This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives.
STORAGE NAME: h1163a.TIE
DATE: 2/8/2022
HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: CS/HB 1163 Sales Tax Exemptions for Hydrogen Products
SPONSOR(S): Tourism, Infrastructure & Energy Subcommittee, Overdorf
TIED BILLS: IDEN./SIM. BILLS:
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Tourism, Infrastructure & Energy Subcommittee 16 Y, 2 N, As CS Walsh Keating
2) Ways & Means Committee
3) Commerce Committee
SUMMARY ANALYSIS
Hydrogen can be produced using a process called electrolysis, which splits water into hydrogen and oxygen.
When renewable energy is used as the source of electricity to power an electrolyzer, the resulting hydrogen is
referred to as green hydrogen. In Florida, NextEra Energy plans to propose a 20-megawatt project that will
produce 100 percent green hydrogen from solar power.
Florida law provides a sales and use tax exemption on the purchase of machinery and equipment necessary to
produce electrical or steam energy resulting from burning boiler fuels other than residual oil. There is also a
sales tax exemption for various items purchased for use as a combustible fuel in an industrial manufacturing,
processing, compounding, or production.
The bill provides that machinery and equipment necessary to produce electrical or steam energy that results
from burning hydrogen is exempt from sales and use tax. The bill also provides that hydrogen is exempt from
sales and use tax when purchased for use as a combustible fuel in an industrial manufacturing, processing,
compounding, or production process at a fixed location.
The bill creates a sales tax exemption for green hydrogen and defines that term. The bill exempts from sales
and use tax:
The purchase of machinery and equipment primarily used in the production, storage, transportation,
compression, or blending of green hydrogen.
The purchase of machinery and equipment primarily used in the production, storage, transportation,
compression, or blending of ammonia derived from green hydrogen, if the ammonia will be converted
back to green hydrogen before its use or sale.
The purchase of machinery and equipment that are necessary to produce electrical energy resulting
from the electrochemical reaction of green hydrogen and oxygen in a fuel cell. The electrical energy
must be primarily used in manufacturing, processing, compounding, or producing for sale items of
tangible personal property in this state.
The bill provides that purchasers of machinery and equipment qualifying for this exemption must furnish the
vendor with an affidavit stating that the item or items to be exempted will be used for the purposes specified in
the exemption, unless the purchaser has self-accrual authority. The bill incorporates existing penalties for
submitting a fraudulent claim.
The bill has an approximately $200,000 recurring negative fiscal impact to state government revenues, and a
$100,000 recurring negative fiscal impact to local government revenues.
The bill provides an effective date of July 1, 2022.
STORAGE NAME: h1163a.TIE PAGE: 2
DATE: 2/8/2022
FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Current Situation
Green Hydrogen
Hydrogen is the simplest and smallest element in the periodic table, and no matter how hydrogen is
produced, it ends up with the same carbon-free molecule. The pathways to produce hydrogen are
diverse, and so are the emissions of greenhouse gases like carbon dioxide (CO2) and methane (CH4)
that result from the production of many types of hydrogen.
1
Hydrogen can be produced using a process called electrolysis, which splits water into hydrogen and
oxygen.
2
When renewable energy is used as the source of electricity to power an electrolyzer,
3
the
resulting hydrogen can result in zero greenhouse gas emissions
4
and is referred to as green hydrogen.
Electrolyzers range in size, varying from small appliance-sized units to larger-scale central production
facilities that can be tied directly to renewable forms of electricity production to power the unit.
5
Some alternative methods of producing hydrogen, mainly grey hydrogen
6
and blue hydrogen,
7
use
methane or coal to power the production process.
8
Another alternative method of producing hydrogen,
turquoise hydrogen, uses methane through the process of pyrolysis, which creates a reaction to
generate hydrogen and solid carbon, which means that there are no carbon dioxide emissions
associated with the reaction.
9, 10
While utilizing green hydrogen could help reduce emissions, the production of green hydrogen is capital
intensive.
11
The production cost of green hydrogen must significantly decrease for it to be competitive
with more mature carbon-based pathways of energy production.
12
Green hydrogen can be used for a variety of purposes, including:
Replacing existing hydrogen feedstock in areas like oil refining, ammonia production, and
steelmaking;
Replacing natural gas in some residential and commercial heating systems;
Energy storage;
As an alternative fuel source; and
1
World Economic Forum, What is Green Hydrogen and Why Do We Need It? An Expert Explains (Dec. 21, 2021)
https://www.weforum.org/agenda/2021/12/what-is-green-hydrogen-expert-explains-benefits/ (last visited Feb. 4, 2022).
2
Id.
3
The process of electrolysis uses an electrolyzer, which is a system that uses electricity to break water into hydrogen and oxygen.
