2014-Issue 28—Over the past few months, there have been a few tax developments and law changes enacted in Florida. Florida has once again been active in making changes in an attempt to improve its economic climate and become more competitive in attracting and retaining businesses. Major tax changes that have become effective during recent months include:
- New sales tax exemption for manufacturing equipment; and
- Tax relief of approximately $135 million in taxes.
New Sales Tax Exemption for Manufacturing Equipment
The manufacturing exemption from sales and use tax is one of the more popular exemptions offered by states. The exemption is designed to reduce the cost of equipment purchases, thereby attracting businesses into the state and creating higher-paying jobs. For many years, Florida has offered a manufacturing exemption for equipment used in a new or expanding business. However, the exemption is narrow and the application process for the exemption is somewhat cumbersome.
In addition to the exemption for new and expanding businesses, Florida provides a new sales tax exemption for certain purchases of industrial machinery and equipment effective April 30, 2014. This new exemption allows eligible manufacturing businesses to purchase certain industrial machinery and equipment used for the manufacture, processing, compounding or production of tangible personal property for sale. Manufacturers can take advantage of this exemption until April 30, 2017, when the exemption expires.
Under the new exemption, eligible businesses are defined as businesses whose primary activity (more than 50 percent of activities at the location) is classified under North American Industry Classification System (NAICS) Code 31, 32 or 33. If a company is not an eligible business for the new manufacturing exemption, such company may still qualify for the new and expanding business exemption currently in effect.
To claim the new manufacturing exemption, eligible businesses must provide the vendor with a signed certificate claiming the exemption right to the statutory exemption. A good faith acceptance of the certificate will remove a seller’s responsibility of collection and remittance of the tax, even in the event the purchase is ultimately deemed taxable.
Florida Tax Relief
Florida legislators have trimmed approximately $135 million in taxes on a recurring and non-recurring basis. Most notably, HB 5601 clarified the statutory definition of “prepaid calling arrangement” to provide that certain prepaid mobile communications services are subject to state and local sales taxes instead of communications services taxes. Consequently, the sale or recharge of a prepaid calling arrangement will be treated as a sale of tangible personal property subject to sales and use tax, whether or not a tangible item evidencing such arrangement such as a phone card is furnished. Clarifying the tax treatment of prepaid calling arrangements should provide taxpayers with relief by shifting the imposition of certain prepaid calling arrangement services from the Florida communication services tax to Florida sales tax. Florida has one of the highest tax rates on communication services in the nation, and the tax rate (which can exceed 16 percent including the local tax) is approximately double the sales tax rate on other retail purchases in Florida.
As part of the state commitment to attract and retain business, the bill provided tax incentives that allow taxpayers to take a tax credit against the corporate income tax or insurance premium tax, or as a refund on sales tax collected. Although the bill did not create any new credit programs, taxpayers should benefit from increases to the total amount of tax credits available for two separate programs. The community contribution tax credit available increased from $14.0 million to $21.9 million and delayed the expiration date of the program by one year from June 30, 2015 to June 30, 2016. Furthermore, the bill increased the tax credit available for the New Market Development program from $178.8 million to $216.34 million.
Several new sales tax exemptions were enacted by this bill. Sales of certain therapeutic veterinary diets and prepaid meal plans purchased from a college or other institution of higher learning by students currently enrolled are now exempt from sales tax. Also, the construction industry should benefit from a temporary sales tax exemption provided for the purchase of mixer drums that are affixed to a mixer truck used at any location within Florida to produce tangible personal property for sale. Finally, to promote safety and encourage families to purchase appropriate equipment, the sale of a child restraint system or booster seat for use in a motor vehicle and helmets marketed for use by youth are also exempt from the Florida sales tax. The tax exemptions should provide Floridians with approximately $20 million in tax savings.
Other benefits provided under the bill included:
- Three sales tax holidays for school supplies, hurricane supplies and energy-efficient appliances, providing approximately $37 million in tax savings to Floridians;
- An exclusion from the insurance premium tax for the portion of the premium retained by agents selling title insurance and bail bonds; and
- Decreases in the sales tax rate on charges for electricity from 7 percent to 4.35 percent. However, the legislature enacted an additional gross receipts tax of 2.6 percent on those same charges.
Tax Bills Not Passed During 2014 Legislative Session
The Florida Senate had proposed a reduction of the communications services tax from 6.65 percent to 4.65 percent and the rate on direct-to-home satellite from 10.8 percent to 8.8 percent. Eventually, the CST tax cut was moved to the Senate tax cut package, but the size of the cut was reduced from 2 percentage points to 0.58 percent. Unfortunately, as other cuts were added, the Senate ultimately dropped the entire CST tax cut proposal. Other cuts proposed in the House package that were dropped include the proposal to increase the corporate income tax exemption from $50,000 to $75,000.
Bills enacting a requirement for remote sellers to collect sales taxes on remote sales were either dropped or never heard. SM 196,Marketplace Fairness Act of 2013, failed on voice vote on the Senate floor early in the session, and SB 202, Tax on Sales, Use, and Other Transactions, which would have expanded nexus to remote retailers and required them to collect tax on sales to Floridians, was never heard.
Alvarez & Marsal Taxand Says:
Florida, like many other states, is turning the page and benefiting from a balanced budget. To continue to incentivize growth and maintain current business, Florida’s governor and legislators believe that certain changes to Florida’s law should be enacted. It is important to be familiar with the evolving Florida tax law in order to take advantage of these incentives.
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Emilio E. Martinez, Senior Director, contributed to this article.
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The information contained herein is of a general nature and based on authorities that are subject to change. Readers are reminded that they should not consider this publication to be a recommendation to undertake any tax position, nor consider the information contained herein to be complete. Before any item or treatment is reported or excluded from reporting on tax returns, financial statements or any other document, for any reason, readers should thoroughly evaluate their specific facts and circumstances, and obtain the advice and assistance of qualified tax advisors. The information reported in this publication may not continue to apply to a reader's situation as a result of changing laws and associated authoritative literature, and readers are reminded to consult with their tax or other professional advisors before determining if any information contained herein remains applicable to their facts and circumstances.
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