On June 26, 2019, HB 7127 (hereafter, "the bill") was sent to Florida Governor Ron DeSantis for his signature. If enacted, the bill would: update Florida's date of conformity to the Internal Revenue Code of 1986, as amended (IRC); decouple the state's corporate income tax law from the global intangible low-taxed income (GILTI) provisions under IRC Section 951A; require the reporting of several key pieces of taxpayer-specific information and establish penalty provisions for failure to provide such information; and extend a policy set by the tax bill adopted by the Florida legislature in 2018 that if corporate income tax collections exceed state revenue forecasts by more than 7%, any excess will be refunded to taxpayers. Any such overcollections also would trigger a temporary cut to the state's 5.5-percent corporate income tax rate. The refund and rate-cut policy would apply for fiscal years 2018-19, 2019-20, and 2020-21.

IRC conformity

The bill would update Florida's corporate income tax law's conformity to the IRC to that in effect as of January 1, 2019 by updating Sections 220.03(1)(n) and (2)(c) of the Florida Statutes (F.S).¹

GILTI decoupling

The bill would modify Section 220.03(1)(b)2, F.S., to include IRC Section 951A as an allowable subtraction modification from Florida taxable income, to the extent such amount is already not deductible in determining federal taxable income (i.e., the GILTI subtraction amount would be net of the IRC Section 250 deduction attributable to GILTI). Further, the subtraction modification must be decreased by direct or indirectly attributable expenses. This provision is effective retroactively to January 1, 2018.

TCJA information reporting requirements

The bill would create new Section 220.27, F.S., to require the reporting of several key pieces of taxpayer-specific information for Florida corporate income tax returns filed beginning during the 2018 or 2019 taxable years, including the taxpayer's North American Industry Classification System (NAICS) code, the GILTI amounts reported for federal income tax purposes, the amounts for foreign derived intangible income (FDII) reported under IRC Section 250 for federal income tax purposes, all interest expense including amounts limited by IRC Section 163(j) and the taxpayer's federal net operating losses (NOLs), and state NOLs. The information must be submitted through the Florida Department of Revenue's (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% of the tax due for the most recent taxable year filed return, whichever is greater.

Extension of automatic refunds & rate cut mechanisms

The bill would amend Section 220.1105, F.S., to extend a policy set by the Legislature in its 2018 tax bill requiring that any corporate income tax collections that exceed state revenue forecasts for the 2018-19 fiscal year by more than 7% are to be refunded to taxpayers. The overcollections also would trigger a temporary cut to the state's 5.5-percent corporate income tax rate, effective for taxable years beginning on or after January 1, 2019. H.B. 7127 would extend this refund and rate-cut policy through fiscal years 2018-19, 2019-20, and 2020-21. The bill directs the Department to determine the new, temporary rate by October 1 of each of 2019, 2020 and 2021. The tax rate would revert back to 5.5% for taxable years beginning on or after January 1, 2022.

Implications

While H.B. 7127 would provide a subtraction modification for the net GILTI amount included in a Florida corporate income taxpayer's tax base, the subtraction must be reduced by direct or indirectly attributable expenses. The Department has not provided any guidance to taxpayers on how these expenses, if any, should be calculated.

In addition, the bill would require new information reporting requirements for Florida corporate income taxpayers that would have to be reported separately from the information set forth in their corporate income tax returns with new penalties for noncompliance. Furthermore, if the current revenue estimates for FY 2018-19 are realized, provisions enacted by the 2018 Legislature would be triggered, requiring a reduction in the corporate income tax rate and necessitating refunds to Florida corporate taxpayers, and those refund and rate cut provisions would extend for an additional two years. The Governor has until July 11, 2019 to act on the bill or it will become law without his signature (he is expected to sign the bill).

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ENDNOTES

¹ Note, this provision would apply retroactively to a taxpayer's 2018 tax year because of its interplay with Section 220.03(4), F.S., which states, "[i]t is the intent of the Legislature that all amendments to the Internal Revenue Code be given effect under the Florida Income Tax Code in such manner and for such periods as are prescribed in the Internal Revenue Code, to the same extent as if such amendments had been adopted by the Legislature of the state."