error and should have been deleted prior to sending the request.

Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director
www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
Section 220.191(5), F.S., addresses applications for CITC. That statute provides:
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.
Pursuant to Rule 12C-1.0191, F.A.C., the Department of Revenue has adopted TAAs as the method for
entering into such written agreements.
On XXXXXXX, DEO certified the Taxpayer as eligible to receive tax credits under s. 220.191, F.S.
The Department of Revenue, having received said certification, has examined your letter and has
established that you have complied with the statutory and regulatory requirements for issuance of a
TAA. Therefore, the Department of Revenue is hereby granting your request for a TAA. The
Department of Revenue, in issuing this TAA, has relied on the representations of Taxpayer and the
certification of the Department of Economic Opportunity. This TAA specifies the method by which
income generated by or arising out of the qualifying project will be determined based on the facts as
represented to the Department of Revenue. 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 XXXXXXX XXXXXXX manufacturer of XXXXXXX XXXXXXX. Taxpayer’s
XXXXXXX XXXXXXX is located in XXXXXXX, Florida. The Taxpayer generates over XXXXXXX
in annual revenue and has more than XXXXXXX employees located in Florida. Taxpayer is included in
the Parent’s Florida and federal consolidated filing for corporate income tax.
Taxpayer intends to expand its existing XXXXXXX XXXXXXX manufacturing facility. The Project
includes the renovation of XXXXXXX square feet of existing space and construction of an additional
XXXXXXX square feet of new manufacturing space. Taxpayer plans to add new production lines and
upgrade existing production lines to increase manufacturing capacity. The Project will result in the
retention of at least XXXXXXX permanent jobs and the creation of at least 100 new jobs with an
average annual salary of XXXXXXX for a two-year period. The Taxpayer expects its total cumulative
capital investment to be at least XXXXXXX million.
ISSUES PRESENTED
In its letter dated XXXXXXX, 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.

Technical Assistance Advisement
Page 3
LEGAL AUTHORITY
Section 220.11, F.S., states in 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 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 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 part:
(1) DEFINITIONS.—For purposes of this section:
(a) “Commencement of operations” means the beginning of active operations by a qualifying
business of the principal function for which a qualifying project was constructed.
(b) “Cumulative capital investment” means the total capital investment in land, buildings, and
equipment made in connection with a qualifying project during the period from the beginning of
construction of the project to the commencement of operations.
(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.

Technical Assistance Advisement
Page 4

(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 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 capital
   investment of at least $100 million.
2. Seventy-five percent for a qualifying project which results in a cumulative capital
   investment of at least $50 million but less than $100 million.
3. Fifty percent for a qualifying project which results in a cumulative capital investment of at
   least $25 million but less than $50 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.

(8) The Department of Revenue may specify by rule the methods by which a project’s pro forma
annual taxable income is determined.
DISCUSSION
On XXXXXXX, DEO issued a letter approving Taxpayer’s project for participation in Florida’s CITC
program, and indicated in its letter that the “Qualifying Project” will be located in a High Impact
Performance Incentive Sector pursuant to s. 288.108, F.S. 2 The certification approval entitles the
project to eligibility for an annual tax credit against the corporate income tax imposed if certain criteria
are met, in an amount equal to the lesser of the following for up to twenty years, beginning with the
commencement of operations:

2

DEO’s certification letter is attached to and incorporated into this TAA.

Technical Assistance Advisement
Page 5

1. Five (5) percent of the cumulative capital investment, which is estimated to be XXXXXXX
   million, but must be at least $100 million,
2. One hundred percent (100%) of the annual corporate income tax liability generated by or arising
   out of the Qualifying Project, or
3. The tax due on the consolidated Florida corporate income tax return of the Parent that includes
   the income generated by or arising out of the qualifying project.
   DEO has required the Qualifying Project meet certain criteria by the commencement of operations. The
   “commencement of operations” (as defined in s. 220.191, F.S.) will not be deemed to occur unless the
   Taxpayer has provided DEO with evidence that it has met the following criteria:
4. Capital investment of at least $100 million;
5. Creation of at least 100 net new-to-Florida full-time equivalent jobs; and
6. Completed construction of the facilities in connection with the Project and has received any
   required certificate(s) of occupancy.
   No annual CITC may be claimed without a letter from DEO stating that the appropriate annual
   requirements have been satisfied or maintained.
   The Taxpayer proposes a methodology to compute the income generated by or arising out of the
   qualifying project and the corresponding CITC. Taxpayer will determine the Project’s income by using
   the actual gross profit for each qualifying production line (renovated and new) less associated
   incremental expenses, such as selling, marketing, and distribution. Actual gross profit will be
   determined by multiplying the number of XXXXXXX produced on each production line of the
   qualifying project by the average selling price of the XXXXXXX XXXXXXX less the standard cost to
   produce each XXXXXXX. Manufacturing overhead expenses are included in the standard cost to
   produce each XXXXXXX.
   The income will then be adjusted by Schedule M items associated with the project to determine taxable
   income for the qualifying project. The Taxpayer will utilize actual Schedule M items related to
   depreciation and gain or loss from fixed assets which are attributable to the qualifying project. All other
   Schedule M adjustments will be computed by using a ratio of new production line income before tax
   over the total income before tax of the Taxpayer’s separately stated Income Statement. This percentage
   will then be applied to the Total Schedule M Items from the Taxpayer’s separately stated pro forma
   federal income tax return less federal pro forma Schedule M depreciation and gain or loss from the sales
   or disposition of fixed assets.
   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 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 limitations stated above. The Taxpayer will provide a pro forma
   Florida and federal return for the Project and a schedule of the Schedule M calculations and adjustments
   to determine the qualifying project’s taxable income. Taxpayer must apply generally accepted
   accounting principles and the provisions of s. 220.13, F.S.

Technical Assistance Advisement
Page 6
Pursuant to s. 220.191(2)(d), F.S., when the capital investment is at least $100 million, credit amounts
not fully used in any one year because of insufficient tax liability on the part of the qualifying business
may be used in any one year or years beginning with the 21st year after the commencement of
operations of the Project and ending with the 30th year after the commencement of operations of the
Project.
To determine the amount of unused credit that can be carried forward, the Taxpayer must first determine
the tax liability generated by or arising out of the qualifying project. If the credit is limited to the tax
liability generated by or arising out of the Project, not the tax liability on the consolidated return, or by
the 5% annual credit cap, then there will not be a carryforward. If the credit is limited by the tax
liability on the consolidated Florida return, not the tax liability generated by or arising out of the Project
and not by the 5% annual credit cap, then there will be a carryforward that can be claimed beginning
with the 21st year after the commencement of operations.
CONCLUSION
Given the specific circumstances involved in this case, and based on the representation of the Taxpayer,
the computation above properly computes the income generated by or arising out of the qualifying
project based upon s. 220.191, F.S., and Rule 12C-1.0191, F.A.C. However, Taxpayer is reminded that
should the facts provided in its request of XXXXXXX, be determined to be incorrect or changed, the
computation for the income generated by or arising out of the project could be substantially different
from what has been agreed upon in this TAA.
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,
Susan R. Coxwell
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6478
Record ID 167640