REVENUE ESTIMATING CONFERENCE. Section 181 defines Qualified Film or Television Production and Qualified Live Theatrical Production

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1 : Corporate Income Issue: Movie Studios Bill Number(s): Proposed Language Entire Bill Partial Bill: Sponsor(s): N/A Month/Year Impact Begins: Upon becoming Law Date of Analysis: 4/19/2019 Section 1: Narrative a. Current Law: Section , Florida Statutes, requires that there shall be added to taxable income an amount equal to of any amount deducted for federal income tax purposes as bonus depreciation for the taxable year pursuant to 167 and 168 (K) of the Internal Revenue Code of 1986, as amended by s of PUB.L. No For the taxable year and for each of the 6 subsequent taxable years, there shall be subtracted from such taxable income an amount equal to one-seventh of the amount by which taxable income was increased pursuant to this subparagraph, notwithstanding any sale or other disposition of the property that is the subject of the adjustments and regardless of whether such property remains in service in the hands of the taxpayer. Section of Public Law No provided for an increase in bonus depreciation for assets acquired and placed in service after September 27, 2017 and before 2018 from 50% to.for property placed in service during 2018 it increased the bonus depreciation from 40% to, for property placed in service during 2019, it increased the amount of bonus depreciation from 30% to. It provided bonus depreciation of for assets put in place 2020 through It also allowed bonus depreciation of 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property put in service in 2025 and 20% for property put in service in Section 168(k)(2)(A)(IV) and (V) read: (A) In General The term qualified property means property (IV) which is a qualified film or television production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of this section or this subsection. (V) which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection. Section 181 defines Qualified Film or Television Production and Qualified Live Theatrical Production Section 167(g), I.R.C., provides: (g) Depreciation under income forecast method (1) In general - If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method (A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service, (B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied, (C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and (D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year. (2) Look-back method The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by (A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property) (i) the actual income earned in connection with such property for periods before the close of the recomputation year, and 466

2 : Corporate Income Issue: Movie Studios Bill Number(s): Proposed Language (ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service, (B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and (C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B). For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property. (3) Exception from look-back method Paragraph (1)(D) shall not apply with respect to any property which had a cost basis of 100,000 or less. (4) Recomputation year - For purposes of this subsection, except as provided in regulations, the term recomputation year means, with respect to any property, the 3rd and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3rd or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A). (5) Special rules (A) Certain costs treated as separate property for purposes of this subsection, the following costs shall be treated as separate properties: (i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service. (ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property. (B) Syndication income from television series in the case of property which is 1 or more episodes in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of (i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or (ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series. (C) Special rules for financial exploitation of characters, etc. - For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer. (D) Collection of interest - For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year. (E) Treatment of distribution costs - For purposes of this subsection, the income with respect to any property shall be the taxpayer s gross income from such property. (F) Determinations - For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account. (G) Treatment of pass-thru entities - Rules similar to the rules of section 460(b)(4) shall apply for purposes of this subsection. b. Proposed Change: Creates an exception to the one seventh subtraction for qualified property as defined by ss. 168(k)(2)(A)(IV) or ss.168(k)(2)(a)(v) of the Internal Revenue Code. Requires a subtraction in the current year and each of the ten subsequent taxable years, notwithstanding any sale or other disposition of the property. The subtraction for each year shall be in 467

