Florida Offers New Sales Tax Exemption for Manufacturers

Florida has taken a significant step forward in the area of sales/use tax incentives for the manufacturing sector with a new exemption on the purchase of equipment and industrial machinery. Governor Rick Scott has hailed the new law as a “huge victory,” and local business leaders have praised the exemption as a win for manufacturers.

Prior to this new law taking effect on April 30, 2014, a much more limited tax exemption was in place that only applied to businesses opening a new manufacturing plant or producing a new product line at an existing plant. While the new exemption technically does not replace the separate exemption for new or expanding businesses under Section 212.08(5)(b) and (d), F.S., it essentially renders it moot because the new exemption is more attractive.

Under the earlier law, a manufacturer seeking to expand its plant could only qualify for the sales/use tax exemption on new equipment if it was able to attribute a certain percentage increase in production to the addition of the equipment. This significantly hampered the scope and benefit of the exemption because many companies could not meet the required threshold of increase in production. For example, a business that was simply replacing old equipment to perform the same functions would likely not realize a significant increase in production and therefore would not be able to claim the exemption.

What’s different about this exemption?

Under the new law, manufacturers are not required to increase production in order to qualify for the exemption.

In addition to the tax exemption on new equipment and industrial machinery, the new law also exempts parts and accessories for manufacturing equipment for the industrial machinery and equipment “if they are purchased before the date the machinery and equipment are placed in service.” However, the terms “parts” and “accessories” are not defined, so some interpretive issues may surface in this area.

Limitations and requirements for the exemption

The exemption is limited to certain categories of manufacturers as categorized by the North American Industry Classification System (NAICS). Included NAICS sections for purposes of the exemption are 31, 32 and 33. These three sections are quite broad and capture essentially all forms of manufacturing.

An added condition is that the qualifying business must have as its “primary activity” some form of manufacturing falling within these sections. The law goes on to define “primary activity” as at least 50% of the activity conducted at the particular plant site. As far as requirements for the equipment itself, the equipment must be integral to the manufacturing process and must have a depreciable life of at least three years. Finally, the equipment must be used at a fixed location within the state of Florida.

If a manufacturing company was unaware of this exemption and has made qualified purchases since April 30, 2014, the business can file a refund claim to recover Florida sales/use tax that was paid on such purchases. There is a three-year statute of limitations to file such claims.

‘Attractive carrot’ for manufacturers

This new exemption augments Florida’s longstanding sales/use exemptions for the purchase of repair parts and labor for manufacturing equipment and for the purchase of electric utilities used in the manufacturing process. Together, these make a pretty attractive carrot for manufacturers considering whether to set up shop in Florida or for those manufacturers already here that might be contemplating relocating somewhere else.

It’s been a long road to this point, but it looks like Florida is finally recognizing that it can take more than sunshine and a warm climate to attract and keep businesses when competing states are rolling out a red carpet of tax incentives.

Contact me or another of Kaufman Rossin’s tax professionals to learn how your manufacturing company can benefit from this new exemption and other state and local tax credits and incentives.