HB 1553

1	A bill to be entitled
2	An act relating to corporate income taxation; amending s.
3	220.02, F.S.; revising legislative intent to subject
4	limited liability companies and subchapter S corporations
5	to the corporate income tax; distinguishing income of
6	certain entities from income of shareholders, partners, or
7	members; amending s. 220.03, F.S.; revising the
8	definitions of corporation and taxpayer to conform;
9	expanding the definition of nonbusiness income; providing
10	a definition of water's edge group; amending s. 220.13,
11	F.S.; revising subtraction adjustments to adjusted federal
12	income for water's edge groups and limited liability
13	companies; revising a definition of taxable income for
14	corporations and limited liability companies; creating s.
15	220.136, F.S.; providing certain reporting method
16	requirements for water's edge groups; authorizing members
17	of a water's edge group to file a single combined tax
18	return and pay the entire tax due for all members;
19	requiring a water's edge group to file a domestic
20	disclosure spreadsheet under certain circumstances;
21	providing requirements; authorizing the Department of
22	Revenue to adopt implementing and administering rules and
23	forms; amending s. 220.15, F.S.; revising criteria for
24	determining the occurrence of sales of tangible personal
25	property in this state; amending s. 220.64, F.S.;
26	providing for application of the water's edge reporting
27	requirements to the franchise tax imposed on banks and
28	savings associations; amending s. 608.471, F.S.; revising
29	provisions granting a tax exemption on income of certain
30	limited liability companies to delete certain partnership
31	classification provisions; providing applicability;
32	providing an effective date.
33
34	Be It Enacted by the Legislature of the State of Florida:
35
36	Section 1.  Subsections (1) and (9) of section 220.02,
37	Florida Statutes, are amended to read:
38	220.02  Legislative intent.--
39	(1)  It is the intent of the Legislature in enacting this
40	code to impose a tax upon all corporations, organizations,
41	associations, and other artificial entities which derive from
42	this state or from any other jurisdiction permanent and inherent
43	attributes not inherent in or available to natural persons, such
44	as perpetual life, transferable ownership represented by shares
45	or certificates, and limited liability for any all owners. It is
46	intended that any limited liability companies and subchapter S
47	corporations company that is classified as a partnership for
48	federal income tax purposes and formed under chapter 608 or
49	qualified to do business in this state as a foreign limited
50	liability company not be subject to the tax imposed by this
51	code. It is the intent of the Legislature to subject such
52	corporations and other entities to taxation hereunder for the
53	privilege of conducting business, deriving income, or existing
54	within this state. This code is not intended to tax, and shall
55	not be construed so as to tax, any natural person who engages in
56	a trade, business, or profession in this state under his or her
57	own or any fictitious name, whether individually as a
58	proprietorship or in partnership with others, or as a member or
59	a manager of a limited liability company classified as a
60	partnership for federal income tax purposes; any estate of a
61	decedent or incompetent; or any testamentary trust. The income
62	of a corporation, limited liability company, subchapter S
63	corporation, or other taxable entity is distinct from the income
64	of its shareholders, partners, or members. However, a
65	corporation or other taxable entity which is or which becomes
66	partners with one or more natural persons shall not, merely by
67	reason of being a partner, exclude from its net income subject
68	to tax its respective share of partnership net income. This
69	statement of intent shall be given preeminent consideration in
70	any construction or interpretation of this code in order to
71	avoid any conflict between this code and the mandate in s. 5,
72	Art. VII of the State Constitution that no income tax be levied
73	upon natural persons who are residents and citizens of this
74	state.
75	(9)  Notwithstanding any other provision of this chapter,
76	it is the intent of the Legislature that, except as otherwise
77	provided under the Internal Revenue Code, for the purposes of
78	this chapter, the term "qualified subchapter S subsidiary," as
79	that term is defined in s. 1361(b)(3) of the Internal Revenue
80	Code, shall not be treated as a separate corporation or entity
81	from the S corporation parent to which the subsidiary's assets,
82	liabilities, income, deductions, and credits are attributed
83	under s. 1361(b)(3) of the Internal Revenue Code.
