Last week, Gov. Rick Scott signed House Bill 33, which provides numerous tax incentives intended to benefit individuals and businesses. According to the bill analysis, the total impact of the incentives amount to $428 million, $365 million of which will occur in fiscal year 2015-16.Keep Florida Working, Gov. Scott’s initial $77 billion budget proposal, sought $673 million in tax cuts.
The bill's key provisions include:
Sales tax credits: Florida currently imposes a 6 percent sales and use tax on the retail sale of many products. The revenue from this tax accounts for Florida’s largest general revenue stream, 75.7 percent in fiscal year 2014-15.
HB 33 contains new or expanded sales tax exemptions on purchases of the following:
- Agricultural items, including feed for aquatic organisms, irrigation equipment, costs of maintenance and repairs of irrigation and power farm equipment, stakes, and certain trailers used on farms;
- K-12 school food and beverage concessions in support of extra-curricular activities;
- Boat repairs exceeding the first $60,000 in tax;
- Gun club memberships or admissions; and
- Motor vehicles brought to Florida by military service members deployed outside of the U.S.
The bill also implements a back-to-school tax holiday, from Aug. 7, 2015, through Aug. 16, 2015, for clothing and footwear that cost under $100 and school supplies that cost $15.00 or less per item. For computers, the exemption applies to the first $750 of the sales price.
Additionally, HB 33 creates a one-year exemption for college textbooks and instructional materials.
Cut on the Communication Services Tax (CST): Effective July 1, 2015, there will be a 1.73 percent rate cut on the CST, which is a tax on the sale of communication services, including telecommunications (both wired and mobile), cable television, direct-to-home satellite television, and other services. The legislation reduces the standard rate from 6.65 percent to 4.92 percent and the rate on direct-to-home satellite television from 10.8 percent to 9.07 percent. In fiscal year 2015-16, the total expected impact is $206.3 million, and the recurring impact is $226.1 million.
Corporate income tax credits, brownfields cleanup: HB 33 increases this tax credit from $5 million to $21.6 million in fiscal year 2015-16 for eligible sites. The anticipated impact in fiscal year 2015-16 is $16.6 million.
Community Contribution Tax Credit (CCTC): Florida legislature enacted the CCTC in 1980 to encourage private sector participation in community revitalization and housing projects. It provides tax credits to businesses or individuals that contribute to certain projects undertaken by approved CCTC sponsors, including community organizations, housing organizations, historic preservation organizations, units of state and local government, and regional workforce boards.
In order for a project to be eligible for the CCTC, it must be located in a designated enterprise zone area or Front Porch Florida Community (with exceptions), and be designed to either:
- Construct, improve, or substantially rehabilitate low-income housing;
- Provide commercial, industrial, or public resources and facilities; or
- Improve entrepreneurial and job development opportunities for low income individuals.
Currently, a taxpayer may receive a credit of up to 50 percent of their annual contribution, up to $200,000 annually; however, there is a $21.9 million cap on total CCTC payments. HB 33 extends the expiration date of the program from June 30, 2016, to June 30, 2018, expands eligibility, and provides $21.4 million in annual funding for projects that provide home ownership opportunities for low income households, or housing opportunities for those with special needs. It also provides $3.5 million for all other projects.
Research and Development (R&D): The legislation increases the total amount of credits that may be awarded during calendar year 2016 from $9 million to $23 million. During the application period beginning in 2015, 81 companies sought $24 million in credits, but only 21 received funding because the cap was exceeded. In fact, all of the applications that received funds were filed within the first nine minutes of the application acceptance window. This year, if the amount sought exceeds the cap, the credits will be distributed on a pro-rata basis, instead of in the order in which the applications are received.
Eligibility is restricted to the following qualified target industries:
- Life Sciences
- Aviation & Aerospace
- Homeland Security & Defense
- Cloud IT
- Marine Sciences
- Materials Science
The calculation for the tax credit is complex. Generally, it amounts to 10 percent of the difference between the current tax year’s R&D expenditures in Florida and the average of R&D expenditures over the previous four tax years. However, if the business has existed for fewer than four years, then the credit amount is reduced by 25 percent for each year the business or predecessor corporation did not exist.
The state tax credit taken in any taxable year may not exceed 50 percent of the company’s remaining net corporate income tax liability, after all other credits to which the business is entitled have been applied. Any unused credits may be carried forward by the business that originally earned them for up to five years following the year in which the qualified research expenses were incurred.