Florida Decouples From Federal Bonus Depreciation and IRC Sec 179 Expense Election

Florida Governor Charlie Christ signed Florida Senate Bill 1112 into law on March 17, 2009, providing a remedy to the shortfall in state corporate income tax collections when the state decoupled from Public Law 110-185 amendments to bonus depreciation and expensing of certain depreciable assets.

Author Locksley Rhoden writes: Each year, the Florida legislature adopts the current Internal Revenue Code (IRC) as its starting point for computing Florida Corporate Income Tax. By “piggybacking” the IRC, the Florida legislature ensures that certain tax definitions and calculations of Florida adjusted federal income are consistent between the IRC and the Florida Income Tax Code.

...

[When} Congress passed Public Law 110-185, [however], amending (i) Section 168(k) of the IRC to permit 50 percent bonus depreciation for assets placed in service in 2008, and (ii) Section 179(b) of the IRC to permit a temporary increase in the limitation of expensing certain depreciable assets,...the Florida legislature expressed its intent not to incorporate either the bonus depreciation provisions or the increased expense limits in the calculation of Florida corporate income tax.

...

The Florida Senate’s version of the anti-decoupling legislation (Senate Bill 1112) was passed on March 5, 2009 after being substituted for the House version of the proposed legislation (House Bill 459) which passed on January 20, 2009. Florida Senate Bill 1112 and Florida House Bill 459 are both forms of anti-decoupling legislation passed to change Florida law which requiring that:

1. the entire amount of federal bonus depreciation be added back to Florida corporate income tax with no subsequent subtraction, and
2. the entire amount of asset expense deduction in excess of $128,000 must be added back with no subsequent subtraction.

Both the Senate and House versions of legislation are intended to change the way in which Florida decouples from federal bonus depreciation and the IRC §179 expense election for corporate income tax purposes. As part of either bill, 80 percent of any amount deducted for federal income tax purposes as bonus depreciation for the taxable year under IRC 168(k), as amended by Public Law 110-185 of the Economic Stimulus Act of 2008, for property placed in service in 2008, must be added back for purposes of determining federal taxable income. Additionally, a deduction of federal taxable income will be allowed for the four subsequent years in an amount equal to 25 percent of the amount by which taxable income was increased by the add-back.

...

Upon the sale or disposition of property for which an add-back was required, the Florida gain will be the same as the federal gain. However, Florida taxable income will have to be adjusted by an amount equal to the Florida depreciation taken on the asset, minus the total federal depreciation taken on the asset.

Complete commentary available soon on LexisNexis Tax Center.