Florida Senate - 2010 SB 2502
By Senator Gelber
35-01929A-10 20102502__
1 A bill to be entitled
2 An act relating to corporate income taxes; amending s.
3 220.13, F.S.; limiting deductions of certain
4 intangible expenses, licensing fees, and management
5 fees paid by a taxpayer to a related entity; creating
6 exceptions to the limitations on deductions; requiring
7 the adjustment of the income of a related entity under
8 certain circumstances; limiting the number of times
9 certain items may be added or subtracted from taxable
10 income; specifying information relating to
11 transactions with related entities which must be
12 contained in a corporate income tax return; providing
13 that the failure of a taxpayer to add certain amounts
14 to a taxpayer’s income or to provide complete
15 information in a tax return is negligence for which a
16 penalty may be imposed; authorizing the Department of
17 Revenue to adopt rules; specifying the applicability
18 of the act; providing an effective date.
19
20 Be It Enacted by the Legislature of the State of Florida:
21
22 Section 1. Section 220.13, Florida Statutes, is amended to
23 read:
24 220.13 “Adjusted federal income” defined; transactions with
25 related entities.—
26 (1) ADJUSTMENTS TO TAXABLE INCOME.—The term “adjusted
27 federal income” means an amount equal to the taxpayer’s taxable
28 income as defined in subsection (2), or such taxable income of
29 more than one taxpayer as provided in s. 220.131, for the
30 taxable year, adjusted as follows:
31 (a) Additions.—There shall be added to such taxable income:
32 1. The amount of any tax upon or measured by income,
33 excluding taxes based on gross receipts or revenues, paid or
34 accrued as a liability to the District of Columbia or any state
35 of the United States which is deductible from gross income in
36 the computation of taxable income for the taxable year.
37 2. The amount of interest which is excluded from taxable
38 income under s. 103(a) of the Internal Revenue Code or any other
39 federal law, less the associated expenses disallowed in the
40 computation of taxable income under s. 265 of the Internal
41 Revenue Code or any other law, excluding 60 percent of any
42 amounts included in alternative minimum taxable income, as
43 defined in s. 55(b)(2) of the Internal Revenue Code, if the
44 taxpayer pays tax under s. 220.11(3).
45 3. In the case of a regulated investment company or real
46 estate investment trust, an amount equal to the excess of the
47 net long-term capital gain for the taxable year over the amount
48 of the capital gain dividends attributable to the taxable year.
49 4. That portion of the wages or salaries paid or incurred
50 for the taxable year which is equal to the amount of the credit
51 allowable for the taxable year under s. 220.181. This
52 subparagraph shall expire on the date specified in s. 290.016
53 for the expiration of the Florida Enterprise Zone Act.
54 5. That portion of the ad valorem school taxes paid or
55 incurred for the taxable year which is equal to the amount of
56 the credit allowable for the taxable year under s. 220.182. This
57 subparagraph shall expire on the date specified in s. 290.016
58 for the expiration of the Florida Enterprise Zone Act.
59 6. The amount of emergency excise tax paid or accrued as a
60 liability to this state under chapter 221 which tax is
61 deductible from gross income in the computation of taxable
62 income for the taxable year.
63 7. That portion of assessments to fund a guaranty
64 association incurred for the taxable year which is equal to the
65 amount of the credit allowable for the taxable year.
66 8. In the case of a nonprofit corporation which holds a
67 pari-mutuel permit and which is exempt from federal income tax
68 as a farmers’ cooperative, an amount equal to the excess of the
69 gross income attributable to the pari-mutuel operations over the
70 attributable expenses for the taxable year.
71 9. The amount taken as a credit for the taxable year under
72 s. 220.1895.
73 10. Up to nine percent of the eligible basis of any
74 designated project which is equal to the credit allowable for
75 the taxable year under s. 220.185.
76 11. The amount taken as a credit for the taxable year under
77 s. 220.187.
78 12. The amount taken as a credit for the taxable year under
79 s. 220.192.
80 13. The amount taken as a credit for the taxable year under
81 s. 220.193.
82 14. Any portion of a qualified investment, as defined in s.
83 288.9913, which is claimed as a deduction by the taxpayer and
84 taken as a credit against income tax pursuant to s. 288.9916.
