How should a separately filing corporation calculate project income and its Florida Capital Investment Tax Credit?

Plain-English summary

The Florida Department of Revenue approved a separately filing corporation's pro forma method for calculating income and tax attributable to a certified Capital Investment Tax Credit project.

The taxpayer would first compute total Florida taxable income on its actual F-1120, including the project's income, expenses, and apportionment effects. That amount would become the pro forma return's starting point. The taxpayer would then apply the project's own Florida apportionment factor and the 5.5% corporate income-tax rate to determine project tax liability.

The allowable annual credit was constrained by the lesser of the project tax liability or the redacted annual cap in the economic-development certification, and it could not exceed tax due on the Florida return. The Department also described a carryover for an investment meeting section 220.191(2)(d)'s threshold, using the annual cap rather than an unredacted dollar amount in this taxpayer's calculation.

What this means for you

Businesses with certified capital projects

Keep project-level property, payroll, sales, and income records. The approved method depended on computing a distinct project apportionment factor and attaching the pro forma return to the filed F-1120.

Accountants and tax professionals

The credit calculation has multiple ceilings. Reconcile project tax liability, the certification's annual cap, and total tax due before reporting the credit.

Common questions

Q: What was the pro forma calculation's starting point?
A: Total Florida taxable income from the taxpayer's actual F-1120.

Q: How was project tax liability computed?
A: The taxpayer applied the project's Florida apportionment factor to total Florida taxable income, then applied the 5.5% corporate income-tax rate.

Q: What limited the annual credit?
A: The credit was limited by project tax liability, the economic-development certification's redacted annual cap, and tax due on the return.

Q: Was supporting documentation required?
A: Yes. The ruling required the qualifying project's pro forma return to accompany the Florida corporate income-tax return.

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 18C1-001

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTION: TAXPAYER REQUESTS A WRITTEN AGREEMENT BETWEEN THEMSELVES 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: THE DEPARTMENT IS INCLINED TO CONCUR WITH THE TAXPAYER’S SUGGESTED
CALCULATION FOR THE INCOME GENERATED BY OR ARISING OUT OF THE QUALIFYING
PROJECT. HOWEVER, TAXPAYER WAS REMINDED THAT SHOULD THE FACTS PROVIDED IN
ITS REQUEST BE DETERMINED TO BE SUBSTANTIALLY DIFFERENT, THIS TAA WOULD NOT
APPLY AND THE METHODOLOGY MAY BE DEEMED INAPPROPRIATE.

January 31, 2018

XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Re:

Technical Assistance Advisement 18C1-001
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.”)
XXXXX (“Taxpayer”)
FEIN: XXXXX
Project ID: XXXXX
Florida Department of Economic Opportunity (“DEO”)
Enterprise Florida, Inc. (“EFI”)

Dear XXXXX:
This is in response to your request received XXXXX, 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
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
investment project shall be determined for purposes of applying the Capital Investment Tax Credit
(“CITC”).
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 XXXXX, DEO certified 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 XXXXX in the United States. Taxpayer’s corporate headquarters is XXXXX, with
manufacturing facilities located in XXXXX. Some of the products these facilities produce are XXXXX.
Taxpayer files a separate Florida corporate income tax return, F-1120, and a consolidated federal income
tax return.
Taxpayer’s project consists of XXXXX. The project includes XXXXX. Taxpayer intends to create
approximately XXXXX net new-to-Florida positions and make a capital investment of approximately
$XXXXX. Taxpayer expects to commence operations by XXXXX.
Taxpayer proposes, beginning with the year of commencement of operations (XXXXX), Taxpayer will
compute the total Florida portion of its federal taxable income inclusive of all income, expenses, and
apportionment factor impacts of the qualifying project. The result will be the total Florida taxable income
to be reported on the actual F-1120. The total Florida taxable income as per the actual F-1120 will then
become the starting point on the pro-forma F-1120 to be used in computing the qualifying project’s Florida
taxable income. Taxpayer will then compute the apportionment factor for the qualifying project. Taxpayer
will apply the standard Florida apportionment factors as described in s. 220.15, F.S. The qualifying project

