The purpose of the proposed amendments to Rule 12C-1.0196, F.A.C. (Research and Development Tax Credit), are to clarify the application process for eligible corporate partners, provide guidance to businesses that have timely challenged a Department ...

 

DEPARTMENT OF REVENUE

Corporate, Estate and Intangible Tax

RULE NO.:RULE TITLE:

12C-1.0196Research and Development Tax Credit

PURPOSE AND EFFECT: The purpose of the proposed amendments to Rule 12C-1.0196, F.A.C. (Research and Development Tax Credit), are to clarify the application process for eligible corporate partners, provide guidance to businesses that have timely challenged a Department of Economic Opportunity (“DEO”) refusal to issue a certification letter, clarify the Department’s review and allocation process for applications which require appeal to DEO, and provide an explanation of the impact on the allocated credit amount when the credit applied for is understated or overstated.

SUMMARY: The proposed amendments clarify application and allocation procedures related to the Research and Development Tax Credit in Rule 12C-1.0196, F.A.C.

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 regarding similar 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 10, 2017, 1:00pm

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: Becky Avrett 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, 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. No change. 

2. Businesses that are partnerships, limited liability companies taxed as partnerships, or disregarded single member limited liability companies, are not corporations under Section 220.03, F.S., and, therefore, may not apply for an allocation of credit.  However, each partner of a partnership that is a corporation may apply separately for an allocation of credit based on the corporation’s separate research expenses, including allocated partnership research expenses.  For disregarded entities, the single member that is a corporation must apply separately for an allocation of credit based on the corporation’s separate research expenses, including those of the disregarded single member limited liability company. 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. If the related federal corporate income tax credit for increasing research activities is not extended for a tax year, a qualified target industry business will not be permitted to take the Florida research and development tax credit.

(b) No change.

(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 2015 2012 calendar year were based upon qualified research expenses incurred during calendar year 2015 2012 for tax years that began in 2015 2012.

(2)(a) through (b) No change.

(c) Businesses needing assistance with the Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax may call the Department at 1(800)352-3671, Monday through Friday (excluding holidays),8:00 a.m. to 7:00 p.m. (ET). Persons with hearing or speech impairments may call the Florida Relay Service at 1(800)955-8770 (Voice) and 1(800)955-8771 (TTY).

(d) No change.

(e) Business enterprises that otherwise qualify and that have timely exercised their rights and challenged a Department of Economic Opportunity refusal to issue a certification letter may apply to the Department for an allocation of credit pursuant to this paragraph, but must include documentation of their protest.  The Department will consider the credit application and reserve an amount of credit for that applicant as if a certification letter had been received.

1. Should the petitioner prevail and receive a certification letter, the Department will send the petitioner a letter indicating the amount of credit allocated. 

2. Should the petitioner not prevail in its appeal, the Department will send the petitioner a letter to confirm that because no certification letter was received, no credit will be allocated to the petitioner.

3. After all appeals related to that year’s allocation have been resolved by the Department of Economic Opportunity, the Department will recompute the original allocation for all approved applicants, without any reserve for denied applicants.  To the extent a business enterprise’s new allocation of credit is at least $1 greater than the original allocation for that tax year, the Department will provide a new letter stating the updated allocation amount.

(f)(e) The Within 10 working days of March 27, 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 qualified target industry business may claim the credit on its Florida corporate income/franchise tax return.

(g) 1. Should the amount of credit requested by a business enterprise be determined to be overstated, the percentage of the original allocation provided by the Department will be applied to the lesser amount of credit that should have been requested. For example, Taxpayer A requested an allocation of credit for 2016 of $800,000, and the Department prorated the request and issued a letter allocating Taxpayer A $368,000 in research and development credit. Later, it was determined Taxpayer A should have only applied for an allocation of $400,000 in credit because its qualifying Florida expenditures were less than originally computed. Taxpayer A is only entitled to a credit allocation of $184,000 ($400,000 x $368,000/$800,000).

2. If the amount of credit requested by a business enterprise is later determined to be understated, the taxpayer may not claim more credit on its Florida corporate income/franchise tax return than it was allocated by the Department because of the annual cap on credit allocations. For example, Taxpayer Z requested an allocation of credit for 2016 of $700,000, and the Department prorated the request and issued a letter allocating Taxpayer Z $322,000 in research and development tax credit. Later, Taxpayer Z determined its allocation request should have been for $950,000, because its qualifying Florida expenditures were more than originally computed. Taxpayer Z is limited to a Florida research and development credit of $322,000 when it files its Florida corporate income/franchise tax return.

(h) Correspondence from the Department to credit applicants may be by electronic means.

(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.

(3)(4) No change.

(4)(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) No change.

(5)(6) No change.

(6)(7) No change.

(7) A taxpayer may not sell or transfer a credit.  However, if all of the assets of the business are sold in a single transaction, the credit will transfer in the same manner that the federal tax benefits transfer.

Rulemaking Authority 213.06(1), 220.196(4), 220.51 FS. Law Implemented 220.196 FS. History‒New 3-12-14, Amended 1-11-16, _____.

 

NAME OF PERSON ORIGINATING PROPOSED RULE: Kimberly Berg

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

DATE PROPOSED RULE APPROVED BY AGENCY HEAD: December 6, 2016

DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAR: November 8, 2016