Did Florida TAA 24A-009 exempt research and development expenditures for engineered attractions?

Plain-English summary

The Department concluded that the taxpayer's research and development expenditures for its engineered attractions qualified for exemption under section 212.052.

The result required strict compliance with section 212.052 and Rule 12A-1.043(6). The ruling separately explained that qualifying materials and labor could be bought tax-exempt with the prescribed certificate and that qualifying machinery and equipment required predominant research or development use.

What this means for you

The exemption turns on the purpose and use of each expenditure and the required documentation. The ruling does not create a blanket exemption for all design or attraction costs.

Common questions

Did the engineered-attraction expenditures qualify? Yes, under the described facts and strict statutory and rule conditions.

Did the Department treat earlier TAAs as precedent? No.

Citations and references

• Fla. Stat. §§ 212.02, 212.052, 212.06, and 212.08(18) and Fla. Admin. Code r. 12A-1.043, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 24A-009

Original ruling text

QUESTION: Do Taxpayer’s Research and Development (“R&D”) expenditures in relation to the
Engineered Attractions qualify for exemption under s. 212.052, F.S.?
ANSWER: Yes, Taxpayer’s Research and Development (“R&D”) expenditures in relation to the
Engineered Attractions, as described in the facts and which are in strict compliance with the
provisions of s. 212.052, F.S., and Rule 12A-1.043(6), F.A.C., do qualify for exemption under s.
212.052, F.S.

July 3, 2024

Via Email:
Subject: Technical Assistance Advisement 24A-009
Sections 212.02, 212.052, 212.06, and 212.08(18), Florida Statutes (F.S.)
Rule 12A-1.043, Florida Administrative Code (F.A.C.)
("Taxpayer A")
FEI#:
BP#:
(“Taxpayer B”)
FEI#:
BP#:
(“Taxpayer C”)
FEI#:
BP#:
(“Taxpayer D”)
FEI#:
BP#:
Collectively Referred to as “Taxpayer”
Dear

:

This is in response to your letter dated
, requesting this Department’s issuance
of a Technical Assistance Advisement (“TAA”) pursuant to section 213.22, F.S., and Rule Chapter

Technical Assistance Advisement
July 8, 2024
Page 2

12-11, F.A.C., concerning the matter referenced below. An examination of your letter has
established that Taxpayer has complied with the statutory and regulatory requirements for issuance
of a TAA. Therefore, the Department is hereby granting your request for a TAA.
Requested Advisement
Do Taxpayer’s Research and Development (“R&D”) expenditures in relation to the Engineered
Attractions qualify for exemption under s. 212.052, F.S.?
Facts
The following facts were provided in Taxpayer’s TAA request and also in email correspondence
with
, on
, and
.
Taxpayer A is the consolidated parent company. Taxpayer B is the subsidiary consolidated parent
of
. Taxpayer C is the operating company that files sales and use tax returns for the
. Taxpayer D is the operating company that files sales and use tax returns for the
.
.
Taxpayer is a
Taxpayer owns or licenses a portfolio of

.
. Taxpayer also has a

The
require special knowledge and expertise
to manufacture, design, and engineer (“Engineered Attractions”). Many of Taxpayer’s Engineered
Attractions are
. Taxpayer’s attractions are often on
and may require significant amounts of design and
research and development to produce.
For example, in

, Taxpayer D
,a

in conjunction
, the
,

.

with
stands
introducing

. This dynamic

add a new
, ensuring that no

.
Similarly, in
, Taxpayer C opened the
. This attraction features

, the
.

