November 30, 2004
Source: Governor's Office
Announcing support of regular session legislation to broaden the current sales tax exemption on machinery and equipment purchased by expanding manufacturers in Florida.
Principles of these Actions
Manufacturing in Florida:
Generally, Florida currently levies a six percent sales tax on manufacturing machinery and equipment (M&E), but allows the following limited exemptions:
Because 36 other states do not tax manufacturing M&E and an additional 4 states impose greatly reduced rates of 1% to 1.5%, Florida’s current tax on inputs poses a distinct competitive disadvantage for our state’s manufacturers and discourages investment.
Current exemptions are unevenly applied across industries and favor new manufacturers compared to those already in Florida.
The $50,000 threshold in current law discriminates against smaller expanding manufacturers because they must spend at least $830,000 to begin benefiting from the exemption.
Eliminating taxation of manufacturing inputs is a top issue for Enterprise Florida and the Florida Manufacturing Association.
The annual cost savings to Florida manufacturers from reduced state and local sales taxes are estimated to be $34.8 million.
Q: What are the expected economic impacts of the proposal?
A: The Governor’s Office has not quantified the expected employment, output, and income gains. Nevertheless, we can reasonably expect that any measure that reduces costs for Florida manufacturers will increase the likelihood of success in interstate and international competition. Generally, taxes discourage the taxed activity. Removal of the tax encourages that same activity. This proposal will encourage manufacturing investment in Florida. We are trying to remove barriers to growth and encourage manufacturing investment in Florida. This proposal will improve Florida’s business climate for manufacturing, allowing Florida manufacturers to gain market share and grow, adding to the tax base.
Q: Why not propose complete elimination of ALL sales taxes on manufacturing M&E (including replacement equipment)?
A: Though we could expect the long-run impact of such a proposal to be positive for Florida’s economy, in the short-run we must operate within constraints posed by the state budget. A full repeal would reduce state revenues by more than $400 million annually (see following info in brackets), at least initially. The more limited proposal is a needed step in the right direction that has a better chance of securing legislative support.
[As determined in the November 2004 UCF Institute for Economic Competitiveness report, tax revenue loss for the period of FY2005-06 is projected at $322 million; loss for FY2006-07 would be $159 million; tax revenue gain of $539 million is projected by FY2007-08]