The R&D Tax Aspects of Florida Innovation



By , , and


Florida-Innovation

        As the fourth largest economy in the country, the state of Florida continues to rapidly develop.  Modern infrastructure, low employment costs and tax burdens, availability of financial capital, and manageable costs of living have made Florida’s major cities increasingly desirable for companies.  Companies innovating throughout the Sunshine State should utilize federal and state Research and Development Tax Credits to help support and stimulate growth.


The Research & Development Tax Credit

        Enacted in 1981, the federal Research and Development (R&D) Tax Credit allows a credit of up to 13% of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

         Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. On December 18, 2015 President Obama signed the bill making the R&D Tax Credit permanent.  Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against payroll taxes.


The Florida Landscape

        Florida is home to nearly 3,000 headquartered offices.   In the food industry, Fresh Express, the large packaged salad producer, recently relocated their headquarters to Orlando and banana retailer Chiquita, has recently moved their headquarters to Dania Beach – bringing a total of 210 jobs to the areas. Granex, a leading granite and marble manufacturer recently opened its first location in Tampa and intends to add 50 jobs.

        The business friendly cities of Tallahassee, Jacksonville, Orlando, Tampa, Palm Beach, Ft. Lauderdale, and Miami host major company headquarters including Office Depot, Citrix Systems, Univision, BookIt.com, Publix Super Markets, and NASCAR.  

Miami/Ft. Lauderdale
        Miami  is the state’s most populous county with 13.4% of Florida’s population. TechAmerica Foundation’s Cybercities 2010 study reported that close to 7,000 high-tech establishments operate in the Miami/Ft. Lauderdale area with over 65,000 high-tech workers.  Local organizations such as The LAB Miami, Miami Entrepreneurship Center, Venture Hive, and Refresh Miami provide support for emerging startups and entrepreneurs by hosting lecture series and workshops and providing shared work spaces.

        A proposal is in the works for the development of a 10-acre Miami Innovation District, which would include nine towers of mostly office space.  The proposal is gaining support from local entrepreneurs and tech investors as it would provide a central hub for the spread out ecosystem of Miami.

        Multi-national software company, Citrix Systems, has its Executive Briefing Centers (EBC) headquartered in Ft. Lauderdale. Ryder Systems Inc, leading trucking and supply chain manager, has its headquarters in Miami.

Jacksonville
        Jacksonville has recently gained the reputation as a growing city for entrepreneurs.  Also known as the next Silicon Valley, early stage start-ups have taken notice of the many benefits Jacksonville has to offer such as easy access to private funding with the growing population of retirees with high net worth.

        In terms of fostering successful startups, Jacksonville ranks among one of the top cities in the world, above Moscow, Sydney, and Tel Aviv.  OneSpark, an annual crowdfunding festival held in downtown Jacksonville, festival attracted over 320,000 attendees in 2015, making it one of the world’s largest crowdfunding events to date.

        Beaver Street Enterprise Center (BSEC), in Jacksonville, offers 25,000 square feet of professional office space for startups and small business incubation.  BSEC also offers workshops, accounting services, technology solutions, and mentoring.


The Florida R&D Tax Credit

        For qualifying corporations, the state of Florida R&D Tax Credit amounts to 10% of qualified research expenses (QREs) incurred in the state. The funds are available on a first come, first serve basis, with a total pool of $23 million in available funds for the 2016 application period (up from the previous $9 million per year). The annual available funds revert back to $9 million after the 2016 application period. The state requires that the credit applicant be involved in a “target industry business.” The Florida Department of Revenue defines these industries below:


Target Industry Business
Manufacturing
Life Sciences
Information Technology
Aviation / Aerospace
Materials Science
Homeland Security / Defense
Cloud Technology
Nanotechnology
Marine Sciences


        Many companies and startups relocating to the greater Miami area are primed for the both the federal and Florida R&D Tax Credits, as a large percentage are in qualifying industries and meet the necessary criteria.

R&D Intensive Industries

        Many of Florida’s strongest business sectors including aerospace, life sciences, manufacturing, defense, IT, and could computing are R&D intensive industries in which product and process development occur constantly. Companies innovating in these and similar industries are great candidates for federal and state R&D Tax Credits.


Life Sciences
        Florida has some of the nation’s most prestigious research centers and boasts over 1,100 biotech, pharmaceutical, and medical device companies.  Johnson & Johnson, Medtronic, and Bristol Meyers Squibb, are among some of the industry leaders located in the state.

