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Florida reduces corporate income tax rate

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On Sept. 12, 2019, the Florida Department of Revenue (Department) released a Tax Information Publication (TIP) in which it announced that the Florida corporate income and franchise tax rate would be reduced from 5.5% to 4.458% for tax years beginning in 2019, 2020 and 2021.1

Temporary reduction of Florida corporate income tax rate Legislation enacted in March 2018 originally created the potential for an automatic, downward adjustment to the historic Florida corporate income tax rate (including the franchise tax rate imposed on savings banks and associations) of 5.5%, dependent upon the overall impact to revenues collected during Florida’s 2018-2019 fiscal year.2 Further legislation enacted in June 2019 extended the period for the potential tax rate reduction through the state’s 2020-2021 fiscal year.3

During any of the specified fiscal years, if Florida’s net collections4 exceed adjusted forecasted collections5 by 7% or more, the tax rate of the preceding calendar year in which a fiscal year ends will decrease by a quotient of the adjusted forecasted collections divided by the net fiscal collections for that same fiscal year.6 The Department is required to recalculate the tax rate for tax years beginning in 2019, 2020 and 2021 according to this formula by Oct. 1 of each respective fiscal year end.7 Any adjusted tax rate will subsequently be repealed for taxable years beginning on or after January 1, 2022, and the rate will revert back to 5.5%.8

The Department’s announcement of the corporate income tax rate reduction from 5.5% to 4.458% comes at the direction of Florida’s most recent federal tax conformity legislation. Currently, the reduced tax rate applies for tax years beginning in 2019, 2020 and 2021, but the TIP notes that a further reduction in the tax rate is still possible for tax years beginning in 2020 and 2021, depending on actual net collections in those fiscal years. The Department advised that any future tax rate changes would be communicated in an additional TIP.

Potential Florida corporate income tax refunds Should a tax rate reduction be implemented, the amount of net collections in excess of adjusted forecasted collections for a fiscal year will be used to provide eligible taxpayers9 with a refund of corporate income tax paid for that fiscal year.10 The refund will be distributed based on the percentage of the eligible taxpayer’s final tax liability against the total eligible tax liability11 for a fiscal year, to be determined by the Department no later than April 15 following a fiscal year, and to be paid no later than May 1 following a fiscal year.12

Commentary Florida’s law providing the mechanism for a lower corporate income tax rate based on the level of tax revenues received is in line with other states that have acknowledged the potential windfall created by federal tax reform. Although the statute authorizing downward adjustments to the Florida corporate income tax rate was adopted in June 2019, the prospective corporate income tax rate change resulting from the Department’s recalculation was not formally announced until the Department’s issuance of the TIP in September. Given the release of the Department’s announcement in September, the tax rate reduction should be treated as a 2019 third-quarter event for income tax provision purposes under ASC 740.

In addition to the tax rate reduction, an automatic refund has been triggered for taxpayers that paid Florida corporate income tax for tax years beginning between April 1, 2017 and March 31, 2018. These taxpayers will receive a refund in an amount to be determined by the Department no later than April 15, 2020, with refunds to be paid by May 1, 2020. More information is expected regarding the amount of such refunds from the Department in the coming months. There is also the potential for two additional refunds, which will be determined in a similar manner in 2021 and 2022.


 
1 Florida Tax Information Publication No. 19C01-04, Florida Department of Revenue, Sept. 12, 2019.
2 H.B. 7093, Laws 2018. For further discussion, see GT SALT Alert: Florida Advances Federal Tax Conformity Date, Provides Potential Tax Rate Adjustment.
3 H.B. 7127, Laws 2019. For further discussion, see GT SALT Alert: Florida Enacts Legislation to Advance Federal Tax Conformity Date and Address Other Federal Tax Reform Matters.
4 Net collections are the total amount of corporate income taxes collected during a state fiscal year, including interest and penalties, net of refunds. FLA. STAT. ANN. § 220.1105(1)(a).
5 Adjusted forecasted collections are the forecasted net collections for a fiscal year, multiplied by 1.07. FLA. STAT. ANN. § 220.1105(1)(c).
6 FLA. STAT. ANN. § 220.1105(2).
7 FLA. STAT. ANN. § 220.1105(3).
8 FLA. STAT. ANN. § 220.1105(5).
9 FLA. STAT. ANN. § 220.1105(4)(a)1. An eligible taxpayer for fiscal year 2018-2019 has a taxable year that begins between April 1, 2017 and March 31, 2018, and whose final tax liability for such taxable year is greater than zero. For fiscal years 2019-2020 and 2020-2021, the taxable years of an eligible taxpayer begin between April 1, 2018 and March 31, 2019 and April 1, 2019 and March 31, 2020, respectively.
10 FLA. STAT. ANN. § 220.1105(4).
11 Total eligible tax liability is the sum of final tax liabilities of all eligible taxpayers for a fiscal year as shown on the latest corporate income tax return filed with the Department as of February 1 immediately following the fiscal year. FLA. STAT. ANN. § 220.1105(4)(a)4.
12 FLA. STAT. ANN. § 220.1105(4)(b), (c).



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