Chapter 2000-222 F.S. created the State Tax Reform Task Force and
directed it "to examine the state’s tax structure and make
recommendations to the Governor and Legislature on how the state’s tax
structure can be improved to ensure a stable revenue base that is
adequate to fund the needs of the state. After examining the state’s
tax structure and considering extensive testimony from all sectors we
conclude that the current state’s tax structure is adequate to carry
the state forward into the 21st Century.
The State Tax Reform Task Force offers this report as our best
efforts to fulfill the charge given us by the enabling legislation. The
Task Force created a set of six Principles of Taxation to be utilized in
evaluating Florida’s tax system. These Principles of Taxation are:
.
Equity – The Florida tax system should treat individuals
equitably. It should impose similar tax burdens on people in similar
circumstances and should minimize regressivity.
- Compliance – The Florida tax system should facilitate taxpayer
compliance. It should be simple and easy to understand so as to
minimize compliance costs and increase the visibility and awareness
of the taxes being paid. Enforcement and collection of tax revenues
should be done in a fair, consistent, professional, predictable and
cost-effective manner.
- Pro-Competitiveness – The Florida tax system should be
responsive to interstate and international competition in order to
encourage savings and investment in plant, equipment, people, and
technology in Florida.
- Neutrality – The Florida tax system should affect competitors
uniformly and not become a tool for "social engineering".
It should minimize government involvement in investment decisions,
making any such involvement explicit, and should minimize pyramiding.
- Stability – The Florida tax system should produce revenues in a
stable and reliable manner that is sufficient to fund appropriate
governmental functions and expenditures.
- Integration – The Florida tax system should balance the need for
integration of federal, state and local taxation.
The Task Force believes that any revision or amendment to the tax
code should conform to these principles, but recommends that the tax and
spending limitations suggested by the Task Force be enacted prior to any
attempt at major reform. It is the recommendation of the Task Force
that, should the Legislature undertake an evaluation of the state’s
tax structure, a review of current tax exemptions, propose new tax
exemptions, or propose a reduction in the tax rate, the Legislature
utilize these Principles of Taxation in their review.
.
Proposed Recommendations of the State Tax Reform Task Force
Issue # 1: Constitutional Amendment to Limit State Appropriations
Replace the state revenue limitation with an appropriations
limitation that limits state appropriations for any fiscal year to state
appropriations for the prior fiscal year plus a growth adjustment of
inflation and population growth.
Issue # 2: Constitutional Amendment to Limit Legislative Authority to
Increase Taxes
Require that any law that imposes new or increased taxes or repeals
exemptions from a tax be enacted in a bill for that purpose only by a
two-thirds vote of the membership of each house of the Legislature.
Issue # 3: Constitutional Amendment to Limit Local Authority to
Increase Taxes
Requires that any local rule or ordinance that imposes new or
increased taxes or repeals exemptions from a tax be enacted by a
majority plus one vote of the membership of the respective board,
council or commission.
Issue # 4: Streamlined Sales Tax Project
The Streamlined Sales Tax Project’s primary objective is to reduce
the complexity and administrative burden currently borne by businesses
in collecting use taxes in interstate commerce. The project’s
secondary objective is to secure the passage of federal legislation
whereby Congress would authorize the states participating in the
streamlined project to require remote vendors, such as Internet and mail
order sales, to collect and remit use taxes imposed by those
participating states. With Florida’s heavy reliance on the sales and
use tax, the State Tax Reform Task Force believes it is imperative that
Florida continues to actively participate in the Streamlined Sales Tax
Project.
Issue # 5: Repeal of the Intangibles Tax
The Task Force recommends that the Legislature make a commitment to
continue the elimination of the intangibles tax when appropriate.
Issue # 6: Repeal of the Alcoholic Beverage Surcharge
The Task Force recommends that the Legislature make a commitment to
continue the elimination of the alcoholic beverage surcharge when
appropriate.
Issue # 8: Roll Back of Sales Tax on Commercial Electricity and
Communications Services
The Task Force believes that there should not be a differential in
the sales tax rate between commercial and noncommercial electricity and
communications services. The Task Force recommends that the Legislature
make a commitment to roll back the state sales tax rate from 7% to 6% on
commercial electricity and commercial telephone service, when
appropriate.