84	Section 2.  Paragraphs (e), (r), and (aa) of subsection (1)
85	of section 220.03, Florida Statutes, are amended, and paragraph
86	(hh) is added to said subsection, to read:
87	220.03  Definitions.--
88	(1)  SPECIFIC TERMS.--When used in this code, and when not
89	otherwise distinctly expressed or manifestly incompatible with
90	the intent thereof, the following terms shall have the following
91	meanings:
92	(e)  "Corporation" includes all domestic corporations;
93	foreign corporations qualified to do business in this state or
94	actually doing business in this state; joint-stock companies;
95	limited liability companies, under chapter 608; common-law
96	declarations of trust, under chapter 609; corporations not for
97	profit, under chapter 617; agricultural cooperative marketing
98	associations, under chapter 618; professional service
99	corporations, under chapter 621; foreign unincorporated
100	associations, under chapter 622; private school corporations,
101	under chapter 623; foreign corporations not for profit which are
102	carrying on their activities in this state; and all other
103	organizations, associations, legal entities, and artificial
104	persons which are created by or pursuant to the statutes of this
105	state, the United States, or any other state, territory,
106	possession, or jurisdiction. The term "corporation" does not
107	include proprietorships, even if using a fictitious name;
108	partnerships of any type, as such; limited liability companies
109	that are taxable as partnerships for federal income tax
110	purposes; state or public fairs or expositions, under chapter
111	616; estates of decedents or incompetents; testamentary trusts;
112	or private trusts.
113	(r)  "Nonbusiness income" means rents and royalties from
114	real or tangible personal property, capital gains, interest,
115	dividends, and patent and copyright royalties, to the extent
116	that they do not arise from transactions and activities in the
117	regular course of the taxpayer's trade or business. The term
118	"nonbusiness income" does not include income from tangible and
119	intangible property if the acquisition, management, or and
120	disposition of the property constitutes an constitute integral
121	part parts of the taxpayer's regular trade or business
122	operations, including amounts received from manufacturing under
123	license agreements, or any amounts which could be included in
124	apportionable income without violating the due process clause of
125	the United States Constitution. For purposes of this definition,
126	"income" means gross receipts less all expenses directly or
127	indirectly attributable thereto. Functionally related dividends
128	are presumed to be business income.
129	(aa)  "Taxpayer" means any corporation subject to the tax
130	imposed by this code, and includes all corporations for which a
131	consolidated return is filed under s. 220.131 or a water's edge
132	group return is filed under s. 220.136. However, "taxpayer" does
133	not include a corporation having no individuals (including
134	individuals employed by an affiliate) receiving compensation in
135	this state as defined in s. 220.15 when the only property owned
136	or leased by said corporation (including an affiliate) in this
137	state is located at the premises of a printer with which it has
138	contracted for printing, if such property consists of the final
139	printed product, property which becomes a part of the final
140	printed product, or property from which the printed product is
141	produced.
142	(hh)  "Water's edge group" means a group of taxpayers
143	related through common ownership whose business activities are
144	integrated with, dependent upon, or contribute to a flow of
145	value among members of the group. When 50 percent or more of the
146	outstanding voting stock of a corporation is under direct or
147	indirect ownership or control of the group, the group shall be
148	considered a water's edge group unless clearly shown by the
149	facts and circumstances of the individual case to not be a
150	water's edge group. When less than 50 percent of the outstanding
151	voting stock of a corporation is under direct or indirect
152	ownership or control of the group, all elements of the business
153	activities shall be considered in determining whether the group
154	qualifies as a water's edge group. The water's edge group shall
155	not include the income of any corporation which conducts
156	business outside the United States if 80 percent or more of the
157	corporation's property and payroll, as determined by the
158	apportionment factors described in ss. 220.15 and 220.151, is
159	assignable to locations outside the United States. In
160	determining whether voting stock is owned indirectly, the
161	attribution rules of s. 318 of the Internal Revenue Code shall
162	be used. For purposes of this paragraph, the term "United
163	States" is restricted to the 50 states, the District of
164	Columbia, and Puerto Rico.
165	Section 3.  Paragraph (b) of subsection (1) and paragraphs
166	(i) and (j) of subsection (2) of section 220.13, Florida
167	Statutes, are amended to read:
168	220.13  "Adjusted federal income" defined.--
169	(1)  The term "adjusted federal income" means an amount
170	equal to the taxpayer's taxable income as defined in subsection
171	(2), or such taxable income of more than one taxpayer as
172	provided in s. 220.131, for the taxable year, adjusted as
173	follows:
174	(b)  Subtractions.--
175	1.  There shall be subtracted from such taxable income:
