How did Program Two CAPCO credits affect Florida insurance premium tax returns and installments?

Plain-English summary

Florida explained when certified investors could reflect Program Two CAPCO credits in insurance premium tax payments. Assuming credits were allocated and investments made by December 31, 2003, an investor could claim 10% of its certified investment annually against its 2003 through 2012 premium tax.

For an investor using the safe-harbor installment method of 27% of the prior year's net tax, the April 15 and June 15, 2004 installments had to ignore the 2003 credit. The October 15, 2004 installment could reflect it, as could all installments for 2005 through 2013. The ruling calculated the installment reduction as 2.7% of the certified investment when the maximum credit was claimed.

What this means for you

This advisement explains a historical credit schedule, not a current open-ended tax benefit. Its calculations depend on timely allocation and investment, use of the maximum annual credit, the 27% installment method, and no change in statutory timing.

Common questions

Q: Could the credit reduce the first two 2004 installments? No. The statute required those installments to be computed without the Program Two credit taken on the 2003 return.

Q: When could installments first reflect the credit? The October 15, 2004 installment, followed by the 2005-2013 installments under the ruling's assumptions.

Citations and references

• Fla. Stat. § 288.99(6), (7), and (17) — CAPCO credits and Program Two timing
• Fla. Stat. § 624.5092 — insurance premium tax installments and the 27% method
• Chapter 2002-404, Laws of Florida, §§ 10-11 — Program Two provisions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 03B8-001

Original ruling text

SUMMARY

QUESTION: Assuming a certified investor chooses to base
each installment on 27% of the preceding year's net tax
due, how will the installment and annual insurance premium
tax return payments be affected by the use of CAPCO Program
Two credits?

ANSWER - Based on Facts Below: Subject to the timely
allocation of CAPCO Program Two credits, the certified
investor would receive a credit of 10% of its certified
investment as a CAPCO Program Two credit against its 20032012 insurance premium tax. All installments for the 20042013 insurance premium tax may consider the fact that the
certified investor received a CAPCO Program Two credit
against its preceding year's insurance premium tax, except
for the April 15, 2004, and June 15, 2004, installments.

Feb 10, 2003

Re: Technical Assistance Advisement 03B8-001
Insurance Premium Tax - CAPCO Program Two
Section 288.99, F.S.
Sections 10 and 11 of Chapter 2002-404, L.O.F.
XXX (hereinafter referred to as "A")

Dear :

Your letter dated XX, requests a Technical Assistance Advisement
concerning the effect of the Second Florida Certified Capital
Company (CAPCO) Program (Program Two) on certified investors'
installment and annual return insurance premium tax payments.
This response to your request constitutes a Technical Assistance
Advisement under Chapter 12-11, Florida Administrative Code, and
is issued to you under the authority of s. 213.22, Florida
Statutes.

FACTS

"A" has submitted an application to become a Florida CAPCO for
Program Two. "A's" potential certified investors have asked "A"
when they will receive a benefit from the existence of the CAPCO
Program Two credits that they will earn when they provide
certified capital to "A".

QUESTION

Assuming a certified investor chooses to base each installment
on 27% of the preceding year's net tax due, how will the
installment and annual return payments be affected by the use of
CAPCO Program Two credits?

LAW

Section 11 of Chapter 2002-404, L.O.F., states in part:

Except as otherwise specifically provided in this act, the
provisions of this act shall apply only to "Program Two" as
defined in s. 288.99(3), Florida Statutes, as amended by
this act.

(17) Notwithstanding....

Subsection 288.99(6), F.S. (2002), states:

PREMIUM TAX CREDIT; AMOUNT; LIMITATIONS.-(a) Any certified investor who makes an investment of
certified capital shall earn a vested credit against
premium tax liability equal to 100 percent of the certified
capital invested by the certified investor. Certified
investors shall be entitled to use no more than 10
percentage points of the vested premium tax credit earned
under a particular program, including any carry forward
credits from such program under this act, per year
beginning with premium tax filings for calendar year 2000
for credits earned under Program One. Any premium tax
credits not used by certified investors in any single year
may be carried forward and applied against the premium tax
liabilities of such investors for subsequent calendar

years.

