Could affiliated companies use a pro forma consolidated project return and allocate a Capital Investment Tax Credit among separate Florida returns?

Plain-English summary

Florida approved a multi-entity method for calculating project income and allocating a Capital Investment Tax Credit among affiliated companies that filed separate Florida returns.

The group would start with pro forma consolidated federal taxable income, remove extraordinary items, make Florida adjustments, and apply a project-specific apportionment factor. Project property and payroll were treated as 100% Florida, while the standard method applied to sales.

After determining the annual credit under the statutory limitations, the group would allocate it among affiliates based on the tax liabilities reported on their separate Florida returns. Each return had to include the project calculation and allocation breakdown.

What this means for you

Affiliated project investors

A jointly funded project can use a consolidated project computation even when group members file separate Florida returns, if the Department approves the method.

Corporate tax teams

Document investment contributions and reconcile the annual credit allocation to each affiliate's Florida tax liability.

Common questions

Was the project return actually filed as a consolidated Florida return? No. It was a pro forma project calculation attached to separate returns.

How was the credit allocated? Based on each affiliate's separate-return Florida tax liability.

Citations and references

• Fla. Stat. Sec. 220.13
• Fla. Stat. Sec. 220.15
• Fla. Stat. Sec. 220.191
• Fla. Admin. Code R. 12C-1.0191

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 19C1-005

Original ruling text

Florida Department of Revenue
Technical Assistance and Dispute Resolution

5050 West Tennessee Street Tallahassee FL 32399

Jim Zingale
Executive Director

floridarevenue.com

October 30, 2019
XXXXX
XXXXX
XXXXX
XXXXX
Re:

Technical Assistance Advisement – 19C1-005
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., regarding your request for an
Technical Assistance Advisement 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”).
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.

XXXXX
October 30, 2019
Florida Department of Revenue
Page 2
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 the Taxpayer1 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, along with its subsidiaries, XXXXX. It provides XXXXX. Taxpayer files a consolidated
federal corporate income tax return and separate Florida corporate income tax returns.
Taxpayer is constructing a new headquarters facility (“project”) in XXXXX, Florida. The project is
expected to create at least XXXXX net new-to-Florida full-time equivalent jobs at the project
location paying an average annualized wage of at least $XXXXX. It expects to create at least
XXXXX new-to-Florida jobs. Taxpayer estimates its total capital investment will be at least
$XXXXX million.
Taxpayer and its affiliated group, as determined under I.R.C. §1504, will collectively contribute
to the capital investment. Taxpayer intends to memorialize, in writing, the investment
contribution.
Taxpayer has proposed using a multi-entity [consolidated] basis and project-specific
apportionment factor to determine the income generated by or arising out of the qualifying
project. A pro forma consolidated Florida corporate income tax return format would be used.
The pro forma Florida taxable income would be determined by using the reported consolidated
federal taxable income (line 30, Federal form 1120) less extraordinary items, and including
Florida additions, subtractions and adjustments. Taxpayer would then apply a project-specific
apportionment factor to this amount to determine project income, which would consist of
100% Florida property and payroll and use the standard apportionment method for the sales
factor. The applicable Florida corporate income tax rate would be applied to determine the
project’s tax liability and annual CITC.
1

XXXXX

XXXXX
October 30, 2019
Florida Department of Revenue
Page 3
Taxpayer would then allocate the available annual credit amount among the affiliated group.
The allocation of the CITC would be based on the tax liability of the separately filed Florida
corporate income tax returns of the affiliated group.
ISSUE PRESENTED
In its letter dated XXXXX, Taxpayer requests a Technical Assistance Advisement 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:
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:
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:

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October 30, 2019
Florida Department of Revenue
Page 4
(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. 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 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.

XXXXX
October 30, 2019
Florida Department of Revenue
Page 5
(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.

(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.

(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 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
   million, but must be at least $25 million,
2. Fifty (50%), seventy-five (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 investment; or
3. The tax due on the separately filed Florida corporate income tax returns of the affiliated
   group 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. In addition, DEO has required the
   qualifying project to create and maintain at least XXXXX net new-to-Florida full-time equivalent
   jobs paying an average annualized wage of at least $XXXXX at the project location by the
   commencement of operations.

XXXXX
October 30, 2019
Florida Department of Revenue
Page 6
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 investment and job
creation and retention requirements as described in DEO’s Letter of Certification. 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.
Taxpayer has proposed using multi-entity (consolidated) basis and project-specific
apportionment factor to determine the income generated by or arising out of the qualifying
project. The Department concurs with Taxpayer’s methodology.
Taxpayer will use a pro forma consolidated Florida corporate income tax return format. The
pro forma Florida taxable income will be determined by using the reported consolidated federal
taxable income (line 30, Federal form 1120) less extraordinary items, and including Florida
additions, subtractions and adjustments. Taxpayer will then apply a project-specific
apportionment factor to this amount to determine project income, which will consist of 100%
Florida property and payroll and use the standard apportionment method for the sales factor,
pursuant to s. 220.15, F.S. The applicable Florida corporate income tax rate will be applied to
determine the project’s tax liability. The annual CITC available for utilization will be equal to
the least of the three criteria noted above.
The available annual CITC will then be allocated among the affiliated group. The allocation of
the CITC will be based on the tax liability of the separately filed Florida corporate income tax
returns of the affiliated group.
Taxpayer must apply generally accepted accounting principles and the provisions of ss. 220.13
and 220.15, F.S. Taxpayer must include with each separately filed Florida corporate income tax
return of the affiliated group the pro forma [consolidated] project income return, and CITC
calculation and a breakdown of the annual CITC allocation.
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
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

XXXXX
October 30, 2019
Florida Department of Revenue
Page 7
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
CC: XXXXX