3 : Corporate Income Issue: Movie Studios Bill Number(s): Proposed Language proportion to the depreciation deduction that would have been allowed for the taxable year if the qualified property had been depreciated pursuant to 167(g) of the Internal Revenue Code. Section 2: Description of Data and Sources IRS Data from Forms 1120 and 4562 for Year 2013 March 2019 General Revenue Consensus Estimating Conference- CIT Growth Rates Schedule of addback and subtractions under current law Schedule of Bonus depreciation allowed under the Cuts and Jobs Act Joint Committee on ation publication JCX Estimated Revenue Budget Effects of Division Q of Amendment #2 to the Senate Amendment to H.R (Rules Committee Print ), The Protecting Americans from Hikes act of 2015 Section 3: Methodology (Include Assumptions and Attach Details) The returns of all active corporations by minor industry were used to apportion the Line 14: Special Depreciation values from Form This line from Form 4562 represents the qualified property referenced by ss. 168(k)(2)(A)(IV) or ss.168(k)(2)(a)(v) of the Internal Revenue Code. The three minor industries identified as most likely to be affected by the proposed language were: 5121 Motion Picture and Video Industries; 515 Broadcasting (except Internet); and 7111 Performing Arts Companies. The 2013 total was grown into the forecast period using the CIT Growth rates from the March 2019 General Revenue Conference. These depreciation expenses were then plugged into the depreciation simulations. In addition to expenses taken on line 14 of Form 4562 certain amounts related to film production activity could have been taken under section 181 on line 26 Other Deductions on Form These expenses were estimated using the analysis of the Joint Committee on ation of the extension of the section 181 expensing for film productions for 2015 and As that analysis presented revenue impacts, the impacts were divided by the federal 35% CIT rate to obtain expense amounts. The depreciation simulations compare the estimated depreciation under current law compared to the Income Forecast Method (IFM). The IFM percentages are based on the percent of revenues movie productions realize in the year of release. The simulation demonstrated that under the proposed law, the impact will be negative in the near term and positive in the out years. The Low estimate is also reduced by 50% scale factor. The first year cash is the combined impact for the first two years Section 4: Proposed Fiscal Impact High Middle Low Cash Recurring Cash Recurring Cash Recurring (22.6 M) (11.4 M) (1 M) (5.4 M) (10.4 M) (10.4 M) (5.0 M) (5.0 M) (8.0 M) (8.0 M) (4.0 M) (4.0 M) (5.7 M) (5.7 M) (2.8 M) (2.8 M) M 0.1 M 0.1M 0.1M List of affected Trust Funds: CIT Group Section 5: Consensus Estimate (Adopted: 04/22/2019): The Conference adopted a modified low that used a Florida apportionment of 4.4% and scaled at. GR Trust Local/Other Total Cash Recurring Cash Recurring Cash Recurring Cash Recurring (17.2) (5.6) (17.2) (5.6) (8.1) (5.6) (8.1) (5.6) (6.5) (5.6) (6.5) (5.6) (4.6) (5.6) (4.6) (5.6) (5.6) (5.6) 468

4 Movie Studios Depreciation Simulations A B C D E F G H I J K Scenario 1 80% 60% 40% 20% Current Law , , , , , , , , , , , , , , Total 4,841 4,722 3,922 3,060 2, ,705 Proposed Law Year Rate of Depreciation 76% 13% 3% 3% 1% 1% 1% 1% 1% , , , , , , , , , , , , , , Total 1, Impact -3,469-3,906-3,348-2,675-1, ,926 April 22 Impact Conference 469

5 Movie Studios Depreciation Simulations A B C D E F G H I J K Scenario 2 80% 60% 40% 20% Current Law , , , , , , , , , , , , , , Total 4,841 4,722 3,922 3,060 2, ,705-5,213 Proposed Law Year Rate of Depreciation 81% 11% 2% 1% 1% 1% 1% 1% 1% , , , , , , , , , , , , , , Total 1, Impact -3,763-4,117-3,492-2,700-1, ,909 Florida Apportionment 5.40% Scenario April 22 Impact Conference 470

6 Movie Studios Depreciation Simulations A B 65 Adopted 4.4% Scenario Scale factor for Low Rate % All other 73 years Total Impact Scenario 1 - Low Scenario 2 - High ADOPTED C D F G H I J K FY FY FY FY FY % 5.50% cash cash -8.4 cash RECURRING (avg. FY through FY 23-24) April 22 Impact Conference E

