How would a consolidated Florida taxpayer calculate income and tax generated by a project for the Capital Investment Tax Credit?

Plain-English summary

The Florida Department of Revenue approved a pro forma method for computing income generated by a certified qualifying project and the related Capital Investment Tax Credit.

The consolidated taxpayer had to isolate income, expenses, assets, liabilities, and apportionment-factor amounts directly or indirectly related to the project. It then had to apply GAAP and section 220.13, apportion project income to Florida under section 220.15, and multiply the Florida amount by the 5.5% corporate rate stated in the ruling.

The project pro forma return had to accompany the consolidated Florida corporate income tax return. The credit remained subject to the statutory limits, certification and employment requirements, and the specific project facts represented to the Department.

What this means for you

Capital Investment Tax Credit projects

Build project-specific accounting from the outset. Accounts used in the income calculation and apportionment factors must relate directly or indirectly to the qualifying project.

Consolidated corporate groups

The project computation is separate from the consolidated return but feeds into it. The approved method did not allow group-wide income or factors unrelated to the project.

Accountants and tax professionals

Retain the economic-development certification and annual compliance letters. The ruling says no annual credit may be claimed without certification that the applicable requirements were met or maintained.

Common questions

Q: Could the taxpayer use its consolidated group's overall apportionment factors?
A: No. The project factors could include only accounts directly or indirectly related to the qualifying project.

Q: What tax rate did the agreement use?
A: The 5.5% Florida corporate income tax rate stated in the 2017 ruling.

Q: Was the method permanent regardless of later facts?
A: No. The Department warned that incorrect or changed facts could substantially change the computation.

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 17C1-007

Original ruling text

Executive
Director
Leon M. Biegalski

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 PROJECT” SHALL BE
DETERMINED FOR PURPOSES OF THE FLORIDA CAPITAL INVESTMENT TAX CREDIT
UNDER S. 220.191, F.S.
ANSWER: WHEN FILING ITS CONSOLIDATED FLORIDA CORPORATE INCOME TAX RETURN,
IT SHALL BE NECESSARY FOR TAXPAYER TO USE A PRO-FORMA FORMAT TO DETERMINE
THE PROJECT’S ANNUAL TAXABLE INCOME. TAXPAYER WILL APPLY THE PROJECT’S
APPORTIONMENT FRACTION TO THE PROJECT’S ANNUAL TAXABLE INCOME, AND APPLY
THE FLORIDA CORPORATE INCOME RATE OF 5.5% FOR THE DETERMINATION OF THE
PROJECT’S FLORIDA TAXABLE INCOME, AND ASSOCIATED CAPITAL INVESTMENT TAX
CREDIT.
July 10, 2017

XXXXX
XXXXX
XXXXX
XXXXX
XXXXX
Re:

Technical Assistance Advisement – TAA 17C1-007
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”)
XXXXX (“XXXXX”)
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
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 - TAA 17C1-007
Page 2
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 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 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 included on the consolidated corporate income tax filing of XXXXX (FEIN: XXXXX).
Taxpayer is a XXXXX.
Taxpayer is developing a XXXXX project (“Qualifying Project”). The Qualifying Project will further
XXXXX. Taxpayer intends to create approximately XXXXX net new-to-Florida full-time positions and
make a capital investment of approximately $XXXXX million.
The Qualifying Project involves the purchase and renovation of XXXXX and the acquisition of related
machinery and equipment. The Qualifying Project will be completed in two phases.
XXXXXX (“XXXXX”)1, a single member LLC wholly owned by Taxpayer, in Phase One of the Qualifying
Project, constructed XXXXX. Additionally, during this phase Taxpayer exercised its right to purchase a
building XXXXX and made renovations. The Qualifying Project, currently in Phase Two, XXXXX is

1

XXXXX.