85 (b) Subtractions.—
86 1. There shall be subtracted from such taxable income:
87 a. The net operating loss deduction allowable for federal
88 income tax purposes under s. 172 of the Internal Revenue Code
89 for the taxable year,
90 b. The net capital loss allowable for federal income tax
91 purposes under s. 1212 of the Internal Revenue Code for the
92 taxable year,
93 c. The excess charitable contribution deduction allowable
94 for federal income tax purposes under s. 170(d)(2) of the
95 Internal Revenue Code for the taxable year, and
96 d. The excess contributions deductions allowable for
97 federal income tax purposes under s. 404 of the Internal Revenue
98 Code for the taxable year.
99
100 However, a net operating loss and a capital loss shall never be
101 carried back as a deduction to a prior taxable year, but all
102 deductions attributable to such losses shall be deemed net
103 operating loss carryovers and capital loss carryovers,
104 respectively, and treated in the same manner, to the same
105 extent, and for the same time periods as are prescribed for such
106 carryovers in ss. 172 and 1212, respectively, of the Internal
107 Revenue Code.
108 2. There shall be subtracted from such taxable income any
109 amount to the extent included therein the following:
110 a. Dividends treated as received from sources without the
111 United States, as determined under s. 862 of the Internal
112 Revenue Code.
113 b. All amounts included in taxable income under s. 78 or s.
114 951 of the Internal Revenue Code.
115
116 However, as to any amount subtracted under this subparagraph,
117 there shall be added to such taxable income all expenses
118 deducted on the taxpayer’s return for the taxable year which are
119 attributable, directly or indirectly, to such subtracted amount.
120 Further, no amount shall be subtracted with respect to dividends
121 paid or deemed paid by a Domestic International Sales
122 Corporation.
123 3. In computing “adjusted federal income” for taxable years
124 beginning after December 31, 1976, there shall be allowed as a
125 deduction the amount of wages and salaries paid or incurred
126 within this state for the taxable year for which no deduction is
127 allowed pursuant to s. 280C(a) of the Internal Revenue Code
128 (relating to credit for employment of certain new employees).
129 4. There shall be subtracted from such taxable income any
130 amount of nonbusiness income included therein.
131 5. There shall be subtracted any amount of taxes of foreign
132 countries allowable as credits for taxable years beginning on or
133 after September 1, 1985, under s. 901 of the Internal Revenue
134 Code to any corporation which derived less than 20 percent of
135 its gross income or loss for its taxable year ended in 1984 from
136 sources within the United States, as described in s.
137 861(a)(2)(A) of the Internal Revenue Code, not including credits
138 allowed under ss. 902 and 960 of the Internal Revenue Code,
139 withholding taxes on dividends within the meaning of sub
140 subparagraph 2.a., and withholding taxes on royalties, interest,
141 technical service fees, and capital gains.
142 6. Notwithstanding any other provision of this code, except
143 with respect to amounts subtracted pursuant to subparagraphs 1.
144 and 3., any increment of any apportionment factor which is
145 directly related to an increment of gross receipts or income
146 which is deducted, subtracted, or otherwise excluded in
147 determining adjusted federal income shall be excluded from both
148 the numerator and denominator of such apportionment factor.
149 Further, all valuations made for apportionment factor purposes
150 shall be made on a basis consistent with the taxpayer’s method
151 of accounting for federal income tax purposes.
152 (c) Installment sales occurring after October 19, 1980.—
153 1. In the case of any disposition made after October 19,
154 1980, the income from an installment sale shall be taken into
155 account for the purposes of this code in the same manner that
156 such income is taken into account for federal income tax
157 purposes.
158 2. Any taxpayer who regularly sells or otherwise disposes
159 of personal property on the installment plan and reports the
160 income therefrom on the installment method for federal income
161 tax purposes under s. 453(a) of the Internal Revenue Code shall
162 report such income in the same manner under this code.
163 (d) Nonallowable deductions.—A deduction for net operating
164 losses, net capital losses, or excess contributions deductions
165 under ss. 170(d)(2), 172, 1212, and 404 of the Internal Revenue
166 Code which has been allowed in a prior taxable year for Florida
167 tax purposes shall not be allowed for Florida tax purposes,
168 notwithstanding the fact that such deduction has not been fully
169 utilized for federal tax purposes.