(b) The credit to be applied against premium tax liability
in any single year may not exceed the premium tax liability
of the certified investor for that taxable year.

(c) A certified investor claiming a credit against premium
tax liability earned through an investment in a certified
capital company shall not be required to pay any additional
retaliatory tax levied pursuant to s. 624.5091 as a result
of claiming such credit. Because credits under this
section are available to a certified investor, s. 624.5091
does not limit such credit in any manner.

(d) The amount of tax credits vested under the Certified
Capital Company Act shall not be considered in rate making
proceedings involving a certified investor. (emphasis
supplied)

Subsection 288.99(7), F.S. (2002), states:

ANNUAL TAX CREDIT; MAXIMUM AMOUNT; ALLOCATION PROCESS.-(a) The total amount of tax credits which may be allocated
by the office shall not exceed $150 million with respect to
Program One and $150 million with respect to Program Two.
The total amount of tax credits which may be used by
certified investors under this act shall not exceed $15
million annually with respect to credits earned under
Program One and $15 million annually with respect to
credits earned under Program Two.

(b) The office shall be responsible for allocating premium
tax credits as provided for in this act to certified
capital companies.

(c) Each certified capital company must apply to the office
for an allocation of premium tax credits for potential
certified investors on a form developed by the office with
the cooperation of the Department of Revenue. The form
shall be accompanied by an affidavit from each potential
certified investor confirming that the potential certified

investor has agreed to make an investment of certified
capital in a certified capital company up to a specified
amount, subject only to the receipt of a premium tax credit
allocation pursuant to this subsection. No certified
capital company shall submit premium tax allocation claims
on behalf of certified investors that in the aggregate
would exceed the total dollar amount appropriated by the
Legislature for the specific program. No allocation shall
be made to the potential investors of a certified capital
company under Program Two unless such certified capital
company has filed premium tax allocation claims of not less
than $15 million in the aggregate.

(d) The office shall inform each certified capital company
of its share of total premium tax credits available for
allocation to each of its potential investors.

(e) If a certified capital company does not receive
certified capital equaling the amount of premium tax
credits allocated to a potential certified investor for
which the investor filed a premium tax allocation claim
within 10 business days after the investor received a
notice of allocation, the certified capital company shall
notify the office by overnight common carrier delivery
service of the company's failure to receive the capital.
That portion of the premium tax credits allocated to the
certified capital company shall be forfeited. If the office
must make a pro rata allocation under paragraph (f), the
office shall reallocate such available credits among the
other certified capital companies on the same pro rata
basis as the initial allocation.

(f) If the total amount of capital committed by all
certified investors to certified capital companies in
premium tax allocation claims under Program Two exceeds the
aggregate cap on the amount of credits that may be awarded
under Program Two, the premium tax credits that may be
allowed to any one certified investor under Program Two
shall be allocated using the following ratio:

A/B = X/>$150,000,000

where the letter "A" represents the total amount of
certified capital certified investors have agreed to invest
in any one certified capital company under Program Two, the
letter "B" represents the aggregate amount of certified
capital that all certified investors have agreed to invest
in all certified capital companies under Program Two, the
letter "X" is the numerator and represents the total amount
of premium tax credits and certified capital that may be
allocated to a certified capital company on a date
determined by rule adopted by the department pursuant to
subsection (17), and $150 million is the denominator and
represents the total amount of premium tax credits and
certified capital that may be allocated to all certified
investors under Program Two. Any such premium tax credits
are not first available for utilization until annual
filings are made in 2001 for calendar year 2000 in the case
of Program One, and the tax credits may be used at a rate
not to exceed 10 percent annually per program.

(g) The maximum amount of certified capital for which
premium tax allocation claims may be filed on behalf of any
certified investor and its affiliates by one or more
certified capital companies may not exceed $15 million for
Program One and $22.5 million for Program Two.

