Could a corporate taxpayer exclude a redacted income item from Florida's sales factor through alternative apportionment?

Plain-English summary

Florida denied a corporate taxpayer's request to use an alternative apportionment method and exclude a redacted income item from its Florida sales factor.

Fla. Stat. Sec. 220.152 allows a different method only when the regular formula does not fairly represent the tax base attributable to Florida. The taxpayer had to show by clear and cogent evidence that the normal formula operated unreasonably and arbitrarily, taxed extraterritorial values, and produced a grossly distorted result.

The Department found that the taxpayer's evidence did not meet that high standard. The three-factor formula measures business activity by comparing Florida property, payroll, and sales with the taxpayer's totals everywhere. The taxpayer's unusual business and requested different result did not establish the type of unique, nonrecurring distortion required by the rule.

What this means for you

Multistate businesses

Alternative apportionment is exceptional relief. A taxpayer must prove both that the standard formula is grossly distorted and that its proposed alternative fairly apportions Florida activity.

Corporate tax teams

The petition and supporting evidence must be filed by the return due date, including extensions, under the procedure described in the ruling.

Common questions

Was alternative apportionment approved? No.

Was an unusual business model enough? No.

What evidence was required? Clear and cogent evidence of extraterritorial taxation or a grossly distorted result, plus proof that the alternative was fair and accurate.

Citations and references

• Fla. Stat. Sec. 220.152
• Fla. Stat. Secs. 220.15 and 220.151
• Fla. Admin. Code R. 12C-1.0152

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 21C1-012

Original ruling text

QUESTION: Does the standard apportionment factor fairly represent the extent of a taxpayer’s
tax base attributable to Florida?
ANSWER: The taxpayer has not shown by clear and cogent evidence that Florida’s
apportionment calculation results in taxation of extraterritorial values, or that the
apportionment formula is inaccurate and does not fairly reflect the taxpayer’s business activity
in Florida. Therefore, the taxpayer is not entitled to alternative apportionment relief under
section 220.152, F.S.
December 22, 2021
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 21C1-012
Request for Authority to Use Alternative Apportionment
Section 220.152, F.S.
Rule 12C-1.0152, F.A.C.
XXX (“the taxpayer”)
FEIN: XXX

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 permission to use an
alternative method of apportionment. 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.
ISSUE
Whether the taxpayer has established sufficient cause for the Department to permit it to use an
alternative method of apportionment.
FACTS SUPPLIED BY TAXPAYER
Based on the information provided in the TAA request, the taxpayer was formed in XXX, and is
headquartered in XXX. The taxpayer XXX in the United States. The TAA request further states

XXXXXX
December 22, 2021
Florida Department of Revenue
Page 2

that the taxpayer first established nexus with Florida in XXXX, and, in XXXX, hired an employee
who telecommutes from Florida.
Effective XXX, the taxpayer XXX.
In XXXX, the taxpayer XXX in exchange for a XXX. The taxpayer was paid XXX in XXXX. The XXX
has been paid XXX. The taxpayer negotiated the sale of XXX.
As the taxpayer’s interests XXX, prior to the time the taxpayer had nexus with Florida, it is
seeking permission to use an alternative method of apportionment, which would exclude the
XXX income from the Florida sales factor in computing the taxpayer’s income subject to
Florida’s corporate income tax for the XXXX tax year.
LAW
Section 220.152, F.S., states:
Apportionment; other methods.—If the apportionment methods of ss. 220.15 and
220.151 do not fairly represent the extent of a taxpayer’s tax base attributable to this
state, the taxpayer may petition for, or the department may require, in respect to all
or any part of the taxpayer’s tax base, if reasonable:
(1) Separate accounting;
(2) The exclusion of any one or more factors;
(3) The inclusion of one or more additional factors which will fairly represent the
taxpayer’s tax base attributable to this state; or
(4) The employment of any other method which will produce an equitable
apportionment.
Rule 12C-1.0152, F.A.C., provides:
(1)(a) A departure from the applicable method of apportionment required under the
provisions of section 220.15 or 220.151, F.S., shall be permitted only where the
method does not accurately and fairly reflect business activity in Florida. An alternative
method may not be invoked, either by the Department of Revenue or the taxpayer,
merely because it reaches a different apportionment percentage than the regularly
applicable formula. However, if the applicable formula will lead to a grossly distorted
result in a particular case, a fair and accurate alternative method is appropriate (see
Norfolk and Western Railway Co. v. Missouri State Tax Commission, 390 U.S. 317, 88 S.
Ct. 995, 19 L. Ed. 2d 1201 (1968), which is incorporated by reference in rule 12C1.0511, F.A.C.).
(b) A taxpayer seeking to utilize an alternative apportionment method must show by
clear and cogent evidence that the regularly applicable formula would result in