7 : Corporate Income Issue: Piggyback Exchange Credit additional NAICS Codes Bill Number(s): Proposed Language X Entire Bill Partial Bill: Sponsor(s): N/A Month/Year Impact Begins: Section authorizing credit operates retroactively to January 1, 2018 Date of Analysis: 4/17/2019 Section 1: Narrative a. Current Law: There is no credit for entities that engaged in 1031 exchanges b. Proposed Change: Creates section , Florida Statutes, to read: Exchange Credit. (1) A taxpayer is eligible for a 10 million credit against the tax imposed by this chapter for its 2018 taxable year if: (a) The taxpayer is in NAICS national industry groups As used in this paragraph, NAICS means those classifications contained in the North American Industry Classification System, as published in 2007 by the Office of Management and Budget, Executive Office of the President; (b) The taxpayer deferred gains on the sale of personal property assets for federal income tax purposes under s of the Internal Revenue code during its taxable year beginning on or after August 1, 2016 and before August 1, 2017; and (c) The taxpayer s final tax liability for its taxable year beginning on or after August 1, 2017 and before August 1, 2018, before application of the credit authorized by this section is greater than 15 million and is at least 700 percent greater than its final tax liability for its taxable year beginning on or after August 1, 2016 and before August 1, (d) For taxpayers in industry groups and primarily engaged in leasing or renting passenger vehicles, the taxpayer s final tax liability for its 2018 taxable year before application of the credit authorized by this section is greater than 15 million and is at least 15 million greater than its final tax liability for its 2017 taxable year. Section 2: Description of Data and Sources NAICS Code Passenger Car Rental NAICS Code Passenger Car Leasing NAICS Code Sales Financing IBISWorld Discussion of NAICS Industry Structure CIT Payment and Return Data CIT Top 500 Section 3: Methodology (Include Assumptions and Attach Details) For the low, it was assumed that nine entities would qualify for the credit. For the middle, it was assumed that twelve entities would qualify for the credit, and for the high it was assumed that twenty entities would claim the credit and that three would ultimately be determined not to be eligible for the credit on audit in Section 4: Proposed Fiscal Impact High Middle Low Cash Recurring Cash Recurring Cash Recurring (200 M) 0 (120 M) 0 (90 M) M List of affected Trust Funds: CIT Group 472

8 : Corporate Income Issue: Piggyback Exchange Credit additional NAICS Codes Bill Number(s): Proposed Language Section 5: Consensus Estimate (Adopted: 04/22/2019): The Conference adopted the low estimate. GR Trust Local/Other Total Cash Recurring Cash Recurring Cash Recurring Cash Recurring (90.0) (90.0)