(h) To the extent that less than $150 million in certified
capital is raised in connection with the procedure set
forth in paragraphs (c)-(g), the department may adopt rules
to allow a subsequent allocation of the remaining premium
tax credits authorized under this section.

(i) The office shall issue a certification letter for each
certified investor, showing the amount invested in the
certified capital company under each program. The
applicable certified capital company shall attest to the
validity of the certification letter.

Subsection 288.99(17), F.S. (2002), states:

Notwithstanding the limitations set forth in paragraph

(7)(a), in the first fiscal year in which the total
insurance premium tax collections as determined by the
Revenue Estimating Conference exceed collections for fiscal
year 2000-2001 by more than the total amount of tax credits
issued pursuant to this section which were used by
certified investors in that year, the office may allocate
to certified investors in accordance with paragraph (7)(a)
tax credits for Program Two. The department shall
establish, by rule, a date and procedures by which
certified capital companies must file applications for
allocations of such additional premium tax credits, which
date shall be no later than 180 days from the date of
determination by the Revenue Estimating Conference. With
respect to new certified capital invested and premium tax
credits earned pursuant to this subsection, the schedule
specified in subparagraphs (5)(a)1. - 4. is satisfied by
investments by December 31 of the 2nd, 3rd, 4th, and 5th
calendar year, respectively, after the date established by
the department for applications of additional premium tax
credits. The department shall adopt rules by which an
entity not already certified as a certified capital company
may apply for certification as a certified capital company
for participation in this additional allocation. The
insurance premium tax credit authorized by Program Two may
not be used by certified investors until the annual return
due March 1, 2004, and may be used on all subsequent
returns and estimated payments; however, notwithstanding
the provisions of s. 624.5092(2)(b), the installments of
taxes due and payable on April 15, 2004, and June 15, 2004,
shall be based on the net tax due in 2003 not taking into
account credits granted pursuant to this section for
Program Two. (emphasis supplied)

Section 624.5092, F.S., states:

(1) The Department of Revenue shall administer, audit, and
enforce the assessment and collection of those taxes to
which this section is applicable. The Department of
Insurance is authorized to share information with the
Department of Revenue as necessary to verify premium tax or
other tax liability arising under such taxes and credits

which may apply thereto.

(2)(a) Installments of the taxes to which this section is
applicable shall be due and payable on April 15, June 15,
and October 15 in each year, based upon the estimated gross
amount of receipts of insurance premiums or assessments
received during the immediately preceding calendar quarter.
A final payment of tax due for the year shall be made at
the time the taxpayer files her or his return for such
year. On or before March 1 in each year, an annual return
shall be filed showing, by quarters, the gross amount of
receipts taxable for the preceding year and the installment
payments made during that year.

(b) Any taxpayer who fails to report and timely pay any
installment of tax, who estimates any installment of tax to
be less than 90 percent of the amount finally shown to be
due in any quarter, or who fails to report and timely pay
any tax due with the final return is in violation of this
section and is subject to a penalty of 10 percent on any
underpayment of taxes or delinquent taxes due and payable
for that quarter or on any delinquent taxes due and payable
with the final return. Any taxpayer paying, for each
installment required in this section, 27 percent of the
amount of the net tax due as reported on her or his return
for the preceding year shall not be subject to the penalty
provided by this section for underpayment of estimated
taxes.

(c) When any taxpayer fails to pay any amount due under
this section, or any portion thereof, on or before the day
when such tax or installment of tax is required by law to
be paid, there shall be added to the amount due interest at
the rate of 12 percent per year from the date due until
paid.

(d) All penalties and interest imposed on those taxes to
which this section is applicable shall be payable to and
collectible by the Department of Revenue in the same manner
as if they were a part of the tax imposed.

(e) The Department of Revenue may settle or compromise any
such interest or penalties imposed on those taxes to which
this section is applicable pursuant to s. 213.21.