Technical Assistance Advisement
July 8, 2024
Page 3

In

, Taxpayer C will

,

. This exhilarating
.
, enhancing the

be the

will

, integrated into an
.
To produce Engineered Attractions, Taxpayer often engages with
companies (“Designers”), such as
, to aid in the design,
engineering, and fabrication of the attractions for installation and operation at Taxpayer’s
. These Designers have the requisite knowledge base and resources to design and
manufacture an Engineered Attraction to the specifications required by Taxpayer. This is a critical
requirement with respect to the new and cutting edge attractions that Taxpayer creates for
.
Designers produce the Engineered Attractions at the specific direction and are subject to review
and approval by Taxpayer. This results in Taxpayer incurring significant R & D expenditures for
an Engineered Attraction.
Generally, the agreements between Taxpayer and each Designer provide that Designer will retain
all copyrights and intellectual property rights to an Engineered Attraction. However, Taxpayer will
have a “right to use” the design of Engineered Attraction (i.e., drawings, calculations, manuals,
and software) for the installation, operation, maintenance, modification of, or other uses related to
Engineered Attraction at Taxpayer’s
. The Engineered Attraction is
.
Taxpayer’s Position
The design and development of Taxpayer’s Engineered Attractions requires considerable research
in various scientific fields including, but not limited to, electronics, optics, acoustics, hydraulics,
pneumatics, laser technology, and computer sciences. The focus of this research is to develop a
, such as those described above, or to improve an
.
Section 212.052, F.S., provides an exemption for the fabrication of tangible personal property that
is used in R&D activities that have one of the following as its ultimate goal: (1) Basic research in
a scientific field of endeavor; (2) Advancing knowledge or technology in a scientific or technical
field of endeavor; (3) The development of a new product, whether or not the new product is offered
for sale; (4) The improvement of an existing product, whether or not the improved product is
offered for sale; (5) The development of new uses of an existing product, whether or not the new
use is offered as a rationale to purchase the product; or (6) The design and development of
prototypes, whether or not a resulting product is offered for sale.
For the purposes of this exemption, the term “product” is broadly defined to include any item,
device, technique, prototype, invention, or process which is, was, or may be commercially
exploitable.

Technical Assistance Advisement
July 8, 2024
Page 4

The tax exemption applies to the “cost” of such tangible personal property that is fabricated during
the course of qualifying R&D activities. The term “cost” means “cost price” as defined in s.
212.02(4), F.S.: “Cost price” means the actual cost of articles of tangible personal property without
any deductions therefrom on account of the cost of materials used, labor or service costs,
transportation charges, or any expenses whatsoever.”
The Department has previously determined that R&D activities dedicated to the development and
production of
can qualify for the exemption provided in s. 212.052,
F.S. For example, in Florida Technical Assistance Advisement (“TAA”) No. 95A-015
(04/21/1995) and Florida TAA No. 89A-001 (04/03/1989), the Department determined that a
taxpayer qualified for this R&D exemption for costs incurred in the design, fabrication, delivery,
and installation of new attractions at the
.
As explained in these TAAs, even though the R&D was not always performed directly by the
taxpayer, the taxpayer retained ownership of the attractions and the intellectual property rights
resulting from the R&D activities to develop the attractions. Furthermore, all R&D activity by the
designers was conducted at the specific direction, review, and approval of the taxpayer.
Consequently, the Department determined the costs which were identified as amounts paid to the
third parties for the research and design of the new attractions was attributable to tax-exempt R&D
costs incurred in connection with the development of new products, and was not part of the cost
price of the fabrication of taxable tangible personal property.
In the same manner, Taxpayer incurs R&D costs in the development and design of new Engineered
Attractions at its
. In cases where the R&D activities are performed by Designers,
Taxpayer retains a right to use the design of the Engineered Attraction at
,
inclusive of the intellectual property developed during the attraction design and production.
Taxpayer has reviewed its
and determined that its Engineered
Attractions at its various
contain significant R&D costs and expenditures. Taxpayer
has calculated that an average of
% of the total amount paid to Designers for the design,
fabrication, and installation of Engineered Attractions represents the portion of costs directly
attributable to such R&D efforts. Given the material nature of these R&D costs, Taxpayer
respectfully requests that the Department confirm Taxpayer’s understanding with regard to the
appropriate interpretation and application of Florida’s R&D exemption for sales tax purposes.
Applicable Authority and Discussion
As to Taxpayer’s contention regarding previously issued TAAs, it is important to note that a TAA
has no precedential value except to the taxpayer who requests the advisement and then for the
specific transaction addressed in the TAA. Moreover, such an advisement is not an order or rule
or policy of general applicability. See s. 213.22(1), F.S.
Section 212.02(4), F.S., defines the term, “cost price,” as “the actual cost of articles of tangible
personal property without any deductions therefrom on account of the cost of materials used, labor
or service costs, transportation charges, or any expenses whatsoever.”

