Florida Department of Revenue Conducts First Public Meeting Regarding TCJA Changes

The December 22, 2017, effective date of the federal Tax Cuts and Jobs Act (TCJA) afforded the Florida Legislature little time during its 2018 Regular Session to evaluate the potential impact of the TCJA’s many domestic and foreign provisions on Florida’s corporate income tax. As a result, the Legislature directed the Department of Revenue to conduct a review of the TCJA’s impact on Florida corporate income taxpayers and report by February 1, 2019. Part of this review process has been examining the effects of the TCJA and receiving written public input. On August 22, 2018, the Department held the first of at least two meetings to receive public comments.

Prior to the public meeting, the Department identified 13 provisions of the TCJA that “have the potential to have significant impacts on Florida,”[i] including:

  • Net interest deduction limitations – IRC §163(j)
  • Global Intangible Low-Taxed Income – IRC §951A
  • Treatment of one-time deemed repatriated foreign income – IRC §965
  • Repeal of the Alternative Minimum Tax – IRC §§53, 55 and 56
  • Increases in limitations on expensing certain business assets – IRC §179
  • Changes to net operating loss deduction – IRC §172
  • Bonus depreciation – IRC §168(k)
  • Repeal of domestic production activities deduction – IRC §199
  • Base Erosion Anti-Abuse Tax (BEAT) – IRC §59A
  • Amortization of research and experimental expenditures – IRC §174
  • Deduction for dividends received from foreign corporations – IRC §245A
  • Deduction for Foreign-Derived Intangible Income (FDII) – IRC §250
  • Taxability of certain federal, state and local tax incentives – IRC §118

Approximately fifty individuals attended the August 22 public meeting either in-person or online. As expected, the majority of the public comments focused mainly on the TCJA’s net interest deduction limitation, Global Intangible Low-Taxed Income (GILTI), and the treatment of repatriated foreign income. The public comments for each provision will be discussed in more detail below.

Net Interest Deduction Limitation – IRC §163(j)

The TCJA created a new limitation on interest expense deductions, which effectively limits a taxpayer’s interest expense deductions for a taxable year to the sum of 30% of adjusted taxable income plus the amount of any business interest. For purposes of the new limitation, “adjusted taxable income” is determined in a manner similar to earnings before interest, tax, depreciation and amortization (EBIDTA) for tax years prior to January 1, 2022 and similar to earnings before interest and tax (EBIT) for tax years on or after January 1, 2022. Thus, for tax years 2022 and later, the narrower definition will generally result in a smaller business interest deduction. Regardless of the tax year, the new deduction limitation to § 163(j) will result in an increase of federal taxable income and ultimately more Florida Corporate Income Taxes paid by taxpayers.

The first commenter at the August 22 public meeting was Karl Frieden, General Counsel for the Council on State Taxation (COST). COST’s comments at the public meeting were consistent with the written comments COST previously submitted to the Department on August 20, 2018.[ii] The focus of COST’s comments included:

  1. The federal corporate tax base broadening provisions in the TCJA were designed to offset the reduction in the federal corporate tax rate to make the US more competitive internationally. Because states have not similarly lower tax rates, failing to decouple from the interest deduction limitation creates arbitrary results that are inconsistent with the federal tax reform.
  2. Citing the report entitled The Impact of Federal Tax Reform on State Corporate Income Taxes,[iii] COST explained it is estimated the interest deduction limitation will result in a 7% increase per year in the Florida corporate tax base. COST explained this single provision accounts for the majority of the total estimated Florida corporate tax base increase under the TCJA of 13% per year.
  3. Lastly, COST argued that the interest deduction limitation should be coupled with the additional 100% expensing allowed under IRC §168(k). COST contends Congress intended these two provisions to be linked to spur immediate business improvements and allowing the corresponding interest deductions to be spread over time. COST provided that if states, like Florida, already decouple from the increased expensing allowed and also adopt the interest deduction limitation, there will be disproportionate results.

The second commenter was Diann Smith from McDermott Will & Emery, representing the State After Tax Reform (STAR) Partnership. The STAR Partnership previously provided written comments to the Department on August 21.[iv] The STAR Partnership echoed the COST comments and additionally warned the Department of the added complexity that will occur in a separate entity state such as Florida if the IRS imposes the interest limitation deduction on a federal consolidated basis.

Both commenters directly urged the Department, and indirectly the 2019 Legislature, to decouple from the TCJA’s interest deduction limitation provisions in IRC §163(j).

Global Intangible Low-Taxed Income – IRC §951A

New Section §951A imposes tax on income received by U.S. shareholders from controlled foreign corporations in excess of a deemed return on the tangible assets of that foreign entity. An effective tax rate lower than the normal federal corporate tax rate is achieved through certain “special deductions” under Section 250 reported on line 29 of the federal return.

Unless the Florida Legislature specifically excludes GILTI from the Florida tax base, conformity with TCJA would result in a substantial revenue increase to the state. If the Legislature accepts this revenue increase, the Section 250 deductions should automatically be picked up since Florida conforms to line 30 of the federal return as the starting point for determining taxable income.

Karl Frieden of COST and Diann Smith of the STAR Partnership provided public comments asserting that including GILTI in Florida’s taxable base would result in an unprecedented expansion of the state taxing foreign income. Both commenters suggested that the Department may already have the regulatory authority to exclude GILTI as subpart F income, due to their similarities. However, all parties appear to agree that clear legislation decoupling from GILTI would provide the most protection against this substantial revenue increase.

