The purpose of the proposed amendments to Rule 12A-1.043, F.A.C. (Manufacturing), is to: (1) reflect the First District Court of Appeal’s ruling in Department of Revenue v. Lockheed Martin Corporation (905 So.2d 1017, 2005 WL 1544773, 07/05/2005), ...

DEPARTMENT OF REVENUE
Sales and Use Tax

RULE NO: RULE TITLE
12A-1.043: Manufacturing
PURPOSE AND EFFECT: The purpose of the proposed amendments to Rule 12A-1.043, F.A.C. (Manufacturing), is to: (1) reflect the First District Court of Appeal’s ruling in Department of Revenue v. Lockheed Martin Corporation (905 So.2d 1017, 2005 WL 1544773, 07/05/2005), which provides that materials incorporated or fabricated into research or development end products or prototypes are exempt from sales tax; (2) remove provisions stating that the purchase, rental, or repair of real property or tangible personal property employed in research or development is subject to tax rendered obsolete by Section 1, Chapter 2006-57, L.O.F.; and (3) include the exemption provided in Section 212.08(18), F.S., for machinery and equipment used predominantly for research and development, as created by Section 2, Chapter 2006-57, L.O.F.
SUMMARY: The proposed amendments to Rule 12A-1.043, F.A.C. (Manufacturing), (1) provide that items of tangible personal property manufactured, produced, compounded, processed, or fabricated for use directly and solely in research or development are exempt; (2) remove obsolete provisions stating that tax is due on the purchase, rental, or repair of real property or tangible personal property employed in research or development; (3) provide that machinery and equipment used predominantly for research or development purposes is exempt; (4) define the terms “machinery and equipment” and “predominantly”; (5) provide how materials and labor may be used directly and solely for research or development purposes, as provided in Section 212.052, F.S., and how machinery and equipment used predominantly in research or development activities, as provided in Section 212.08(18), F.S., may be purchased tax-exempt when the purchaser issues an exemption certificate to the selling dealer certifying the tax-exempt use of the item or issues a copy of the purchaser’s direct pay permit to the selling dealer; (6) provide a suggested exemption certificate to be used for purposes of these exemptions; and (7) clarify that a prototype or product of research or development used by the developer, including being offered for sale, is subject to tax.
SUMMARY OF STATEMENT OF ESTIMATED REGULATORY COSTS: No Statement of Estimated Regulatory Cost was prepared.
Any person who wishes to provide information regarding a statement of estimated regulatory costs, or provide a proposal for a lower cost regulatory alternative must do so in writing within 21 days of this notice.
SPECIFIC AUTHORITY: 212.052(5), 212.08(18)(c), 212.17(6), 212.18(2), 213.06(1) FS.
LAW IMPLEMENTED: 212.02(4), (7), 212.052, 212.06(1), 212.08(18), 212.085, 212.12(12), 366.051 FS.
A HEARING WILL BE HELD AT THE DATE, TIME AND PLACE SHOWN BELOW:
DATE AND TIME: April 14, 2008, 11:00 a.m.
PLACE: Room 435, Carlton Building, 501 S. Calhoun Street, Tallahassee, Florida
Pursuant to the provisions of the Americans with Disabilities Act, any person requiring special accommodations to participate in this workshop/meeting is asked to advise the agency at least 48 hours before the workshop/meeting by contacting: Larry Green at [phone]. If you are hearing or speech impaired, please contact the agency using the Florida Relay Service, 1(800)955-8771 (TDD) or 1(800)955-8770 (Voice).
THE PERSON TO BE CONTACTED REGARDING THE PROPOSED RULE IS: Jeffery Soff, Tax Law Specialist, Technical Assistance and Dispute Resolution, Department of Revenue, P. O. Box 7443, Tallahassee, Florida 32314-7443, telephone [phone]

THE FULL TEXT OF THE PROPOSED RULE IS:

12A-1.043 Manufacturing.

(1) through (5) No change.

(6)(a) Tangible personal property manufactured, produced, compounded, processed, or fabricated for use directly and solely in research or development, and machinery and equipment used predominantly for research or development purposes are exempt Research or development labor shall not be taxable when the research or development has one of the following as its ultimate goal:

1. Basic research or the advancement of advanced knowledge or of technology in a scientific or technical field of endeavor.

2. The development of a new product, the improvement of an existing product, or the development of new uses of an existing product, whether or not the product is offered for sale.

3. The design and development of prototypes, whether or not a resulting product is offered for sale.

(b) For the purpose of this subsection rule:

1. “Machinery and equipment” includes, but is not limited to, molds, dies, machine tooling, and other appurtenances or accessories for machinery and equipment, testing and measuring equipment, test beds, and computers and software. Such machinery and equipment may be purchased, leased, or self-fabricated. If self-fabricated, the machinery and equipment includes the materials and labor for the design, fabrication, and assembly of such items.

2. “Predominantly” means at least 50 percent of the time.

3.1. “Product” means any item, device, technique, prototype, invention, or process, which is, was, or may become be, commercially exploitable.