170 (e) Adjustments related to the Federal Economic Stimulus
171 Act of 2008 and the American Recovery and Reinvestment Act of
172 2009.—Taxpayers shall be required to make the adjustments
173 prescribed in this paragraph for Florida tax purposes in
174 relation to certain tax benefits received pursuant to the
175 Economic Stimulus Act of 2008 and the American Recovery and
176 Reinvestment Act of 2009.
177 1. There shall be added to such taxable income an amount
178 equal to 100 percent of any amount deducted for federal income
179 tax purposes as bonus depreciation for the taxable year pursuant
180 to ss. 167 and 168(k) of the Internal Revenue Code of 1986, as
181 amended by s. 103 of Pub. L. No. 110-185 and s. 1201 of Pub. L.
182 No. 111-5, for property placed in service after December 31,
183 2007, and before January 1, 2010. For the taxable year and for
184 each of the 6 subsequent taxable years, there shall be
185 subtracted from such taxable income an amount equal to one
186 seventh of the amount by which taxable income was increased
187 pursuant to this subparagraph, notwithstanding any sale or other
188 disposition of the property that is the subject of the
189 adjustments and regardless of whether such property remains in
190 service in the hands of the taxpayer.
191 2. There shall be added to such taxable income an amount
192 equal to 100 percent of any amount in excess of $128,000
193 deducted for federal income tax purposes for the taxable year
194 pursuant to s. 179 of the Internal Revenue Code of 1986, as
195 amended by s. 102 of Pub. L. No. 110-185 and s. 1202 of Pub. L.
196 No. 111-5, for taxable years beginning after December 31, 2007,
197 and before January 1, 2010. For the taxable year and for each of
198 the 6 subsequent taxable years, there shall be subtracted from
199 such taxable income one-seventh of the amount by which taxable
200 income was increased pursuant to this subparagraph,
201 notwithstanding any sale or other disposition of the property
202 that is the subject of the adjustments and regardless of whether
203 such property remains in service in the hands of the taxpayer.
204 3. There shall be added to such taxable income an amount
205 equal to the amount of deferred income not included in such
206 taxable income pursuant to s. 108(i)(1) of the Internal Revenue
207 Code of 1986, as amended by s. 1231 of Pub. L. No. 111-5. There
208 shall be subtracted from such taxable income an amount equal to
209 the amount of deferred income included in such taxable income
210 pursuant to s. 108(i)(1) of the Internal Revenue Code of 1986,
211 as amended by s. 1231 of Pub. L. No. 111-5.
212 4. Subtractions available under this paragraph may be
213 transferred to the surviving or acquiring entity following a
214 merger or acquisition and used in the same manner and with the
215 same limitations as specified by this paragraph.
216 5. The additions and subtractions specified in this
217 paragraph are intended to adjust taxable income for Florida tax
218 purposes, and, notwithstanding any other provision of this code,
219 such additions and subtractions shall be permitted to change a
220 taxpayer’s net operating loss for Florida tax purposes.
