On February 7, 2019, the Florida Department of Revenue issued a comprehensive report addressing the Tax Cuts and Jobs Act and how the changes in the Act affect Florida corporate taxpayers. The report also provides estimates of the fiscal impact of certain provisions of the TCJA. Because Florida does not have a personal income tax, the 288 page report, which includes public comments, focuses entirely on corporate changes. When Florida updated its conformity in 2018 to adopt the Code as of January 1, 2018, it did not specifically decouple or address any of the tax reform changes. The report not only explains the federal change and how it effects Florida law, but also provides recommendations for potential law changes that the state legislature could make.
The report provides a detailed analysis on fourteen “Topics with Significant Impact to Florida” and then addresses additional topics in less detail. The fourteen topics addressed include: (1) Transition Tax-Repatriation; (2) Alternative Minimum Tax; (3) Section 179 Expensing; (4) Net Operating Loss; (5) Bonus Depreciation; (6) Domestic Production Activities Deduction; (7) Base-Erosion and Anti- Abuse Tax; (8) Amortization of Research and Experimental Expenditures; (9) Participation Exemption for Dividends Received from Foreign Corporation; (10) Global Intangible Low-Taxed Income; (11) Foreign-Derived Intangible Income Deduction; (12) Limit Net Interest Deductions; (13) Contributions to the Capital of a Corporation; and (14) Like-Kind Exchanges.
The report provides some helpful insights on the state’s conformity to certain changes. For example, it confirms that Florida, a line 30 state, adopts the federal 80 percent limit on the use of NOLs generated in taxable years beginning after December 31, 2017 and the indefinite carryforward period. Florida had already specifically acted to decouple from NOL carrybacks. With respect to the IRC section 163(j) limits, to which Florida currently conforms, the report confirms that a corporate member of an affiliated group that files a consolidated federal return and files a separate Florida return must complete a pro forma federal income tax return as if that corporation filed separately for federal income tax purposes. The amount reported on Line 1 of the Florida Form F-1120 should be the corporation’s pro forma federal taxable income, which includes any federal interest limitation. With respect to GILTI and FDII, as a Line 30 state, Florida will tax net GILTI (the IRC section 951A inclusion amount after the section 250 deduction) and will allow the subtraction for FDII. The report observes that “given possible constitutional issues, policymakers may wish to consider creating a subtraction in Florida law for GILTI income to the extent it is included in taxable income.” Please stay tuned to TWIST for additional updates on state reactions to federal tax reform.