Section 17, Chapter 2011-76, Laws of Florida, provides for the administration of the Florida research and development tax credit available to target industry businesses that claim and are allowed a federal credit under section 41 of the Internal ...

 

DEPARTMENT OF REVENUE

Corporate, Estate and Intangible Tax

RULE NOS.:RULE TITLES:

12C-1.0196Research and Development Tax Credit

12C-1.051Forms

PURPOSE AND EFFECT: Section 17, Chapter 2011-76, Laws of Florida, provides for the administration of the Florida research and development tax credit available to target industry businesses that claim and are allowed a federal credit under section 41 of the Internal Revenue Code for tax years beginning on or after January 1, 2012, as provided in section 220.196, F.S. The purpose of the proposed creation of Rule 12C-1.0196, F.A.C. (Research and Development Tax Credit), is to adopt procedures for a target industry business that claims a valid tax credit against federal corporate income tax for qualified research expenses to claim a Florida research and development tax credit against Florida corporate income/franchise tax, as provided in Section 220.196, F.S.

The purpose of the proposed amendments to Rule 12C-1.051, F.A.C. (Forms), is to adopt, by reference, the application for target industry businesses to apply for an Allocation for Research and Development Tax Credit for Corporate Income/Franchise Tax (Form F-1196).

SUMMARY: The proposed creation of Rule 12C-1.0196, F.A.C. (Research and Development Tax Credit), provides: (1) the tax credit is available annually for tax years beginning on or after January 1, 2012; (2) that a target industry business must file an application with the Department annually to receive an allocation of the annual funds available for the tax credit; (3) that the Florida corporate income/franchise tax credit must be taken in the same tax year as the federal credit for increasing research activities is taken; (4) that a business taking the tax credit must provide a copy of the federal forms regarding the related federal tax credit with the business’ Florida corporate income/franchise tax return; (5) how to calculate the Florida tax credit and examples of the calculations; (6) that the credit is limited to fifty percent of the Florida corporate income/franchise tax liability after all other tax credits are applied; (7) that any unused credit may be carried forward up to five tax years; and (8) the recordkeeping requirements for those businesses taking the tax credit.

The proposed amendments to Rule 12C-1.051, F.A.C. (Forms), adopt, by reference, the application for target industry businesses to apply for an Allocation for Research and Development Tax Credit for Corporate Income/Franchise Tax (Form F-1196).

SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS AND LEGISLATIVE RATIFICATION:

The Agency has determined that this will not have an adverse impact on small business or likely increase directly or indirectly regulatory costs in excess of $200,000 in the aggregate within one year after the implementation of the rule. A SERC has not been prepared by the agency.

The Agency has determined that the proposed rule is not expected to require legislative ratification based on the statement of estimated regulatory costs or if no SERC is required, the information expressly relied upon and described herein: 1) no requirement for the Statement of Economic Regulatory Costs (SERC) was triggered under Section 120.541(1), F.S.; and 2) based on past experiences with activities for providing the public with applications for purposes of applying for a Florida corporate income/franchise tax credit and rules of this nature, the adverse impact or regulatory cost, if any, do not exceed nor would exceed any one of the economic analysis criteria in a SERC, as set forth in Section 120.541(2)(a), F.S.

Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.

RULEMAKING AUTHORITY: 213.06(1), 220.196(4), 220.51 FS.

LAW IMPLEMENTED: 220.196 FS.

IF REQUESTED WITHIN 21 DAYS OF THE DATE OF THIS NOTICE, A HEARING WILL BE HELD AT THE DATE,TIME AND PLACE SHOWN BELOW(IF NOT REQUESTED, THIS HEARING WILL NOT BE HELD):

DATE AND TIME: January 14, 2014, 2:00 p.m.

PLACE: 2450 Shumard Oak Boulevard, Building One, Room 1220, Tallahassee, Florida

Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 48 hours before the workshop/meeting by contacting: Kim Hancock at [phone]. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).

THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Jennifer Ensley, Senior Tax Specialist, Technical Assistance and Dispute Resolution, Department of Revenue, P.O. Box 7443, Tallahassee, Florida 32314-7443, telephone: [phone]

 

THE FULL TEXT OF THE PROPOSED RULE IS:

 

12C-1.0196 Research and Development Tax Credit.

(1)(a)1. A research and development tax credit against Florida corporate income/franchise tax is provided in Section 220.196, F.S., to a target industry business that claims a valid research credit against federal corporate income tax for qualified research expenses as provided in section 41 of the Internal Revenue Code (26 U.S.C. s. 41). The target business enterprise must be a corporation, as defined in Section 220.03, F.S., and a target industry business, as defined in Section 288.106, F.S.

2. If the related federal corporate income tax credit for increasing research activities is not extended for a tax year, a target industry business will not be permitted to take the Florida research and development tax credit.

