Florida R&D Tax Credit

For tax years beginning on or after January 1, 2012, the State of Florida allows a qualified "business enterprise" to claim a state R&D credit of 10% for qualified research expenses ("QREs") incurred in Florida (2012 Florida Statute §220.196),  and is based upon qualified research expenses in Florida allowed under IRC § 41. 

First, the "business enterprise", must be a corporation as defined under section 220.03. Section 220.03(e) specifically provides partnerships of any type, including LLC’s taxed as a partnership for federal purposes, are not included. Second, the business enterprise must be in a "target industry business" as defined in section 288.106.

A company MUST be certified by the Department of Economic Opportunity as a qualified "target business industry" in the following industries to qualify for a research and development tax credit:​​

  • Manufacturing,

  • Life sciences,

  • Information Technology,

  • Aviation and Aerospace,

  • Homeland Security and Defense,

  • Cloud Information Technology,

  • Marine Sciences,

  • Materials Science, and

  • Nanotechnology Industries. ​

A "Target Industry Business" means a corporate headquarters business or any business that is engaged in one of the target industries identified pursuant to the following criteria:

  • Future growth —Industry forecasts should indicate strong expectation for future growth in both employment and output, according to the most recent available data.

    • Special consideration should be given to businesses that export goods to, or provide services in, international markets and businesses that replace domestic and international imports of goods or services.

  • Stability —The industry should not be subject to periodic layoffs, whether due to seasonality or sensitivity to volatile economic variables such as weather.

    • The industry should also be relatively resistant to recession, so that the demand for products of this industry is not typically subject to decline during an economic downturn.

  • High wage — The industry should pay relatively high wages compared to statewide or area averages.

  • Market and resource independent — The location of industry businesses should not be dependent on Florida markets or resources as indicated by industry analysis, except for businesses in the renewable energy industry.

  • Industrial base diversification and strengthening — The industry should contribute toward expanding or diversifying the state’s or area’s economic base, as indicated by analysis of employment and output shares compared to national and regional trends.

    • Special consideration should be given to industries that strengthen regional economies by adding value to basic products or building regional industrial clusters as indicated by industry analysis. Special consideration should also be given to the development of strong industrial clusters that include defense and homeland security businesses.

  • Positive economic impact — The industry is expected to have strong positive economic impacts on or benefits to the state or regional economies.

    • Special consideration should be given to industries that facilitate the development of the state as a hub for domestic and global trade and logistics.

Specifically EXCLUDED from the "Target Industry Business" definition are

  • any retail industry activities;

  • any electrical utility company as defined in Sec. 366.02(2);

  • any phosphate or other solid mineral severance, mining or processing operations;

  • oil & gas exploration or production; or

  • businesses in the hotel and restaurant industry subject to regulation by the Division of Hotels and Restaurants of the Department of Business and Professional Regulation

Any business within NAICS code 5611 or 5614, office administrative services and business support services, respectively, may be considered a target industry business only after the local governing body make a determination that the community where the business may locate has conditions affecting the fiscal and economic viability of the local community or area, including but not limited to, factors such as

  • low per capita income,

  • high unemployment,

  • high underemployment, and

  • a lack of year-round stable employment opportunities, and such conditions may be improved by the location of such a business to the community.

Credit Summary:

  • A company must claim a federal credit in order to claim a Florida credit.

  • "Qualified research expenses" (QREs) have the same meaning as in IRC § 41, except that such expenses must be for research conducted within Florida.

 

Calculation:

The tax credit will be 10% of the excess qualified research expenses over the base amount.

  • The “base amount” is the average of the business enterprise’s qualified research expenses in Florida allowed under IRC § 41 for the four taxable years preceding the taxable year for which the credit is determined.

  • The maximum tax credit for a business enterprise that has not been in existence for at least four taxable years immediately preceding the taxable year is reduced by 25% for each taxable year for which the business enterprise, or a predecessor corporation that was a business enterprise, did not exist.

