Tax Exemption for Research and Development and Manufacturing Equipment for Defense and Space Industr
Tax Exemption for Research and Development and Manufacturing Equipment for Defense and Space Industry
Summary: Florida has long reaped the economic benefits of hosting strong Defense and Space Industries. Florida's tax structure and aggressive competition from other states threatens the future strength of these industries. The market is driving these industries toward consolidation in the most competitive locations. Florida is less competitive as one of the few states, which still tax machinery and equipment used by space and defense companies for research and development and manufacturing. States that are attempting to lure this high-tech, high wage business, such as California, Texas, Arizona and Georgia, have exempted machinery and equipment from their sales and use tax.
Legislation Requested: Amend s.212.08 F.S. to provide an exemption from taxation for machinery and equipment used in defense and space technology research and development and production.
· The space and defense industries are major contributors to Florida's economy.
· Annually NASA and the Department of Defense award approximately $10B in contracts to Florida companies. In addition Florida currently has a strong supplier/sub-contractor base that receives contracts from Prime contractors based in other states. For example, the F-22 program, based in Texas, has approximately 220 contracts with Florida based suppliers/sub-contractors.
· Space and defense companies employee more than 45,000 Floridians in high skilled, high wage jobs. These industries create another 75,000 indirect jobs.
· Increasing communication demands, growth of the Space Station and other defense and technology demands for access to space will drive continuing growth in the space industry.
· The defense budget growth is expected to exceed the previously forecast growth rate of 2% per year for the next 10 years. A recent public opinion survey showed 59% in favor of increased defense spending. The enacted FY 01 defense budget grew 8% over FY 00.
· The worldwide competition for space and defense contracts is increasing. Space and defense companies face increasing pressure to reduce costs. In response these companies are attacking all aspects of their product and service costs to include the location cost of doing business.
· Florida's competitor states are increasing their efforts to attract these high-tech, high wage businesses. Failure to consider and respond to these threats could severely impact Florida's economy.
· Granting this request will make Florida's space and defense companies more competitive and will help them grow. If it does nothing more than make it possible for these companies to maintain their current share of the NASA and Defense budgets the resultant contribution to the financial well-being of our state by far than the collection of sales and use tax on machinery and equipment.
· One example of the potential contribution to Florida's economy could be based on the expected growth of the defense budget. If the defense budget grows between 2% and 8% per year for 5 years and Florida companies can maintain their current share the current annual average of $6B in defense contracts awarded to Florida companies would grow to between $6.624B and $8.81B per year at the end of 5 years. This would mean a job increase over the 5 years of between ~2600 and 12,600 direct jobs and 4700 and 21,000 indirect jobs. This example does not include the expected growth in the space industry nor does it include the growth that Florida's supplier/sub-contractor base would experience.
Recommendation: That s.212.08 F.S. be amended to eliminate the taxes on machinery and equipment used in defense and space technology research and development and manufacture.
For more information contact:
Andy Bertron or Mike Huey at 850-224-7091
Jim Bodine at 407-862-4458
Jerry Sansom at 850-224-4750
Proration of the Aviation Fuel Tax
Proration of the Aviation Fuel Tax
· Section 206.9825(2), 1999, FS
· Interim Project Report 2000-49, Senate Committee on Fiscal Resources, August 1999
Summary: Referenced FS authorized air carriers that utilized mileage apportionment for corporate income taxes purposes to prorate their aviation fuel taxes based on the ratio of Florida mileage to total mileage. This proration benefits 1) air carriers based in Florida who buy more fuel in Florida than they expend in Florida airspace AND 2) Florida's economy.
Legislation Requested: Section 206/9825(2), FS was automatically repealed in July 2000. It is requested that new legislation be enacted that is essentially identical to the repealed section of the FS that will allow for the proration of aviation fuel taxes effective July 1, 2001 and continuing indefinitely.
Facts: (Based on referenced Senate Committee Report or on data provided by Florida air carriers)
· In August 1999 there were 56 active air carrier dealers registered in Florida, Fifteen of these prorate their aviation fuel taxes.
· The larger air carriers do not use fuel tax proration because their Florida mileage is small compared to their total mileage.
· Forty percent of these 15 air carriers were interviewed to develop the data contained in the referenced Senate Committee Report.
· The forty- percent interviewed reported an estimated purchase of 33,000,000 gallons of aviation fuel in Florida that would have resulted in a tax rebate of $1,537,000.
