How would this taxpayer calculate income arising from its qualified project for Florida's Capital Investment Tax Credit?

Plain-English summary

The Florida Department of Revenue agreed that 100% of this taxpayer's apportioned income generated in each year during the credit's life would be treated as income generated by or arising out of its qualifying Capital Investment Tax Credit project.

The agreement depended on the taxpayer's representations and the Department of Economic Opportunity's certification. The capital investment had to be made by the taxpayer rather than a third-party investor, and the taxpayer had to use generally accepted accounting principles and section 220.13.

Pre-commencement net operating losses were excluded when computing the qualifying project's income. Both pre- and post-commencement losses still applied when computing the income on the Florida return before the credit, and the taxpayer had to provide an NOL schedule.

What this means for you

Businesses pursuing the Capital Investment Tax Credit

The project-income method is established through a written agreement with the Department after economic-development certification. This ruling did not create a generally available 100% method for every project.

Corporate tax teams

Track project certification, commencement of operations, qualifying capital investment, employment requirements, apportioned income, and NOLs separately. The ruling says no annual credit may be claimed without the required certification that annual conditions were met or maintained.

Accountants and tax professionals

The annual credit is constrained by the statutory calculations discussed in the ruling. For investments of at least $100 million, the ruling also explains a limited years-21-through-30 unused-credit rule tied to why the credit was limited.

Common questions

Q: Did all Florida apportioned income count as project income under this agreement?
A: Yes, during the life of the credit and under the stated facts and conditions.

Q: Could a third-party investor make the qualifying capital investment?
A: No. The ruling says the taxpayer had to make the investment.

Q: Were pre-commencement NOLs used to reduce qualifying-project income?
A: No, but the ruling required both pre- and post-commencement NOLs in the Florida-return computation before applying the credit.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17C1-005

Original ruling text

Executive
Director
Leon M. Biegalski

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: 100% OF TAXPAYER’S APPORTIONED INCOME GENERATED IN EACH YEAR
DURING THE LIFE OF THE CREDIT WILL BE CONSIDERED INCOME GENERATED BY OR
ARISING OUT OF THE QUALIFYING PROJECT.
April 28, 2017
XXXXX
XXXXX
XXXXX
XXXXX

Re:

Technical Assistance Advisement 17C1-005
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.”)
XXXXX (“Taxpayer”)
FEIN: XXXXX
Project ID: XXXXX
Florida Department of Economic Opportunity (“DEO”)
Enterprise Florida, Inc. (“EFI”)

Dear XXXXX:
This is in response to your request dated XXXXX, 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”).
Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
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 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 XXXXX, DEO certified that Taxpayer is 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 develops XXXXX. Taxpayer is headquartered in XXXXX, Florida, and maintains operations
throughout the U.S. and internationally. Since XXXXX. Taxpayer files a separate Florida corporate income
tax return and a consolidated federal income tax return.
Taxpayer is developing a XXXXX (“Qualifying Project”) in XXXXX, Florida. The expected capital
investment is approximately $XXXXX. Taxpayer expects to create XXXXX net new-to-Florida jobs. The
Qualifying Project and new jobs are needed to XXXXX.
Taxpayer is presently XXXXX. Taxpayer, to date, XXXXX. Taxpayer expects to XXXXX after the
commencement of operations of the Qualifying Project as it XXXXX. Taxpayer expects XXXXX.
Taxpayer is requesting that 100% of its Florida apportioned income generated in each year during the life
of the credit be considered project income.
ISSUES PRESENTED
In its letter dated XXXXX, 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
Page 3
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 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:
(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.
(b) “Cumulative capital investment” means the total capital investment in land, buildings,
and equipment made in connection with a qualifying project during the period from the
beginning of construction of the project to the commencement of operations.
(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:…

Technical Assistance Advisement
Page 4
(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:

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.

(d) If the credit granted under subparagraph (a)1. is not fully used in any one year because
of insufficient tax liability on the part of the qualifying business, the unused amounts may
be used in any one year or years beginning with the 21st year after the commencement of
operations of the project and ending the 30th year after the commencement of operations
of the project.

(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.

Technical Assistance Advisement
Page 5
DISCUSSION
On XXXXX, 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 $XXXXX,
   but must be at least $25 million,
2. Fifty (50%), seventy-five (75%), or one hundred percent (100%) of the annual corporate
   income tax liability generated by or arising out of the Qualifying Project, depending on the
   level of cumulative capital investment; or
3. The tax due on the Florida corporate income tax return prior to application of this credit
   that includes the income generated by or arising out of the qualifying project.
   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 the qualifying project to create
   and maintain not less than 100 net new-to-Florida full-time equivalent jobs paying an average annualized
   wage of at least $XXXXX at the Project location beginning with 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 capital investment, job creation, and retention
   requirements as described in DEO’s Letter of Certification. 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.
   Taxpayer proposes that 100% of its Florida apportioned income generated in each year during the life of
   the credit be considered income generated by or arising out of the qualifying project. The Department
   basically concurs with Taxpayer’s methodology. The capital investment must be made by Taxpayer, and
   not by a third-party investor. Additionally, Taxpayer’s pre-commencement of operations, as determined by
   DEO, NOLs will not be applied when computing income generated by or arising out of the Qualifying
   Project. However, both pre-commencement and post-commencement of operations NOLs will be applied
   when computing income on the Florida corporate income tax return prior to application of this credit that
   includes the income generated by or arising out of the Qualifying Project. Taxpayer must apply generally
   accepted accounting principles and the provisions of s. 220.13, F.S.
   If Taxpayer has pre-commencement and/or post-commencement of operations NOLs, Taxpayer will be
   required to provide a schedule of its’ NOLs and the application of those NOLs against the Qualifying
   Project’s income and Florida return income.
   Pursuant to s. 220.191(2)(d), F.S., when the capital investment is at least $100 million, credit amounts not
   fully used in any one year because of insufficient tax liability on the part of the qualifying business may be

Technical Assistance Advisement
Page 6
used in any one year or years beginning with the 21st year after the commencement of operations of the
project and ending with the 30th year after the commencement of operations of the project.
To determine the amount of unused credit that can be carried forward, a taxpayer must first determine the
tax liability generated by or arising out of the qualifying project. If the credit is limited to the tax liability
generated by or arising out of the Project, not the tax liability on the Florida return, or by the 5% annual
credit cap, then there will not be a carryforward. If the credit is limited by the tax liability on the Florida
return, not the tax liability generated by or arising out of the Project and not by the 5% annual credit cap,
then there will be a carryforward that can be claimed beginning with the 21st year after the commencement
of operations.
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 XXXXX, 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
(850) 717-6478
Record ID 213112
CC: XXXXX