Cummins, Inc., Electrolyzers 101: What They Are, How They Work, and Where They fit in a Green Economy,
https://www.cummins.com/news/2020/11/16/electrolyzers-101-what-they-are-how-they-work-and-where-they-fit-green-economy (last
visited Feb. 4, 2022).
4
Office of Energy Efficiency & Renewable Energy, Hydrogen Production: Electrolysis, U.S. Department of Energy,
https://www.energy.gov/eere/fuelcells/hydrogen-production-electrolysis (last visited Feb. 6, 2022).
5
Id.
6
Grey hydrogen is traditionally produced from methane that is split with steam into carbon dioxide and hydrogen. World Economic
Forum, supra note 1.
7
Blue hydrogen production follows the same process as grey hydrogen production, but also includes the technology necessary to
capture the carbon dioxide produced when hydrogen is split from methane. Id.
8
Despite the colorful names used for the different ways hydrogen is produced, the gas itself is invisible to the human eye. See Natalie
Marchant, Grey, blue, green – why are there so many colours of hydrogen?, World Economic Forum (Jul. 27, 2021),
https://www.weforum.org/agenda/2021/07/clean-energy-green-hydrogen/ (last visited Feb. 8, 2022).
9
Rachel Meidl & Kenneth Medlock, The Advanced Carbon Economy: A Sustainable Hydrogen Pathway, Rice University’s Baker
Institute for Public Policy, Jun. 22, 2021, p. 3, available at https://www.bakerinstitute.org/media/files/files/ec39c09c/bi-brief-062221-ces-
carbonecon-4.pdf (last visited Feb. 8, 2022).
10
When utilizing pyrolysis to produce turquoise hydrogen, the reaction does produce a solid carbon by-product that can be used in
applications ranging from construction to farming. Id.
11
World Economic Forum, supra note 1.
12
Office of Energy Efficiency &Renewable Energy, supra note 6. STORAGE NAME: h1163a.TIE PAGE: 3
DATE: 2/8/2022
Powering fuel-cell vehicles.
13
NextEra Energy’s Green Hydrogen Project
In Florida, NextEra Energy
14
plans to propose a 20-megawatt electrolyzer that will produce 100 percent
green hydrogen from solar power.
15
The green hydrogen produced by the electrolyzer would replace a
portion of the natural gas consumed by the utility’s existing Okeechobee plant. The electricity to power
the electrolyzer would come from solar power.
16
Sales Tax Exemptions
Florida law provides numerous exemptions from sales and use tax.
17
One sales tax exemption is for the
purchase of machinery and equipment used at a fixed location in which the machinery and equipment
is necessary to produce electrical or steam energy resulting from burning boiler fuels other than
residual oil. This electrical or steam energy must be primarily used in the manufacturing, processing,
compounding, or producing for sale items of tangible personal property in Florida.
18
Another sales tax exemption is for natural gas, residual oil, recycled oil, waste oil, solid waste material,
coal, sulfur, wood, wood residue, and wood bark when purchased for use as a combustible fuel in
industrial manufacturing, processing, compounding, or production at a fixed location. This exemption
may not be used unless the purchaser signs a certificate stating that the fuel is being purchased
exclusively for a designated purpose. This exemption does not apply to the use of boiler fuels that are
not used in manufacturing, processing, compounding, or producing items of tangible personal property
for sale.
19
Florida’s sales tax law, does not currently define or reference the term “green hydrogen.”
20
Effect of the Bill
The bill provides that machinery and equipment necessary to produce electrical or steam energy that
results from burning hydrogen is exempt from sales and use tax.
The bill also provides that hydrogen is exempt from sales and use tax when purchased for use as a
combustible fuel in an industrial manufacturing, processing, compounding, or production process at a
fixed location.
The bill creates a sales and use tax exemption for green hydrogen. The bill defines the term "green
hydrogen" to mean hydrogen created using an electrolytic process powered from renewable energy
sources, including solar energy, wind energy, and geothermal energy. The term also includes hydrogen
created using the pyrolytic decomposition of methane gas.
Under the bill, the following are exempt from sales and use tax:
The purchase of machinery and equipment primarily used
21
in the production, storage,
transportation, compression, or blending of green hydrogen. The machinery and equipment
must be used at a fixed location.
13
Jason Deign, 5 Early Applications for Green Hydrogen (Jan. 2, 2020), https://www.greentechmedia.com/articles/read/5-early-
applications-for-green-hydrogen (last visited Feb. 6, 2022).
14
Florida Power & Light Company, a subsidiary of NextEra Energy, operates as one of Florida’s four investor-owned electric utilities.
15
Stromska, Karl-Erik, NextEra Energy to Build Its First Green Hydrogen Plant in Florida (July 24, 2020),
https://www.greentechmedia.com/articles/read/nextera-energy-to-build-its-first-green-hydrogen-plant-in-florida (last visited Feb. 4,
2022).