· The current aviation fuel tax rate is 6.9%. The average rebate is ~4.5%.
· The aviation fuel tax rebate was enacted to help the small air carriers, to encourage their basing in Florida and to encourage fuel purchase in Florida.
· The air carriers based in Florida have a positive economic impact in Florida. It is estimated that the small air carriers that prorate their fuel taxes in Florida create approximately 8500 direct Florida jobs. Direct and indirect jobs created would be 21,250.
· Based on the 40% interviewed for the Senate Committee Report total fuel purchased in Florida by air carriers using fuel tax proration could be 82.5 million gallons. At a 6.9% fuel tax rate fuel taxes would be ~$5.7 Million.
· Some air carriers report a 34% decrease in fuel purchased in Florida based on the repeal of the fuel tax exemption. If this 34% is extended to all of the carriers using fuel tax proration the revenue loss would be ~$1.9 million, 28,000,000 fewer gallons of fuel would be purchased in Florida and fuel retailers and suppliers in Florida would be severely impacted.
· Aviation fuel represents one of the major operating costs of air carriers. Those interviewed for this analysis report that it is as high as 22% of costs. The cost increase represented by the repeal of the fuel tax exemption will threaten the existence of some Florida carriers and adversely impact the competitiveness of all of the carriers. All of the carriers interviewed indicated that their growth and expansion plans for Florida have been adversely impacted. Expansion plans in Florida had ranged from 5% to 20% over the next 5 years. That translates to ~1100 to 4200 new jobs if the expansion and growth plans are realized.
· Florida in recent years has taken steps to make Florida a more attractive location for aviation and to reap the significant economic benefits of increasing aviation jobs and capital investment in Florida. These steps have begun to pay off; however, the repeal of the aviation fuel tax proration now threatens these gains.
Recommendation: That legislation be enacted to reinstate the aviation fuel tax proration exemption.
Sales Tax Exemption for Aircrew Training Simulators
Sales Tax Exemption for Aircrew Training Simulators
(January 19, 2001)
Summary: Commercial Aviation is undergoing a period of rapid growth and change. Over the next 10 years it is estimated that ~16,000 new aircraft will be delivered to air carriers to serve growing markets and to replace aging, existing fleets. This change will generate a need for approximately 533 new aircrew-training simulators. Each of these simulators generates new, high wage jobs, significant capital investment and increased spending in local areas. These new simulators will be located in the most cost competitive locations. To attract a reasonable share of these new simulators Florida must become more cost competitive.
Legislation Requested: Amend s.212.08 F.S. to exempt any facility, school or business that trains aircraft pilots and flight crews, as provided under Part 142 of Federal Aviation Administration regulations, for approval, certification, or regulation by the Federal Aviation Administration, or a comparable foreign regulatory authority, from taxes imposed by this chapter.
· An aircrew-training simulator can cost between $5.5M and $12.5M. It generates approximately 15 direct jobs with an average wage of $47,500. Each simulator requiring a facility generates construction costs up to $650K.
· Each simulator generates 7000 bed nights annually. With meals, transportation and entertainment this can add up to $1.4M/year.
· Approximately 12,000 aircraft serve commercial aviation today. In the next 10 years it is estimated that 16,000 new aircraft will replace and expand this aging fleet. These new aircraft will generate a requirement for 533 new training simulators.
· Florida is well positioned geographically to expand its aircrew training industry, but in this highly competitive business Florida must improve the business climate for this industry.
Approximately 533 new simulators will be installed in the next 10 years. Training companies and airlines will install these simulators in locations that will serve their potential clients and in the most cost competitive location. Currently Florida training companies are planning expansion. In just one example, Pan Am Flight Training Academy is planning to expand by 8 new simulators. However, their location has not yet been decided. That decision will be based on where they can be most competitive. Other training companies such as FSI, AirBus and Lockheed Martin are facing similar decisions.
A number of air carriers contract out their training needs. Others are considering a move in that direction. Most of the Latin American air carriers contract out their training needs and these same air carriers fly into and out of Florida. Florida could become the aviation training center for the Americas.
The requested legislation could make the difference in the decision process that will determine if Florida gets a good share of these new simulators and the attendant economic benefits.
Recommendation: That s.212.08 F.S. be amended to exempt business from the sales and use tax imposed on Type 142 aircrew training simulators.