Research and Development Tax Credit

 

DEPARTMENT OF REVENUE
Corporate, Estate and Intangible Tax

RULE NO.:RULE TITLE:

12CER13-02Research and Development Tax Credit

SPECIFIC REASONS FOR FINDING AN IMMEDIATE DANGER TO THE PUBLIC HEALTH, SAFETY OR WELFARE: Chapter 2011-76, Laws of Florida, authorizes the Department of Revenue to promulgate an emergency rule, and to renew such rule, to implement the provisions of the law. The law provides that conditions necessary for an emergency rule and its renewal have been met. 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.

REASON FOR CONCLUDING THAT THE PROCEDURE IS FAIR UNDER THE CIRCUMSTANCES: The Legislature expressly authorized the promulgation of an emergency rule, and the renewal of such rule, to implement Chapter 2011-76, Laws of Florida, and determined that all conditions necessary for this emergency rule have been met. The law 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.

SUMMARY: Emergency Rule 12CER13-02, F.A.C. (Research and Development Tax Credit), provides procedures for a target industry business that is allowed and claims a tax credit against federal corporate income tax for qualified research expenses to claim a Florida research and development tax credit against corporate income tax, as provided in Section 220.196, F.S. The emergency rule provides: (1) that the credit is available annually for tax years beginning on or after January 1, 2012; (2) beginning March 20 of each year, a target industry business must file an Allocation for Research and Development Tax Credit for Corporate Income Tax with the Department; (3) that the Florida corporate income tax credit is to 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 tax return; (5) for the calculation of the Florida tax credit and examples of the calculations required; (6) that the credit is limited to fifty percent of the Florida income 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 Florida research and development tax credit.

THE PERSON TO BE CONTACTED REGARDING THE EMERGENCY 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 EMERGENCY RULE IS:

 

12CER13-02 Research and Development Tax Credit.

(1)(a) A research and development tax credit against Florida corporate income tax is provided in Section 220.196, F.S., to a target industry business that claims and is allowed a 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.

(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) 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). Tax credit applications approved for the 2012 calendar year (application date beginning on March 20, 2013), will be based upon qualified research expenses incurred during calendar year 2012 for tax years that begin 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 Corporate Income Tax (N. 03/13, hereby incorporated by reference, effective 03/13) 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/. 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 Corporate Income 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 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 tax due. The Florida research and development credit is limited to fifty percent (50%) of the Florida income 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 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 tax return on which the Florida research and development credit is taken.

(5)(a) Any unused credits may be carried forward up to five (5) tax years. Carryover credits may be used in a subsequent year when the corporate income 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 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, 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.

2. The four taxable years used to compute the base amount must end before the calendar year for which the qualified research expenses are determined. The base years, for the credit based upon the qualified research expenses incurred during calendar year 2012, will end in 2011, 2010, 2009, and 2008.

3. 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 s. 35, Ch. 2011-76, L.O.F. Law Implemented 220.196 FS. History–New 3-5-13.

THIS RULE TAKES EFFECT UPON BEING FILED WITH THE DEPARTMENT OF STATE UNLESS A LATER TIME AND DATE IS SPECIFIED IN THE RULE.

EFFECTIVE DATE: March 5, 2013