How did a consolidated retailer calculate income from a Florida headquarters expansion for the Capital Investment Tax Credit?

Plain-English summary

The Florida Department of Revenue approved a payroll-ratio method for calculating income and tax generated by a consolidated retailer's certified corporate-headquarters Capital Investment Tax Credit project.

The taxpayer first had to prepare pro forma income for the separate headquarters subsidiary. It then multiplied that amount by a ratio of payroll for project new hires since certification to total headquarters-campus payroll, producing an approximation of project annual taxable income.

The taxpayer next applied its Florida apportionment factor and the 5.5 percent corporate-income-tax rate to determine project tax and the associated credit. The process remained subject to GAAP, Florida law, annual employment requirements, and Department audit.

What this means for you

Headquarters CITC projects

Maintain separate headquarters results and detailed certified-project new-hire payroll; both are inputs to the approved proxy.

Corporate tax teams

Follow the sequence exactly—pro forma income, payroll ratio, Florida apportionment, then tax rate—and preserve annual employment support.

Common questions

Q: What was the payroll ratio?
A: Project new-hire payroll divided by total headquarters-campus payroll.

Q: What tax rate did the ruling use?
A: 5.5 percent.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, 220.191, and 213.22
• Fla. Admin. Code r. 12C-1.0191

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-012

Original ruling text

Interim
Executive Director
Marshall Stranburg

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: When filing their consolidated Florida corporate income tax return, it shall be necessary for
the Taxpayer to separately account for, using a “pro forma” format, and application of an allocated
payroll ratio to determine the project’s annual taxable income. 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.

October 22, 2012

XXX
XXX
XXX

Re: Technical Assistance Advisement 12C1-012
Request for Written Agreement for Determination of Income
Sections 220.11, 220.13, 220.15, and 220.191, Florida Statutes.
Rule 12C-1.0191, F.A.C.
XXX (hereinafter referred to as “Taxpayer”)
XXX (hereinafter referred to “Company H”)
Florida Department of Economic Opportunity (hereinafter referred to as “DEO”)
Enterprise Florida, Inc. (hereinafter referred to as “EFI”)

Dear XXX:
This is in response to your request dated XXX, 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 agreement
concerning 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). 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.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 12C1-012
Page 2

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 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 s. 213.22, Florida
Statutes.
FACTS SUPPLIED BY TAXPAYER
This application for the written agreement referenced above involves the Department and the Taxpayer.
The Taxpayer is a XXX retailer XXX, XXX, XXX, and XXX. Taxpayer operates over XXX stores in
the continental United States, XXX, and XXX. These stores operate under the Taxpayer, and other
XXX. Taxpayer employs approximately XXX people, with XXX of them located in Florida.
Taxpayer is a “C” corporation that files its federal and Florida corporate income tax returns on a
consolidated basis, XXX. Taxpayer operates its corporate headquarters, Company H, as a wholly owned
subsidiary. Company H files both federal and Florida corporate income tax returns as part of
Taxpayer’s consolidated group, and it is a separate legal entity in the affiliated group. Company H’s
taxable income and loss are shown separately on Statement 1 of the Florida and federal consolidated
corporate income tax returns.
As the headquarters, Company H provides services to the affiliated group from the corporate campus in
Florida. These services include, but are not limited to:
•
•
•
•
•
•

XXX
Procurement
Design
Information Technology
Human Resources
Finance Functions

Taxpayer states that in determining the appropriate pricing for the above listed intercompany services, it
adheres to the Internal Revenue Code, Florida Statutes, and Generally Accepted Accounting Principles
(“GAAP”).
In XXX, Taxpayer decided to expand its corporate headquarters campus (“Project”). On XXX,
Taxpayer submitted an application to EFI requesting participation and certification in Florida’s CITC,
based upon its proposed capital investment and job creation in Florida. On XXX, DEO issued a
certification letter approving the Taxpayer’s Project as qualified for participation in Florida’s CITC
program, as well as designating it as a High Impact Performance Incentive Sector pursuant to s. 288.108,
F.S. 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 years,