221 (2) DEFINITIONS.—For purposes of this section, a taxpayer’s
222 taxable income for the taxable year means taxable income as
223 defined in s. 63 of the Internal Revenue Code and properly
224 reportable for federal income tax purposes for the taxable year,
225 but subject to the limitations set forth in paragraph (1)(b)
226 with respect to the deductions provided by ss. 172 (relating to
227 net operating losses), 170(d)(2) (relating to excess charitable
228 contributions), 404(a)(1)(D) (relating to excess pension trust
229 contributions), 404(a)(3)(A) and (B) (to the extent relating to
230 excess stock bonus and profit-sharing trust contributions), and
231 1212 (relating to capital losses) of the Internal Revenue Code,
232 except that, subject to the same limitations, the term:
233 (a) “Taxable income,” in the case of a life insurance
234 company subject to the tax imposed by s. 801 of the Internal
235 Revenue Code, means life insurance company taxable income;
236 however, for purposes of this code, the total of any amounts
237 subject to tax under s. 815(a)(2) of the Internal Revenue Code
238 pursuant to s. 801(c) of the Internal Revenue Code shall not
239 exceed, cumulatively, the total of any amounts determined under
240 s. 815(c)(2) of the Internal Revenue Code of 1954, as amended,
241 from January 1, 1972, to December 31, 1983;
242 (b) “Taxable income,” in the case of an insurance company
243 subject to the tax imposed by s. 831(b) of the Internal Revenue
244 Code, means taxable investment income;
245 (c) “Taxable income,” in the case of an insurance company
246 subject to the tax imposed by s. 831(a) of the Internal Revenue
247 Code, means insurance company taxable income;
248 (d) “Taxable income,” in the case of a regulated investment
249 company subject to the tax imposed by s. 852 of the Internal
250 Revenue Code, means investment company taxable income;
251 (e) “Taxable income,” in the case of a real estate
252 investment trust subject to the tax imposed by s. 857 of the
253 Internal Revenue Code, means the income subject to tax, computed
254 as provided in s. 857 of the Internal Revenue Code;
255 (f) “Taxable income,” in the case of a corporation which is
256 a member of an affiliated group of corporations filing a
257 consolidated income tax return for the taxable year for federal
258 income tax purposes, means taxable income of such corporation
259 for federal income tax purposes as if such corporation had filed
260 a separate federal income tax return for the taxable year and
261 each preceding taxable year for which it was a member of an
262 affiliated group, unless a consolidated return for the taxpayer
263 and others is required or elected under s. 220.131;
264 (g) “Taxable income,” in the case of a cooperative
265 corporation or association, means the taxable income of such
266 organization determined in accordance with the provisions of ss.
267 1381-1388 of the Internal Revenue Code;
268 (h) “Taxable income,” in the case of an organization which
269 is exempt from the federal income tax by reason of s. 501(a) of
270 the Internal Revenue Code, means its unrelated business taxable
271 income as determined under s. 512 of the Internal Revenue Code;
272 (i) “Taxable income,” in the case of a corporation for
273 which there is in effect for the taxable year an election under
274 s. 1362(a) of the Internal Revenue Code, means the amounts
275 subject to tax under s. 1374 or s. 1375 of the Internal Revenue
276 Code for each taxable year;
277 (j) “Taxable income,” in the case of a limited liability
278 company, other than a limited liability company classified as a
279 partnership for federal income tax purposes, as defined in and
280 organized pursuant to chapter 608 or qualified to do business in
281 this state as a foreign limited liability company or other than
282 a similar limited liability company classified as a partnership
283 for federal income tax purposes and created as an artificial
284 entity pursuant to the statutes of the United States or any
285 other state, territory, possession, or jurisdiction, if such
286 limited liability company or similar entity is taxable as a
287 corporation for federal income tax purposes, means taxable
288 income determined as if such limited liability company were
289 required to file or had filed a federal corporate income tax
290 return under the Internal Revenue Code;
291 (k) “Taxable income,” in the case of a taxpayer liable for
292 the alternative minimum tax as defined in s. 55 of the Internal
293 Revenue Code, means the alternative minimum taxable income as
294 defined in s. 55(b)(2) of the Internal Revenue Code, less the
295 exemption amount computed under s. 55(d) of the Internal Revenue
296 Code. A taxpayer is not liable for the alternative minimum tax
297 unless the taxpayer’s federal tax return, or related federal
298 consolidated tax return, if included in a consolidated return
299 for federal tax purposes, reflect a liability on the return
300 filed for the alternative minimum tax as defined in s. 55(b)(2)
301 of the Internal Revenue Code;
302 (l) “Taxable income,” in the case of a taxpayer whose
303 taxable income is not otherwise defined in this subsection,
304 means the sum of amounts to which a tax rate specified in s. 11
305 of the Internal Revenue Code plus the amount to which a tax rate
306 specified in s. 1201(a)(2) of the Internal Revenue Code are
307 applied for federal income tax purposes.
308 (3) LIMITATIONS ON DEDUCTIONS OF INTANGIBLE EXPENSES AND
309 FEES WITH A RELATED ENTITY.—
310 (a) Definitions.—As used in this subsection, the term:
311 1. “Intangible expenses” means the following amounts to the
312 extent that these amounts are allowed as deductions in
313 determining federal taxable income under the Internal Revenue
314 Code before the application of any net operating loss deduction
315 and special deductions for the taxable year:
316 a. Expenses, losses, and costs directly or indirectly for,
317 related to, or in association with the acquisition, use,
318 maintenance, management, ownership, sale, exchange, or other
319 disposition of intangible property;
320 b. Royalty, patent, technical, trademark, and copyright
321 fees;
322 c. Licensing fees; or
323 d. Other substantially similar expenses and costs,
324 including, but not limited to, interest and losses from
325 factoring transactions.
