Florida’s House Bill 7087 Provides Tax Incentives and Expands Sales Tax Exemptions

On March 28, 2012, Florida Governor Rick Scott signed House Bill 7087 (“HB 7087”), an economic development bill, which includes changes in corporate income tax, credits and incentives, sales and use tax, property tax, severance tax, and oil production tax.

For tax years beginning in 2012, the exemption for banks and savings associations from corporate income or franchise tax is increased from $25,000 to $50,000. In addition, effective March 28, 2012, the property tax exemption for nongovernmental lessees of government-owned property is expanded to include an exemption from intangible tax. Like the exemption from property tax, to qualify, the lessee must perform a qualified governmental, municipal, or public purpose/function. The expansion is retroactive to all governmental leaseholds in existence, as of January 1, 2011, but does not create a right to a refund for any tax, penalty, or interest remitted before March 28, 2012.

HB 7087 creates a new category of oil designated as “mature field recovery oil.” Under the prior law, this oil was subject to the general rate of 8% of gross value. However, effective July 1, 2012, mature field recovery oil will be taxed at the same rate as tertiary oil: 1% on the value of oil $60 and below, 7% on the value of oil above $60 and below $80, and 9% on the value of oil above $80. Mature field recovery oil is any barrel of oil recovered from new wells that begins production after July 1, 2012 in fields that were discovered before 1981. The bill also includes an extension of the current phosphate rock excise tax rate of $1.61 per ton severed until December 31, 2014 and calls for a rate increase to $1.80 per ton severed beginning January 1, 2015.

The changes to the sales and use tax law in HB 7087 include amendments to three exemptions and the addition of two new exemptions. Effective July 1, 2012, the exemption for gas or electricity used for certain agricultural purposes is expanded to include electricity used in a packinghouse or where fruits, vegetables, beef, or pork is prepared for market or to be shipped fresh to wholesalers. The exemption does not include electricity used in retail establishments.

In addition, HB 7087 expands the sales or use tax exemption for machinery and equipment sold to a new or expanding manufacturing facility. To qualify, the new equipment or machinery had to increase the productive output of a manufacturing facility by 10%. Effective July 1, 2012, purchases must increase productive output by 5% to qualify for the exemption.

Effective July 1, 2012, a sales and use tax exemption for equipment and labor to repair or maintain aircraft will be extended to equipment and labor to repair or maintain aircraft with a certified take-off weight of more than 2,000 pounds maximum certified takeoff weight. Previously, the exemption was for equipment and labor used to repair or maintain aircraft with a maximum certified takeoff weight of more than 15,000 pounds. Also effective July 1, 2012, HB 7087 adds a new exemption for chemicals, machinery, parts, and equipment used and consumed in the manufacture or fabrication of aircraft engines and gas turbine engines. Further, HB 7087 exempts the sale or lease of an “accessible taxicab.” An “accessible taxicab” is a chauffeur-driven vehicle for hire that is designed to transport not more than eight passengers and has a lift or ramp that complies with ADA requirements. If the lift or ramp is installed through aftermarket conversion, only the value of the conversion is exempt.

HB 7087 also enacts a 2012 sales tax holiday, effective from August 3 to August 15. The holiday applies to clothing, footwear, and certain accessories with a sales price of $75 or less and school supplies with a sales price of $15.

The bill amends two existing tax credits that may be used by businesses to offset corporate income and/or sales and use tax. Florida’s Entertainment Industry Credit is extended for one year and is now available until July 1, 2016. In addition, effective July 1, 2012, interactive websites, digital animation, and visual effects projects are productions that qualify a production company for the credit. A company claiming the credit based on an interactive website must create 25 full-time jobs in Florida. Further, the company must prove that it maintained the jobs every year in which the interactive website company claims a credit.

HB 7087 modifies the number of qualified employees that a business must have to be eligible for the Urban High Crime Area Job Tax Credit. To be eligible for the credit, the number of qualified employees employed one year prior to the application must equal or exceed the number of qualified employees on January 1, 2009 or on the date of any previously successful applications for the credit.

Previously, the number of qualified employees employed one year prior to the application had to equal or exceed the number of employees on the application date of previously successful applications. The change is retroactive, and businesses that were denied the credit on or after January 1, 2009, which qualify under the new requirement, are now eligible to refile for a credit. The application must be refiled on or before December 31, 2012. To qualify, the number of qualified employees of the business, on the day the application is refiled, must be equal or exceed the number of qualified employees on the day the denied application was initially filed.

TECHNICAL INFORMATION CONTACT:

James M. Trester
Principal
972.934.0022
jim.trester@ryan.com