16
Id.
17
S. 212.08, F.S.
18
S. 212.08(5)(c), F.S.
19
S. 212.08(7)(b), F.S.
20
Department of Revenue (DOR), Agency Analysis of 2022 House Bill 1163, p.2. (Jan. 12, 2022).
21
The bill defines the term “primarily used" to mean a use of at least 50 percent. STORAGE NAME: h1163a.TIE PAGE: 4
DATE: 2/8/2022
The purchase of machinery and equipment primarily used in the production, storage,
transportation, compression, or blending of ammonia derived from green hydrogen, if the
ammonia will be converted back to green hydrogen before its use or sale. The machinery and
equipment must be used at a fixed location.
The purchase of machinery and equipment that are necessary to produce electrical energy
resulting from the electrochemical reaction of green hydrogen and oxygen in a fuel cell. The
electrical energy must be primarily used in manufacturing, processing, compounding, or
producing for sale items of tangible personal property in this state. The machinery and
equipment must be used at a fixed location.
The bill provides that purchasers of machinery and equipment qualifying for this exemption must furnish
the vendor with an affidavit stating that the item or items to be exempted are for the use designated
herein. Purchasers with self-accrual authority
22
are not required to provide this affidavit but must
maintain all documentation necessary to prove the exempt status of purchases.
The bill provides that a person furnishing a false affidavit to the vendor for the purpose of evading
payment of any tax imposed by ch. 212, F.S., is subject to the penalty set forth in s. 212.085, F.S.,
providing penalties for the fraudulent claim of a tax exemption and as otherwise provided by law.
The bill authorizes the Department of Revenue (DOR) to adopt rules to implement this tax exemption.
B. SECTION DIRECTORY:
Section 1: Amends s. 323.08, F.S., relating to sales, rental, use, consumption, distribution, and storage
tax; specified exemptions.
Section 2: Provides an effective date of July 1, 2022.
II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT
A. FISCAL IMPACT ON STATE GOVERNMENT:
1. Revenues:
On January 28, 2022, the Revenue Estimating Conference (REC) adopted a negative recurring
fiscal impact of $200,000 to General Revenue, and insignificant negative fiscal impacts to state trust
funds, per fiscal year for the 2022-2023 through 2026-2027 fiscal years.
23
2. Expenditures:
DOR may incur some expenditures associates with implementing this tax exemption and creating a
new rule to implement the sales tax exemption for green hydrogen.
B. FISCAL IMPACT ON LOCAL GOVERNMENTS:
1. Revenues:
On January 28, 2022, the REC adopted be a negative recurring fiscal impact of $100,000 to local
governments for the 2022-2023 through 2026-2027 fiscal years.
24
2. Expenditures:
None.
22
Pursuant to s. 212.183, F.S.,
23
Office of Economic and Demographic Research, Revenue Estimating Conference, 2022 Impact Conference Results, p. 296,
http://edr.state.fl.us/Content/conferences/revenueimpact/archives/2022/_pdf/page293-298.pdf (last visited Feb. 4, 2022).
24
Id. STORAGE NAME: h1163a.TIE PAGE: 5
DATE: 2/8/2022
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
The sales tax exemption may reduce costs associated with the production, storage, transportation,
compression, blending, and combustion of green hydrogen, which may enhance the economic viability
of green hydrogen projects in the state.
D. FISCAL COMMENTS:
The sales tax exemption created in the bill may be duplicative of an existing sales tax exemption for
industrial machinery and equipment by an eligible manufacturing business. Eligible manufacturing
businesses are defined as within industries classified under certain North American Industry
Classification System (NAICS) classifications as published in 2007. Included in eligible classification
codes is the NAICS code 325120, relating to industrial gas manufacturing, including hydrogen gas
manufacturing.
25
III. COMMENTS
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
Not applicable. This bill does not appear to require counties or municipalities to spend funds or take
action requiring the expenditure of funds; reduce the authority that counties or municipalities have to
raise revenues in the aggregate; or reduce the percentage of state tax shared with counties or
municipalities.
2. Other:
None.
B. RULE-MAKING AUTHORITY:
The bill authorizes DOR to adopt rules to implement the sales and use tax exemptions for green
hydrogen.
C. DRAFTING ISSUES OR OTHER COMMENTS:
None.
IV. AMENDMENTS/COMMITTEE SUBSTITUTE CHANGES
On February 8, 2022, the Tourism, Infrastructure & Energy Subcommittee adopted an amendment and
reported the bill favorably as a committee substitute. The amendment corrected drafting errors in both the title
and the text of the bill.
This analysis is drafted to the committee substitute as approved by the Tourism, Infrastructure & Energy
Subcommittee.
25
Id. at 295. See also s. 212.08(7)(jjj), F.S.