Florida Amends IRC Conformity Date - Decouples from Gilti and Conforms to Section 163(J) – Amended Returns May Be Required

Summary

On June 28, 2019, Florida enacted H.B. 7127, which amends the Florida tax code to retroactively adopt the IRC in effect as of January 1, 2019 (Florida has a fixed-date conformity to the IRC), with a few exceptions.  For the GILTI decoupling provisions, Florida’s law specifies that the subtraction is retroactive to tax years beginning on or after January 1, 2018.  In addition, Florida does not adopt federal 100-percent bonus depreciation, but rather continues the treatment that federal bonus depreciation must be added back and then claimed over a seven-year period.

On July 31, 2019, the Florida Department of Revenue issued a pair of Tax Information Publications (TIP) to address the legislative changes and clarify some of the provisions.  The TIPs indicate that amended returns may be required for taxpayers that filed returns before the enactment of H.B. 7127.  A synopsis of each TIP follows. 

 

TIP No. 19C01-01 (Issued July 31, 2019)

• Florida Net Operating Losses (NOL) – Pursuant to Fla. Stat. Section 220.13(1)(b)1, Florida adopts the new federal NOL provisions to treat them in the same manner, to the same extent, and for the same time periods as are provided federally in IRC Section 172.
  • Unused Florida NOLs generated in taxable years beginning after December 31, 2017, are now carried forward indefinitely until used, and the NOLs do not expire.
  • Florida law continues to specifically bar the carryback of Florida NOLs.
  • Florida law adopts the new 80-percent limitation on the use of NOL deductions that was adopted for federal purposes.  A Florida NOL generated in taxable years beginning after December 31, 2017, may only be carried forward and applied to offset 80 percent of a taxpayer’s Florida tentative apportioned adjusted federal income (F-1120, Sch. IV). This allows a taxpayer to use its $50,000 Florida exemption to offset some, or all, of the remaining 20 percent of its income to which its Florida NOL carryforward is inapplicable.
  • Florida NOLs generated in taxable years beginning before January 1, 2018, are not subject to the 80 percent limitation.
  • Taxpayers should maintain a schedule of NOLs with information substantiating the amount of the NOL, including tax returns where an NOL is generated, used, or carried forward.
• Global Intangible Low-Taxed Income (GILTI) – TIP No. 19C1-01 clarifies that the new Florida subtraction for GILTI is net of direct and indirect expenses incurred to earn the income, including net of the IRC Section 250(a)(1)(B) GILTI deduction.  Thus, the Florida subtraction is of the net amount of GILTI income and applies to tax years beginning after December 31, 2017.
• IRC Section 163(j) business interest limitation – When the Florida filer is identical to the federal filer, no separate interest limitation is computed for Florida income tax purposes. However, when the Florida filer is different from the federal filer (generally an affiliate filing a separate Florida return versus an affiliated group filing a federal consolidated return), the interest limitation must be re-computed for Florida income tax purposes as if the Florida filer (generally a corporation) had filed a separate federal income tax return for the taxable year.  The limited amount may be carried forward to subsequent years.
• No state modification – The TIP clarifies that H.B. 7217 does not require any Florida modifications applicable to the federal Base Erosion and Anti-Abuse Tax (BEAT) or Foreign-Derived Intangible Income (FDII) rules.
• Amended Florida Return Required – Some taxpayers may have already filed a Florida corporate income tax return under a different basis than what is explained in TIP 19C01-01.  If so, those taxpayers should file an amended return and explain the reason for the amendment. The department will work with these taxpayers to resolve any penalty imposed on such amended return that is a direct result of the items discussed in the TIP.
• Required Information Reporting – All taxpayers filing a Florida corporate income tax return (Florida Forms F-1120 or F-1120A) for a taxable year, beginning within the 2018 or 2019 calendar years, are required to key in additional information concerning TCJA changes using the department’s website. When the webpage is established, a TIP will be mailed to each registered corporation whose registration indicated the taxpayer is required to file Florida corporate income/franchise tax returns. The information must be submitted through the department's website via a secured online portal to be available by September 3, 2019. The required information must be submitted by the earlier of 10 days after the extended due date of the return or 10 days after the return is filed. Any information required to be submitted prior to September 3, 2019, must be submitted by September 3, 2019. A taxpayer that fails to provide the required information by the required submission date would be subject to a penalty of $1,000 or 1 percent of the tax due for the most recent taxable year filed return, whichever is greater.

 

TIP No. 19C01-02 (Issued July 31, 2019)

• Presentation of GILTI subtraction – On Form F-1120, take the subtraction on Schedule II, Line 11 (Other Subtractions).  A schedule should be attached showing the full amount of GILTI, direct and indirect expenses related to GILTI, and the amount of the federal subtraction related to GILTI under IRC Section 250.
• Bonus depreciation – Florida continues to decouple from bonus depreciation under IRC Section 168(k) for assets placed into service before January 1, 2027.  Florida requires a taxpayer to add-back the federal bonus depreciation and claim it for Florida corporate income tax purposes over a seven-year period.

  

BDO Insight

• To the extent any 2018 or short year 2019 returns have been filed that do not reflect the changes enacted by H.B. 7217 or the TIPs, an amended return is required.  Florida taxpayers should consult with their tax advisor.
• For taxpayers that have a different federal filing group than the Florida filer (e.g. file a federal consolidated return but a separate Florida return) the IRC Section 163(j) business interest expense limitation must be separately calculated for Florida corporate income tax purposes.
• Taxpayers also should be aware of the new Florida information reporting regime and reporting that will commence on September 3, 2019, for taxpayers who have already filed their 2018 Florida corporate income tax return or by the earlier of 10 days after the extended due date of the return or 10 days after the return is filed.

 

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