  • The credit taken in any taxable year may NOT exceed 50% of the business enterprise’s remaining net income tax liability after all other credits have been applied under Fla. Stat. §220.02(8)

R&D Tax Credit Cap:

  • Generally, the combined total amount of research and development tax credits that may be granted to all business enterprises in any calendar year is $9 million. However, the total amount that may be awarded in the 2018 calendar year is $16.5 million. If the state credit cap is reached, the credits are allocated on a prorated basis.

  • Credits will be allocated by the Department in the order in which completed applications are received

Eligible Entities: C-Corporations Only

Deadline for Tax Filing: Application due 3/20. 

  • Beginning 12:00 a.m., ET, March 20th and ending 11:59 p.m., ET, March 26th , you may apply for the credit based upon qualified research expenses incurred during the prior calendar year. 

  • A corporation applying for the tax credit must include a letter from the Department of Economic Opportunity certifying that it is an eligible qualified target industry business with its application, or documentation that it has timely protested the Department of Economic Opportunity’s determination not to issue such a certification letter.

  • The Department will notify eligible taxpayers by letter of the amount of credit that is allocated to the taxpayer for the taxpayer’s tax year.

  • See the DEO website to obtain a certification letter.

  • The taxpayer must claim a federal R&D credit in order to claim a Florida credit.

    • To receive a Florida research and development tax credit, the corporation must claim and be allowed a research credit for the taxable year against federal income tax for qualified research expenses under s. 41, IRC. Attach federal Form 6765 (Credit for Increasing Research Activities) and federal Form 3800 (General Business Credit) to Florida Form F‑1120 (Florida Corporate Income Tax Return) when claiming the Florida credit. ​

  • If unable to obtain a certification letter from DEO before the end of the Research and Development Tax Credit application period?

    • You will not be able to apply for an allocation of credit from the Department of Revenue during this application time‑period.

    • However, if before the application time‑period ends, you have already exercised your rights to challenge DEO’s determination that you do not qualify for a certification letter, you may still apply for an allocation of credit.

      • Along with your application, you must attach documentation of your timely protest to DEO. The Department of Revenue will consider your request for an allocation of credit and will reserve an amount of credit for you as if a certification letter had been received.

    • If you receive a certification letter in response to your appeal, the Department of Revenue will send you a letter indicating the amount of credit allocated to you. If you do not receive the certification letter from DEO in response to your appeal, you will receive a letter from the Department of Revenue confirming no certification letter was received and no credit is being allocated to you.

  • When a business loses its timely challenge and is not a qualified target industry business, what happens to the credit that was reserved pending the outcome of the challenge?

    • After all appeals related to that year’s allocation of research and development credit have been resolved by DEO, the Department will recompute the original allocation for all approved applicants, without any reserve for the 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.

Data Required to Compute Credit

  • Claim Period Qualified R&D Expenses (QREs)

  • QREs for Prior 4 Years

Credit Carryforward: Any unused credit may be carried forward and claimed by the taxpayer for up to five years. A taxpayer may not transfer or sell its credit or its right to apply for a credit to another taxpayer.

How to obtain the credit?

Who May Apply?
Corporations, as defined in s. 220.03, F.S., that also meet the definition of qualified target industry business, as defined in s. 288.106(2)(n), F.S., may apply. 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 tax credit.

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 corporate partner of a partnership may apply separately for an allocation of credit based on the corporation’s separate research expenses, including allocated partnership research expenses, if the corporate partner is also a qualified target industry business. For disregarded entities, the corporation that owns the single member limited liability company may 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, if the corporate owner is also a qualified target industry business. 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.

 

A corporation applying for the tax credit must include a letter from the Department of Economic Opportunity certifying that it is an eligible qualified target industry business with its application, or documentation that it has timely protested the Department of Economic Opportunity’s determination not to issue such a certification letter.

Important Links and Forms:

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