What base-year method did Florida approve for measuring income from a two-location headquarters CITC project?

Plain-English summary

The Florida Department of Revenue approved a base-year method for calculating income from a certified Capital Investment Tax Credit project establishing two Florida headquarters locations.

Project income was the increase in the consolidated group's Florida income over its representative base-year Florida income. The group had to add back one-time acquisition transaction expenses in the base year and add back comparable acquisition costs in each later comparison year so those items did not distort the growth measure.

With the consolidated return, the taxpayer had to provide the acquisition-cost schedule and a project pro forma showing taxable income, project tax, credit allowed under project tax liability, and the relationship between project and consolidated income. The credit was limited to the least of the statutory investment amount, 50 percent of project tax liability at the represented investment level, or tax due on the consolidated return.

What this means for you

Headquarters and growth projects

Choose a genuinely representative base year and identify nonrecurring acquisition costs consistently across the base and credit years.

Corporate tax teams

Reconcile the project pro forma to the consolidated return and retain annual job and project certification.

Common questions

Q: How was project income measured?
A: As consolidated Florida income above the adjusted base-year amount.

Q: Why were acquisition costs added back?
A: To keep one-time transaction expenses from distorting the comparison.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, 220.191, 288.108, and 213.22
• Fla. Admin. Code r. 12C-1.0191(1)(a)2.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14C1-002

Original ruling text

Executive Director
Marshall Stranburg

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 THE FLORIDA CAPITAL
INVESTMENT TAX CREDIT UNDER S. 220.191, F.S.
ANSWER: THE DEPARTMENT IS INCLINED TO CONCUR WITH TAXPAYER'S
SUGGESTED CALCULATION FOR THE INCOME GENERATED BY OR ARISING OUT OF
THE QUALIFYING PROJECT. WHEN FILING ITS CONSOLIDATED FLORIDA CORPORATE
INCOME TAX RETURN, IT SHALL BE NECESSARY FOR THE TAXPAYER TO USE A PROFORMA FORMAT TO DETERMINE THE PROJECT’S ANNUAL TAXABLE INCOME, THE
AMOUNT OF INCOME TAX DUE ON THE PROJECT’S INCOME, AND CREDIT ALLOWED
BASED ON THE PROJECT’S TAX LIABILITY.
March 21, 2014
Re:

Technical Assistance Advisement 14C1-002
Request for Written Agreement for Determination of Income
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”)
FEIN: XXX
Florida Department of Economic Opportunity (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 how 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).
Section 220.191(5), F.S., addresses applications for CITC. That statute provides:
Applications shall be reviewed and certified pursuant to s. 288.061. The Department of Economic
Opportunity, upon 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
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement 14C1-002
Page 2
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.
Pursuant to Rule 12C-1.0191, F.A.C., the Department of Revenue has adopted TAAs as the method
for entering into such written agreements.
On XXX, the Department of Economic Opportunity (DEO) certified that Taxpayer was eligible to
receive tax credits under s. 220.191, F.S. The Department of Revenue, having received said
certification, has examined your letter and has established that you have complied with the statutory
and regulatory requirements for issuance of a TAA. Therefore, the Department of Revenue is hereby
granting your request for a TAA. The Department of Revenue, in issuing this TAA, has relied on the
representations of Taxpayer and the certification of the DEO. This TAA specifies the method by
which income generated by or arising out of the qualifying project will be determined based on the
facts as represented to the Department of Revenue. This response to your request constitutes a
Technical Assistance Advisement under Chapter 12-11, F.A.C., and is issued to you under authority of
s. 213.22, F.S.
FACTS SUPPLIED BY TAXPAYER
Taxpayer is the parent of an affiliated group of companies that files Florida and federal corporate
income tax returns on a consolidated basis. Taxpayer, and its operating subsidiaries, will comprise the
legal entities that will carry out the Qualifying Project operations.
Taxpayer is a major online retailer of XXX merchandise. The company operates its own branded sites
and also powers e-commerce websites of XXX such as the XXX, XXX, XXX, and XXX.
Taxpayer is planning a XXX headquarters operation that will provide comprehensive management,
oversight and strategic direction for Taxpayer. The Taxpayer anticipates this will facilitate revenue
and market share expansion by enabling the company to significantly increase its technology capacity
and attract leading industry executives who will drive the Taxpayer’s business to the next level.
Taxpayer intends to purchase or construct its XXX headquarters in XXX, as well as add a XXX
headquarters location in XXX. Both headquarter locations will create a combined XXX net new jobs
in Florida over a XXX -year period.
ISSUES PRESENTED
In its letter dated XXX, Taxpayer requests a written agreement to determine how the Qualifying
Project’s income will be computed based upon s. 220.191, F.S., and Rule 12C-1.0191, F.A.C.
LEGAL AUTHORITY
Section 220.11, F.S., states in 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

Technical Assistance Advisement 14C1-002
Page 3
(2) 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, 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, F.S., states in part:
(1) Except as provided in ss. 220.151, 220.152, and 220.153, 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. …
Section 220.191, F.S., states in 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.

(f)“Qualifying business” means a business which establishes a qualifying project in this
state and which is certified by the Department of Economic Opportunity to receive
tax credits pursuant to this section.

