Florida: Guidance Issued on Conformity Legislation; Decoupling

Recently, the Florida Department of Revenue issued Tax Information Publication No. 21C01-01 addressing the state’s adoption of the 2021 Internal Revenue Code. Recall, earlier this year Florida enacted House Bill 7059 that updated the state’s conformity to the Internal Revenue Code as of January 1, 2021. The law was applicable retroactively to January 1, 2021. However, the state decoupled from the CARES Act and CAA provisions that temporarily (1) increase the amount of interest that can be deducted under IRC section 163(j) and (2) allow 100 percent of business meals provided by restaurants to be deducted. The conformity bill also decoupled from the CARES Act fix treating qualified improvement property as bonus-eligible 15-year property.  

The TIP first notes that some taxpayers have already filed their returns and may need to file amended Florida corporate returns. The TIP then instructs taxpayers as to how they should account for the areas of non-conformity.  With respect to the enhanced federal 163(j) limitation, taxpayers must add back as an “Other Addition” on Line 19 of Schedule I of the Florida Corporate Income/Franchise Tax Return (Form F-1120) the amount that the federal deduction exceeded the amount allowed by Florida. This addition is then treated as a disallowed business interest expense carryforward from prior years for purposes of computing business interest expense in subsequent years.  An addback is also required for any federally deducted qualified improvement property whether the property is depreciated on the federal return or the subject of an IRC section 481(a) adjustment. Although the legislature did not specifically address NOLs in the conformity bill, the TIP confirms that Florida adopts the CARES Act’s temporary suspension of the 80 percent NOL limitation, but does not conform to the five-year NOL carryback provisions. Florida NOLs generated in taxable years beginning after December 31, 2020, will be carried forward and applied toward 80 percent of Florida tentative apportioned adjusted federal income. Finally, the TIP reminds taxpayers that Florida does not allow deduction for expenses upon which federal credits are claimed unless specifically authorized by law. While a deduction is allowed for wages and salaries paid in Florida when a federal deduction is not allowed under IRC section 280C(a), deductions are not allowed with respect to other federal credits. Please contact Henry Parcinski with questions on Florida’s conformity provisions.