Technical Assistance Advisement - TAA 17C1-007
Page 3
constructing and financing XXXXX. Both XXXXX and Taxpayer will purchase the related machinery and
equipment.
Taxpayer intends to provide a pro-forma income statement that details the income related to activities arising
out of or generated by the Qualifying Project. Taxpayer states that it can properly code its income and
expense accounts, as well as its asset and liability accounts, both directly and indirectly related to the
Qualifying Project for purposes of creating the pro-forma income statement and the apportionment factors.
Taxpayer will apply the standard Florida apportionment factors described in s. 220.15, F.S., to the income
generated by or arising out of the Qualifying Project. For purposes of apportioning the Qualifying Project’s
income to Florida, the apportionment factors will only include amounts from accounts directly or indirectly
related to the Qualifying Project. Taxpayer will multiply the Qualifying Project’s Florida apportionment
factors by the Qualifying Project’s annual taxable income to determine the Qualifying Project’s Florida
taxable income. Taxpayer will then multiply the Qualifying Project’s Florida taxable income by the Florida
income tax rate (5.5%) to determine the Qualifying Project’s Florida tax liability and the associated CITC.
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.
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

Technical Assistance Advisement - TAA 17C1-007
Page 4
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: …
(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. …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.

Technical Assistance Advisement - TAA 17C1-007
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(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 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 million,
   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 consolidated 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.
   DEO has required that the Qualifying Project meet certain criteria by the commencement of operations. The
   “commencement of operations” (as defined in s. 220.191, F.S.) will not be deemed to occur unless Taxpayer
   has provided DEO with evidence that it has met the following criteria:
4. A cumulative capital investment (as defined in s. 220.191, F.S.) of at least $25 million at the
   Qualifying Project’s location in XXXXX has been made; and
5. At least 100 net new-to-Florida full-time equivalent jobs paying an average annualized wage of at
   least $XXXXX (excluding benefits) prior to XXXXX (the Initial Project Wage), or an average
   annualized wage of at least $XXXXX (excluding benefits) after XXXXX (the Final Project Wage)
   have been created in connection with the Qualifying Project.

Technical Assistance Advisement - TAA 17C1-007
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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 expects to make a capital investment of $XXXXX million in connection with the Phase One of
the Qualifying Project and an additional capital investment of $XXXXX million in connection with Phase
Two of the Qualifying Project. Depending on when Taxpayer notifies DEO of its commencement of
operations (and is certified by DEO), Taxpayer would be eligible to calculate its CITC based on 75% (Phase
One investment) or 100% (Phase One and Two investments, collectively) of the annual corporate income
tax liability generated by or arising out of the Qualifying Project. The CITC Taxpayer would be eligible to
claim would be the lesser of the three limitations listed above.
Taxpayer has proposed a pro-forma methodology to compute the income generated by or arising out of the
qualifying project and the corresponding CITC. The Department basically concurs with Taxpayer’s
methodology. Taxpayer will prepare a pro-forma return that separately details the income and expenses
related to the activities arising out of or generated solely by the Qualifying Project. To determine the
Qualifying Project’s annual Florida corporate taxable income, and the associated CITC, Taxpayer must
apply Generally Accepted Accounting Principles (GAAP) and the provisions of s. 220.13, F.S. The taxable
income generated by or arising from the Qualifying Project may only include amounts from accounts
directly or indirectly related to this Qualifying Project.
That pro-forma result will then be adjusted to determine the Florida portion of the federal taxable income,
using the apportionment provisions of s. 220.15, F.S., to apportion the Qualifying Project’s income to
Florida. For purposes of apportioning the Qualifying Project’s income to Florida, the apportionment factors
may only include amounts from accounts directly or indirectly related to this Qualifying Project. The
Florida portion of the federal taxable income will then be multiplied by the Florida tax rate of 5.5 percent
to arrive at the Florida tax generated by or arising out of the Qualifying Project. Taxpayer will be required
to provide with its consolidated Florida corporate income tax return the pro-forma return for the Qualifying
Project.
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
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 qualifying project.
To determine the amount of unused credit that can be carried forward, the 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 qualifying project, not the tax liability on the consolidated 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 consolidated Florida return, not the tax liability generated by or arising out of the qualifying 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

Technical Assistance Advisement - TAA 17C1-007
Page 7
Given the specific circumstances involved in this case, and based on the representation of 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 Qualifying 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 213321