How could a qualifying Florida project measure income and tax liability for the Capital Investment Tax Credit?

Plain-English summary

A business certified for Florida's Capital Investment Tax Credit (CITC) needed the written agreement required by Fla. Stat. Sec. 220.191(5) on how to determine income generated by its qualifying project.

The Department approved an incremental-tax-liability method:

1. Calculate the consolidated group's five-year average historic Florida tax liability.
2. Compare that baseline with the current year's consolidated tax liability including the qualifying project.
3. Treat the increase as the tax liability related to the project.
4. Multiply that amount by the percentage tied to the taxpayer's qualifying investment level to determine the associated credit.

If one subsidiary remained a separate entity when project operations began, it had to be removed from the five-year consolidated average. The taxpayer also had to apply generally accepted accounting principles and Sec. 220.13, and attach a schedule to its Florida corporate return showing the incremental change, project tax liability, and allowable credit.

The agreement depended on the represented facts. If those facts were incorrect or changed, the methodology could become inappropriate.

What this means for you

Businesses with certified capital projects

The credit calculation required a documented historic baseline and a consistent current-year comparison, not merely the project's standalone accounting income.

Tax departments and advisers

Reconcile changes in group membership before fixing the baseline. The TAA specifically required excluding a subsidiary that remained separate at commencement of operations.

Common questions

What represented the project's tax liability? The increase from the five-year average consolidated tax liability to current consolidated liability including the project.

Did the Department approve the method unconditionally? No. Approval depended on the facts supplied remaining correct.

What had to accompany the return? A schedule showing the incremental calculation, tax liability, and allowable CITC.

Citations and references

• Fla. Stat. Secs. 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 22C1-006

Original ruling text

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.
September 28, 2022

XXX
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement – TAA #: 22C1-006
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
BP #: XXX
Project ID: XXX
Florida Department of Economic Opportunity (“DEO”)
Enterprise Florida, Inc. (“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”).

Technical Assistance Advisement
September 28, 2022
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 XXX, 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.
ISSUE 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.
FACTS SUPPLIED BY TAXPAYER
Taxpayer is the parent of a group of wholly owned subsidiaries; XXX (“Sub. 1”), XXX (“Sub. 2”), and
XXX (“Sub. 3”) (collectively referred to as “Group”). The ultimate parent of these XXX subsidiaries
is XXX which is based in XXX. Taxpayer files a consolidated federal return which includes all of the
subsidiaries. Currently, each company files a separate Florida corporate income tax return.
Taxpayer XXX to customers in XXX.
Sub. 1 XXX. Their XXX is located in XXX, with additional XXX, and XXX. It is Taxpayer’s intent to
merge Sub. 1 by the end of XXX.

Technical Assistance Advisement
September 28, 2022
Page 3

Sub. 2 XXX. Sub. 2 is in the process of XXX. The XXX will be XXX. The qualifying project will replace
the XXX and XXX. It is Taxpayer’s intent to XXX Sub. 2 XXX which is anticipated to occur by the end
of XXX.
Sub. 3 is located in XXX. In previous years Sub. 3 had nexus in Florida. However, currently Sub. 3
does not have nexus in Florida.1
Taxpayer’s qualifying project will consist of XXX located in XXX, Florida. The XXX. The projected
capital investment by Taxpayer is estimated to exceed $XXX. Taxpayer expects to commence
operations in XXX.
Taxpayer proposes using a 5-year consolidated average tax liability as the basis to determine the
incremental difference of tax liability associated with the project. Taxpayer calculated the
consolidated average taxable income, apportionment factors, and tax paid over a 5-year period
which included Taxpayer and the Group. Those averages are:
Average Taxable Income:
$XXX
Average Apportionment Percentage:
XXX%
Average Tax Paid (using 5.5% projected rate): $XXX
The incremental tax paid in future years based on the increased income earned in Florida, as well
as the tax associated with the increased apportionment percentage should then be compared to
that base period tax of $XXX. The increase should be used to establish the increase in business
income associated with the project to determine the CITC available.
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

Taxpayer stated during the XXX, conference and in an email dated XXX, its long-range plan is to XXX Sub. 3,
however, it has not had any significant discussions or discussed a timeline for this to happen.

Technical Assistance Advisement
September 28, 2022
Page 4

(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: …
(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

Technical Assistance Advisement
September 28, 2022
Page 5

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
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 XXX. 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. XXX percent of the cumulative capital investment, which is estimated to exceed
$XXX, but must be at least $XXX;
2. XXX, 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 separate 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.

Technical Assistance Advisement
September 28, 2022
Page 6

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:

1. Capital investment of at least $XXX has been made at the project’s location in XXX,
   Florida; and
2. Creation of at least XXX net new-to-Florida full-time equivalent jobs paying at least
   the project wage at the project’s location in XXX, Florida.
   No annual CITC may be claimed without a letter from DEO stating that the appropriate
   annual requirements have been satisfied or maintained.
   Taxpayer’s proposed method compares a historic average tax liability of the consolidated
   group to the current tax year’s tax liability of the consolidated group, including the project.
   That incremental difference is the tax liability related to the qualifying project. The project
   tax liability will then be multiplied by the percentage associated with the level of investment
   made by Taxpayer to determine the associated credit. The Department concurs with
   Taxpayer’s methodology. However, if Sub. 3 is a separate entity at the commencement of
   operations, Taxpayer should remove Sub. 3 from the computation of the 5-year consolidated
   average.
   Taxpayer must apply generally accepted accounting principles and the provisions of s.
   220.13, F.S., in computing the income of the qualifying project. Taxpayer will be required to
   provide, with its Florida corporate income tax return, a schedule that shows the calculation
   of the incremental change, the tax liability and the allowable CITC, related to the project.
   Pursuant to s. 220.191(2)(d), F.S., when the capital investment is at least $XXX, 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.
   The amount of carryover from any one taxable year is five (5) percent of the cumulative capital
   investment that is at least $XXX less the amount of capital investment tax credit that could be
   used on the tax return for the taxable year. The amount of carryover from a taxable year may
   not exceed five (5) percent of the cumulative capital investment that is at least $XXX.
   CONCLUSION
   Given the specific circumstances involved in this case, and based on the representation of the
   Taxpayer, the Department concurs with Taxpayer’s suggested calculation for the income
   generated by or arising out of the qualifying project based upon s. 220.191, F.S., and Rule 12C-

Technical Assistance Advisement
September 28, 2022
Page 7

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 TAA under s. 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 s.
213.22, F.S. Our response is predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or administrative rule changes, or judicial
interpretations of the statutes or rules, upon which this advice is based, may subject similar
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 s. 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 TAA, 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 ten (10) days of the date of this letter.
Sincerely,

Susan R Coxwell
Susan R Coxwell
Revenue Program Administrator
Technical Assistance and Dispute Resolution
(850) 717-6478