Technical Assistance Advisement 12C1-012
Page 3

beginning with the commencement of operations. Pursuant to Florida Statutes, the annual credit will be
limited to fifty (50) 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 $XXX. The capital investment subject to the credit will include all
“eligible capital costs” as defined in Section 220.19(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 “Project.” In addition, the annual tax credit is dependent upon the
creation and maintenance of not less than XXX net new jobs at the Headquarters Facility (Project). In
order to demonstrate that it has satisfied the jobs requirements, the Taxpayer must submit an annual
report to DEO with supporting documentation. This documentation must be submitted for every year
after which the commencement of operations is deemed to have occurred. Taxpayer’s commencement
of operations date with respect to new jobs will correlate to the Qualified Targeted Industry contract
associated with the Project, which indicates a commencement of operations date no later than XXX.
Since Taxpayer files a consolidated Florida corporate income tax return, an alternate methodology must
be implemented in order to properly reflect the qualifying project’s Florida corporate income tax
liability. As the Project is an expansion of the headquarters functions performed by Company H,
Company H’s income tax liability best reflects the tax liability of the Project against which the CITC
would apply. In order to properly reflect the Florida corporate income liability of Company H and the
Project, a pro forma return will be required.
Taxpayer proposes generating a separate pro forma Florida corporate income tax return for Company H
to determine the income generated by or arising out of the Project, due to the fact, that Company H’s
income and activities most accurately reflect the headquarters expansion (Project). As previously
mentioned, the corporate headquarters taxable income or loss is generated within Company H, which is
reported as a separate entity as part of the Federal and Florida consolidated corporate income tax returns.
However, Company H’s activities are not limited to just the Project, and a pro forma income tax return
on Company H would overstate the Project’s income. Consequently, a reasonable method must be
applied to allocate the income relative to the Project. In order to reasonably reflect the taxable income
of the Project, the Taxpayer proposes to apportion Company H’s income based on the Project’s net new
hire payroll after it is certified as a qualified target industry (QTI) for purposes of this investment.
Taxpayer suggests that it will multiply the pro forma income of Company H by the Project’s net new
hire payroll divided by the total headquarters campus payroll. The Taxpayer asserts this calculation
provides a reasonable means for the determination of the Project’s annual taxable income.
Project Income = Company H pro forma income X ( Project new hire payroll since QTI)
(Total headquarters campus payroll)
The Project income will then be used to calculate the Florida corporate income tax liability of the
Project by application of the consolidated Florida apportionment factor, pursuant to s. 220.15, F.S., and
the Florida corporate income tax rate of 5.5%.

Technical Assistance Advisement 12C1-012
Page 4

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.

Technical Assistance Advisement 12C1-012
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(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:

3. Fifty percent for a qualifying project which results in a cumulative 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) Applications shall be reviewed and certified pursuant to s. 288.061. The Department of Economic
Opportunity, 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 proforma
annual taxable income is determined.
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

Technical Assistance Advisement 12C1-012
Page 6

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/DEO, requesting participation and certification in
Florida’s CITC program, for its project in Florida. On XXX, the Office of the Governor (Division of
Strategic Business Development) issued a letter of certification, which approved the application, and
certified the Taxpayer’s Project as 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 s. 220.191(2), F.S. Furthermore,
the sum of all credits provided pursuant to s. 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 s. 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 50 percent of the Project’s annual
Florida corporate income tax liability, as prescribed by s. 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 of operations (no
later than XXX), and for each year thereafter (see s. 220.191(4), F.S.). The required minimum
employment specifics for this project are not less than the creation of at least XXX net new jobs at the
headquarters facility (Project). To maintain employment compliance, Taxpayer must submit an annual
report to DEO with supporting documentation for every year in which a tax credit is claimed under s.
220.191, F.S.
In its letter dated XXX, 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. Prior to its income
determination proposal, Taxpayer states that its Project is an expansion of its headquarters functions,
which are performed by Company H. Company H is responsible for Taxpayer’s corporate headquarters
functions, and it is a wholly owned subsidiary that reports its taxable activities within Taxpayer’s
consolidated federal and Florida corporate income tax returns. As Taxpayer files a consolidated Florida
corporate income tax return, it will be necessary to use a pro forma format to first determine Company
H’s income, and an additional methodology to separate the Project income from Company H’s nonproject income.
In the determination of its Project income and associated tax credit, Taxpayer will use Company H’s pro
forma income as the starting point for arriving at the Project’s Florida taxable income. After arriving at
Company H’s pro forma income, Taxpayer will multiply that amount by a payroll ratio, arrived at by
dividing its Project’s new hire payroll since QTI certification by the total headquarters campus payroll.
The result of the payroll ratio, applied against the Company H pro forma income, will provide the best
approximation of the Project’s annual taxable income. After determining the Project’s annual taxable
income as previously described, Taxpayer will apply its Florida apportionment factor to that amount, for
the determination of the Project’s Florida annual taxable income. Taxpayer will then apply the Florida

Technical Assistance Advisement 12C1-012
Page 7

corporate income tax rate (5.5%) against the Project’s Florida annual taxable income to determine its
Florida corporate income tax liability, and the associated Capital Investment Tax Credit. Throughout
the previously described income determination process, Taxpayer must adhere to GAAP, all applicable
Florida Statutes, and be subject to audit by the Department of Revenue.
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’s 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, and the application of the
   prescribed payroll ratio, and determine the CITC project’s annual taxable income and
   corresponding 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, MBA
Technical Assistance and Dispute Resolution
Record Number 130101