Florida recently took a big step forward in enhancing incentives for manufacturing businesses to relocate to or expand in the state. Gov. Rick Scott signed a bill into law that will eliminate sales tax on the purchase of manufacturing equipment when it goes into effect April 30, 2014.
Under predecessor laws, in order to receive an exemption for sales/use tax on the purchase of manufacturing equipment, a company had to be either (1) opening a new plant; or (2) expanding and able to show a specified increase in production resultingfrom the addition of the equipment. Prior to Jan. 1, 2013, companies in the latter category had to increase production by at least 10 percent. Since then, this requirement has dropped to 5 percent.
In a slow economy in which production is flat, many companies are not able to meet the current required increase in production and therefore are unable to qualify for the exemption. The new law will eliminate the requirement to meet a production increase threshold as a condition of receiving the exemption, which will greatly expand the scope of the exemption and allow more manufacturers to qualify.
Tax implications, including the cost of sales/use tax on plant equipment, can be a major consideration in a company’s decision to relocate or expand.
A majority of states already have tax laws that are more favorable to the manufacturing industry than Florida’s traditionally have been. This new law should go a long way toward helping Florida become more competitive in attracting manufacturing companies and growing the industry in the state, and it comes at an opportune time as the Panama Canal is expanding.
Also increasing the state’s competiveness is the fact that this law applies broadly to manufacturers in a wide range of subsectors. Businesses that fall under codes 31, 32 and 33 in the North American Industry Classification System (NAICS) are eligible for the sales/use tax exemption. These code classifications encompass virtually all forms of manufacturing, including food, apparel, wood, paper, printing, chemical, pharmaceutical, plastic, rubber, metal, transportation and furniture.
For a company to claim an exemption for a given manufacturing location, the primary activity (more than 50 percent) at the particular plant location must fall under one of the qualifying NAICS codes.
In addition the new law, Florida has several other sales/use tax exemptions that are beneficial to manufacturers. These include:
• An exemption for parts and labor to repair manufacturing equipment;
• An exemption for electric and steam energy used to power manufacturing equipment;
• An exemption for boiler fuels used to power manufacturing equipment;
• An exemption for equipment used predominately in research and development.
These exemptions, together with the new law, combine to make an attractive bundle of incentives for those in the manufacturing sector. For manufacturers considering opening new plants or expanding existing plants, Florida’s sales/use tax incentives as enhanced by the new law could very well translate into a decision to choose Florida over other states .
It appears that Florida has learned a valuable lesson — it takes more than just a warm climate to attract certain industries. Let’s hope the state Legislature will extend the new law in three years when it is initially scheduled to sunset, and that this does in fact reflect a new philosophy, commitment and priority on attracting manufacturing to Florida.
Dan Wagner is an associate tax principal in Kaufman, Rossin’s State and Local Tax (SALT) practice.