(3) This section is applicable to taxes imposed by ss.
624.4621, 624.475, 624.509-624.515, 627.357, 629.5011, and
636.066. (emphasis supplied)

DISCUSSION AND ANALYSIS OF LAW

Section 288.99, F.S., provides that a certified investor earns
CAPCO Program Two credits equal to 100 percent of its certified
capital invested under Program Two. The certified investor may
use 10 percent of the CAPCO credits generated under Program Two
as a credit against its insurance premium tax liability each
year. Any CAPCO Program Two credits not used by certified
investors may be carried forward and applied against the
certified investor's subsequent insurance premium tax filings
until fully used.

Section 624.5092, F.S., requires all insurers to pay 90% of the
amount finally shown to be due in any quarter for the three
installments required to be filed each year. Section 624.5092,
F.S., also provides an exception to the imposition of penalty on
an installment payment if the insurer timely pays 27% of the
preceding year's net tax due. Most insurers pay installments
using the 27% exception. In this request, "A" assumes that its
certified investors are paying 27% of the preceding year's net
tax due for each installment payment. The discussion and
answers below also assume that "A's" certified investors are
paying 27% of their preceding year's net tax due for each
installment payment.

Section 288.99(17), F.S., provides that the CAPCO Program Two
credits cannot be used by the certified investor until the
certified investor files its 2003 insurance premium tax return,
Form DR-908, due March 1, 2004. The CAPCO Program Two credits
may be used on all returns and installments subsequent to and
including the 2003 insurance premium tax return, except for the
installments of insurance premium taxes due and payable on April
15, 2004, and June 15, 2004. The April 15, 2004, and June 15,

2004, installments are based on the net tax due in 2003, not
taking into account the CAPCO Program Two credits.

Based on the statutes cited above, and assuming:

(a) the allocation of CAPCO Program Two credits is made by
December 31, 2003;

(b) the certified investment is made by the certified
investor on or before December 31, 2003;

(c) the certified investor is able to claim the maximum
amount of CAPCO Program Two credits allowed each year;

(d) the certified investor bases all installments on 27% of
the preceding year's net tax due; and

(e) there are no adjustments made to the timing for the
CAPCO Program Two credits, the following details the impact
of the CAPCO Program Two credits on the installments and
annual returns of certified investors.

1. The certified investor would receive a credit of 10% of
   its certified investment as a CAPCO Program Two credit
   against its 2003 - 2012 insurance premium tax. These
   insurance premium tax returns are due on March 1 following
   the close of each tax year.

2. The certified investor's April 15, 2004, and June 15,
   2004, installments are computed as if the certified
   investor did not receive a CAPCO Program Two credit against
   its 2003 insurance premium tax. Therefore, the CAPCO
   Program Two credit taken against the 2003 insurance premium
   tax is added back to the net tax due on the 2003 insurance
   premium tax return in order to compute the 27% exception
   for the April 15, 2004, and June 15, 2004, installments.

3. The certified investor's October 15, 2004, installment
   may consider the fact that the certified investor received
   a CAPCO Program Two credit against its 2003 insurance
   premium tax. Therefore, the October 15, 2004, installment

would be less than the April 15, 2004, and June 15, 2004,
installments by 2.7% of the certified investment (27% of
CAPCO Program Two credit taken on the 2003 insurance
premium tax return).

4. All installments for the 2005 - 2013 insurance premium
   tax may consider the fact that the certified investor
   received a CAPCO Program Two credit against its preceding
   year's insurance premium tax. Therefore, each of these
   installments would be less than it would have been without
   the application of the CAPCO Program Two credits by 2.7% of
   the certified investment (27% of CAPCO Program Two credit
   taken on each respective annual insurance premium tax
   return).

CONCLUSION

Florida law is quite clear regarding the impact of CAPCO Program
Two credits on the installment payments and annual insurance
premium tax returns. However, the ultimate timing for these
effects will depend on when the CAPCO Program Two Credits are
allocated to the certified investors and when those certified
investors made their investments.

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 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 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,

Robert DuCasse
Technical Assistance and Dispute Resolution

RCD/
Control No.: 53379