The R&D Tax Credit: Helping Businesses in Florida Succeed



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

The Research & Development Tax Credit

Enacted in 1981, the now permanent Federal Research and Development (R&D) Tax Credit allows a credit that typically ranges from 4%-7% of eligible spending for new and improved products and processes.  Qualified research must meet the following four criteria:

  • Must be technological in nature
  • Must be a related to the taxpayers business
  • Must represent R&D in the experimental sense and generally includes all such costs related to the development or improvement of a product or process
  • Must eliminate uncertainty through a process of experimentation that considers one or more alternatives

Eligible costs include U.S. employee wages, cost of supplies consumed in the R&D process, cost of pre-production testing, U.S. contract research expenses, and certain costs associated with developing a patent.

On December 18, 2015, President Obama signed the PATH Act, making the R&D Tax Credit permanent.  Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax for companies with revenue below $50MM and for the first time, pre-profitable and pre-revenue startup businesses can obtain up to $250,000 per year in payroll taxes and cash rebates.

The Florida State R&D Tax Credit

For qualifying corporations, the Florida state R&D Tax Credit program is contingent, in part, on the eligible business having received the federal R&D Tax Credit.  The funds are available on an application basis with a total pool of about $9 million annually.  The state requires that the credit applicant be involved in a “target industry business.”  The Florida Department of Revenue defines these target industries below1:

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


The Florida Landscape

Florida is home to nearly 3,000 headquartered offices2.  With an economy of nearly $1 trillion and having the third largest workforce in the U.S., Florida is a financial powerhouse all its own.  Florida’s number one export is airplanes and airplane parts/components.

The business-friendly cities of Tampa, Tallahassee, Jacksonville, Orlando, Palm Beach, Ft. Lauderdale, and Miami host companies in a myriad of industries that are focused on innovation, research, and development.

Tampa

Tampa is the third most populated city in Florida after Jacksonville and Miami.  Tourism and healthcare are the largest industries in the city.

The city has been named one of the area’s top 20 tech towns.  In fact, there is a Technology & Innovation (T&I) Department run by the city that provides technology consulting and support services to all city departments and is responsible for servicing the city’s complex infrastructure, networks, data, applications and mobile devices3.

Forbes recently referred to Tampa as an emerging tech city in the U.S., as the city is home to over 2,000 new tech jobs in 2021, in addition to the existing community4.

Jacksonville

Jacksonville is one of the largest cities in America by square footage and has a population approaching 1 million.

Jacksonville has a strong reputation for being a good place for entrepreneurs to start their ventures, or to relocate to.  A combination of low-tax business climate, workforce talent, and infrastructure have contributed to Jacksonville being referred to as the East Coast Silicon Valley.  Early-stage startups 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.

Jacksonville is surging as a destination for tech workers.  A new study from Bloomberg and LinkedIn revealed that the city is the preferred location for tech workers, ranking 4th in the most recent analysis5.

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.

Miami/Fort Lauderdale

Miami is the largest urban economy in Florida and the 12th largest in the U.S.  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 workspaces.  Fort Lauderdale is known as the “Venice of America.”  It is known for its beaches and arts, however, there is a strong business climate as well.  The labor force has been consistent at about 1 million and there are just over 70,000 business establishments there.

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

St. Pete Innovation District

The St. Pete Innovation District (SPID) was established in 2016 and has been growing, now encompassing the  Life Science6, Marine Science, Education7, Data Analytics8, Art9  and Technology sectors.  Many of these institutions are within a designated boundary of the District, while others are engaged from throughout the region and nation10.

Recently, in a formal exit from New York City, ARK Investment Management LLC is making a permanent move to St. Petersburg, Florida.  Cathie Wood, CEO of ARK11, has aligned herself and her team more with the Silicon Valley startup model as opposed to the traditional Wall Street approach.  Several of her ETFs more than doubled in 2020, profiting off the focus of the growth during the COVID-19 pandemic.

The move to St. Pete is aimed at deepening ARK’s ties to local entrepreneurs and technology startups.  ARK will be developing its designated Innovation Center on 2.5 acres of land donated by the city of St. Petersburg.

R&D Intensive Industries

Many of Florida’s strongest business sectors including aerospace, life sciences, manufacturing, defense, IT, and cloud 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 & Johnson12, Medtronic13, and Bristol Meyers Squibb are among some of the industry leaders located in the state.

Life science companies throughout the state are increasingly focused on novel research and development to solve the nation’s largest health concerns including Alzheimer’s14, cancer15, diabetes16, and heart disease17.

Over the past decade, Florida has built a robust life sciences industry, establishing itself as an industry hub with significant potential for continued innovation and growth.  The life sciences have positively impacted the state’s economy and have increased the number of high-wage jobs in the state.  Existing companies are expanding, and new companies are establishing in Florida.  The industry’s breakthrough research is paving the way for tomorrow’s discoveries and improving the health and quality of life we enjoy18.  

Manufacturing

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

Florida may seem like an unlikely hero in the story of an industry whose factories and industrial centers have historically been concentrated elsewhere.  However, the state has rapidly emerged as a major force thanks to advancing technologies and improved, reimagined infrastructure.   Today, manufacturing contributes $40 billion annually to Florida’s economy – and much of this impact originates in The Corridor Region19.

Food manufacturing is huge in the state of Florida.  All food establishments, manufacturers and distributors are subject to stringent regulations and standards.  This means that they must constantly be developing healthier, more innovative products and processes that can be stored and transported without spoilage and rotting.
 

Information Technology

Florida is at the forefront of IT innovation with diverse industry strengths including software development, photonics20, mobile technologies, virtual reality21  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 processing22, 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.

Companies that migrate to the cloud and integrate new technologies, such as cloud technology, are improving their companies’ technology.  Leveraging the power of technology is critical to survival in today’s economic climate.

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 Boeing23, Embraer, General Dynamics24, Lockheed Martin25, Northrop Grumman, and Pratt & Whitney.  In 2020, Florida exported almost $4.9 billion  in aircraft, engines, and parts, putting the state in the top rankings for aviation.

In 2016, global leader in aeronautical electrical systems, Labinal Power Systems (a subsidiary of Safran), announced its expansion in Manatee County as well as the relocation of the 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 accelerate space research, engineering, education, and training by combining federal, state, and other funding programs.

Architecture and Engineering (A&E)

Florida is a great place to recruit top A&E talent.  Two schools offer outstanding A&E programs.  They are the University of Miami and Seminole State College of Florida.  That is why the degrees offered by universities in Florida for A&E are top-notch and represent a comprehensive curriculum.  As the infrastructure in the State improves and develops, educating future generations of architects and engineers is something that Florida is taking seriously.

Today’s A&E firms are continuously engaging in innovation, eligible for R&D Tax Credits.

Construction

To provide facilities for business and housing for its residences in this constant growth market, Florida has a robust construction industry.  The construction industry is increasingly implementing a wide variety of new technologies, some of which are eligible for the R&D Tax Credit.

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 is a gateway to Latin America.  Florida’s similar climate and 27%26 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 estate27.

The organization Latinas in Tech provides funding through various sources including, venture capital, grants and angel investments.  All geared at tech entrepreneurs of Latino heritage.

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 industries.  Companies innovating throughout Florida should be working closely with their tax professionals to build in these cost-effective federal and state R&D Tax Credits.

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