How could a Florida corporate group revise its Capital Investment Tax Credit project-income calculation after unrelated operations moved into the project company?

Plain-English summary

Florida approved a revised method for calculating income generated by a Capital Investment Tax Credit project after a corporate restructuring placed unrelated operations inside the same legal entity as the project.

The original agreement treated all of the project company's activity as project activity. After employees, support functions, manufacturing operations, assets, and liabilities from other entities moved into that company, the taxpayer proposed separate financial accounting records for the qualifying project.

For tax years beginning after December 28, 2020, the Department allowed the project company to compute pro forma federal taxable income, adjusted federal income, and Florida net income from the project's separate GAAP records. The transferred, unrelated operations were excluded. The project taxable income was then multiplied by the applicable rate, subject to the credit limitations stated in the TAA.

The taxpayer had to attach the project's pro forma returns and allowable credit calculation to its Florida corporate income-tax return. The method depended on the represented facts remaining correct.

What this means for you

Businesses with CITC projects

An internal restructuring may require a revised written project-income agreement when nonproject operations enter the project entity.

Corporate tax teams

Separate accounting and pro forma returns were central to isolating qualifying project income from transferred operations.

Common questions

Did Florida approve the revised method? Yes.

Were the transferred operations included in project income? No.

What had to be filed with the return? The project's pro forma returns and allowable Capital Investment Tax Credit calculation.

Citations and references

• Fla. Stat. Sec. 220.191
• Fla. Stat. Sec. 220.13
• Fla. Stat. Sec. 220.15
• Fla. Admin. Code R. 12C-1.0191

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 22C1-001

Original ruling text

Florida Department of Revenue
Technical Assistance and Dispute Resolution

5050 West Tennessee Street Tallahassee FL 32399

Jim Zingale
Executive Director

floridarevenue.com

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 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. However, Taxpayer was reminded that should the facts provided in its
request be determined to be substantially different, this TAA would not apply and the methodology may be
deemed inappropriate.

February 7, 2022
XXXXX
XXXXX
XXXXX
XXXXX
XXXXX

Re:

Technical Assistance Advisement – 22C1-001
Request for Revision to 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
XXXXX (“Corporation C”)
XXXXX (“Corporation D”)
XXXXX (“Corporation E”)
Project ID: XXXXX

Technical Assistance Advisement
Page 2

Dear XXXXX:
This letter is in response to your letter of XXXXX, requesting a Technical Assistance Advisement
to address restructuring changes within the affiliated group that effect the computation of
income arising out of the capital investment tax credit project. This response constitutes a
Technical Assistance Advisement (“TAA”) under Chapter 12-11, Florida Administrative Code,
and is issued to you under the authority of section 213.22, Florida Statutes.
ISSUE PRESENTED
How should Taxpayer compute its income arising out of the qualifying project as it exists within
Taxpayer’s reorganized structure?

FACTS SUPPLIED BY TAXPAYER
Taxpayer is located in Florida and is a member of a worldwide affiliated group that is one of the
leading manufacturers XXXXX in the world. The qualifying project consists primarily of an
XXXXX in XXXXX, Florida.
On XXXXX, the Office of Tourism, Trade, and Economic Development (OTTED) certified the
Taxpayer as eligible to receive tax credits under s. 220.191, F.S. The Department of Revenue,
having received said certification, and request for a TAA, issued a TAA on February 2, 2012, TAA
12C1-004.
On XXXXX, in response to Taxpayer’s request to amend the commencement of operations date
and job creation schedule, the Department of Economic Opportunity (“DEO”) issued an
amended and restated 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, not to exceed $10,000,000 against certain corporate
income tax and premium tax liabilities, beginning with the commencement of operations:

1. Five (5) percent of the cumulative capital investment which 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

Technical Assistance Advisement
Page 3

3. The tax due on the Florida corporate income tax return of Taxpayer prior to the
   application of this credit that includes the income generated by or arising out of the
   qualifying project.
   DEO has confirmed Taxpayer has created and maintained a total of XXXXX net new jobs and
   $XXXXX in eligible capital investment at the project location for its 2019 Annual Credit Year
   Verification.
   TAA 12C1-004 provided that all of the qualifying project’s business activities fall completely
   within the separate corporate entity, Corporation C, and only the income generated at the new
   facility would be included in the computation of project income. Corporation C would compute
   its separate company Florida taxable income in accordance with the Internal Revenue Code and
   Chapter 220, F.S., based on its federal pro forma income tax return. It would then apportion
   the project’s income using only Corporation C’s property, payroll, and sales.
   Prior to 2019, the Project was housed in Corporation C. In 2019 and 2020, Taxpayer began a
   restructuring of its affiliated group XXXXX. Activities unrelated to the qualifying project were
   moved into Corporation C.
   •
   •

•

•

During 2019, Taxpayer transferred its employees and support function activities to
Corporation C.
During 2020, Corporation D, a single member LLC of Taxpayer was dissolved, and its
manufacturing operations were transferred to Corporation C. Corporation D was not a
member of Taxpayer’s affiliated group at the time TAA 12C1-004 was issued. Taxpayer
maintains separate financial reporting for the transferred activity as a separate cost
center.
Corporation E, a single member LLC of Taxpayer was formed in 2019 and then dissolved
in 2020. Taxpayer transferred a small amount of assets and liabilities from Corporation
E to Corporation C prior to the liquidation of Corporation E. Taxpayer maintains
separate financial reporting for the transferred activity as a separate cost center.
Taxpayer and Corporation C continue to exist and operate as separate legal entities.

Given the consequences of the restructuring, Taxpayer is proposing a revision to the method
income generated by or arising from the qualifying project is determined as provided in TAA
12C1-004.
Taxpayer proposes that Corporation C will maintain separate financial accounting records for
the income, expenses, assets, liabilities, and equity of the qualifying project in accordance with
U.S. Generally Accepted Accounting Principles. It will separately compute both federal taxable
income and adjusted federal taxable income as defined in s. 220.13(1), F.S., for the qualifying
project on a pro forma basis, based on the separate financial accounting records for the Project.
Using the Project’s federal pro forma, it will compute Florida net income on a pro forma basis.

Technical Assistance Advisement
Page 4

The business operations and activities transferred to Corporation C due to restructuring will be
excluded from Corporation C’s computation of income arising from the Project for the purposes
of the CITC.
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 5

(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.

(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

Technical Assistance Advisement
Page 6

The Department agrees with Taxpayer’s proposed revised method to determine the income
generated by or arising out of the Project for tax years beginning after December 28, 2020. The
proposed method will exclude the business operations and activities transferred to Corporation
C from the computation of project income. Taxpayer must apply generally accepted accounting
principles and the provisions of s. 220.13, F.S., in computing the income of the qualifying
project. The Project’s taxable income would then be multiplied by the applicable tax rate. The
allowable CITC will be limited to the lesser of the limitations stated below.
The allowable CITC will be in an amount equal to the lesser of the following for up to twenty years,
not to exceed $10,000,000, beginning with the commencement of operations:

1. Five (5) percent of the cumulative capital investment, which 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
   investment; or
3. The tax due on the consolidated Florida corporate income tax returns of the affiliated group
   prior to application of this credit that includes the income generated by or arising out of the
   qualifying project.
   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. Capital investment of at least $25 million has been made at the project’s location in
   XXXXX, Florida; and
5. Creation of at least XXXXX net new-to-Florida full-time equivalent jobs paying at least the
   project wage at the project’s location in XXXXX, Florida.
   No annual CITC may be claimed without a letter from DEO stating that the appropriate annual
   requirements have been satisfied or maintained.
   Taxpayer will be required to provide with its Florida corporate income tax return the Project’s
   pro forma returns and allowable CITC.
   CONCLUSION
   Given the specific circumstances involved in this case, and based on the representation of the
   Taxpayer, the Department concurs with Taxpayer’s revised calculation for the income
   generated by or arising out of the qualifying project based upon s. 220.191, F.S., and Rule 12C1.0191, 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

Technical Assistance Advisement
Page 7

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
Susan R Coxwell
Revenue Program Administrator
Technical Assistance and Dispute Resolution