176	a.  The net operating loss deduction allowable for federal
177	income tax purposes under s. 172 of the Internal Revenue Code
178	for the taxable year,
179	b.  The net capital loss allowable for federal income tax
180	purposes under s. 1212 of the Internal Revenue Code for the
181	taxable year,
182	c.  The excess charitable contribution deduction allowable
183	for federal income tax purposes under s. 170(d)(2) of the
184	Internal Revenue Code for the taxable year, and
185	d.  The excess contributions deductions allowable for
186	federal income tax purposes under s. 404 of the Internal Revenue
187	Code for the taxable year.
188
189	However, a net operating loss and a capital loss shall never be
190	carried back as a deduction to a prior taxable year, but all
191	deductions attributable to such losses shall be deemed net
192	operating loss carryovers and capital loss carryovers,
193	respectively, and treated in the same manner, to the same
194	extent, and for the same time periods as are prescribed for such
195	carryovers in ss. 172 and 1212, respectively, of the Internal
196	Revenue Code. No deduction shall be allowed for net operating
197	losses, net capital losses, or excess contribution deductions
198	under ss. 170(d)(2), 172, 1212, and 404 of the Internal Revenue
199	Code for a non-United States member of a water's edge group.
200	2.  There shall be subtracted from such taxable income any
201	amount to the extent included therein the following:
202	a.  Dividends treated as received from sources without the
203	United States, as determined under s. 862 of the Internal
204	Revenue Code.
205	b.  All amounts included in taxable income under s. 78 or
206	s. 951 of the Internal Revenue Code.
207
208	However, as to any amount subtracted under this subparagraph,
209	there shall be added to such taxable income all expenses
210	deducted on the taxpayer's return for the taxable year which are
211	attributable, directly or indirectly, to such subtracted amount.
212	Further, no amount shall be subtracted with respect to dividends
213	paid or deemed paid by a Domestic International Sales
214	Corporation.
215	3.  There shall be subtracted from such taxable income, to
216	the extent included therein, amounts received by a member of a
217	water's edge group which was a dividend paid by another member
218	of the same water's edge group.
219	4.3.  In computing "adjusted federal income" for taxable
220	years beginning after December 31, 1976, there shall be allowed
221	as a deduction the amount of wages and salaries paid or incurred
222	within this state for the taxable year for which no deduction is
223	allowed pursuant to s. 280C(a) of the Internal Revenue Code
224	(relating to credit for employment of certain new employees).
225	5.4.  There shall be subtracted from such taxable income
226	any amount of nonbusiness income included therein.
227	6.5.  There shall be subtracted any amount of taxes of
228	foreign countries allowable as credits for taxable years
229	beginning on or after September 1, 1985, under s. 901 of the
230	Internal Revenue Code to any corporation which derived less than
231	20 percent of its gross income or loss for its taxable year
232	ended in 1984 from sources within the United States, as
233	described in s. 861(a)(2)(A) of the Internal Revenue Code, not
234	including credits allowed under ss. 902 and 960 of the Internal
235	Revenue Code, withholding taxes on dividends within the meaning
236	of sub-subparagraph 2.a., and withholding taxes on royalties,
237	interest, technical service fees, and capital gains.
238	7.  There shall be subtracted from such taxable income any
239	amount of the taxpayer's respective share of income, gain, loss,
240	or deduction received from a limited liability company that was
241	reported on a return filed under this chapter by the limited
242	liability company.
243	8.6.  Notwithstanding any other provision of this code,
244	except with respect to amounts subtracted pursuant to
245	subparagraphs 1. and 4. 3., any increment of any apportionment
246	factor which is directly related to an increment of gross
247	receipts or income which is deducted, subtracted, or otherwise
248	excluded in determining adjusted federal income shall be
249	excluded from both the numerator and denominator of such
250	apportionment factor. Further, all valuations made for
251	apportionment factor purposes shall be made on a basis
252	consistent with the taxpayer's method of accounting for federal
253	income tax purposes.