Technical Assistance Advisement
July 8, 2024
Page 5

Section 212.052(1) and (2), F.S., provide as follows:
(1) For the purposes of the exemption provided in this section:
(a) The term “research or development” means research which has one of the
following as its ultimate goal:

1. Basic research in a scientific field of endeavor.
2. Advancing knowledge or technology in a scientific or technical field of endeavor.
3. The development of a new product, whether or not the new product is offered for
   sale.
4. The improvement of an existing product, whether or not the improved product is
   offered for sale.
5. The development of new uses of an existing product, whether or not the new use
   is offered as a rationale to purchase the product.
6. The design and development of prototypes, whether or not a resulting product is
   offered for sale.
   The term '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 literary, historical, social science, psychological, or
   other similar nontechnical activities.
   (b) The term “costs” means cost price as defined in s. 212.02(4).
   (c) The term “product” means any item, device, technique, prototype, invention, or
   process which is, was, or may be commercially exploitable.
   (2) Notwithstanding any provision of this chapter to the contrary, any person,
   including an affiliated group as defined in s. 1504 of the Internal Revenue Code of
   1954 , 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
   imposed by this chapter upon the cost of the product so manufactured, produced,
   compounded, processed, or fabricated.
   Section 212.06(1)(b), F.S., provides in part:
   Except as otherwise provided, any person who manufactures, produces,
   compounds, processes, or fabricates in any manner tangible personal property for
   his or her own use shall pay a tax upon the cost of the product manufactured,
   produced, compounded, processed, or fabricated without any deduction therefrom
   on account of the material used, labor or service costs, or transportation charges,
   notwithstanding the provisions of s. 212.02 defining “cost price. . . .”

Technical Assistance Advisement
July 8, 2024
Page 6

Rule 12A-1.043(6), F.A.C., provides in part:
(a) Tangible personal property manufactured, produced, compounded, processed,
or fabricated for use directly and solely in research or development and machinery
and equipment used predominately for research or development purposes are
exempt when the research or development has one of the following as its ultimate
goal:

1. Basic research or the advancement of knowledge or 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:

3. “Product” means any item, device, technique, prototype, invention, or process,
   which is, was, or may become, commercially exploitable.
   (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, social science, psychology, or other similar
   nontechnical activities. . . .
   Section 212.052, F.S., and Rule 12A-1.043(6)(a), F.A.C., provide that tangible personal property1
   manufactured, produced, compounded, processed, or fabricated for use directly and solely in
   research or development, and machinery and equipment2 used predominantly3 for research or
   development purposes are exempt when the research or development has one of the following as
   its ultimate goal:
4. Basic research or the advancement of knowledge or technology in a scientific or
   technical field of endeavor.
5. 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.

1

Tangible personal property means and includes personal property which may be seen, weighed, measured, or
touched or is in any manner perceptible to the senses. See s. 212.02(19), F.S.
2
“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.
See Rule 12A-1.043(6)(b)1., F.A.C.
3
“Predominantly” means at least 50 percent of the time. See Rule 12A-1.043(6)(b)2., F.A.C.

Technical Assistance Advisement
July 8, 2024
Page 7

3. The design and development of prototypes, whether or not a resulting product is offered
   for sale.
   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 s. 212.052, F.S. Rule 12A1.043(6)(d)2., F.A.C. provides a suggested format for an exemption certificate.
   Additionally, 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 affidavit to the vendor or supplier stating that the item(s) will be used predominantly for
   research or development purposes, as provided in s. 212.08(18), F.S. Rule 12A-1.043(6)(e)2.,
   F.A.C. provides a suggested format for an exemption certificate.
   Conclusion
   Yes, Taxpayer’s Research and Development (“R&D”) expenditures in relation to the Engineered
   Attractions, as described in the facts and which are in strict compliance with the provisions of s.
   212.052, F.S., and Rule 12A-1.043(6), F.A.C., qualify for exemption under s. 212.052, F.S.
   This response constitutes a TAA under s. 213.22, F.S., which is binding on the Department only
   under the facts and circumstances described in the request for this advice, as specified in s. 213.22,
   F.S. Our response is predicated on those facts and the specific situation summarized above. You
   are advised that subsequent statutory or administrative rule changes, or judicial interpretations of
   the statutes or rules, upon which this advice is based, may subject similar future transactions to a
   different treatment than expressed in this response.
   You are further advised that this response, your request and related backup documents are public
   records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of
   s. 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort to
   protect confidentiality, we request you provide the undersigned with an edited copy of your request
   for TAA, the backup material and this response, deleting names, addresses and any other details
   which might lead to identification of the Taxpayer. Your response should be received by the
   Department within ten (10) days of the date of this letter.

Technical Assistance Advisement
July 8, 2024
Page 8

If you have any further questions with regard to this matter and wish to discuss them, you may
contact me directly at (850)717-6363.
Sincerely,

Leigh L. Ceci
Leigh L. Ceci, MAcc
Tax Law Specialist
Technical Assistance & Dispute Resolution
(850)717-6363
cc:

Record ID: 7001137095

Technical Assistance Advisement
July 8, 2024
Page 9

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