October 10, 2000

Summary of Florida Tax Reform Task Force Meeting on September 20, 2000

Jim Ervin

The Florida Legislature created the State Tax Reform Task Force during the 2000 Legislative session. House Bill 1535 (HB 1535). The Task Force was formed to evaluate Florida's current tax laws and recommend a more effective, efficient and accountable tax structure.

The Task Force met on September 20, 2000. The Task Force heard presentations on recommended changes to Florida's sales and use tax, on recent changes in tax policy and on previous efforts at tax reform. This article briefly summarizes the presentations made at that meeting.

Sales and Use Tax

A recommendation was made to broaden the sales tax base, lower the sales tax rate and decrease tax base volatility. Recommended for particular review were sales tax exemptions for packaging materials, commercial fishing nets, non-prescription drugs, machinery and equipment purchased by new and expanding businesses, purchases made by non-profit organizations and a partial exemption from use tax for automobile dealers.

Estate Tax

Largely due to the surge in stock market value, the estate tax source has grown 17.2% annually since fiscal year 1990-1991. Estate tax in fiscal year 2000-2001 is estimated to yield $820 million in General Revenue.

Changes in Tax Policy

Communications Tax

Senate Bill 1338 (SB 1338) rewrote Florida's tax statutes for communications services. The new law requires that competitors in the communications industry be subject to a uniform state tax with local taxes administered by the Department of Revenue. The law also provides for revenue-neutral tax rates to be determined by the Revenue Estimating Conference and adopted during the 2001 Legislative session. Task Force members lauded the law's simplification efforts and recommended that simplification be achieved in other tax areas.

Intangibles Tax

House Bills 67 and 187 (HB 67, HB 187) amend Section 199.032, F.S. by fully exempting accounts receivables from the annual intangibles tax beginning this year. The tax rate was also lowered by one-half mill to one mill. These changes resulted in a loss of $237.2 million in General Revenue and a loss of $41.7 million to counties.

Alcoholic Beverage Surcharge

In 1999, the Legislature amended Section 561.501, F.S., reducing by one-third the surcharge levied on all alcoholic beverages sold for on-premises consumption. This year the surcharge was further reduced by one-third, House Bill 0053 (HB0053) resulting in a $37.4 million loss in General Revenue. The Legislature plans to eliminate the final third of the surcharge in 2001.

Trust Funds

In Fiscal Year 1999-2000, service charges were levied on trust funds. This added $409.7 million to General Revenue. The service charge will be removed from several transportation trust funds between this year and fiscal year 2005-2006, per 2000 Fla. Laws ch. 257.

Estimated Sales Tax

The estimated sales tax was adopted to fund local governments' sewage treatment plant construction through a one-time sales tax collection. In 1984, the Legislature took action to phase-out the estimated sales tax over a six year period. However, in 1990 the Legislature reinstated the estimated sales tax for dealers that paid $100,000 or more in taxes. In 1999, the Legislature reduced estimated sales tax from 66% to 60% and increased the threshold from $100,000 to $200,000. This resulted in a $44.6 million loss in non-recurring General Revenue.

Previous Tax Reform

Florida's 1987 Sales Tax Experience

Since 1980, Florida's steady growth prompted implementation of the State Comprehensive Plan costing $52.9 billion over ten years. To alleviate that fiscal burden, the Legislature imposed a 5% sales tax on services, effective July 1, 1987. 1986 Fla. Laws ch. 166. The tax caused tax pyramiding and was severely criticized resulting in its repeal effective January 1, 1988. The Task Force may be looking to a broader sales tax on services in order to achieve its goals.

Crossroads

Like the State Tax Reform Task Force, Crossroads was designed to reform Florida's tax system, add new tax sources and create a comprehensive pro-competitive tax structure. The study was published in 1990 as a project of the Florida Chamber of Commerce.

Streamlined Sales Tax Project

The Streamlined Sales Tax Project was created to collect sales tax more efficiently and reduce the burdens of sales tax compliance, especially for remote sellers. The project is a joint effort among 26 states and the National Governor's Association. This year the Legislature authorized Florida to participate in the program, House Bill 2433. In order for the project to be a success, states must authorize multi-state discussions, adopt model simplification statutes, and develop databases including tax rates by jurisdiction and exemption.

Florida's Revenues, Expenditures, and the Constitutional Revenue Limitation

Article VII of the Florida Constitution places a limit on the rate of growth in state revenues. The revenue limit is determined by multiplying the average annual growth rate in Florida personal income over the previous five years by the maximum amount of revenue permitted under the limitation in the previous year.

Taxes and Economic Development

The Task Force was advised that some taxes are more detrimental to income growth than others. For example, higher tax rates reduce economic growth, thereby reducing future tax revenues. Likewise, lower tax rates increase economic growth, and increase future tax revenues.

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