vs. ) CASE NO. 80-2210RX
Respondent. )
A hearing was held in the above-captioned matter, after due notice, at Winter Park, Florida on February 11, 1981 before the undersigned Hearing Officer.
For Petitioner: David C. Latham, Esquire
For Respondent: E. Wilson Crump, II, Esquire
This case involves a petition for an administrative determination of the validity of Respondent's Rule 12C-1.13(1)(b)3, Florida Administrative Code, pursuant to Section 120.56, Florida Statutes. This case was consolidated with DOAH Case No. 80-2017 involving the same parties wherein Petitioner contests an alleged deficiency in corporate income tax under Chapter 220, Florida Statutes which involved the application of Respondent's challenged rule.
At the hearing, the parties stipulated that Findings of Fact herein would be based on the first four Paragraphs of the petition in this case, and any further facts deemed necessary by the Hearing Officer based on the stipulated admission of Exhibits 1 through 3. No Witnesses here called to testify at the hearing by either party
Petitioner, Associated Coca-Cola Bottling Company, Inc. is a Delaware corporation duly authorized to transact business in the State of Florida, having an office in Daytona Beach, Florida and doing business in Florida itself, or through its wholly owned subsidiaries. (Petition)
Petitioner, on a consolidated basis with its subsidiaries, duly filed its Florida corporation income tax returns for the fiscal years ending December 31, 1977, and December 31, 1978. (Petition)
The Florida Department of Revenue, after audit of these returns, alleged a deficiency in both years totaling $1,247.00. In both fiscal years in question and pursuant to Section 220.13(1)(b)3, Florida Statutes, a "New Jobs Credit" of $100,000 was taken by Petitioner for each year. During each of such years the amount of wages and salaries paid or incurred by Petitioner within the State of Florida for each of the taxable years in question exceeded $100,000, but the maximum credit applicable pursuant to the U.S. Internal Revenue Code is
$100,000, such limitation being adopted in Section 220.13(1)(b)3, Florida Statutes. (Petition. Exhibit 1)
Respondent's audit of Petitioner's returns resulted in adjustments producing the alleged tax deficiency by reducing Petitioner's deductions for "New Jobs Credit" under Section 220.13(1)(b)3, Florida Statutes, to $92,396.00 in 1977 and $51,742.00 in 1978. The reduction of these deductions was based upon application of Respondent's Rule 12C-1.13(1)(b)3, Florida Administrative Code, which limits the deduction for salaries and wages paid in creating new jobs in Florida to a pro-rata amount of the total expended in all states for which credit is given under Section 280C of tint Federal Internal Revenue Code. Since Petitioner expended $222,437.00 in such wages and salaries in Florida in 1977, with a total of $240,759.00 being expended by it everywhere, it was allowed only some 92 percent of the federal maximum of $100,000 for New Jobs Credit as a deduction on its tax return. Simlarly, in 1978, it was allowed about 51 percent since its Florida expenditures amounted to $221,656.00 for new jobs, and a total everywhere of $428,386.00 (Exhibit 1).
Petitioner protested the computations made by Respondent under its rule as not being a proper interpretation of Section 220.13(1)(b)3, F.S., but Respondent rejected the protest and a subsequent request for reconsideration, stating in its letter of July 24, 1980 that the restriction placed on the New Jobs Credit adjustment "arises basically from the limitations of Section 280C of the Internal Revenue Code as it applies Pro-rata to the wages paid to all new employees". (Exhibit 1).
CONCLUSIONS OF LAW
Petitioner alleges that Respondent's Rule 12C-1.13 (1)(b)3, Florida Administrative Code, is an invalid exercise of delegated legislative authority in that it "applies a computation not provided for nor contemplated" by subsection 220.13(1)(b)3, Florida Statutes.
Subsection 220.13(1)(b)3 provides pertinently as follows:
Adjusted federal income defined.--
'Adjusted federal income' shall mean an amount equal to the taxpayer's taxable income as defined in subsection
. . . adjusted as follows:
* * *
(b) Subtractions.--
* * *
3. In computing 'adjusted federal income' for taxable years beginning after December 31, 1976,
there shall be allowed as a deduction the amount of wages and salaries paid or incurred within this state for the taxable year for which no deduction
is allowed pursuant to Sec. 280C of the Internal Revenue Code (relating to credit for employment of certain
new employees)
Section 220.51, F.S. authorizes Respondent to promulgate "such reasonable rules and regulations as it may deem appropriate". The operative provisions of Rule 12C-1.13(1)(h)3, Florida Administrative Code, read as follows:
12C-1.13 Adjusted Federal Income Defined.
* * *
(1)(b) 3. For years beginning after December 31, 1976, the Internal Revenue Code permits a tax credit for new jobs created.
Even though the computation of the amount eligible for credit under the Internal Revenue Code may result in a `greater figure, the allowable credit is limited to $100,000.00.
As a condition to taking the credit, an amount equal to the credit is disallowed as an expense for salaries and wages in accordance with Internal Revenue Code Section 280C.
The net effect of the disallowance under Internal Revenue Code Section 280C is that the federal tax base Is increased by the amount of the disallowance. This has the effect of increasing 'federal taxable income' which is the tax base for Florida income tax purposes.
In recognition of this situation,
the 1978 session of the Florida Legislature amended Section 220.13 of the Florida Income Tax Code to permit a Florida deduction equal to the Florida salary and wages included in determining the federal credit and which were disallowed as an expense on the federal return.
