Could the taxpayer use alternative apportionment because third-party-processed Florida inventory overstated its Florida business activity?

Plain-English summary

The Department allowed the taxpayer to use an alternative property-factor formula because the normal method attributed Florida income far out of proportion to its business activity.

A third party independently chose to process specified inventory in Florida. Including that inventory in the standard property factor caused a sharp, exceptional increase even though nearly all resulting products were sold or donated outside Florida. The taxpayer supported the distortion with multi-year workpapers.

Florida approved the taxpayer's Option 3: exclude all of the specified inventory from both the property-factor numerator and denominator. The public ruling redacts the inventory type, percentages, and effective tax year.

What this means for you

Alternative apportionment requires clear and cogent evidence that the regular formula taxes extraterritorial value or arbitrarily overstates Florida activity. A large tax increase alone is not enough; the taxpayer documented why the Florida property did not fairly represent its business.

Common questions

Which alternative did Florida approve? Option 3, removing all specified inventory from both numerator and denominator.

Why? The inventory's presence resulted from an independent third-party processing decision and exceptionally distorted the taxpayer's Florida activity.

Is the approval permanent regardless of facts? No. Incorrect or changed facts disallow the alternative method.

Citations and references

• Fla. Stat. § 220.152.
• Fla. Admin. Code r. 12C-1.0152.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 23C1-001R

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, petitioning the Department for permission to use an alternative method of apportionment if
the methods provided by s. 220.15, F.S., or s. 220.152, F.S., do not fairly represent the taxpayer’s tax
base attributable to Florida.
ANSWER: Given the specific circumstances involved in this case, and based on the Department’s
permitted option, Taxpayer is granted permission to use the alternative apportionment formula when
filing Florida corporate income tax returns for taxable year ending on or after
. However,
Taxpayer is reminded that should the facts provided in its request, or any supplemental information
provided be determined to be incorrect or change, the use of an alternative method of apportionment
will be disallowed.
April 10, 2023

Re:

Dear

Technical Assistance Advisement – 23C1-001R
Request for Alternative Apportionment
Sections 220.152, Florida Statutes (“F.S.”)
Rule 12C-1.0152, Florida Administrative Code (“F.A.C.”)
(“Taxpayer”)
FEIN:
BP#:
:

This is in response to your request dated
, for a Technical Assistance Advisement
(“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding your request to
use alternative apportionment pursuant to s. 220.152, F.S. and Rule 12C-1.0152, F.A.C.
ISSUE PRESENTED
Whether Taxpayer has established sufficient cause for the Department to permit it to use an
alternative method of apportionment.
FACTS SUPPLIED BY TAXPAYER

. It offers products
. Taxpayer distributes its products
. It has

Technical Assistance Advisement
April 10, 2023
Page 2
and

across

In
, Taxpayer opened a new office in
addition to opening a new office in

these
are shipped
, or
to customers

, where it added more than
, Taxpayer also contracted with

. In

independently chose to process
located in
. Taxpayer has no control over where
. Once
process is completed, the
to be packaged, labeled, and moved to a distribution facility in
,
to be stored as finished goods until they are ultimately distributed

As a result of the
being processed within the
, Taxpayer’s property factor has increased
to a level that does not fairly represent the extent of Taxpayer’s tax base attributable to Florida.
Taxpayer estimates that the inclusion of the
in its standard apportionment methodology for
tax year
results in its property factor increasing from
to
a
.
Overall, including the
increases Taxpayer’s Florida apportionment factor from
to
a
.
Additionally, Taxpayer asserts that the use of the standard apportionment methodology does not
accurately and fairly reflect its business activity in Florida. Nearly all of
processed by
in
the
is alleged to be sold or donated to end consumers
. Of the inventory,
,
, and only
.
Taxpayer has proposed three alternative apportionment options: 1)
from the property factor numerator, 2)
inventory from the property factor
numerator and denominator, or 3)
inventory from the property factor
numerator and denominator.
Taxpayer believes that any of the three alternative methods more fairly and accurately apportions its
Florida income. Taxpayer asserts that:
•
•
•

Each alternative method narrowly relates only to property located in an
.
The first two alternative methods uniquely focus only on property located in the state based
on an independent act of a third-party contractor.
All three alternative methods resolve the unconstitutional level of income distortion.

For those reasons, Taxpayer requests that the Department allow it to use one of the proposed
alternative apportionment approaches.
LEGAL AUTHORITY
Section 220.152, F.S., states in part:
If the apportionment methods of ss. 220.15 and 220.151 do not fairly represent the
extent of a taxpayer’s tax base attributable to this state, the taxpayer may petition
for, or the department may require, in respect to all or any part of the taxpayer’s tax
base, if reasonable:

