How did Florida require a consolidated filer to calculate project income for the Capital Investment Tax Credit?

Plain-English summary

The consolidated filer had to calculate the certified project's annual taxable income on a separate pro forma schedule. The attachment to Florida Form F-1120 had to identify every project revenue item, direct and indirect expense, and book-to-tax adjustment used to determine project income and the Capital Investment Tax Credit.

The Department generally agreed with beginning from project gross profit, but found the taxpayer's proposed ratio method did not clearly identify which selling, general, and administrative costs it included. Separate project accounting was required to isolate income attributable solely to the qualified project.

What this means for you

Project certification alone did not determine the credit amount. A consolidated business needed a defensible project-level income computation that captured indirect costs and tax adjustments, while continuing to satisfy the credit's eligible-cost, annual-liability, employment, and duration limits stated in the ruling.

Common questions

Q: Could the taxpayer use only project revenue minus direct book costs? No. The Department required indirect expenses and book-to-tax adjustments to be shown as well.

Q: Where was the calculation reported? In a pro forma attachment to the consolidated Florida corporate income-tax return.

Q: What income standard applied? The conclusion tied project annual taxable income to generally accepted accounting principles and section 220.13.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, and 220.15 — corporate tax base and apportionment
• Fla. Stat. § 220.191 — Capital Investment Tax Credit
• Fla. Admin. Code r. 12C-1.015 — corporate income-tax accounting
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02C1-008

Original ruling text

SUMMARY

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 applying the Florida
Capital Investment Tax Credit.

ANSWER - Based on Facts Below: When filing their
Consolidated F-1120, it shall be necessary for the taxpayer
to separately account for, using a "pro forma" format, the
project's annual taxable income. This "pro forma"
attachment will indicate separately all revenues, expenses,
either direct or indirect, and any book to tax adjustments
made in the determination of the project's annual taxable
income and the subsequent Capital Investment Tax Credit.

Sep 19, 2002

Re: Technical Assistance Advisement 02C1-008
Corporate Income Tax
Request for Written Agreement for Determination of Income
Sections 220.11, 220.13, 220.15, 220.191, Florida Statutes.
Rule 12C-1.015, F.A.C.
XXX (hereinafter referred to as "Taxpayer")
XXX (hereinafter referred to as "EFI")
Office of Tourism, Trade, and Economic Development
(hereinafter referred to as "OTTED")
XXX (hereinafter referred to as "the project")

Dear :

Your letter of XX, requests a written agreement between the
Florida Department of Revenue and Taxpayer, concerning the
method by which income generated by or arising out of "the
project", shall be determined for purposes of applying the
Florida Capital Investment Tax Credit. This response to your

request constitutes a Technical Assistance Advisement under
Chapter 12-11, Florida Administrative Code, and it is issued to
you under authority of s. 213.22, Florida Statutes.

FACTS SUPPLIED BY TAXPAYER

Taxpayer is a XXX corporation with its domestic headquarters
located in XXX. Taxpayer files its Florida corporate income tax
return as a separate company and is a calendar year filer. In
XX, Taxpayer made a Capital Investment Tax Credit application
request for certification of Taxpayer's project with EFI. On
XX, OTTED issued a letter of certification approving Taxpayer's
project, as qualified to participate in Florida's Capital
Investment Tax Credit Program.

During the tax years XX and XX, Taxpayer invested over XXX and
created over XXX new jobs in Florida for the project, which
upgraded its XXX with the XXX. Taxpayer indicates that project
revenue was generated throughout the construction period and
that it intends to claim a Corporate Income Tax Credit (CITC)
for tax year XX. The project's Florida investment and
subsequent income represents a component part of Taxpayer's
total income. The project income was, and is, generated from
the following XXX services: XXX, and XXX.

Taxpayer states that the project's certification provides
eligibility for an annual CITC of up to five (5) percent of the
eligible capital costs generated by the project for a period not
to exceed twenty (20) years. Additionally, the annual tax
credit allowed is limited to 100% of the annual corporate income
tax liability generated by or arising out of the qualifying
project. Furthermore, the sum of all tax credits provided
pursuant to s. 220.191, F.S., shall not exceed 100 % of the
total eligible capital costs of the project.

Taxpayer further states that the project's annual taxable income
will be determined by generally accepted accounting principles
and under s. 220.13, F.S. Taxpayer indicates that it accounts
for each product separately by state for gross revenue and
direct costs in arriving at a product gross profit. These costs
are book costs and, therefore, are not adjusted for federal 1120

Schedule M modifications. Taxpayer proposes to compute the
taxable income arising from the project by utilizing the
following method: a separate accounting method to determine the
project gross profit. Since product gross profit does not
include book/tax differences, and only some of the company SG&A
costs, proportional relationships must be used to translate the
project gross profit into the project taxable income.
Specifically, taxpayer proposes the following steps to be used
in the determination of the project net income:

A) Starting point: Project gross profit (product gross
revenue less direct costs).

B) Compute a Federal Taxable Income to Federal gross profit
ratio: (Federal Taxable Income, from federal 1120, Line 30)
divided by (Federal Gross Profit before book/tax
adjustments).

C) Compute project net taxable income: Multiply (A) x (B).