(b) “Qualified research expenses” include research expenses qualifying for the credit under section 41 of the Internal Revenue Code (26 U.S.C. s. 41) for in-house research expenses incurred in Florida or contract research expenses incurred in Florida. The term “qualified research expenses” does not include research conducted outside Florida or research expenses that do not qualify for a credit under 26 U.S.C. s. 41.

(c)1. The credit is available annually for tax years beginning on or after January 1, 2012, and is based upon qualified research expenses in Florida allowed under section 41 of the Internal Revenue Code (26 U.S.C. s. 41).

2. Example: Tax credit applications approved for the 2012 calendar year were based upon qualified research expenses incurred during calendar year 2012 for tax years that began in 2012.

(2)(a) To receive an annual allocation of the annual funds available for granting tax credits to target industry businesses, an Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax (Form F-1196, incorporated by reference in Rule 12C-1.051, F.A.C.) must be filed with the Department on or after March 20 of each year and on or before December 31 of that same year. The application is available on the Department’s website at www.myflorida.com/dor/. Taxpayers required to file returns and remit payments by electronic means pursuant to Section 213.755, F.S., and Rule Chapter 12-24, F.A.C., must apply online using the Department’s website. When the completed application is submitted online, a confirmation number will be provided to confirm receipt of the application.

(b) Businesses needing assistance with the Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax may call the Department at [phone], Monday through Friday, 8:00 a.m. to 7:00 p.m., Eastern Time. Persons with hearing or speech impairments may call the Florida Relay Service at [phone] (Voice) and [phone] (TTY).

(c) Applications filed with the Department on or after March 20 of each year will be accepted by the Department until December 31 of that year, or until the annual appropriation has been completely allocated, whichever occurs first. Credits will be allocated by the Department in the order in which completed applications are received. Beginning April 1 of each year, the Department will notify eligible taxpayers by letter of the amount of credit that is allocated to them and the tax year in which the target industry business may claim the credit on its Florida corporate income/franchise tax return.

(3) A corporation that has received a research credit against federal corporate income tax solely by virtue of its membership in a partnership that has earned a federal credit for increasing research activities may apply for the Florida research and development tax credit. For purposes of 26 U.S.C. s. 41, the research expenses are apportioned among the partners during the taxable year and are treated as paid or incurred directly by the partners rather than by the partnership.

(4) A federal research credit must be taken on the federal return filed by the target industry business for the same tax year in which the Florida research and development credit is taken. The amount taken as a Florida research and development credit must be added to taxable income prior to computing the Florida corporate income/franchise tax due. The Florida research and development credit is limited to fifty percent (50%) of the Florida corporate income/franchise tax liability after all other credits are applied in the order provided in Section 220.02(8), F.S. A copy of federal Form 6765 (Credit for Increasing Research Activities) and a copy of federal Form 3800 (General Business Credit) must be attached to the Florida corporate income/franchise tax return on which the Florida research and development credit is taken. In the case of a corporate partner of a partnership that has earned a federal credit for increasing research activities, a copy of federal Form 1065, Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.), and a copy of federal Form 3800 must be attached to the Florida corporate income/franchise tax return on which the Florida research and development credit is taken.

(5)(a) Any unused credits may be carried forward for up to five (5) tax years. Carryover credits may be used in a subsequent year when the Florida corporate income/franchise tax for such year exceeds the credit for such year after applying the other credits and unused carryovers in the order provided in Section 220.02(8), F.S. A taxpayer may not transfer or sell its credit or its right to apply for a credit to another taxpayer.

(b) Example: A taxpayer is allocated a Florida research and development credit of $30,000 for its tax year beginning in 2012 and all requirements of Section 220.196, F.S., are met for the taxpayer to earn the full $30,000 allocation. Its Florida corporate income/franchise tax liability after all other applicable credits are applied is $50,000. The $30,000 Florida research and development credit that the taxpayer is allocated for tax year 2012 is more than 50 percent of its tax liability for tax year 2012. Therefore, the taxpayer is limited to a Florida research and development credit of $25,000 ($50,000 × .50) for tax year 2012, and the remaining $5,000 of Florida research and development credit may be carried forward for up to five tax years.

(6)(a)1. The Florida research and development tax credit is equal to ten percent (10%) of the amount of qualified research expenses incurred in Florida and allowed under section 41 of the Internal Revenue Code (26 U.S.C. s. 41) that exceeds the base amount. The base amount is defined as “the average of the qualified research expenses incurred in Florida for the four tax years preceding the tax year for which the credit is determined.” The four taxable years used to compute the base amount must end before the calendar year for which the qualified research expenses are determined.

2. Example: A taxpayer with a fiscal year end of June 30, 2013, that applies for the Florida research and development credit based upon the qualified research expenses incurred during calendar year 2012 will use the following taxable years for its base amount: taxable years ended June 30, 2011; June 30, 2010; June 30, 2009; and June 30, 2008.

