Florida Regulations 12C-1.0196: Research and Development Tax Credit
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(1)(a)1. A research and development tax credit against Florida corporate income/franchise tax is provided in Florida Statutes § 220.196, to a business enterprise 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. § 41). The business enterprise must be a corporation, as defined in Florida Statutes § 220.03, and a qualified target industry business, as defined in Florida Statutes § 288.106 However, only qualified target industry businesses in the manufacturing, life sciences, information technology, aviation and aerospace, homeland security and defense, cloud information technology, marine sciences, materials science, and nanotechnology industries may qualify for a research and development tax credit.
2. Businesses that are partnerships, limited liability companies taxed as partnerships, or disregarded single member limited liability companies, are not corporations under Florida Statutes § 220.03, 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. § 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.
(b) “”Qualified research expenses”” include research expenses qualifying for the credit under section 41 of the Internal Revenue Code (26 U.S.C. § 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. § 41.
(c)1. The credit is available annually and is based upon qualified research expenses in Florida allowed under section 41 of the Internal Revenue Code (26 U.S.C. § 41).
2. Example: Tax credit applications approved for the 2015 calendar year were based upon qualified research expenses incurred during calendar year 2015 for tax years that began in 2015.
(2)(a) To receive an annual allocation of the annual funds available for granting tax credits to qualified target industry businesses, an Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax (Form F-1196, incorporated by reference in Fl. Admin. Code R. 12C-1.051) must be filed with the Department between 12:00 a.m. (ET), March 20 and 11:59 p.m. (ET), March 26 of that same year. The application is available on the Department’s website at www.floridarevenue.com/forms. Taxpayers required to file returns and remit payments by electronic means pursuant to Florida Statutes § 213.755, 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) A business enterprise must attach a letter from the Department of Economic Opportunity, certifying that the business is an eligible target industry business, to its Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax application. The Department of Economic Opportunity will provide a letter upon receiving a request.
(c) Businesses needing assistance with the Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax may call the Department at (850)488-6800, Monday through Friday (excluding holidays). 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) If the total credits requested (computed as the sum of the credit allocations requested from Form F-1196 for all qualified applicants) exceed the annual credit cap, each qualified applicant will be allocated credit on a prorated basis.
(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) 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 federal research credit must be taken on the federal return filed by the qualified 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 Florida Statutes § 220.02(8) 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.
(4)(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 Florida Statutes § 220.02(8)
(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 Florida Statutes § 220.196, 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.
(5)(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. § 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. Taxpayers 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).
(6) 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 of Economic Opportunity certifying that the taxpayer meets the requirements of section 220.196(2)(a)3., F.S. (i.e., is an eligible qualified target industry business), 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) or 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. § 41, and that the federal credit was claimed.
(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 Florida Statutes § 220.196. History—New 3-12-14, Amended 1-11-16, 3-14-17.
Terms Used In Florida Regulations 12C-1.0196
- Appeal: A request made after a trial, asking another court (usually the court of appeals) to decide whether the trial was conducted properly. To make such a request is "to appeal" or "to take an appeal." One who appeals is called the appellant.
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Contract: A legal written agreement that becomes binding when signed.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
- Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
- Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
(b) “”Qualified research expenses”” include research expenses qualifying for the credit under section 41 of the Internal Revenue Code (26 U.S.C. § 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. § 41.
(c)1. The credit is available annually and is based upon qualified research expenses in Florida allowed under section 41 of the Internal Revenue Code (26 U.S.C. § 41).
2. Example: Tax credit applications approved for the 2015 calendar year were based upon qualified research expenses incurred during calendar year 2015 for tax years that began in 2015.
(2)(a) To receive an annual allocation of the annual funds available for granting tax credits to qualified target industry businesses, an Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax (Form F-1196, incorporated by reference in Fl. Admin. Code R. 12C-1.051) must be filed with the Department between 12:00 a.m. (ET), March 20 and 11:59 p.m. (ET), March 26 of that same year. The application is available on the Department’s website at www.floridarevenue.com/forms. Taxpayers required to file returns and remit payments by electronic means pursuant to Florida Statutes § 213.755, 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) A business enterprise must attach a letter from the Department of Economic Opportunity, certifying that the business is an eligible target industry business, to its Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax application. The Department of Economic Opportunity will provide a letter upon receiving a request.
(c) Businesses needing assistance with the Allocation for Research and Development Tax Credit for Florida Corporate Income/Franchise Tax may call the Department at (850)488-6800, Monday through Friday (excluding holidays). 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) If the total credits requested (computed as the sum of the credit allocations requested from Form F-1196 for all qualified applicants) exceed the annual credit cap, each qualified applicant will be allocated credit on a prorated basis.
(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) 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 federal research credit must be taken on the federal return filed by the qualified 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 Florida Statutes § 220.02(8) 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.
(4)(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 Florida Statutes § 220.02(8)
(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 Florida Statutes § 220.196, 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.
(5)(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. § 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. Taxpayers 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).
(6) 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 of Economic Opportunity certifying that the taxpayer meets the requirements of section 220.196(2)(a)3., F.S. (i.e., is an eligible qualified target industry business), 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) or 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. § 41, and that the federal credit was claimed.
(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 Florida Statutes § 220.196. History—New 3-12-14, Amended 1-11-16, 3-14-17.