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Florida’s new and expanding business exemption described in FL Rule 12A-1.096 allows businesses whose operations are expanding within a current location or into a new location to purchase machinery and equipment tax-free.  It will be determined if a business qualifies for the new business exemption based upon meeting one of the following criteria:

1.  A newly-formed company that opens a plant or facility at a fixed location within Florida to manufacture, compound or produce items of tangible personal property for sale.  Florida defines “fixed location” as a plant site or location that is used for a period of time longer than 6 months.

2.  The addition to or enlargement of an existing plant or facility including the installation of additional machinery and equipment for the purpose of manufacturing, compounding or producing items of tangible personal property for sale.  It is important that the items being produced by the new machinery and equipment have distinct characteristics that separate them from other items that are being produced at the same location.  The example given in the Rule is a company that manufactures washing machines adding the capability to manufacture refrigerators.  For an additional example, if a company printing newspapers added the capability to print magazines. 

a.  The expansion of the existing facility would not qualify for this exemption if a business were to begin producing parts in-house that were previously purchased from outside sources for inclusion into the finished items of tangible personal property for sale.

b.  The exemption does not extend to companies who are replacing or relocating plants or facilities if the old facility or plant will be closed within 12 months of the opening of a new facility.  This limitation does not apply to a mine when one is closed due to the depletion or exhaustion of the resource. 

3.  A business does not meet the requirement for the new business exemption if merely a change in ownership of an existing plant or facility within the state of Florida occurs.  If the plant or facility ceased operations for a period of 12 months or more, then this caveat does not apply and the business can qualify for the new business exemption.

The expanding business exemption is applied more broadly than the new business exemption and extends to businesses that meet the following criteria:

1.  An expanding business is defined as an addition to, the modernization or enlargement of an existing facility or the installation of additional machinery and equipment.  These businesses that operate at a fixed location within Florida and who purchase industrial machinery and parts that must increase productive output of tangible personal property for sale by at least 10%.

2.  An expanding business can also be defined as one where an existing plant or operation is closed within 12 months of the opening of a new facility provided the productive output is 10% higher.

3.  An expanding business can also mean the purchase of an existing plant or facility provided productive output is increased by 10% or more.

A note about the 10% productive output increase threshold:  An expanding business is allowed to specify whether the increase is plant-wide or product line-specific.  If the increase is only component-specific and those components are used in multiple product lines, the additional machinery and equipment affects the productive output of multiple lines.  In this case, the change in productive output must be measured by all product lines affected.  Only product lines that see an increase of 10% or more in productive output may qualify for this exemption.

Effective April 1, 2008, the threshold of $50,000 of sales or use tax per calendar year that was payable by companies that qualified for this exemption was revoked.  Under the prior version of this exemption, the first $50,000 worth of sales and use tax payable for purchases that would otherwise qualify for this exemption was due.  Under the new Rule, this has been amended.

Exclusions to the new and expanding business credit:

1.  Machinery & equipment used by:

a.  Electric utility companies

b.  Communication companies

c.  Oil or gas exploration operations

d.  Publishing firms who export less than 50% of their finished product out of state

e.  Firms regulated by the Division of Hotels & Restaurants

f.  Any firms that do not manufacture, process, compound or produce items of tangible personal property for resale

2.  Industrial machinery & equipment that is used solely for preservation purposes, such as a temperature controlled storage or warehousing device will not qualify for this exemption.

A temporary Sales & Use Tax exemption form will be issued by the state of Florida if it has been determined that a business meets the qualification standards for this exemption.  A qualifying business must submit an Application for Temporary Tax Exemption Permit (Form DR-1214) to the following address:

Florida Dept. of Revenue

Technical Assistance & Dispute Resolution

P.O. Box 7443

Tallahassee, FL 32314-7443

There are many nuances for where the state of Florida draws the distinction between new and expanding businesses when it comes to additional products being produced.  The Executive Director or the Executive Director’s designee will make such determinations.  If you would like a free consultation by a Florida Sales and Use Tax expert, please contact SalesAndUseTax.com at info@salesandusetax.com or (888) 350-4829.

As with all Sales & Use Tax research, the specifics of each case need to be considered when determining taxability.  If you have questions, comments or would like to discuss the specific circumstances you are encountering in regard to this issue or any other Sales & Use Tax issue, please contact us at (888) 350-4TAX or (888) 350-4829 or via email at info@salesandusetax.com. 

Citations:

Florida Administrative Code 12A-1.096:

https://taxlaw.state.fl.us/wordfiles/SUT%20FAC%2012A-1.096.pdf

Transmittal Memorandum 08-01:

https://taxlaw.state.fl.us/wordfiles/SUT%20TM%2008-01.pdf

www.salesandusetax.com/sales-and-use-tax/state/florida

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