Additionally, COST and the STAR Partnership explained the constitutional limitations related to the GILTI provisions.[v] Under Kraft, the U.S. Supreme Court forbids a state from discriminatory taxation against foreign commerce. The same issue would arise with GILTI, and the complicated calculations to comply at a state level would only exacerbate the constitutional concerns. Even if Florida were not prohibited from taxing GILTI, other federal constitutional requirements may affect the apportionment of that income.

Treatment of One-Time Deemed Repatriated Foreign Income – IRC §965

Section 965 imposes a one-time transition tax on a U.S. shareholder’s post-1986 previously untaxed accumulated foreign earnings and profits generated from its investment in a specified foreign corporation. These earnings are deemed to be “repatriated” on a pro rata basis to U.S. shareholders owning at least a 10% interest in the foreign entity and are reportable in the foreign entity’s last tax year beginning before January 1, 2018. Different effective tax rates for cash and cash equivalents and non-cash amounts, both lower than the standard federal corporate rate, are achieved through certain deductions.

Section 965 income and deductions are reported to the IRS on a separate transition tax statement attached to the federal return, with only the resultant tax liability reported on Schedule J and, consequently, included on line 31 of the federal return. Based on guidance from the IRS regarding these reporting mechanics, the Department previously issued informal guidance that deemed repatriation income under IRC §965 is not generally included in the Florida corporate income tax base.[vi]

Mark Holcomb, of Dean Mead, advocated that the Legislature should codify the Department’s informal pronouncement, in the interests of clarity and certainty for both the Department and taxpayers. Unless the Legislature reverses course and requires an addition of deemed repatriated foreign income to the Florida tax base, these amounts should be excluded from Florida corporate income tax for most taxpayers. Additionally, Dean Mead opined that the Department got it right and the income should not be excluded as subpart F income, which would bring about potential expense/addback issues. COST echoed Dean Mead’s comments and added that Florida should be limited to water’s edge, not foreign. The STAR Partnership further commented that the retroactive nature of the changes could result in due process challenges.

Remaining Ten Provisions

The remaining ten provisions received little or no public comment. The STAR Partnership recognized the inherent inconsistency with states taxing certain federal, state and local tax incentives under IRC §118. It is like giving with one hand and taking away with the other.

FDIC Premiums – IRC §162(r)

The STAR Partnership pointed out a fourteenth provision for the Department’s inclusion and consideration. Federal changes to Section 162(r) disallowed a deduction for FDIC fees solely to offset the federal corporate tax rate reduction. Florida should, therefore, decouple from these provisions to avoid negative impacts to financial institutions with a significant presence in the state.


This first public meeting was a good opportunity for some of the most significant TCJA conformity issues to be discussed. While a limited few interested parties provided official comments, many individuals were monitoring the discussions. The Department has said a second public meeting will be held tentatively on October 24. We anticipate a significant number of taxpayers, business groups, coalitions, and associations will have written and/or oral comments submitted to the Department by the time of the next meeting. Now is the time to have your voice heard.

For assistance with this and other state and local tax matters, please contact a member of our State and Local Tax Team.

[i] See Department of Revenue Status Report dated August 3, 2018, available online at http://floridarevenue.com/taxes/Documents/CIT%20Review%208.3.18%20Status%20Report.pdf.
[ii] Available online at http://floridarevenue.com/taxes/Documents/Public%20Comment7-082018.pdf.
[iii] Available online at https://cost.org/globalassets/cost/state-tax-resources-pdf-pages/cost-studies-articles-reports/cost-federal-tax-reform-3-1-2018-cost-v2.pdf.
[iv] Available online at http://floridarevenue.com/taxes/Documents/Public%20Comment8_8.21.2018.pdf.
[v] See Kraft Gen. Foods, Inc. v. Iowa Dep’t of Revenue and Finance, 505 U.S. 71 (1992).
[vi] Taxpayer Information Publication 18C01-01 (April 27, 2018), available at: https://revenuelaw.floridarevenue.com/LawLibraryDocuments/2018/04/TIP-121710_TIP%2018C01-01%20FINAL%20RLL.pdf.

About the Authors:
H. French Brown, IV focuses on state and local taxation, governmental relations and lobbying, and administrative law. Prior to joining Dean Mead, Mr. Brown was in private practice at another Tallahassee law firm. He began his legal career at the Florida Department of Revenue, where he quickly rose to the position of Deputy Director of Technical Assistance and Dispute Resolution. Mr. Brown also assists businesses with Florida tax planning and controversies. He may be reached at fbrown@www.deanmead.com.

Robert S. Goldman offers clients over 40 years of experience practicing in state and local taxation. He represents clients in audits, protests, litigation, rulemaking, tax planning, and legislation. His experience includes all the major state and local taxes (sales taxes, property taxes, corporate income taxes, communications service taxes, gross receipts taxes, insurance premium taxes, documentary stamp taxes). Mr. Goldman’s range of experience spans diverse industries including retail, manufacturing, energy, leasing, hospitality, telecommunications, government contracting, health care, transportation, and the service sector. He may be reached at rgoldman@www.deanmead.com.

Mark E. Holcomb has 33 years of experience practicing in state and local taxation. He represents clients before the Florida Department of Revenue and local taxing authorities, and in litigation at the trial and appellate levels. Mr. Holcomb advises clients on a broad range of state and local taxes, including corporate income and franchise tax, sales and use tax, documentary stamp tax, communication services tax, insurance premium tax, ad valorem tax and motor fuels tax, in tax controversy work and in planning opportunities. He may be reached at mholcomb@www.deanmead.com.