What income method did Florida approve for a CITC project spanning a new facility and a renovated facility?

Plain-English summary

The Florida Department of Revenue approved a method for determining income from a certified Capital Investment Tax Credit project involving a newly constructed facility and renovation of an existing facility.

Project income would include all activity arising from the new facility plus incremental growth from services that remained at the renovated facility. The taxpayer would value those retained services through a reasonable allocation based on transfer-pricing methods.

With the parent's consolidated Florida return, the taxpayer had to provide a project pro forma return and income statement prepared under generally accepted accounting principles and section 220.13. The credit remained subject to annual investment, project-tax-liability, consolidated-return-tax, employment, and certification limitations.

What this means for you

Multi-facility expansion projects

Identify which activity moves to the new facility and which incremental activity remains at the renovated site. Support shared-service allocations with a reasonable, documented methodology.

Corporate tax teams

Prepare the project pro forma alongside the consolidated return and retain annual economic-development certification.

Common questions

Q: What counted as project income?
A: All new-facility activity and reasonably allocated incremental growth from qualifying services at the renovated facility.

Q: Was the methodology permanent if facts changed?
A: No. The ruling warned that incorrect or changed facts could require a different computation.

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14C1-003

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.
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.
March 28, 2014
Re:

Technical Assistance Advisement 14C1-003
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 (“Taxpayer”)
FEIN: XXX
Project ID: XXX
Florida Department of Economic Opportunity (“DEO”)
Enterprise Florida, Inc. (“EFI”)
XXX (“Parent”)

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
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 14C1-003
Page 2

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.
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, DEO certified the Taxpayer as 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 Department of Economic Opportunity. 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 a wholly owned subsidiary of Parent. Taxpayer is incorporated in the state of Florida.
Taxpayer is included in the Florida and federal consolidated returns of the Parent. Taxpayer
provides XXX and XXX administration services to Parent’s network of over XXX nationwide.
Substantially all of Taxpayer’s revenue is generated from XXX within the Parent’s corporate
subsidiaries.
Taxpayer’s Project consists of a newly constructed XXX square foot state-of-the-art XXX and XXX
facility near the existing XXX facility in XXX. The Project will also include renovation of the
existing XXX facility located in XXX. The Project will retain XXX jobs in Florida and create an
additional XXX net new-to-Florida jobs, with an average annual wage of XXX. Taxpayer expects
its capital investment by its commencement of operations date to be XXX, but it may be as high as
XXX.
Parent’s expected growth of XXX centers across the country has directly contributed to the need to
expand the XXX facility in XXX. In Florida, specifically, Parent is considering opening more than
XXX new XXX centers across the state by the end of XXX.
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.

Technical Assistance Advisement 14C1-003
Page 3

LEGAL AUTHORITY
Section 220.11, F.S., states in part:
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, F.S., states in part:
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:

(a) “Commencement of operations” means the beginning of active operations by a
qualifying business of the principal function for which a qualifying project was constructed.

(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.

Technical Assistance Advisement 14C1-003
Page 4

(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:

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.
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 as high as
XXX, but must be at least XXX,
2. Fifty percent (50%) of the annual corporate income tax liability generated by or arising out of
the Qualifying Project; or
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.

Technical Assistance Advisement 14C1-003
Page 5

Unused credits cannot be carried forward unless the qualifying Project meets the requirements for
credit carryovers provided in s. 220.191(2)(d), F.S. In addition, DEO has required that the
qualifying project to create and maintain at least XXX net new-to-Florida full-time equivalent jobs
paying an average annualized wage of at least XXX at the Project location by the commencement of
operations.
The “commencement of operations” (as defined in s. 220.191, F.S.) will not be deemed to occur
unless the Taxpayer has provided DEO with evidence that it has met the investment and job creation
requirements as described in DEO’s Letter of Certification. No annual CITC may be claimed
without certification from DEO stating that the appropriate annual requirements have been met
and/or maintained.
In its letter dated XXX, the Taxpayer proposes a methodology to compute the income generated by
or arising out of the qualifying project and the corresponding CITC. Taxpayer states the income of
the Project will consist of all activity that arises out of the new facility in XXX and the incremental
growth of activity generated by the services that remain at the renovated facility. The value for those
services will be determined using a reasonable allocation that is based on transfer pricing
methodologies.
The Department basically concurs with Taxpayer’s methodology. The Taxpayer will provide with
the Parent’s consolidated Florida corporate income tax return a pro forma return and income
statement for the Project. Taxpayer must apply generally accepted accounting principles and the
provisions of s. 220.13, F.S.
CONCLUSION
Based on the representations of the Taxpayer, the Department concurs with the Taxpayer’s
methodology for determining 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

Technical Assistance Advisement 14C1-003
Page 6

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
(850) 717-6478
Record ID 163622