Governor Bush's Proposal For:

Research and Development Manufacturing Machinery & Equipment
Sales Tax Exemption

 November 30, 2004
Source:  Governor's Office

Today’s Actions

Announcing support of regular session legislation to create a sales tax exemption for all machinery and equipment purchased for use predominantly in research and development activities.

Principles of these Actions

· Improve Florida’s attractiveness as a location for research and development activity.

· Enhance the likelihood that Florida will attract or spawn commercialization and production activity that emerges from a richer research and development environment in the state.

· Enhance private-public research partnership opportunities.

Background

Research and Development Activities in Florida:

· Research and development spending in Florida is substantial, but lags behind other smaller states:

o In 2002, total R&D spending in Florida was $5.5 billion, only 2.1% of the total for the U.S. Spending by industry was $3.7 billion (1.9% of the U.S. total).

o Though Florida is the fourth largest state in terms of population, 13 other states had higher R&D expenditures (California, Michigan, Massachusetts, Texas, New York, New Jersey, Washington, Illinois, Pennsylvania, Maryland, Ohio, Connecticut, and Virginia).

Generally, Florida currently levies a 6% sales tax on machinery and equipment used primarily for research and development activities, but allows the following limited exemptions:

· Any R&D equipment purchased predominantly for semiconductor wafer research conducted in an OTTED-certified facility is 100% exempt,

· Similarly, any R&D equipment purchased predominantly for defense or space research conducted in an OTTED-certified facility is 25% exempt.

Because 24 other states either do not tax research and development equipment or do so at reduced tax rates, Florida’s current tax poses a distinct competitive disadvantage for Florida to attract new R&D activity.

Proposal: Eliminate the sales tax on machinery and equipment used predominantly for research and development activities

The annual cost savings to businesses conducting research and development activities in Florida are estimated to be $33.7 million. This reflects a reduction in both state and local sales taxes.

The proposal also contemplates allowing a recipient of the exemption to enter into an agreement with one or more state universities or community colleges to receive up to 100% of the tax savings, to be matched on a one-to-one basis, in pursuit of research and development projects.