How would a consolidated Florida corporation calculate income and tax attributable to its qualified headquarters project for the Capital Investment Tax Credit?

Plain-English summary

A publicly traded consolidated group qualified a new Florida headquarters project for the Capital Investment Tax Credit. The certification contemplated at least $100 million of eligible investment and at least 100 net new jobs, with annual job certification. The taxpayer needed a written agreement describing how income generated by the project would be isolated for the credit limitation.

Florida approved a pro forma method. With each consolidated return, the taxpayer had to separately account for every direct and indirect revenue and expense of the legal entities carrying out the headquarters project, using GAAP and Florida taxable-income rules. Because those entities would conduct only project activities, their income could be attributed to the qualified project.

After calculating annual project taxable income, the taxpayer applied its consolidated Florida apportionment factor. That produced the project's Florida taxable income and the corporate tax attributable to the project, which limited the annual credit.

The TAA described the certified credit as up to 5% of eligible capital costs annually for no more than 20 years, subject to statutory limits, no carryforward or carryback, and continued employment requirements.

What this means for you

Maintain project-level books that capture indirect as well as direct amounts. For a consolidated filer, project income is not automatically all Florida income; the approved method applied the group's Florida apportionment factor after the pro forma calculation.

Common questions

What attachment was required? A pro forma schedule separately stating all project revenues and expenses.

How was Florida project income determined? By applying the consolidated Florida apportionment factor to annual project taxable income.

Could indirect expenses be omitted? No. Their allocation had to be inclusive and consistent with GAAP and Florida law.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, and 220.191, as applied in the advisement
• Fla. Admin. Code r. 12C-1.0191 (Capital Investment Tax Credit)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 08C1-004

Original ruling text

SUMMARY
QUESTION: Taxpayer requests a written agreement between itself 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: When filing its consolidated Florida corporate income tax return, 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 and
expenses, either direct or indirect. After determining the Project’s annual taxable income, as
previously described, Taxpayer will apply its Florida apportionment factor to the Project’s
annual taxable income, for the determination of the Project’s Florida taxable income, and
associated Capital Investment Tax Credit.

June 19, 2008

Re

Technical Assistance Advisement 08C1-004
Corporate Income Tax – Capital Investment Tax Credit
Sections 220.11, 220.13, 220.15, 220.191, Florida Statutes (F.S.)
Rule 12C-1.0191, Florida Administrative Code (F.A.C.)
XXX
(hereinafter referred to as “Taxpayer”)
Office of Tourism, Trade, and Economic Development
(hereinafter referred to as “OTTED”)
Enterprise Florida, Inc. (hereinafter referred to as “EFI”)

Dear:
Your letter of XXX, requests a written agreement between the Florida Department of Revenue,
hereinafter referred to as the Department, and the Taxpayer, concerning the method by which
income generated by or arising out of its qualified capital investment project shall be determined
for purposes of applying the Capital Investment Tax Credit (CITC). This response to your
request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida
Administrative Code, and is issued to you under authority of section 213.22, F.S.
FACTS SUPPLIED BY TAXPAYER
This application for the written agreement, referenced above, involves the Department and the
Taxpayer. The Taxpayer is a publicly traded company that operates XXX. Based partially upon
Florida incentives available, Taxpayer has decided to locate its new corporate Headquarters in
Florida. Taxpayer currently files its Florida and federal corporate income tax returns on a
consolidated basis and is a fiscal year filer. Taxpayer, the corporate parent, and numerous
affiliates, will comprise the legal entities that will carry out the Headquarters Project operations.

Technical Assistance Advisement 08C1-004
Page 2

In XXX, Taxpayer submitted an application to EFI under an agreement with OTTED requesting
participation and certification in Florida’s CITC Program, for its proposed investment in Florida.
This investment is referred to as the “Headquarters Project.”
On XXX, OTTED issued a certification letter approving the Taxpayer’s Project as qualified for
participation in Florida’s CITC program. This certification provides the project eligibility for an
annual tax credit against the corporate income tax imposed, of up to five (5) percent of the
eligible capital costs, for up to twenty (20) years, beginning with the commencement of
operations. Pursuant to Florida Statutes, the annual credit will be limited to one hundred (100)
percent of the annual corporate income tax liability generated by or arising out of the qualifying
Project.
As specified in the Certification Letter, the CITC is dependent upon confirmation of the new
capital investment in the project of at least $100,000,000. The capital investment subject to the
credit will include all “eligible capital costs,” as defined in section 220.191(1)(c), F.S., that are
incurred by the Taxpayer, or by any other vendor or contractor in connection with the
development, construction, and equipping of the facilities that will constitute the new
“Headquarters Project.” In addition, the annual tax credit is dependent upon the creation and
maintenance of not less than 100 net new jobs at the Headquarters Facility (Headquarters
Project).
Your letter states that the income generated by the “Headquarters Project” will consist largely of
XXX through the provision of intercompany services to affiliated entities. Such intercompany
services will include, but are not limited to, the following:
1) XXX
2) XXX
3) XXX
4) XXX
5) XXX
6) XXX
According to your letter, these intercompany services will be provided at arm’s length rates
which are supported and documented by transfer pricing studies. Furthermore, Taxpayer states
that it adheres to IRC s. 482 requirements, Florida Statutes, and Generally Accepted Accounting
Principles (GAAP) in determining the appropriate pricing for the intercompany services
provided.

