Could a taxpayer exclude an acquired company's income and factors when calculating Capital Investment Tax Credit project income?

Plain-English summary

The Florida Department of Revenue rejected a taxpayer's proposed temporary method for excluding an acquired company's income, property, payroll, and sales from its Capital Investment Tax Credit project calculation.

The acquired company had been merged into the taxpayer but retained separate books and records. Even so, the Department maintained the method approved in an earlier TAA: all income apportioned to Florida was qualifying-project income.

The Department also explained the special carryover rule for a qualifying project with at least $100 million of cumulative capital investment. Credit unused because of insufficient tax liability could be used beginning in the 21st project year and ending in the 30th. The ruling described the annual carryover as 5% of qualifying cumulative investment minus credit usable on that year's return, capped at 5% of that investment.

What this means for you

Businesses acquiring another company during a credit period

Separate books for the acquired operation did not, by themselves, persuade the Department to remove that operation from the approved project-income method.

Tax directors and credit teams

Follow the written project-income agreement already issued for the certified project unless the Department approves a change. Track commencement-of-operations years carefully because the carryover window described here does not begin until year 21.

Common questions

Q: Could the taxpayer subtract the acquired company's income from project income?
A: No. The Department maintained that all income apportioned to Florida was project income under the earlier approved method.

Q: Could it remove the acquired company's property, payroll, and sales from the project factor?
A: No. That exclusion was part of the proposed method the Department declined to adopt.

Q: When could qualifying unused credit be used?
A: For a project meeting section 220.191(2)(d)'s investment condition, beginning in the 21st year after commencement of operations and ending in the 30th year.

Q: What if the taxpayer's facts changed?
A: The ruling warns that an incorrect or changed factual record could produce a substantially different project-income computation.

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 18C1-003

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTION: TAXPAYER REQUESTS TO CLARIFY THE METHOD BY WHICH PROJECT
INCOME WILL BE DETERMINED AND HOW THE CARRYOVER PROVISIONS WOULD APPLY
UNDER S. 220.191, F.S.

ANSWER: THE DEPARTMENT MAINTAINS ITS POSITION REGARDING THE METHOD BY
WHICH PROJECT INCOME WILL BE DETERMINED AS PRESENTED IN TAA 15C1-004. THE
CARRYOVER IS DETERMINED PURSUANT TO S. 220.191(2)(D), F.S.
March 1, 2018

XXXXX
XXXXX
XXXXX
XXXXX

Re:

Technical Assistance Advisement – 18C1-003
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 dated XXXXX, for a Technical Assistance Advisement (“TAA”)
pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C. Taxpayer requests a ruling regarding 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”) given the
acquisition of XXXXX (“Company A”). In addition, Taxpayer requests clarification of the credit carryover
provisions.
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
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.
The Department of Revenue, in issuing this TAA, has relied on the representations of Taxpayer. 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
On XXXXX, after receiving certification from the Department of Economic Opportunity (“DEO”) that it
was eligible to receive tax credits under s. 220.191, F.S., Taxpayer requested from the Department a TAA
seeking a written agreement specifying how income generated by or arising out of the project would be
determined. On XXXXX, Taxpayer was issued TAA 12C1-013 by the Department specifying the method
by which income generated by or arising out of the project was to be determined for purposes of applying
the CITC. Subsequently, in a letter dated XXXXX, Taxpayer requested a TAA seeking clarification of the
guidance provided in TAA 12C1-013, given the XXXXX. On XXXXX, the Department issued TAA
15C1-004 to Taxpayer clarifying the method of determining income generated by or arising out of the
qualifying project including XXXXX.
On XXXXX, Taxpayer acquired Company A in a stock acquisition. Company A is headquartered in
XXXXX. Company A is a XXXXX company that generated over XXXXX in pre-acquisition revenues
and employed more than XXXXX employees. Taxpayer formed a new subsidiary corporation (“Merger
Sub”), which acquired the stock of Company A. On XXXXX, the Merger Sub was merged into Company
A, which resulted in Company A becoming a first-tier subsidiary of Taxpayer. Soon after, on XXXXX,
Company A was merged into Taxpayer and it became a division within Taxpayer. Following the merger,
Company A continued to have separate books and records where its income/losses could be easily
bifurcated from Taxpayer’ qualifying project income.
Taxpayer proposes, for tax years ended XXXXX, and XXXXX, only, using a pro-forma method to
determine income generated by or arising out of the qualifying project, the resulting tax due and associated
CITC. Taxpayer has proposed that the qualifying project income will be equal to the portion of Taxpayer’s

Technical Assistance Advisement
Page 3
federal taxable income, less Company A’s income/losses, apportioned to Florida. Taxpayer states it will
keep separate books and records to report Company A’s income and losses and will use this information
to calculate the qualifying project’s income. The apportionment factor applied to the pro-forma qualifying
project’s income will exclude Company A’s property, payroll and sales from the factor. After tax year
ended XXXXX, Taxpayer would use the method described in TAA 15C1-004.

ISSUES PRESENTED
In its letter dated XXXXX, Taxpayer requests a ruling regarding the method by which income generated
by or arising out of Taxpayer’s qualifying project will be determined given the acquisition of Company A.
In addition, Taxpayer requests clarification of the credit carryover provisions.
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

Technical Assistance Advisement
Page 5
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 XXXXX, the Department issued TAA 15C1-004, which provided that all income apportioned to the
state of Florida was qualifying project income. The CITC Taxpayer is eligible to receive is equal to up to
XXXXX of the annual corporate income tax liability generated by or arising out of the qualifying project,
assuming a cumulative capital investment of at least XXXXX million. The allowable CITC is limited to
the lesser of the three limitations defined in TAA 15C1-004.
After discussion and review of the documentation provided, the Department maintains its position
regarding the methodology to determine project income as provided in TAA 15C1-004 (stated above).
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.
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.
In this case, all income apportioned to Florida is project income and Taxpayer is eligible to receive a credit
equal to up to XXXXX of the annual corporate income tax liability generated by or arising out of the
qualifying project. Assuming Taxpayer makes a cumulative capital investment of XXXXX and assuming
its tax liability on a particular taxable year’s tax return is XXXXX, its carryover from that taxable year
would be XXXXX.
CONCLUSION
Given the specific circumstances involved in this case, and based on the representations of Taxpayer, the
Department maintains that the computation of project income as presented in TAA 15C1-004 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 requests be

Technical Assistance Advisement
Page 6
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,

George C. Hamm
Deputy General Counsel
Office of the General Counsel

Record ID 13771