326 2. “Intangible property” means patents, patent
327 applications, trade names, trademarks, service marks,
328 copyrights, trade secrets, and substantially similar types of
329 intangible assets.
330 3. “Interest expenses” means amounts that are allowed as
331 deductions under s. 163 of the Internal Revenue Code in
332 determining federal taxable income before the application of any
333 net operating loss deductions and special deductions for the
334 taxable year.
335 4. “Management fees” means expenses and costs paid for
336 services, including, but not limited to, management overhead,
337 management supervision, accounts receivable and payable,
338 employee benefit plans, insurance, legal, payroll, data
339 processing, purchasing, tax, financial and securities, billing,
340 accounting, reporting and compliance, or similar services, only
341 to the extent that the amounts are allowed as a deduction, cost,
342 or expense in determining taxable net income under the Internal
343 Revenue Code before the application of any net operating loss
344 deduction and special deductions for the taxable year.
345 5. “Recipient” means a related entity to which is paid an
346 item of income that corresponds to an intangible expense,
347 interest expense, or management fee.
348 6. “Related entity” means an artificial entity that would
349 be a member of the taxpayer’s affiliated group under s. 1504 of
350 the Internal Revenue Code during all or any portion of the
351 taxable year using an ownership percentage of 50 percent instead
352 of 80 percent. The term includes any entity, other than a
353 natural person, which would be included in the affiliated group
354 based upon a 50 percent ownership percentage if the entity was
355 organized as a corporation.
356 (b) Additions.—Except as provided in paragraph (c), in
357 determining its adjusted federal income under this section and
358 s. 220.131, a corporation subject to tax shall add to its
359 taxable income:
360 1. Intangible expenses;
361 2. Interest expenses; and
362 3. Management fees,
363
364 paid, accrued, or incurred directly or indirectly with a related
365 entity. For income received from a pass-through entity or a
366 disregarded entity, the corporation is deemed to have received
367 its share of the income and the expenses of the pass-through
368 entity or disregarded entity for purposes of this subsection.
369 (c) Special exceptions.—Except as provided in paragraph
370 (d), the addition of intangible expenses, interest expenses, or
371 management fees otherwise required in a taxable year under this
372 subsection for a specific transaction with a related entity is
373 not required if one of the following apply:
374 1. The taxpayer and the recipient are included in the same
375 Florida consolidated tax return filed under s. 220.131 for the
376 taxable year.
377 2. The taxpayer and the executive director or his or her
378 designee agree in writing to alternative computations or
379 adjustments. The executive director or his or her designee may
380 enter into such an agreement only if the taxpayer has clearly
381 established to the satisfaction of the executive director or his
382 or her designee that the addition is unreasonable and that the
383 proposed alternative method of determining the measure of the
384 tax accurately reflects the activity, business, income, and
385 capital of the taxpayers within this state. The agreement must
386 be signed by the executive director or his or her designee. The
387 term of the agreement may not exceed 4 years.
388 3. The taxpayer makes a disclosure on its return and
389 establishes all of the following by clear and convincing
390 evidence:
391 a. The recipient was subject to an income tax or franchise
392 tax measured in whole or part by net income in its state or
393 country of commercial domicile, or in the state of commercial
394 domicile in which an intangible is required by contract to be
395 held, and
396 (I) The tax base for the income or franchise tax included
397 the intangible expense, management fee, or interest expense
398 paid, accrued, or incurred by the taxpayer;
399 (II) The aggregate effective tax rate applied was at least
400 5.5 percent;
401 (III) If the recipient is a foreign corporation, the
402 foreign nation has a comprehensive income tax treaty with the
403 United States; and
404 (IV) The recipient did not receive a credit, exemption, or
405 exclusion for the net income from its intangible income,
406 management fee income, or interest income, or the credit,
407 exemption, or exclusion received was 75 percent or less of the
408 net income.