Technical Assistance Advisement 08C1-004
Page 3

Taxpayer proposes that the income generated by or arising out of the qualifying project will be
determined by utilizing a “pro forma” format of reporting. When filing its consolidated Florida
corporate income tax return, Taxpayer will separately account for the “Headquarters Project”
taxable income using this separate company “pro forma” format. In order to implement this
format, it will be necessary for the Taxpayer to separately determine the Florida income of the
legal entities comprising the “Headquarter’s Project.” Because these entities will only conduct
activities related to the “Headquarter’s Project,” the Florida income for each legal entity should
be entirely attributed to the qualified project. In addition, after the income for each of the
Headquarters entities is determined, the consolidated Florida apportionment factor should be
applied to the pro forma income amount to determine Florida taxable income attributed to the
qualifying project. The Florida tax rate would then be applied to the Florida taxable income to
determine the corporate income tax liability generated by the qualifying project and the
associated CITC.
LEGAL AUTHORITY
Section 220.11(1), F.S., states:
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(1), 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(1), F.S., states in 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: . . . .

Technical Assistance Advisement 08C1-004
Page 4

Section 220.191, F.S., 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:

(c) Fifty percent for a qualifying project which results in a cumulative capital
investment of at least $25 million but less than $50 million.

(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.

(5) The office [OTTED], 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.

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

Technical Assistance Advisement 08C1-004
Page 5

ISSUE PRESENTED
Taxpayer has presented information to facilitate a written agreement between the Taxpayer and
the Department, for the determination of the Project’s taxable income. 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 Section
220.191, F.S., and Rule 12C-1.0191, F.A.C.
DISCUSSION AND ANALYSIS
In XXX, Taxpayer submitted an application to EFI under an agreement with OTTED, requesting
participation and certification in Florida’s CITC program, for its project in Florida. Such
certification, would qualify the investment project for an annual credit against its corporate
income tax liability. The project application was later deemed complete by EFI, with a
cumulative capital investment that is expected to be at least $100 million.
On XXX, OTTED issued a letter of certification, which approved the application, and certified
the project CITC qualified. This certification provides the project eligibility, for an annual tax
credit against the corporate income tax imposed, of up to five (5) percent of the eligible capital
costs for a period not to exceed twenty (20) years as provided in section 220.191(2), F.S.
Furthermore, the sum of all credits provided pursuant to section 220.191(2), F.S., shall not
exceed 100 percent of the eligible capital costs of this project. In no event may any credit
granted under section 220.191, F.S., be carried forward or backward by any qualifying business
with respect to a subsequent or prior year. This credit is also limited on an annual basis, in that it
shall not exceed 100 percent of the Project’s annual corporate income tax liability, as prescribed
by section 220.191(2)(a), F.S., and the credit may only be granted against the corporate income
tax liability generated by or arising out of this qualifying investment project. In addition to the
above referenced limitations, the credit will be dependent upon the Project achieving and
maintaining the minimum employment goals at commencement, and for each year thereafter (see
section 220.191(3), F.S.). The required minimum employment specifics, for this project, are not
less than creation of at least 100 net new jobs at the Headquarters Facility (Headquarters
Project). These 100 net new jobs will be certified by OTTED on an annual basis.
In its letter dated XXX, Taxpayer requested the issuance of a Technical Assistance Advisement
as a means of satisfying the requirement in section 220.191(4), F.S., for a written agreement
specifying how income generated by or arising out of the qualifying project will be determined.
Prior to its income determination proposal, Taxpayer stated that income generated from the
“Headquarters Project” will consist largely of XXX through the providing of intercompany
services to its affiliated entities, and specifically listed several anticipated services to be
provided. Taxpayer further states that the Project’s annual taxable income shall be determined
by GAAP, the applicable Florida statutes, and the application of a “pro forma” format to
separately account for all revenues and expenses of the legal entities (parent and affiliates)
comprising the “Headquarters Project.” Furthermore, Taxpayer states that the entities will
conduct only activities related to the “Headquarters Project,” and that the Florida income for
each legal entity should be entirely attributed to the qualified project. After arriving at the

Technical Assistance Advisement 08C1-004
Page 6

income for each of the Headquarters entities, Taxpayer indicates that the consolidated Florida
apportionment factor will be applied to the pro forma income amount to determine the Florida
taxable income attributed to the “Headquarters Project.” Taxpayer states that the final step in the
Florida taxable income determination, and the amount of the underlying credit, will be the
application of the Florida corporate income tax rate.
The Department will allow the Taxpayer’s use of a “pro forma” format, in conjunction with
GAAP and the applicable Florida Statutes, in the determination on the Florida taxable income
solely attributed to Taxpayer’s “Headquarters Project.” Taxpayer must use this format to
separately account for all revenues and expenses, either direct or indirect, of the legal entities
comprising the “Headquarter’s Project.” As these entities will conduct only activities related to
the “Headquarters Project,” all income from those entities should be entirely attributed to the
qualifying project. After determining the Project’s annual taxable income, as previously
described, Taxpayer will apply its Florida apportionment factor to the Project’s annual taxable
income, for the determination of the Project’s Florida taxable income, and associated Capital
Investment Tax Credit. Taxpayer must be certain that the allocation of indirect expenses will be
inclusive, and in agreement with generally accepted accounting principles and statutory
requirements.
This technique will aid in the isolation and determination of the annual income that should be
attributed solely to the Taxpayer’s Project.
CONCLUSION
Based on the information presented and the preceding discussion and analysis, it is the
Department’s position that the Taxpayer shall determine the income generated by or arising out
of the CITC 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 section 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 section 220.13, F.S.
2) With the filing of a consolidated Florida corporate income tax return, it shall be
necessary for the Taxpayer to separately account for, using a “pro forma” format,
the CITC project’s annual taxable income and subsequent tax credit.
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.

Technical Assistance Advisement 08C1-004
Page 7

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,

Charles J. Dunning
Technical Assistance and Dispute Resolution

Record ID 44099