The deduction to be allowed for Florida on account of wages and salaries disallowed on a corporation's federal tax return on account of the New Jobs Credit is determined by applying the Florida factor to the amount disallowed on the related federal return.
The Florida factor is a fraction, the numerator of which is the excess of the aggregate unemployment insurance wages (limited to $4,200.00 for each employee) paid during calendar year 1977 in the State of Florida over 102 percent of the aggregate unemployment insurance wages (limited to
$4,200.00 for each employee) paid during calendar year 1976 to the State of Florida, and, the denominator is the comparable federal figure obtained from federal
Form 5884 (New Jobs Credit). The Florida factor will be up-dated for application in subsequent taxable years. The $100,000.00 federal limitation also applies for Florida purposes.
The remainder of the rule provision sets forth two examples of application of the rule.
The pertinent provision of the Federal Internal Revenue Code is found at 26 USC Section 280C(b), as follows:
280C. Portion of wages for which credit is claimed under Section 40 or 44B.
* * *
(b) Rule for Section 44B credit.
No deduction is allowed for
that portion of the wages or salaries paid or incurred for the taxable year
which is equal to the amount of the credit allowable for the taxable year under section 44B (relating to credit for employment
of certain new employees) determined without regard to the provisions of sect ion 53 (relating to limitation based on amount
of tax.) . . .
The parties agree that calculation of Florida corporate income tax is tied to the adjusted federal income of the taxpayer and, thus, the Florida computation automatically incorporates all deductions authorized in arriving at taxable income for federal corporate income tax purposes. However, the Florida law does not permit the same use of federal tax credits. In 1976, the Internal Revenue Code was amended to allow the "New Jobs Credit" deduction from tax liability, but 26 USC Section 280C did not permit such amounts paid for wages and salaries as a deductible expense in arriving at adjusted taxable income. As pointed out by Petitioner, if no change had been made in the Florida law, a corporate Florida taxpayer would have been penalized by having to pay Florida income taxes on the amount of the job credit which normally would have been a deductible expense. As a result, Section 220.13(1)(b)3, F.S. was enacted to create a deduction from a taxpayer's taxable income. The extent of the deduction is the particular matter in controversy herein.
Petitioner claims that the challenged rule is invalid because it applies a "Florida factor" in the computation to pro-rate the amount of the deduction for Florida purposes against the total amount of job credit expenditures by the taxpayer in this state and in other jurisdictions where it operates. It asserts that such a method of computation was not intended by the Legislature and that its application creates inequity against a Florida taxpayer who operates in other jurisdictions. Respondent points out that the statute creating the federal credit wade no distinction as to the particular jurisdiction in which the qualifying jobs were located, and that, therefore, its rule which operates the federal credit is a rational and logical position, and
that Respondent has not thereby acted unreasonably or in abuse of its discretion.
In Florida Beverage Corporation, Inc. et al. v. Wynne, 306 So.2d 200 (Fla. 1st DCA 1975), the First District Court of Appeal stated:
. . . where the empowering provision of a statute states simply that an agency may 'make such rules and regulations as may be necessary to carry out the provisions of this Act', the validity of regulations promulgated thereunder will
be sustained so long as they are reasonably related to the purpose of the enabling legislation, and are not arbitrary or capricious. (Citations omitted)
The language of Section 220.13(1)(b)3 does not simply allow all wages and salaries paid or incurred in Florida for new jobs to be allowed as a deduction, but specifically ties the deduction to those amounts for which no deduction is allowed under Section 28OC of the Internal Revenue Code. By so doing, it is not unreasonable to conclude that the Legislature intended that the deduction be computed in relation to the Florida "share" of the basis for the federal tax credit. As noted by Respondent, no problem arises in this respect in cases where a corporation does business only in Florida or if it does business also in other jurisdictions in cases where the aggregate of new jobs amounts to a total of less than the federal credit of $100,000.
Although the parties stipulated to the admission of excerpts of a legislative committee meeting and house floor debate in 1978 prior to the enactment of the legislation in question (Exhibit 3), this fragmentary evidence is deemed insufficient upon which to base a determination of the intent of the Legislature with respect to Section 220.13(1)(b)3.
It is concluded that Petitioner has failed to establish that the rule is without a "rational relationship" to the statute in question, Jax Liquors, Inc. v. Division of Alcoholic Beverages and Tobacco, et al, 388 So.2d 1306 (Fla. 1st DCA 1980); nor has it shown that the rule is not a "logical interpretation" of the statute. Eli Witt Company v. Department of Business Regulation, 388 So.2d 1340 (Fla. 1st DCA 1980).
Accordingly, Petitioner has failed to establish that Rule 12C- 1.13(1)(b)3, Florida Administrative Code, is an invalid exercise of delegated legislative authority.
The post-hearing Memorandums of Law submitted by the parties have been fully considered and those portions not adopted herein are considered to be either unnecessary, irrelevant, or unwarranted in law or fact, and are specifically rejected.
DONE and ORDERED this 23rd day of March, 1981, in Tallahassee, Florida.
THOMAS C. OLDHAM
Filed with the Clerk of the Division of Administrative Hearings this 23rd day of March, 1981.
E. Wilson Crump, II, Esquire Assistant Attorney General Department of Legal Affairs The Capitol
David C. Latham, Esquire Post Office Box 17711 Orlando, Florida 32860
Administrative Procedures Committee Room 120 Holland Building Tallahassee, Florida 32301