XXXXXX
December 22, 2021
Florida Department of Revenue
Page 3

taxation of extraterritorial values (see Butler Bros. v. McColgan, 315 U.S. 501, 62 S.Ct.
701, 86 L. Ed. 991 (1942), which is incorporated by reference in rule 12C-1.0511,
F.A.C.). This can be shown only if the regularly applicable formula is demonstrated to
operate unreasonably and arbitrarily in apportioning to Florida a percentage of income
which is out of all proportion to the business transacted in Florida and does not
accurately and fairly reflect business activity in Florida (see Hans Rees’ Sons, Inc. v.
North Carolina ex rel Maxwell, 283 U.S. 123, 51 S. Ct. 385, 75 L. Ed 879 (1931), which is
incorporated by reference in rule 12C-1.0511, F.A.C.).
(2) The party seeking to use an alternative formula must prove that the alternative
formula fairly and accurately apportions income to Florida based upon business
activity in Florida.
(3) A departure from the regularly applicable apportionment method will be
authorized only in limited and specific cases where unusual fact situations (which
ordinarily will be unique and nonrecurring) produce a result that is incongruous with
the results of previous tax years under the regularly applicable apportionment
method.
(4) A taxpayer must petition the Department for a departure from the required
apportionment method by filing, on or before the due date for filing of the return for
the taxable year, with extension, either: a written request for a technical assistance
advisement under section 213.22, F.S., and rule chapter 12-11, F.A.C.; or, a petition for
a declaratory statement under section 120.565, F.S.
(a) The taxpayer must file the request or petition with Technical Assistance and
Dispute Resolution, P.O. Box 7443, Tallahassee, Florida 32314-7443.
(b) The taxpayer’s request or petition must include a summary of the evidence to
support the taxpayer’s contention that the applicable apportionment formula results
in taxation of extraterritorial values and to demonstrate that the regular formula
operates to unreasonably and arbitrarily attribute income to Florida far out of
proportion to the business transacted in Florida. The taxpayer must also furnish
evidence that the use of an alternative method fairly and accurately apportions
income to Florida.
ANALYSIS
Section 220.152, F.S., authorizes the Department to require a taxpayer to use an alternative
method of apportionment from those required by section 220.15, F.S., or section 220.151, F.S.,
if those methods do not “fairly represent the extent of a taxpayer’s tax base attributable to this
state . . . .” Section 220.152, F.S., also allows a taxpayer to petition the Department for
permission to use an alternative method of apportionment if the methods provided by section
220.15, F.S., or section 220.151, F.S., do not fairly represent its tax base attributable to Florida.
Rule 12C-1.0152, F.A.C., sets forth the conditions where an alternative method of
apportionment is appropriate and the requirements that must be met before permission to use

XXXXXX
December 22, 2021
Florida Department of Revenue
Page 4

an alternative method of apportionment may be granted. The rule references court decisions
that support these conditions and requirements.
As stated in the telephone conference of XXX, the three-factor apportionment formula is
designed to be a measure of business activity rather than a measure of income and is
specifically designed to exclude business activity in other states from its computation by
including all property, payroll, or sales, in its denominator, while including, in this instance, only
Florida property, payroll, or sales, in its numerator. Further, use of a three-factor formula to
apportion income has been well litigated and has been found to provide a fair and reasonable
representation of income attributable to the states. Therefore, the bar for using an alternative
method of apportionment is very high, requiring that it be shown “by clear and cogent
evidence” that the three-factor formula leads to a “grossly distorted result,” rising to a level
that would result in an issue under the United States Constitution.
While, as stated in the TAA request and the telephone conference, the business in which the
taxpayer engages is somewhat unusual, entering XXX is not at all unusual. Therefore, the
information available to the Department does not indicate that this taxpayer’s circumstances or
situation meet the requirements to be granted permission to use an alternative method of
apportionment.
CONCLUSION
The taxpayer’s request for permission to use an alternative method of apportionment is not
approved.
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 specified in s. 213.22, F.S. Our response is predicated on those facts and the
specific situation summarized above. You are advised that subsequent statutory or
administrative rule changes, or judicial interpretations of the statutes or rules, upon which this
advice is based, may subject similar future transactions to a different treatment than expressed
in this response.
You are further advised that this response, your request and related documents are public
records under Chapter 119, F.S., which are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Your name, address, and any other details, which might lead to
identification of the taxpayer, must be deleted before disclosure. In an effort to protect the
confidentiality of such information, we request you provide the undersigned with an edited
copy of your request for Technical Assistance Advisement, backup material and response within
fifteen days of the date of this advisement.
Sincerely,

XXXXXX
December 22, 2021
Florida Department of Revenue
Page 5

Suzanne C. Paul
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution