News and Insights

Florida Enacts Significant Tax Legislation During 2006 Regular Session

Tax Development Jun 21, 2006

The Florida Legislature approved significant tax legislation during the 2006 regular session, and Governor Jeb Bush signed the tax legislation into law. Most of this legislation was directed at stimulating business in the state, particularly in the area of research and development, and is the most progressive business incentives legislation that has been enacted by Florida in the last eight years. The following summarizes the significant tax legislation that was enacted.

Sales Tax Exemption on Machinery and Equipment Used to Increase Productive Output [HB 69 amends Fla. Stat. § 212.08(5)(b)(2) and (5)(d)(1)] – Effective July 1, 2006
The bill removes the requirement that a business pay the first $50,000 in sales and use tax on purchases of industrial machinery and equipment for use in expanding a manufacturing facility. Effective July 1, 2006, all qualified purchases of industrial machinery and equipment used to increase productive output are exempt from sales and use taxes.

The bill removes the requirement that an expanding business that manufacturers property pursuant to federal procurement regulations pay the first $100,000 in sales and use tax on purchases of industrial machinery and equipment.

Sales Tax Exemption on Research and Development Equipment [HB 415 amends Fla. Stat. § 212.052(2)] – Effective July 1, 2006
The bill provides a sales and use tax exemption on the purchase, rental, or repair of real property or tangible personal property used for research and development. This bill expands the class of exempt property from the actual real property or tangible property (component parts) that comprises the item being researched and developed.

Sales Tax Exemption on Small Aircraft [HB 1079 amends Fla. Stat. § 212.08(7)(ee), (rr), and (ss) and creates Fla. Stat. § 212.02(33) and § 212.0801] – Effective July 1, 2006
The bill provides a sales and use tax exemption for certain leased or purchased small aircraft for a business operating as an on-demand air carrier. To be eligible, a business must offer, in writing, to participate in a flight training and research program with two or more state-based universities that offer graduate programs in aeronautical or aerospace engineering and offer flight training through a school of aeronautics or college of aviation.

Sales Tax Exemption on Advertising Materials [HB 1079 creates Fla. Stat. § 212.08(ccc)] – Effective July 1, 2006
The bill provides a sales and use tax exemption for advertising materials distributed free of charge by mail in an envelope.

Governor’s Quick Action Closing Fund [SB 2728 amends Fla. Stat. § 288.1088] – Effective July 1, 2006
The bill provides the following new eligibility requirements:

  1. Be in a target industry.
  2. Have a positive payback ratio of at least 5 to 1.
  3. Be an inducement to the project's location or expansion in the state (“but for” incentive).
  4. Pay an average annual wage of at least 125% of the area-wide or statewide private sector average wage.

The bill appropriates $45 million in funding for fiscal year 2006–2007.

Governor’s Innovation Incentive Program [SB 2728 creates Fla. Stat. § 288.1089] – Effective July 1, 2006
The bill provides a new incentive for high-value research and development (basic and applied research in the sciences, engineering, design, development, or testing of prototypes or processes of new or improved products) and innovation business projects (likely to serve as a catalyst for the growth of an existing or emerging technology cluster or will significantly impact the regional economy in which it is to expand or locate). This bill establishes the following eligibility requirements:

  1. Be an inducement to the project's location or expansion in the state (“but for” incentive).
  2. Jobs on average pay at least 130% of the statewide average annual private sector wage.
  3. Be provided with a one-to-one match from the local community (may be reduced or waived in rural areas of critical economic concern or reduced in rural areas, brownfield areas, and enterprise zones).
  4. If the project is for Research and Development, it must:
    1. Demonstrate a plan for significant higher education collaboration.
    2. Provide the state at least a break-even return on its investment within a 20-year period.

      orIf the project is for an Innovation Business, it must:
  1. Be in a target industry.
  2. Result in the creation of at least 1,000 direct new jobs at the business (500 direct new jobs if the project is located in a rural area, a brownfield area, or an enterprise zone).
  3. Make a cumulative investment of at least $500 million within a 5-year period ($250 million within a 10-year period if the project is located in a rural area, a brownfield area, or an enterprise zone).

The bill appropriates $200 million in funding for fiscal year 2006–2007.

Capital Investment Tax Credit [SB 2728 amends Fla. Stat. § 220.191] – Effective July 1, 2006
The bill provides a credit for new or expanding headquarter facilities in an enterprise zone or a brownfield area if the following criteria are met:

  1. Create at least 1,500 jobs.
  2. Jobs on average pay at least 200% of the statewide average annual private sector wage.
  3. Make a cumulative capital investment of at least $250 million.

Credit is equal to the lesser of $15 million or 5% of the eligible capital costs made in connection with a qualifying project, for a period not to exceed 20 years.