What project-income method did Florida approve for the Capital Investment Tax Credit in TAA 24C1-003?

Plain-English summary

The Department approved measuring the qualifying project's corporate income tax liability as the difference between the taxpayer group's annual Florida corporate income tax liability and its five-year consolidated average corporate income tax liability.

The historical average used an imputed 5.5% tax rate applied to tentative apportioned adjusted federal income for each period, without deductions for Florida-apportioned net operating loss or net capital loss carryovers.

The taxpayer also had to prepare a pro forma return separately accounting for project taxable income, Florida-apportioned project tax liability, and the associated Capital Investment Tax Credit.

What this means for you

The agreement used a consolidated group's historic imputed tax baseline to isolate incremental project tax. It was not a general method for unrelated projects or filing structures.

Common questions

What was the baseline? A five-year average consolidated corporate income tax liability.

What tax rate was used for the imputed historical liability? 5.5%.

Were loss carryover deductions included in the baseline? No.

Citations and references

• Fla. Stat. §§ 220.11, 220.13, 220.15, and 220.191 and Fla. Admin. Code r. 12C-1.0191, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 24C1-003

Original ruling text

Florida Department of Revenue Jim Zingale
Office of Technical Assistance Executive Director

JEPARTMENT OF REVENUE

FLORIDA

5050 West Tennessee Street Tallahassee FL 32399 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 concurs with Taxpayer's suggested calculation for the income generated
by or arising out of the qualifying project. However, Taxpayer is 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.

November 26, 2024

Via errail tO:

Re: — Technical Assistance Advisement — 24C1-003
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.”)

ns (¢!axpayer’)
FEIN:

Project ID: aay

BP#:

Department of Economic Opportunity’s (“DEO”) presently known as Florida Department
of Commerce’s Division of Economic Development (“Florida Commerce”)

Enterprise Florida, Inc. (“EFI”)

Dea a:

This is in response to your request dated yy, 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”).

Section 220.191(5), F.S., addresses applications for CITC. That statute provides:

Technical Assistance Advisement
November 26, 2024
Page 2

(5) Applications shall be reviewed and certified pursuant to s. 288.061. The Department of
Commerce 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, ata
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 SE. Florida Commerce certified Taxpayer as eligible to receive tax credits under s.
220.191, F.S. The Department of Revenue, having received said certification, has examined
Taxpayers letter and has established that Taxpayer has complied with the statutory and
regulatory requirements for issuance of a TAA. Therefore, the Department of Revenue is hereby
granting Taxpayer's request for a TAA. The Department of Revenue, in issuing this TAA, has
relied on the representations of Taxpayer and the certification of Florida Commerce. 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 Taxpayer's letter dated x. 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 i for 2

. Taxpayer files consolidated Florida and
federal corporate income tax returns for a group of affiliated corporations (hereafter collectively
referred to as the “Taxpayer Group’).

The qualifying project (“Project”) consists of the

Ren. |axpayer intends to create at least 100 net new-to-
Florida full-time equivalent jobs in connection with the project in xq paying an
average annualized wage of at least Mg (“project wage”). Taxpayer estimates that its

cumulative capital investment will be gg. The investment includes all aS
err
ME . | axpayer will commence operations of the project by x .

Taxpayer will prepare a pro forma return to separately account for the taxable income generated
by the project; the annual Florida corporate income tax liability generated by or arising out of the
project to the extent apportioned to the State of Florida in accordance with the F-1120; and the
associated CITC.

LEGAL AUTHORITY

Technical Assistance Advisement
November 26, 2024
Page 3

Section 220.11(1), F.S., states:

(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(1), 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. . . .

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:

KKK

(b) “Commencement of operations” means the beginning of active operations by a qualifying
business of the principal function for which a qualifying project was constructed.

(c) “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.

(d) “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

(e) “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.

KKK

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November 26, 2024
Page 4

(g) “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.

KKK

(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.

KKK

(d) Ifthe 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.

KKK

(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.