2. The term “cost” means cost price as defined in s. 212.02(4), F.S.

(c) Research or development does not include ordinary testing or inspection of materials or products used for quality control, market research, efficiency surveys, consumer surveys, advertising and promotions, management studies, or research in connection with literature, history, literary, historical, social science, psychology, or other similar nontechnical activities.

(d) Materials and labor may be purchased tax-exempt when the purchaser extends an exemption certificate to the vendor or supplier certifying that the materials and labor will be used directly and solely for research or development purposes, as provided in Section 212.052, F.S. Any person, including affiliated groups, as defined in s. 1504 of the Internal Revenue Code, as amended, who manufactures, produces, compounds, processes, or fabricates in any manner tangible personal property for such taxpayer’s own use directly and solely in research or development shall not be subject to the tax upon the cost of the product so manufactured, produced, compounded, processed, or fabricated for the purpose of research and development. However, the tax shall be due on the purchase, rental, or repair of real property or tangible personal property employed in research or development.

(e) Machinery and equipment, including materials and labor used in the self-fabrication of machinery and equipment, may be purchased or leased tax-exempt when the purchaser extends an exemption certificate to the vendor or supplier certifying that the item(s) will be used predominantly for research or development purposes, as provided in Section 212.08(18), F.S.

(f) The following is a suggested exemption certificate:

EXEMPTION CERTIFICATE

ITEMS USED IN RESEARCH OR DEVELOPMENT

This is to certify that purchases on or after__________(date) from______________(Selling Dealer’s Business Name) are either: materials and labor used directly and solely in research or development activities, as provided in Section 212.052, Florida Statutes; or purchases or leases of machinery and equipment, including materials and labor used in the self-fabrication of machinery and equipment, used predominantly in research or development activities, as provided in Section 212.08(18), Florida Statutes.

These research or development activities are located at:

__________________________________________________

(Street)

__________________________________________________

(City and State)

I understand that if I fraudulently issue this certificate to evade the payment of tax, I will be liable for payment of the tax plus a penalty of 200% of the tax and be liable for fine and punishment provided by law for conviction of a felony of the third degree, as provided in Sections 775.082, 775.083, or 775.084, Florida Statutes.

Under penalties of perjury, I declare that I have read the foregoing document and that the facts stated in it are true.

____________________________                                                               ____________________

Purchaser’s Name (Print or Type)                                                                     Purchaser’s Address

____________________________                                                               ____________________

Signature and Title                                                                                              Florida Sales and Use Tax

                                                                                                                                Number (if applicable)

___________________________                                                                 _____________________

Date                                                                                                                        Federal Employer’s
                                                                                                                                Identification Number
                                                                                                                                (if applicable)

(g) Instead of furnishing an exemption certificate, any purchaser who holds a valid Sales and Use Tax Direct Pay Permit, as provided in Rule 12A-1.0911, F.A.C., may extend a copy of the permit to the selling dealer to make purchases tax-exempt under this subsection.

(h)(e) The tax imposed by Section 212.052, Florida Statutes shall apply to any product of research or development that is tangible personal property which is offered for sale. When a prototype or product of research or development is used by the developer for any purpose other than research or development, including being offered for sale, it is subject to tax shall be taxable.

Specific Authority 212.052(5), 212.08(18)(c), 212.17(6), 212.18(2), 213.06(1) FS. Law Implemented 212.02(4), (7), 212.052, 212.06(1), 212.08(18), 212.085, 212.12(12), 366.051 FS. History–Revised 10-7-68, 1-7-70, 6-16-72, Amended 1-19-74, 12-26-83, Formerly 12A-1.43, Amended 1-2-89, 2-28-90, 3-20-96, 7-27-99, 10-2-01,________.

NAME OF PERSON ORIGINATING PROPOSED RULE: Jeffery Soff, Tax Law Specialist, Technical Assistance and Dispute Resolution, Department of Revenue, P. O. Box 7443, Tallahassee, Florida 32314-7443, telephone [phone]
NAME OF SUPERVISOR OR PERSON WHO APPROVED THE PROPOSED RULE: Buzz McKown, Revenue Program Administrator II, Technical Assistance and Dispute Resolution, P. O. Box 7443, Tallahassee, Florida 32314-7443; telephone number [phone]
DATE PROPOSED RULE APPROVED BY AGENCY HEAD: March 3, 2008
DATE NOTICE OF PROPOSED RULE DEVELOPMENT PUBLISHED IN FAW: The proposed amendments to Rule 12A-1.043, F.A.C. (Manufacturing), were noticed in the Florida Administrative Weekly on October 19, 2007 (Vol. 33, No. 42, pp. 4874-4876). A rule development workshop was held on November 13, 2007, in Room 118, Carlton Building, 501 S. Calhoun Street, Tallahassee, Florida. In response to public comment, the Department clarified the rule text to provide that the exemption provided in Section 212.052, F.S., applies to materials and labor used directly and solely for research or development purposes.