254	(2)  For purposes of this section, a taxpayer's taxable
255	income for the taxable year means taxable income as defined in
256	s. 63 of the Internal Revenue Code and properly reportable for
257	federal income tax purposes for the taxable year, but subject to
258	the limitations set forth in paragraph (1)(b) with respect to
259	the deductions provided by ss. 172 (relating to net operating
260	losses), 170(d)(2) (relating to excess charitable
261	contributions), 404(a)(1)(D) (relating to excess pension trust
262	contributions), 404(a)(3)(A) and (B) (to the extent relating to
263	excess stock bonus and profit-sharing trust contributions), and
264	1212 (relating to capital losses) of the Internal Revenue Code,
265	except that, subject to the same limitations, the term:
266	(i)  "Taxable income," in the case of a corporation for
267	which there is in effect for the taxable year an election under
268	s. 1362(a) of the Internal Revenue Code, means the ordinary
269	income or loss from trade or business activity and the amounts
270	subject to tax under s. 1374 or s. 1375 of the Internal Revenue
271	Code for each taxable year;
272	(j)  "Taxable income," in the case of a limited liability
273	company, other than a limited liability company classified as a
274	partnership for federal income tax purposes, as defined in and
275	organized pursuant to chapter 608 or qualified to do business in
276	this state as a foreign limited liability company or other than
277	a similar limited liability company classified as a partnership
278	for federal income tax purposes and created as an artificial
279	entity pursuant to the statutes of the United States or any
280	other state, territory, possession, or jurisdiction, absent a
281	federal report and determination of taxable income as a
282	corporation under the Internal Revenue Code if such limited
283	liability company or similar entity is taxable as a corporation
284	for federal income tax purposes, means taxable income determined
285	as if such limited liability company were required to file or
286	had filed a federal corporate income tax return under the
287	Internal Revenue Code;
288	Section 4.  Section 220.136, Florida Statutes, is created
289	to read:
290	220.136  Water's edge groups; special requirements.-?
291	(1)  All members of a water's edge group must use the
292	water's edge reporting method unless the parent of the water's
293	edge group is eligible to make a Florida consolidated return
294	election pursuant to s. 220.131(1) and such election is made or
295	was previously made. The group electing to make such Florida
296	consolidated return shall be composed of the identical component
297	members as those which have consolidated their taxable incomes
298	in a consolidated return for federal income tax purposes as
299	provided in s. 220.131(1)(b). Under the water's edge reporting
300	method:
301	(a)  Adjusted federal income for purposes of s. 220.12
302	means the sum of adjusted federal income for all members of the
303	group determined for a concurrent taxable year.
304	(b)  The denominators of the apportionment factors shall be
305	calculated for all members of the water's edge group combined.
306	(c)  The general apportionment method shall be used for all
307	members of the water's edge group, unless an alternate method is
308	determined to be more appropriate by the department.
309	(d)  Intercompany transactions sales made between members
310	of the water's edge group shall be eliminated in the computation
311	of the sales factor pursuant to ss. 220.15 and 220.151. As used
312	in this subsection, the term "sales" includes, but is not
313	limited to, loans, payments for intangibles, dividends, and
314	management fees.
315	(e)  Each taxpayer shall apportion adjusted federal income
316	under s. 220.15 as a member of a water's edge group which files
317	a water's edge return under this section on the basis of
318	apportionment factors described in s. 220.15. For purposes of
319	this subsection, each special industry member included in a
320	water's edge group filing a water's edge return under this
321	section, which member would otherwise be permitted to use a
322	special method of apportionment under s. 220.151, shall
323	construct the numerator of its sales, property, and payroll
324	factors, respectively, by multiplying the denominator of each
325	such factor by the premiums or revenue miles factor ratio
326	otherwise applicable pursuant to s. 220.151 in the manner
327	prescribed by the department by rule.
328	(f)  For purposes of this section, the term "water's edge
329	reporting method" means the determination of taxable business
330	profits for a group of entities conducting a unitary business by
331	adding their combined net income and the additions and
332	deductions provided in s. 220.13 for members of the group and
333	apportioning the result as provided in s. 220.15.
334	(2)  Members of a water's edge group may elect to file a
335	single combined tax return and pay the entire tax due for all
336	taxpayers included in the group.
337	(3)  A water's edge group shall be required to file a
338	domestic disclosure spreadsheet in the manner and form
339	prescribed in rule by the department. A "domestic disclosure
340	spreadsheet" means a spreadsheet which fully discloses the
341	income reported to each state, the state tax liability, the
342	method used for apportioning or allocating income to the various
343	states, and other information provided for by rules as may be
344	necessary to determine the proper amount of tax due to each
345	state and to identify the water's edge group.
346	(4)  The department may adopt rules and forms as may be
347	necessary or appropriate to administer and implement this
348	section. It is the intent of the Legislature, by this section,
349	to grant to the department extensive authority to adopt rules
350	and forms describing and defining principles for determining the
351	existence of a water's edge group, the water's edge business
352	principle, indicators of a water's edge business, definitions of
353	common control, methods of reporting, and related forms,
354	principles, and definitions.
355	Section 5.  Paragraph (b) of subsection (5) of section
356	220.15, Florida Statutes, is amended to read:
357	220.15  Apportionment of adjusted federal income.--
358	(5)  The sales factor is a fraction the numerator of which
359	is the total sales of the taxpayer in this state during the
360	taxable year or period and the denominator of which is the total
361	sales of the taxpayer everywhere during the taxable year or
362	period.