LEGAL AUTHORITY

Section 220.11, Florida Statutes states in pertinent 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, Florida Statutes states in pertinent 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, Florida Statutes states in pertinent part:

(1) Except as provided in ss. 220.151 and 220.152, 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. If any factor described in
subsection (2), subsection (4), or subsection (5) has a
denominator that is zero or is determined by the department
to be insignificant, the relative weights of the other
factors in the denominator of the apportionment fraction
shall be as follows:...

Section 220.191, Florida Statutes states in pertinent part:

(1) DEFINITIONS.--For purposes of this section:...

(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....

(2) 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 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:

(a) One hundred percent for a qualifying project which
results in a cumulative capital investment of at least $100
million....

(3) 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.

(4) The office, upon a 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....

(7) The Department of Revenue may specify by rule the
methods by which a project's pro forma annual taxable
income is determined.

ISSUE PRESENTED

Taxpayer has presented information to facilitate a written
agreement between Taxpayer and the Florida Department of
Revenue. This agreement concerns the method by which income
generated by or arising out of Taxpayer's project shall be
determined for purposes of applying Florida's Capital Investment
Tax Credit rules under s. 220.191, F.S.

DISCUSSION AND ANALYSIS

Taxpayer is a XXX corporation with its domestic headquarters
located in XX. Taxpayer submitted an application to XXX,
requesting certification of the project. Such certification
would qualify the project for an annual credit against its
corporate income tax liability. The project application was
later deemed complete by EFI and was submitted to OTTED, which
approved and issued a letter of certification on XX. This
certification will allow the taxpayer to receive an annual tax
credit of up to five (5) percent of the anticipated XXX in
generated "eligible capital costs", for a period not to exceed
twenty (20) years per s. 220.191(2), F.S. Furthermore, the sum
of all tax credits provided shall not exceed 100 percent of the
eligible capital costs of the project per s. 220.191(2), F.S.

Please note that s. 220.13, F.S., starts with federal taxable as
determined under the current federal I.R.C.

The annual tax credit granted will be limited to one hundred
(100) percent of the annual corporate income tax liability, as
prescribed by s. 220.191(2)(a), F.S. In addition to the above
referenced limitations, the credit will also be dependent upon
taxpayer maintaining the specified employment goals for each
year in which the credit is taken (see s. 220.191(3), F.S.), and
upon the development of a baseline analysis of the availability
of the XXX. The specifics of these two (2) conditions are
available on page 2 of the OTTED certification letter (also see
s. 220.191(3), F.S.).

On XX, Taxpayer requested the issuance of a Technical Assistance
Advisement as a means of satisfying the requirement in s.
220.191(4), F.S., for a written agreement specifying how income

generated by or arising out of the qualifying project will be
determined. In its request for an agreement, Taxpayer presents
that it accounts for each product separately by state by
beginning with gross revenue, and subtracting direct costs to
arrive at a product gross profit. The direct costs referred to
are book costs and, therefore, not adjusted for federal 1120
Schedule M modifications. Taxpayer proposes to compute the
taxable income arising from this project by utilizing the
following method. Taxpayer begins with a separate accounting
method to determine the project gross profit (product gross
revenue minus direct costs). Next, Taxpayer states that since
product gross profit does not include book/tax differences and
only some of the company SG&A costs, proportional relationships
must be used to translate project gross profit into project
taxable income. Taxpayer's summary of proposed project net
income determination is as follows:

A) Starting point: Florida Project Gross Profit (Product
Gross Revenue less Direct Costs).

B) Compute a Federal Taxable Income to Federal Gross Profit
Ratio: (Federal Taxable income, from federal 1120, Line 30)
Divided by (Federal Gross profit before book/tax
adjustments).

C) Compute project Florida net taxable income: Multiply (A)
x (B).

Although the Department is in general agreement with Taxpayer's
basic annual taxable income determination scenario, Taxpayer's
method of arriving at the Federal Gross Profit Ratio does not
specifically identify which SG&A costs are included in that
formulation. For that reason, coupled with the fact that
Taxpayer is filing a Consolidated Florida Corporate Income Tax
Return (F-1120), the Department requests that the following
guidelines be used in the determination of the project's annual
taxable income. When filing its Consolidated F-1120, it shall be
necessary for Taxpayer to separately account for, using a "pro
forma" format, the project's annual taxable income. This "pro
forma" attachment will indicate separately all revenues,
expenses, either direct or indirect, and any book to tax

adjustments made in the determination of the project's annual
taxable income and the subsequent Capital Investment Tax Credit.
This technique will aid in the isolation and determination of
Taxpayer's annual income that should be attributed solely to
Taxpayer's project.

CONCLUSION

Based on the information presented and the preceding discussion
and analysis, it is the Department's position that Taxpayer
shall determine the income generated or arising out of the
project using the specifics provided for in the foregoing
analysis and discussion. In abbreviated form, they are again
stated as follows:

1) In adherence to s. 220.191(1)(d), F.S., income generated
by or arising out of the qualifying project is defined as
the project's annual taxable income as determined by
generally accepted accounting principles and s. 220.13,
F.S.

2) With the filing of a Florida consolidated corporate
income tax return, it shall be necessary for the taxpayer
to separately account for, using a "pro forma" format, its
project's annual taxable income and subsequent tax credit.

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
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 s. 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,

Charles J. Dunning
Technical Assistance and Dispute Resolution
Control No. 51018