        Life science companies throughout state are increasingly focused on novel research and development to solve the nation’s largest health concerns including Alzheimer’s , cancer , diabetes , and heart disease.

        Tampa-based healthcare informatics company, M2Gen®, recently announced its collaboration with leading cancer centers and pharma companies to create an alliance for precision medicine and cancer treatment developments.

        Orlando-based drug discovery company, US Phytotherapy, Inc. focuses on natural, plant-based active ingredient formulas for the treatment of invasive diseases.  With the use of cutting edge technology, US Phytotherapy recently discovered of a drug candidate for dengue virus inhibition.  The patented solution effectively inhibited three different models of the dengue virus.


Manufacturing
        The Sunshine State is home to over 19,000 manufacturers in diverse sectors including plastics, automotives, aerospace parts, medical equipment, electronic components, ship/boat building, and specialty foods.

        Anheuser-Busch recently broke ground on their latest expansion project, an aluminum bottle line at their Metal Container Corporation (MCC) in Jacksonville.  The new facility is in addition to Anheuser-Busch’s existing brewery in Jacksonville.

        Sanford-based fabricated metal manufacturer, Southern Manufacturing, has incorporated state-of-the-art automation equipment and production lines to meet the quality and tolerance standards of today’s industries such as medical, transportation, etc.


Information Technology
        Florida is at the forefront of IT innovation with diverse industry strengths including software development, photonics , mobile technologies, virtual reality  and simulation, telecoms, and microelectronics.

        The National Center for Simulation in Orlando is a consortium of government, academic, and industry members focused on the advancement and useful applications of virtual reality and simulation.  One of the center’s major focuses is on modeling and simulation usage within the medical industry.  3D Perception, based in Orlando, designs and builds immersive display solutions using precision image alignment, automatic color calibration, curved screens, and multi-projection solutions to bring simulation training to life.

        LinguaSys, Inc., based in Boca Raton, is a software company that leverages human language technology to bring linguistic engineering and enterprise IT together.  The company utilizes text analytics, natural language processing , and reasoning automation to bring grammar-aware translations in over 16 languages.


Cloud Technology
        Advancements in cloud computing have facilitated growth in many industries throughout the country.  This is also the case in the Florida region where cloud computing integrates with healthcare and other industries to provide flexible solutions.

        Miami-based healthcare software company, CareCloud, has developed a modern, flexible, and powerful cloud platform to help doctors manage their practices and facilitate the transition to electronic health records (EHRs).


Aviation/Aerospace
        Florida is home to the nation’s largest aerospace and aviation industry with over 2,000 companies.  The large concentration of military bases has attracted many of the largest companies including Boeing , Embraer, General Dynamics, Lockheed Martin, Northrop Grumman, and Pratt & Whitney.  In 2014, Florida exported almost $4.8 billion in aircraft, engines, and parts, putting the state in the top 10 for aviation.

        Global leader in aeronautical electrical systems, Labinal Power Systems (a subsidiary of Safran), recently announced its expansion in Manatee County as well as the relocation of subsidiary Aerosource from New Jersey to Manatee County.  Safran/Labinal Power Systems’ research and technology programs are focused on shifting plane functions from hydraulic and pneumatic energy to electric.

        The Florida Space Research Program (FSRP), funded by the Florida Space Grant Consortium and Space Florida, aims to accelerating space research, engineering, education, and training by combining federal, state, and other funding programs.


The Latin American Advantage

        In recent years, Latin America has seen tremendous growth in its tech sector and startup scene. The increasingly tech savvy population has been a major contributor to growth in countries such as Brazil and Chile, which have their own ‘Silicon Valley’ tech scenes with technology giants like Microsoft, Samsung, Oracle, IBM, Dell, and Motorola, opening centers in these hubs.

        Florida’s similar climate and 23.2% Hispanic population make an ideal location for many Latin American entrepreneurs to expand or start their companies. With more financial capital per capita in Miami than any U.S. city, a significant portion of this is from Latin American firms and wealthy families that invest with area banks and real estate.  

        YellowPepper, is a recent example of a Latin American firm shifting operations to Florida.  The Panama-founded mobile banking software developer has over 3.5 million users in nine countries. The firm, which has more than 70 employees, recently moved its operations to Miami and shortly thereafter received $15 million in venture funding.


Conclusion

        Florida’s modern infrastructure, low employment costs and tax burdens, availability of financial capital, and low costs of living have made the state an ideal location for many business sectors.  Companies innovating throughout Florida should be working closely with their tax professionals to build in these lucrative federal and state R&D Tax Credits.

Article Citation List