(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:

Technical Assistance Advisement 14C1-002
Page 4

1. One hundred percent for a qualifying project which results in a cumulative capital
   investment of at least $100 million.
2. Seventy-five percent for a qualifying project which results in a cumulative capital
   investment of at least $50 million but less than $100 million.
3. 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.

(8) The Department of Revenue may specify by rule the methods by which a project’s
pro forma annual taxable income is determined.
Rule 12C-1.0191(1)(a)2., F.A.C., states:
2. Where the activities of the qualifying project are included within preexisting multiple
corporate structures, such as several affiliates or divisions, or the activities of the
project are included within a corporation or corporations that are included in a
consolidated income tax return filed pursuant to Section 220.131, F.S., the applicant
will be required to separately account for, using a “pro forma” format, the
qualifying project’s taxable income, the amount of income tax due, and subsequent
credit. This pro-forma attachment will indicate separately all revenues, expenses,
either direct or indirect, and any other adjustments made in the determination of the
project’s annual taxable income, and the subsequent annual amount of the Capital
Investment Tax Credit that may be claimed on the Florida corporate income tax
return. This computation requires the qualifying project’s annual taxable income to
be determined by generally accepted accounting principles (GAAP) and to conform
to the provisions contained in Florida Corporate Income Tax Law under Chapter
220, F.S.
DISCUSSION
On XXX, DEO issued a letter approving Taxpayer’s project for participation in Florida’s CITC
program and indicated in its letter that the “Qualifying Project” will be located in a High Impact
Performance Incentive Sector pursuant to s. 288.108, F.S. The certification approval entitles the
project to eligibility for an annual tax credit against the corporate income tax imposed if certain
criteria are met, in an amount equal to the lesser of the following for up to twenty years, beginning
with the commencement of operations:
1. Five (5) percent of the cumulative capital investment, which is estimated to be XXX, but must be at
least $25 million,
2. Fifty percent (50%) of the annual corporate income tax liability generated by or arising out of the
Qualifying Project; or

Technical Assistance Advisement 14C1-002
Page 5

3. The tax due on the Florida consolidated corporate income tax return prior to application of this credit
   that includes the income generated by or arising out of the qualifying project.
   The qualifying project must create and maintain at least 100 net new-to-Florida full-time equivalent
   jobs at the facilities constructed in connection with the Project, beginning with the commencement of
   operations. As stated in DEO’s certification letter to the Taxpayer, no annual CITC may be claimed
   without a letter of certification from DEO stating that the appropriate annual requirements have been
   met and/or maintained.
   Unused credits cannot be carried forward unless the Qualifying Project meets the requirements for
   credit carryovers provided in s. 220.19(2)(d), F.S.
   The Taxpayer proposes a methodology to compute the income generated by or arising out of the
   qualifying project and the corresponding CITC. The Department agrees with the use of the
   Taxpayer’s methodology subject to the requirements of Chapter 220, F.S.
   The consolidated group’s Florida income generated by or arising out of the qualifying project is
   defined as the increase in Taxpayer’s Florida consolidated group’s income over the Taxpayer’s Florida
   consolidated group’s income in the base year. The computation of the Florida consolidated group’s
   income in each year eliminates, or adds back, any acquisition transaction related costs. The base year
   is the calendar tax year ended XXX. 1 The Taxpayer must add back one-time acquisition transaction
   related expenses to arrive at the base year income. The Taxpayer will also add back acquisition
   transaction related costs incurred in subsequent years to arrive at the consolidated group’s income in a
   subsequent year. The difference in income between the subsequent tax year and the base year is the
   income generated by or arising out of the qualifying project.
   Section 220.191(2)(a), F.S., states in part “…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 ....” Accordingly, the Taxpayer is required
   to compute the credit based on the corporate income tax liability generated by or arising out of a
   qualifying project. The Taxpayer estimates the cumulative capital investment of the qualifying project
   will be at least $25 million; therefore, the credit granted could be 50% of the annual corporate income
   tax liability generated by or arising out of the qualifying project but is limited to the lesser of the
   limitations stated above.
   To determine the Qualifying Project’s annual Florida corporate taxable income and the associated
   CITC, Taxpayer must apply generally accepted accounting principles and the provisions of s. 220.13,
   F.S. The Taxpayer is required to provide, with its consolidated Florida corporate income tax return, a
   schedule of the acquisition transaction expenses that are added back to determine the income
   generated or arising out of the Qualifying Project. The Taxpayer is also required to provide a pro
   forma attachment for the Qualifying Project’s taxable income, the amount of income tax due on the
   Qualifying Project’s income, credit allowed based on Qualifying Project’s tax liability, and calculation
   of the percentage of the Qualifying Project’s income to the consolidated income reported on the
   Taxpayer’s corporate income tax return.
   1

This assumes the XXX tax year is representative of the Florida income tax liability prior to the creation of the
qualifying project.

Technical Assistance Advisement 14C1-002
Page 6
CONCLUSION
Given the specific circumstances involved in this case, and based on the representation of the
Taxpayer, the computation above properly computes the income generated by or arising out of the
qualifying project based upon s. 220.191, F.S., and Rule 12C-1.0191, F.A.C. However, Taxpayer is
reminded that should the facts provided in its request of XXX, be determined to be incorrect or
changed, the computation for the income generated by or arising out of the project could be
substantially different from what has been agreed upon in this TAA.
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.
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,

Susan R. Coxwell
Tax Law Specialist
Technical Assistance and Dispute Resolution

Record ID 154829