Technical Assistance Advisement
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will have 100% of its property and payroll within Florida. Sales will be based on the shipped to destination
both within and outside Florida. The project apportionment factor will be multiplied by the total Florida
taxable income to determine the qualifying project’s Florida taxable income. Taxpayer will then multiply
the qualifying project’s Florida taxable income by the Florida income tax rate (5.5%) to determine the
qualifying project’s Florida tax liability. Taxpayer is investing at least $XXXXX million; therefore, the
associated CITC is equal to the qualifying project’s Florida tax liability.
However, the CITC that Taxpayer can claim has been capped by DEO. The per-year CITC has been capped
at $XXXXX for any calendar year. Accordingly, the qualifying Florida project tax liability will be compared
to the maximum CITC (cap) for the year, with the lesser of such amounts to be claimed as the CITC.
ISSUES PRESENTED
In its letter dated XXXXX, 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 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:

Technical Assistance Advisement
Page 4
(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.

(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

Technical Assistance Advisement
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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 XXXXX, 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. The certification approval entitles the project to eligibility for an annual
tax credit, not to exceed $XXXXX per calendar year1, 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:

1. Five (5) percent of the cumulative capital investment, which is estimated to be $XXXXX, but must
   be at least $25 million,
2. Fifty percent (50%), seventy-five percent (75%), or one hundred percent (100%) of the annual
   corporate income tax liability generated by or arising out of the qualifying project, depending on the
   level of cumulative capital investment; or
3. The tax due on the Florida corporate income tax return prior to application of this credit that includes
   the income generated by or arising out of the qualifying project.
   Unused credits cannot be carried forward unless the qualifying project meets the requirements for credit
   carryovers provided in s. 220.191(2)(d), F.S.
   DEO has required that 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 Taxpayer
   has provided DEO with evidence that it has met the following criteria:
4. A cumulative capital investment (as defined in s. 220.191, F.S.) of at least $25 million at the
   qualifying project’s location in XXXXX has been made; and
5. At least XXXXX net new-to-Florida full-time equivalent jobs paying an average annualized wage
   of at least $XXXXX have been created in connection with the qualifying project.
   No annual CITC may be claimed without a Letter of Certification from DEO stating that the appropriate
   annual requirements have been met and/or maintained.

1

Per DEO certification letter

Technical Assistance Advisement
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According to DEO’s certification letter, if Taxpayer meets the conditions set forth above, Taxpayer will be
eligible to receive CITCs equal to up to 50% of its capital investment, provided, however, that in no event
shall Taxpayer be eligible to receive more than $XXXXX in CITCs in any calendar year.
Notwithstanding the foregoing, Taxpayer states it expects to make a capital investment of $XXXXX in
connection with the qualifying project. If Taxpayer makes the projected capital investment prior to
commencement of operations of the qualifying project, Taxpayer will be eligible to receive CITCs equal to
up to 100% of its capital investment, provided, however, that in no event shall Taxpayer be eligible to
receive more than $XXXXX in CITCs in any calendar year.
Taxpayer has proposed a pro-forma methodology to compute the income generated by or arising out of the
qualifying project and the corresponding CITC. The Department concurs with Taxpayer’s methodology.
Taxpayer will prepare a pro-forma return that separately details the qualifying project’s income, project tax
liability and associated CITC (lesser of project tax liability or $XXXXX). The CITC that can be claimed
on the Florida tax return will be limited by either the tax due on the tax return or the lesser of project tax
liability or $XXXXX.
Taxpayer must apply Generally Accepted Accounting Principles (GAAP) and the provisions of s. 220.13,
F.S. Taxpayer will be required to provide with its Florida corporate income tax return the pro-forma return
for the qualifying project.
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 qualifying project.
In general, the amount of carryover from any one taxable year is five (5) percent of the cumulative capital
investment that is at least $100 million less the amount of capital investment tax credit that could be used
on the tax return for the taxable year. The amount of carryover from a taxable year may not exceed five (5)
percent of the cumulative capital investment that is at least $100 million.
However, in this case, the CITC Taxpayer is eligible to receive in any calendar year is capped at a maximum
of $XXXXX. Therefore, if the CITC claimed on the Florida corporate income tax return is less than
$XXXXX, the carryover would be the difference between the CITC claimed and $XXXXX.
CONCLUSION
Given the specific circumstances involved in this case, and based on the representation of 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 XXXXX, be determined to be incorrect or changed, the computation for the
income generated by or arising out of the qualifying project could be substantially different from what has
been agreed upon in this TAA.

Technical Assistance Advisement
Page 7
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
Susan R. Coxwell
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6478
Record ID 41235