363	(b)1.  Sales of tangible personal property occur in this
364	state if the property is delivered or shipped to a purchaser
365	within this state, regardless of the f.o.b. point, other
366	conditions of the sale, or ultimate destination of the property,
367	unless shipment is made via a common or contract carrier, or if
368	the property is shipped from an office, store, warehouse,
369	factory, or other place of storage in this state, and the
370	purchaser is the United States Government or the actual entity
371	making the sale is not subject to a tax upon or measured by
372	income in the state to which the sale would be assigned absent
373	this paragraph. However, for industries in SIC Industry Number
374	2037, if the ultimate destination of the product is to a
375	location outside this state, regardless of the method of
376	shipment or f.o.b. point, the sale shall not be deemed to occur
377	in this state.
378	2.  When citrus fruit is delivered by a cooperative for a
379	grower-member, by a grower-member to a cooperative, or by a
380	grower-participant to a Florida processor, the sales factor for
381	the growers for such citrus fruit delivered to such processor
382	shall be the same as the sales factor for the most recent
383	taxable year of that processor. That sales factor, expressed
384	only as a percentage and not in terms of the dollar volume of
385	sales, so as to protect the confidentiality of the sales of the
386	processor, shall be furnished on the request of such a grower
387	promptly after it has been determined for that taxable year.
388	3.  Reimbursement of expenses under an agency contract
389	between a cooperative, a grower-member of a cooperative, or a
390	grower and a processor is not a sale within this state.
391	Section 6.  Section 220.64, Florida Statutes, is amended to
392	read:
393	220.64  Other provisions applicable to franchise tax.--To
394	the extent that they are not manifestly incompatible with the
395	provisions of this part, parts I, III, IV, V, VI, VIII, IX, and
396	X of this code and ss. 220.12, 220.13, 220.136, 220.15, and
397	220.16 apply to the franchise tax imposed by this part. Under
398	rules prescribed in s. 220.131, a consolidated return may be
399	filed by any affiliated group of corporations composed of one or
400	more banks or savings associations, its or their Florida parent
401	corporation, and any nonbank or nonsavings subsidiaries of such
402	parent corporation.
403	Section 7.  Section 608.471, Florida Statutes, is amended
404	to read:
405	608.471  Tax exemption on income of certain limited
406	liability companies.--
407	(1)  A limited liability company classified as a
408	partnership for federal income tax purposes, or a single member
409	limited liability company which is disregarded as an entity
410	separate from its owner for federal income tax purposes, and
411	organized pursuant to this chapter or qualified to do business
412	in this state as a foreign limited liability company is not an
413	"artificial entity" within the purview of s. 220.02 and is not
414	subject to the tax imposed under chapter 220. A distribution
415	shall be deemed a "dividend" under s. 316 of the Internal
416	Revenue Code as such code is defined in s. 220.03. If a single
417	member limited liability company is disregarded as an entity
418	separate from its owner for federal income tax purposes, its
419	activities are, for purposes of taxation under chapter 220,
420	treated in the same manner as a sole proprietorship, branch, or
421	division of the owner.
422	(2)  For purposes of taxation under chapter 220, a limited
423	liability company formed in this state or authorized to transact
424	business in this state as a foreign limited liability company
425	shall be classified as a partnership, or a limited liability
426	company which has only one member shall be disregarded as an
427	entity separate from its owner for federal income tax purposes,
428	unless classified otherwise for federal income tax purposes, in
429	which case the limited liability company shall be classified
430	identically to its classification for federal income tax
431	purposes. For purposes of taxation under chapter 220, a member
432	or an assignee of a member of a limited liability company formed
433	in this state or qualified to do business in this state as a
434	foreign limited liability company shall be treated as a resident
435	or nonresident partner unless classified otherwise for federal
436	income tax purposes, in which case the member or assignee of a
437	member shall have the same status as such member or assignee of
438	a member has for federal income tax purposes.
439	(2)(3)  Single-member limited liability companies and other
440	entities that are disregarded for federal income tax purposes
441	must be treated as separate legal entities for all non-income-
442	tax purposes. The Department of Revenue shall adopt rules to
443	take into account that single-member disregarded entities such
444	as limited liability companies and qualified subchapter S
445	corporations may be disregarded as separate entities for federal
446	tax purposes and therefore may report and account for income,
447	employment, and other taxes under the taxpayer identification
448	number of the owner of the single-member entity.
449	Section 8.  This act shall take effect July 1, 2004, and
450	shall apply to tax years ending on or after December 31, 2004.

CODING: Words stricken are deletions; words underlined are additions.