9 : Sales and Use Issue: Use of Regulated Substances Raise MLA from Bill Number(s): HB 7119 Entire Bill Partial Bill: Sponsor(s): Representative Duran Month/Year Impact Begins: October 1, 2019 Date of Analysis: April 17, 2019 X Section 1: Narrative a. Current Law: Allows the sale, distribution and delivery of tobacco products to persons over the age of 18. Allows a qualified physician to issue a certification for marijuana to persons over the age of 18 with qualifications. Restricts persons under the age of 18 from smoking in, on or within 1,000 feet of school properties during certain hours. Current law prohibits gifting sample tobacco products or providing tobacco products in other ways to persons under the age of 18 and establishes that it is unlawful for persons to misrepresent their ages or military standings to gain access to tobacco products. The unlawful sale and possession of tobacco products to any person under the age of 18 includes nicotine products and nicotine dispensing devices as well. Current law also covers punitive action toward persons who supply minors or minors in possession of tobacco products. b. Proposed Change: HB 7119 changes the minimum legal age (MLA) of use for tobacco products and regulated substances from 18 to 21. Specifically, it creates s , F.S. that provides definitions and preempts the establishment of the minimum age for the sale or delivery of tobacco products, nicotine products, or nicotine dispensing devices to the state. This bill changes the minimum age for medical marijuana from 18 to 21, with some exceptions. It amends s , F.S.; by deleting the term "adult" and amends s , F.S. to provide that it is unlawful for persons under the age of 21 to smoke tobacco in, on, or within 1,000 feet of the real property comprising a public or private elementary, middle, or secondary school during specified hours. HB 7119 amends s , F.S.; to redefine the minimum age as 21 and to include emancipated minors and minors who had their disability of nonage removed under chapter 743. A minimum age of 21 effects , F.S.; the unlawful to sale or delivery of tobacco products; providing an exception, and to s , F.S.; the prohibition of certain entities from gifting sample tobacco products. Also amended to reflect the age increase to 21 are , F.S.; that denotes legislative intent and provisions to changes made by the act, and s , F.S.; that makes it unlawful to sell, deliver, barter, furnish, or give tobacco products to underage persons. HB 7119 amends s , F.S.; to prohibit persons under 21 years of age from possessing tobacco products and establishing that it is unlawful for said persons to misrepresent their age or military service to acquire tobacco products. S , F.S. provides a definitions and exemptions for military reserve or active duty or for persons acting in the scope of his or her employment with a licensed entity. Finally, this bill prohibits the sale and possession of nicotine products or nicotine dispensing devices by persons under 21 years of age, and provides an effective date. Section 2: Description of Data and Sources Bureau of Economic and Business Research (BEBR): Unpublished Data, Florida Population by Age, July 2018 Centers for Disease Control and Prevention (CDC): 2017 State Tobacco Activities Tracking, Florida Institute of Medicine of the National Academics: Public Health Implications of Raising the Minimum Age of Legal Access to Tobacco Products, March 2015 Office of Economic and Demographic Research (EDR): Tobacco and Surcharge Conference, February 2019 United States Census Bureau: American Community Survey, PUMS Data, 2017 U.S. Food and Drug Administration (FDA): National Youth Tobacco Survey, 2018 HB7119 Methodology Adopted by the REC 04/12/2019 Citizens for Tobacco Rights on behalf of Phillip Morris: Excise es, 2019 Fair Reporters: Prices of Cigarettes by State, March 2019 IBISWorld: Tobacconists in the US, Products and Services Segmentation and Major Market Segmentation, March 2019 Section 3: Methodology (Include Assumptions and Attach Details) 474

10 : Sales and Use Issue: Use of Regulated Substances Raise MLA from Bill Number(s): HB 7119 In January 2019, Alachua County (population 263,291) became the first and only Florida County to raise the minimum age for purchasing tobacco from 18 to 21. There is an effective data of October 1, The impact assumes a first year s cash impact of 8/12ths. Section 4: Proposed Fiscal Impact High Middle Low Cash Recurring Cash Recurring Cash Recurring (0.4) (0.5) (0.8) (0.8) (1.0) (1.0) (1.1) (1.1) (1.2) (1.2) List of affected Trust Funds: Sales and Use Section 5: Consensus Estimate (Adopted: 04/22/2019): The Conference adopted a revised recurring estimate that uses the last year of stepped up reduction. GR Trust Revenue Sharing Local Half Cent Cash Recurring Cash Recurring Cash Recurring Cash Recurring (0.4) (1.1) (Insignificant) (Insignificant) (Insignificant) (Insignificant) (Insignificant) (0.1) (0.7) (1.1) (Insignificant) (Insignificant) (Insignificant) (Insignificant) (0.1) (0.1) (0.9) (1.1) (Insignificant) (Insignificant) (Insignificant) (Insignificant) (0.1) (0.1) (1.0) (1.1) (Insignificant) (Insignificant) (Insignificant) (Insignificant) (0.1) (0.1) (1.1) (1.1) (Insignificant) (Insignificant) (Insignificant) (Insignificant) (0.1) (0.1) Local Option Total Local Total Cash Recurring Cash Recurring Cash Recurring (0.1) () (0.1) () (0.5) (1.4) (0.1) () () () (0.9) (1.4) () () () () (1.2) (1.4) () () () () (1.3) (1.4) () () () () (1.4) (1.4) 475

