Florida sales and use tax law offers a great tax exemption for manufacturers.  There are actually several sections of the Statutes and Rules where the relevant Florida sales and use tax exemptions can be found.  When one combines the relevant Florida sales and use tax exemptions for manufacturers, their combination results in one of the broader exemptions for manufacturers in the U.S.

Fla. Admin. Code Ann.  §12A-1.063 provides the basis for a Florida sales and use tax exemption for industrial machinery and equipment purchases. In Florida, industrial machinery and equipment is defined as tangible personal property that has a depreciable life of three years or more and is a component or integral part of the manufacturing process. To qualify the manufacturer must be classified under a manufacturing North American Industry Classification System (“NAICS”) code (e.g. a code beginning with the two digits of 31, 32, or 33). Examples of qualifying machinery and equipment include: forklifts, conveyor belt systems, or machinery or equipment that shapes, cuts or forms the product being manufactured for sale.

Another significant part of the Florida sales and use tax exemption provided to manufacturers can be found in Florida Statute §212.08(7)(xx), which states that repair and labor charges for exempt industrial machinery and equipment are also exempt from sales tax.  This includes all labor charges for repairs and maintenance as well as any parts or materials used in the repair. Rather than being based on a company’s NAICS code as the industrial machinery and equipment exemption is, this exemption is tied to a company’s Standard Industrial Classification (“SIC”) code.  SIC was the standard before the NAICS model came into effect.  A handy crosswalk between the two systems can be found online.  Florida’s sales and use tax exemption for repair and replacement parts for manufacturing equipment applies to taxpayers in SIC industry major group numbers 10, 12, 13, 14, 20, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, and 39 and 212.

Another exemption provided to manufacturers under Florida sales and use tax law is that found in Florida Statute §212.08(7)(b) and (hh).  These two citations provide a comprehensive Florida sales and use tax exemption for utilities used to power machinery and equipment involved in the production of goods for sale. The exemption found in Florida Statute §212.08(7)(b) provides an exemption for “boiler fuels” and includes many types of combustible substances including, but not limited to: natural gas, solid waste, coal and wood.  A similar exemption for the use of “electricity and steam” can be found in Florida Statute §212.08(7)(hh).

In both circumstances, even if the fuel or utility is not being used exclusively by production machinery and equipment, a taxpayer can still claim an exemption.  A taxpayer will need to determine the portion of the fuel or utility charges being consumed in a tax exempt manner.  If 75 percent or more of the utility is being used to operate exempt machinery and equipment, then a 100 percent exemption may be claimed.  If between 50-75 percent of the utility is being used to operate exempt machinery and equipment, then a 50 percent exemption may be claimed. If less than 50 percent of the utility is being used to operate exempt machinery and equipment, then a taxpayer is not entitled to a sales tax exemption on their purchase of fuel or utilities. In order to determine the percentage of the utility used in an exempt manner, a detailed energy study must be performed. This energy study is done by calculating the annual consumption for each piece of machinery and equipment using the utility and then determining which are used in an exempt manner.  Agile Consulting Group’s sales tax consultants can assist with this energy study.

In order to take advantage of any of these Florida sales and use tax exemptions for manufacturers, a company will need to complete and sign Florida sales and use tax Exemption Certificate Form DR-97 and distribute it to their suppliers or vendors from whom they are making qualifying purchases. Once a vendor or supplier has received this form, the account in question can be set up as tax exempt going forward.

What should you do if you realize after the fact that your company was entitled to a Florida sales and use tax exemption?  The state of Florida allows for taxpayers to request a refund on all taxes erroneously paid within the prior 36 months. In order to do this, a taxpayer will need to complete Form DR-26S “Application for Refund – Sales and Use Tax Form” and submit it to the Florida Department of Revenue.  This can either be completed in paper form or the taxpayer may submit an electronic request.  Within the refund form, the manufacturer will need to indicate the type of tax, amount of refund requested, FEIN or sales tax certificate number, the time period of the refund request, and the reason for the refund request. The manufacturer will also need to gather an “Assignment of Rights to Refund of Tax” Form DR-26Afrom each of their vendors to whom taxes were paid in error.  The Assignment of Rights Form DR-26A, can at first appear to be intimidating, however, it’s only role is to prevent the manufacturer from receiving a refund for the same item from both the FL Dept. of Revenue as well as their vendor or supplier – essentially it prevents “double dipping” on exemptions.

For larger volume based refund requests, manufacturers can sample their records as long as the taxpayer and Florida Department of Revenue agree on the terms of the sampled data. Once the Florida Department of Revenue has all the information needed, the refund request will be assigned to an auditor who will either approve, deny, or request additional information to complete the refund claim. For any denied refund claims, the taxpayer can file a protest up to 60 days from the denial letter. Protest procedures are outlined in Form DR-832R.

Have a question? Contact Aaron Giles.