(b)1. Target industry businesses that have not been in existence for at least four tax years prior to the tax year in which the Florida research and development credit is claimed must reduce the amount of the credit by twenty-five percent (25%) for each year of the past four tax years that the corporation did not exist.

2. Example: A calendar year taxpayer is incorporated on January 1, 2009. The taxpayer applies for the Florida research and development credit for its tax year beginning January 1, 2012; its Florida qualified research expenses for calendar year 2012 equal $250,000. The taxpayer’s Florida qualified research expenses for its base amount are as follows:

Tax year 2008: $0, as Taxpayer did not exist.

Tax year 2009: $175,000

Tax year 2010: $200,000

Tax year 2011: $225,000

The average of the Florida qualified research expenses for the 4 taxable years preceding 2012 equals $150,000 (($0 + $175,000 + $200,000 + $225,000) ÷ 4). The excess Florida qualified research expenses over the base amount equal $100,000 ($250,000 - $150,000). The tentative Florida research and development credit is $10,000 ($100,000 × .10). However, since the taxpayer was not in existence for at least 4 taxable years immediately preceding tax year 2012, the Florida research and development credit is reduced by 25 percent for each taxable year the taxpayer did not exist. Therefore, the taxpayer’s Florida research and development credit for tax year 2012 is reduced by 25 percent to $7,500 ($10,000 - $2,500).

(7) Every taxpayer claiming a Florida research and development credit must retain documentation that substantiates and supports the credit, a copy of the letter received from the Department granting the credit, and a schedule reconciling all credit carryovers until tax imposed by Chapter 220, F.S., may no longer be determined and assessed under Section 95.091(3), F.S., or under Section 220.23, F.S. Documentation to substantiate and support the credit includes records or other evidence of the amount of qualified Florida research expenses incurred for in-house research or for contract research expenses, that those expenses qualified under 26 U.S.C. s. 41, and that the federal credit was claimed.

Rulemaking Authority 213.06(1), 220.196(4), 220.51 FS. Law Implemented 220.196 FS. History–New        .

 

12C-1.051 Forms.

(1)(a) The following forms and instructions are used by the Department in its administration of the corporate income tax and franchise tax. These forms are hereby incorporated by reference in this rule.

(b) No change.

Form NumberTitleEffective Date

(2) through (11) No change.

(12) F-1196Allocation for Research and Development Tax Credit

for Florida Corporate Income/Franchise Tax ( R. 03/14)              ___

(http://www.flrules.org/Gateway/reference.asp?No=Ref- )

(12) through (13) Renumber as (13) through (14) No change.

Rulemaking Authority 213.06(1), 220.192(7), 220.193(4), 220.196(4), 220.51, 1002.395(13) FS. Law Implemented 119.071(5), 212.08(5)(p), 213.755(1), 220.11, 220.12, 220.13(1), (2), 220.14, 220.15, 220.16, 220.181, 220.182, 220.183, 220.184, 220.1845, 220.185, 220.186, 220.1875, 220.1895, 220.1896, 220.1899, 220.19, 220.191, 220.192, 220.193, 220.194, 220.195, 220.196, 220.21, 220.211, 220.22, 220.221, 220.222, 220.23, 220.24, 220.241, 220.31, 220.32, 220.33, 220.34, 220.41, 220.42, 220.43, 220.44, 220.51, 220.721, 220.723, 220.725, 220.737, 220.801, 220.803, 220.805, 220.807, 220.809, 221.04, 624.5105, 624.51055, 1002.395 FS. History–New 9-26-77, Amended 12-18-83, Formerly 12C-1.51, Amended 12-21-88, 12-31-89, 1-31-91, 4-8-92, 12-7-92, 1-3-96, 3-18-96, 3-13-00, 6-19-01, 8-1-02, 6-19-03, 3-15-04, 9-24-04, 6-28-05, 5-1-06, 4-5-07, 1-1-08, 1-27-09, 1-11-10, 4-26-10(12)(a),(b), 4-26-10(13)(a),(b), 6-28-10, 1-12-11, 6-6-11, 1-25-12, 1-17-13,        .

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Jennifer Ensley, Senior Tax Specialist, Technical Assistance and Dispute Resolution, Department of Revenue, P.O. Box 7443, Tallahassee, Florida 32314-7443, telephone [phone]

NAME OF AGENCY HEAD WHO APPROVED THE PROPOSED RULE: Governor and Cabinet

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: December 10, 2013

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: A Notice of Proposed Rule Development was published in the Florida Administrative Register on September 6, 2013 (Vol. 39, No. 174, pp. 4487 - 4488), to advise the public of the proposed creation of Rule 12C-1.0196, F.A.C. (Research and Development Tax Credit), and the amendments to Rule 12C-1.051, F.A.C. (Forms), and to provide that, if requested in writing, a rule development workshop would be held on October 1, 2013. No request was received by the Department. No written comments were received by the Department.