11 Sales Impact Cigarettes Forecasted Packs (m) (02/19 REC) Avg. Price Total per Pack 18% Markup Revenue (m) Age bracket Fiscal Year Fiscal Year Fiscal Year Fiscal Year % of Tobacconist Industry Stepped up reduction (to 12%) 0% 19.4% 6% 1.90% 38.9% 4% 2.90% 100.0% 2% 0% 19.4% 8% 6% 4,711.1 High School 4,629.2 High School 1.90% 38.9% 2.90% 100.0% 3% 0% 19.4% 10% 8% 4,548.0 High School 1.90% 38.9% 2.90% 100.0% 4% 0% 19.4% 12% 12% 4,468.6 High School 1.90% 38.9% 2.90% 100.0% 4% 0% 19.4% 12% 1.90% 38.9% 10% 2.90% 100.0% 4% 4,389.8 High School Reduced Revenue % Sales Calculated Total Industry (IBISWorld) CIGARETTES OTP CIGARS NON-TOBACCO PRODUCTS (includes accessories) Consumption Habits (before sales tax) Fiscal Year % of Total Smokers 84.20% 8.10% 4.10% 5, , , % 5,595.2 FY FY FY FY FY , , , , ,389.8 Based on forecasted packs Grown by OTP growth 476 Total ADOPTED Sales RECURRING (67) (0.576) (91) (0.566) (0.510) (0.556) (0.586) (0.547) (0.537) (0.537)

12 Sales Impact Other Tobacco Products Total Revenue (m) Age bracket Fiscal Year High School Fiscal Year % 8% 66.90% 6% 3% 3.10% 42.30% 10% 66.90% 8% 4% 3.10% 42.30% 12% 8% High School 66.90% 4% 3.10% 42.30% 12% 66.90% 10% 4% High School Total Revenue Age bracket (m) Fiscal Year Fiscal Year Fiscal Year Fiscal Year % 42.30% Fiscal Year % 66.90% 3.10% Cigars 42.30% High School Fiscal Year % Fiscal Year Stepped up Consumption reduction (to Habits 12% High School Fiscal Year % of Total Users High School % of Total Users Stepped up Consumption reduction (to Habits 12% 2.00% 52.99% 6% 68.87% 4% 2% 2.00% 52.99% 8% 6% High School 68.87% 3% 2.00% 52.99% 10% 68.87% 8% High School 4% 2.00% 52.99% 12% 8% High School 68.87% 4% 2.00% 52.99% 12% 68.87% 10% 4% High School 477 Reduced Revenue % Sales Reduced Revenue % Sales Total Sales ADOPTED RECURRING (0.128) (01) (0.194) (09) (62) (16) (75) (22) (29) (29) Total Sales ADOPTED RECURRING (0.064) (0.151) (0.097) (0.156) (0.132) (0.159) (0.137) (0.162) (0.165) (0.165)

13 Sales Impact E-Cigarettes (Non-Tobacco and Accessories) Total Revenue Age bracket (m) % of Total Users Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year High School 6% 61.97% 4% 7.00% 2% 4.30% 36.42% 8% 6% 13.90% 61.97% 7.00% 3% 4.30% 36.42% 10% 8% High School 13.90% 61.97% 7.00% 4% 4.30% 36.42% 12% 8% High School 13.90% 61.97% 7.00% 4% 4.30% 36.42% 12% 13.90% 61.97% 10% 7.00% 4% 22 High School (0.4) (0.8) (1.0) (1.1) (1.2) 36.42% High School Cash 4.30% 13.90% Total Sales Impact Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Stepped up Consumption reduction (to Habits 12% Adopted Recurring (1.2) (1.2) (1.2) (1.2) (1.2) 478 Reduced Revenue % Sales Total Sales ADOPTED RECURRING (0.070) (0.161) (0.106) (0.165) (0.143) (0.169) (0.150) (0.172) (0.176) (0.176)