409 b. The transaction did not have Florida tax avoidance as a
410 principle purpose.
411 c. The recipient regularly engages in the same types of
412 transactions with third parties.
413 d. The transaction was made at a commercially reasonable
414 rate and at arm’s length terms similar to those with third
415 parties.
416 4. The taxpayer makes a disclosure on its return and
417 establishes all of the following by clear and convincing
418 evidence:
419 a. The related entity, during the same taxable year,
420 directly or indirectly incurred and paid the amount of the
421 intangible expense, interest expense, and management fee to a
422 person or entity that is not a related entity.
423 b. The transaction was done for a valid business purpose.
424 c. The payments were limited to a reimbursement of the
425 amounts paid to a person or entity that is not a related entity.
426 d. The unrelated person or entity regularly engages in the
427 same types of transactions with third parties on a substantial
428 basis.
429 (d) Limitation on special exceptions.—The exceptions
430 described in subparagraphs (c)3. and (c)4. do not apply to:
431 1. Interest paid by a taxpayer in connection with a debt
432 incurred to acquire the taxpayer’s or a related entity’s assets
433 or stock in a transaction referenced in s. 368 of the Internal
434 Revenue Code. For purposes of this subparagraph, acquisition
435 interest paid by a taxpayer to a person or entity that is not a
436 related entity is deemed to be made to a related entity.
437 2. Intangible property acquired directly or indirectly from
438 the taxpayer or from a related entity.
439 3. Those instances in which the related entity is primarily
440 engaged in managing, acquiring, or maintaining intangible
441 property or related party financing and a primary purpose of the
442 transaction was the avoidance of Florida tax.
443 4. Those instances in which the taxpayer files with the
444 related entity or the related entity files with another related
445 entity an income tax return or report and the return or report
446 is due because of the imposition of a tax on or measured by
447 income or the income tax return or report results in the
448 elimination of the tax effects from transactions directly or
449 indirectly between the taxpayer and the related member.
450 (e) Adjustment to the taxable income of a related entity.
451 To the extent that a taxpayer is required to make an adjustment
452 under paragraph (b) or paragraph (c) for a specific related
453 entity transaction, the corresponding related entity must make a
454 corresponding subtraction to its taxable income if the income of
455 the related entity is subject to tax in this state.
456 (f) Adjustment of net operating loss carryover.—The amount
457 of a taxpayer’s net operating loss carryover from tax years
458 ending before December 31, 2010, to a tax year ending on or
459 after December 31, 2010, must be adjusted to account for the
460 addition of intangible expenses, interest expenses, and
461 management fees under this subsection. However, this calculation
462 may not increase the amount of a net operating loss carryover.
463 (g) Limitation on additions to income.—This subsection does
464 not require a taxpayer to add to its Florida taxable income more
465 than once any amount of interest expenses, intangible expenses,
466 or management fees that the taxpayer pays, accrues, or incurs to
467 a related entity.
468 (h) Limitations on subtractions to income.—This subsection
469 does not allow any item to be subtracted from adjusted federal
470 income more than once, a subtraction for any item that is
471 excluded from income, or any item to be included in the adjusted
472 federal income of more than one taxpayer.
473 (i) Authority to make adjustments.—This subsection does not
474 limit or negate the authority of the executive director to make
475 adjustments under s. 220.131(2), s. 220.44, or s. 220.152.
476 (j) Required information for a return.—Each taxpayer shall
477 provide the following information to the department along with
478 its tax return regarding each related entity transaction:
479 1. The name of the recipient;
480 2. The state or country of domicile of the recipient;
481 3. The amount paid to the recipient; and
482 4. A complete description of the payment made to the
483 recipient.
484 (k) Negligence.—A failure of a taxpayer to add to the
485 taxpayer’s income an amount paid directly or indirectly to a
486 related party or a failure to provide complete information along
487 with the tax return is evidence of negligence within the meaning
488 of s. 220.803(1).
489 (l) Rulemaking.—The department may adopt rules and forms
490 necessary to administer this subsection, including, but not
491 limited to, forms and rules for reporting transactions with
492 related entities.
493 Section 2. This act shall take effect upon becoming a law,
494 and applies to tax years ending on or after December 31, 2010.