KKK

(8) The Department of Revenue may specify by rule the methods by which a project’s pro
forma annual taxable income is determined.

Rule 12C-1.0191(1)(a)1., F.A.C., states:

In situations where the applicant is using a separate corporate entity to account for the
activities of the qualifying project, the taxable income generated by that entity as reported on
the return filed pursuant to section 220.22(1), F.S., will be used to determine the amount of
income tax due and the subsequent amount of the credit that will be available for use. If the
applicant has other activities not related to the project reported on this return, a pro forma
attachment will be required to separately account for the taxable income generated by the

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November 26, 2024
Page 5

project, the resulting amount of tax due, and the subsequent amount of the credit that will be
available for use.

DISCUSSION

On SE. Florida Commerce 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 yg,
   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 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.

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.

Florida Commerce 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 Florida Commerce with evidence
that it has met the following criteria:

1. Capital investment of at least $25 million has been made at the project’s location in, f |
   ; and
2. Creation of at least 100 net new-to-Florida full-time equivalent jobs paying at least the

project wage at the project's location in xs.

No annual CITC may be claimed without a letter from Florida Commerce stating that the
appropriate annual requirements have been satisfied or maintained.

Since Taxpayer files consolidated in Florida and all the activities in Florida are related to the
project, Taxpayer proposes the corporate income tax liability generated by or arising out of the
qualifying project shall be equal to the difference of the Taxpayer Group’s annual corporate
income tax liability and the 5-year consolidated average corporate income tax liability for tax
periods Si __ ___!, Calculated using an imputed tax liability by applying
a 5.5% corporate income tax rate to the tentative apportioned adjusted federal income in each
period without regard to deductions for net operating loss carryover apportioned to Florida or net
capital loss carryover apportioned to Florida.

The Taxpayer Group’s corporate taxable income, apportionment factors, and tax liability over the
five-year period is as follows:

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November 26, 2024
Page 6

Tax Period Taxable Income Apportionment Factor Tax Liability!

Taxpayer has proposed that the Corporate Income Tax will be calculated on an annual basis. A
portion of that annual tax will be the incremental tax attributable to the project based on the
increased income earned in Florida, as well as the tax associated with the increased
apportionment percentage relating to the project. A comparison of the annual corporate income
tax of the Taxpayer Group against the average annual corporate income tax of the Taxpayer
Group for tax years x would reasonably approximate the income
tax attributable to the project. The increase should be used to establish the increase in business
income associated with the project to determine the CITC available. This proposed method
compares a historic average tax liability of the Taxpayer Group to the current tax year’s tax liability
of the Taxpayer Group, including the project. That incremental difference is the tax liability related
to the qualifying project.

The Department agrees with Taxpayer’s proposed method of apportionment in Florida. 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 above.

Since all the activities and operations in Florida are related to the project, Taxpayer has proposed
using the taxable income determined on the single, consolidated Florida corporate income tax
return as the income generated by or arising out of the qualifying project. This amount would be
used to determine the tax liability of the project and the corresponding CITC. The Department
concurs with Taxpayer’s methodology.

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.

The amount of carryover from any one taxable year is five (5) percent of the cumulative capital
investment that is at least $100 million 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 $100 million.

1 Tax Liability is calculated using tentative apportioned adjusted federal income in each period without
regard to deductions for net operating loss carryover apportioned to Florida or net capital loss carryover
apportioned to Florida

Technical Assistance Advisement
November 26, 2024
Page 7

CONCLUSION

Given the specific circumstances involved in this case, and based on the representation of
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-
1.0191, F.A.C. However, Taxpayer is reminded that should the facts provided in its request of
Ee, 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,

5, 2) ;
Denise ICA (Jnith

Denise L. Smith

Tax Law Specialist

Technical Assistance and Dispute Resolution
(850) 717-6326

CC:

Record ID: 7001121583

Technical Assistance Advisement
November 26, 2024
Page 8

Office of Technical Assistance Satisfaction Survey
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Tax type: Corporate Income Tax
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Thank you.