Technical Assistance Advisement
April 10, 2023
Page 3
(1) Separate accounting;
(2) The exclusion of any one or more factors;
(3) The inclusion of one or more additional factors which will fairly represent the
taxpayer’s tax base attributable to this state; or
(4) The employment of any other method which will produce an equitable
apportionment.
Rule 12C-1.0152, F.A.C., states:
(1)(a) A departure from the applicable method of apportionment required under the
provisions of section 220.15 or 220.151, F.S., shall be permitted only where the
method does not accurately and fairly reflect business activity in Florida. An
alternative method may not be invoked, either by the Department of Revenue or the
taxpayer, merely because it reaches a different apportionment percentage than the
regularly applicable formula. However, if the applicable formula will lead to grossly
distorted result in a particular case, a fair and accurate alternative method is
appropriate (see Norfolk and Western Railway Co. v. Missouri State Tax Commission,
390 U.S. 317, 88 S. Ct. 995, 19 L. Ed. 2d 1201 (1968), which is incorporated by
reference in Rule 12C-1.0511, F.A.C.).
(b) A taxpayer seeking to utilize an alternative apportionment method must
show by clear and cogent evidence that the regularly applicable formula
would result in taxation of extraterritorial values (see Butler Bros. v.
McColgan, 315 U.S. 501, 62 S.Ct. 701, 86 L. Ed. 991 (1942), which is
incorporated by reference in Rule 12C-1.0511, F.A.C.). This can be shown only
if the regularly applicable formula is demonstrated to operate unreasonably
and arbitrarily in apportioning to Florida a percentage of income which is out
of all proportion to the business transacted in Florida and does not accurately
and fairly reflect business activity in Florida (see Hans Rees’ Sons, Inc. v. North
Carolina ex rel Maxwell, 283 U.S. 123, 51 S. Ct. 385, 75 L. Ed 879 (1931), which
is incorporated by reference in Rule 12C-1.0511, F.A.C.).
(2) The party seeking to use an alternative formula must prove that the alternative
formula fairly and accurately apportions income to Florida based upon business
activity in Florida.
(3) A departure from the regularly applicable apportionment method will be
authorized only in limited and specific cases where unusual fact situations (which
ordinarily will be unique and nonrecurring) produce a result that is incongruous with
the results of previous tax years under the regularly applicable apportionment
method.
(4) A taxpayer shall petition the Department for a departure from the required
apportionment method by filing, on or before the due date for filing of the return for
the taxable year, with extension, either: a written request for a technical assistance
advisement under section 213.22, F.S., and Department of Revenue rule chapter 1211, F.A.C.; or, a petition for a declaratory statement under section 120.565, F.S.

Technical Assistance Advisement
April 10, 2023
Page 4
(a) The taxpayer shall file the request or petition with Technical Assistance
and Dispute Resolution, P. O. Box 7443, Tallahassee, Florida 32314-7443.
(b) The taxpayer’s request or petition must include a summary of the evidence
to support the taxpayer’s contention that the applicable apportionment
formula results in taxation of extraterritorial values and to demonstrate that
the regular formula operates to unreasonably and arbitrarily attribute income
to Florida far out of proportion to the business transacted in Florida. The
taxpayer must also furnish evidence that the use of an alternative method
fairly and accurately apportions income to Florida.
DISCUSSION
Section 220.152, F.S., authorizes the Department to require a taxpayer to use an alternative method
of apportionment different from those required by s. 220.15, F.S., or s. 220.151, F.S., if those methods
do not “fairly represent the extent of a taxpayer’s tax base attributable to this state…” Section
220.152, F.S., also allows a taxpayer to petition the Department for permission to use an alternative
method of apportionment if the methods provided by s. 220.15, F.S., or s. 220.152, F.S., do not fairly
represent the taxpayer’s tax base attributable to Florida.
Rule 12C-1.0152, F.A.C., sets forth the conditions where an alternative method of apportionment is
appropriate and the requirements that must be met before permission to use an alternative method
of apportionment may be granted. The Rule also requires the taxpayer to show by clear and cogent
evidence that the normal apportionment formula results in taxation of extraterritorial values.
Taxpayer cites a significant change in its property factor as a result of
in
the Florida
. Taxpayer demonstrated that the normal apportionment formula operates
unreasonably and arbitrarily in apportioning income to Florida, by providing workpapers summarizing
the
Florida tax impact on its apportionment factor for multiple tax years.
Based on the information provided by Taxpayer, it appears that if Taxpayer is required to calculate its
Florida income based on the normal applicable apportionment method, its percentage of Florida
income would increase from
to
, which would be exceptionally out of proportion to
Taxpayer’s business transacted in Florida, and would not accurately and fairly reflect business activity
in Florida.
The Department agrees that the inclusion of the
located in the Florida
in Taxpayer’s property
factor appears to distort Taxpayer’s business transacted in
and does not seem to reflect
Taxpayer’s business activity accurately and fairly, in
.
Therefore, Taxpayer should use Option 3 provided in its TAA request, which would exclude all of
Taxpayer’s
inventory from its property factor numerator and denominator when computing its
apportionment factor. Taxpayer’s use of this alternative apportionment formula is exclusively based
on the facts and supplemental information provided to the Department in its TAA request, during the
meeting between Taxpayer and the Department on
, and the supplemental
supporting documentation provided on
. If this information is found to be
incorrect or misrepresentative of Taxpayer’s business activity in Florida, alternative apportionment
will be prohibited.

Technical Assistance Advisement
April 10, 2023
Page 5
CONCLUSION
Given the specific circumstances involved in this case, and based on the Department’s permitted
option, Taxpayer is granted permission to use the alternative apportionment formula when filing
Florida corporate income tax returns for taxable year ending on or after
.
However, Taxpayer is reminded that should the facts provided in its request, or any supplemental
information provided be determined to be incorrect or change, the use of an alternative method of
apportionment will be disallowed.
This response constitutes a Technical Assistance Advisement 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 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 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
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
(850) 717-6478
Record ID: 7000803597
Cc:

Technical Assistance Advisement
April 10, 2023
Page 6

TADR Satisfaction Survey
The Florida Department of Revenue invites you to complete the online TADR Satisfaction Survey to
help us identify ways to improve our service to taxpayers. The survey is an opportunity to provide
feedback on your recent experience with the Department’s office of Technical Assistance and
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Notification number:

7000803597

Respondent code:

44

Tax type:

Corporate Income Tax

Correspondence type: Technical Assistance
If you need technical assistance accessing the survey, please email Douglas Charity at
[email protected].
Thank you.