Issue # 9: Repeal of the Health Care Assessment on Hospital
Out-Patient Services
The Task Force recommends that the Legislature make a commitment to
continue the elimination of the PMATF assessment on hospital out-patient
services when appropriate.
Issue # 10: Documentary Stamp Tax on Unsecured Notes
Cap at $2,450, the documentary stamp tax due on an unsecured note
executed in Florida. This translates into a loan of $700,000, which
means that all such loans of $700,000 or more would have a tax liability
of $2,450. The Legislature and the Department of Revenue should monitor
the response to this change to determine if the loan threshold is
appropriate.
Fiscal Impact: Revenue neutral
Explanation of why needed:Current law imposes the
documentary stamp tax on promissory notes, nonnegotiable notes, written
obligations to pay money, and assignments of salaries, wages, or other
compensation, at the rate of 35 cents per $100, if executed delivered,
sold, transferred, or assigned in the state. Florida residents and
businesses can avoid this tax by executing these agreements outside the
State of Florida. When the amount of tax that would be due on the
Florida transaction is significantly greater than the cost of closing
the deal outside of the state, the parties to the transaction have an
incentive to leave the state, and often do. This will not affect the tax
on notes secured by real property.
Issue # 11: Tax Compliance
The Task Force recommends to the Legislature, the following tax
compliance and tax administration changes:
Sales Tax
Provide statutory authorization to make permanent the temporary $5
fee waiver for online registration.
Provide statutory authority for the department to require a report to
be submitted when filing a sales and use tax return if the dealer is
claiming credits against the tax.
Insurance Premium Tax
Authorize the Department of Revenue to create databases to be used by
insurance companies in identifying the location of risks insured by
their property and casualty insurance policies. Insurers using these
databases would be exempt from any tax, penalty or interest which would
otherwise be due as a result of incorrectly assigning its policies.
Insurers that did not use the databases or exercise due diligence would
be subject to a 0.5 percent penalty on the premium of each policy
incorrectly assigned.
Corporate Income Tax
Delete the requirement that corporations, which are not otherwise
required to file a tax return, must file an informational return for the
year in which they make an election pursuant to s. 1361(b)(3) or the
Internal Revenue Code.
Amend s. 220.23, F.S., to clarify that interest is owed on
underpayments from the original due date of the tax to the date the tax
is actually paid, even if the deficiency is discovered during a federal
audit.
Documentary Stamp Tax
Repeal the documentary stamp tax on the original issue of stock
certificates.
Intangible Personal Property Tax
Repeal the requirement that corporations file a return when no tax is
due.
Repeal the requirement that corporations file annual information
returns regarding stock value and the related penalty provisions.
Unemployment Tax
Change the due date for annual filing from April 1 to January 1 and
change the delinquency date from April 30 to January 31. Amend the
statute to allow most employers of domestic employees to file annually
by removing some exceptions that exist in current law.
Issue # 12: Encourage Consistency Within the Department of Revenue
In order to ensure consistent tax treatment by the Department of
Revenue, the Task Force recommends the following language be added to
the "Florida Taxpayer’s Bill of Rights":
- Florida taxpayers shall have the right to fair and consistent
application of Florida tax laws by the Department of Revenue.
.
Introduction and Principles of Taxation
.
Chapter 2000-222 F.S. created the State Tax Reform Task Force and
directed it "to examine the state’s tax structure and make
recommendations to the Governor and Legislature on how the state’s tax
structure can be improved to ensure a stable revenue base that is
adequate to fund the needs of the state.
After examining the state’s tax structure and considering extensive
testimony from all sectors we conclude that although the state’s tax
structure could be improved (i.e., by eliminating certain taxes and by
making the sales tax more of a personal consumption tax), and although
the state’s tax structure could be made more immune from the effects
of economic downturn (i.e., by extending the sales tax to groceries,
rent, medicine, and so forth), the current state’s tax structure is
adequate to carry the state forward into the 21st Century.
According to figures published by the House Fiscal Policy and
Resources Committee, over the last 20 years, state appropriations per
person has grown 269 percent, while state personal income per person has
grown 167 percent. During this same time, state appropriations have
grown 498 percent. Florida’s inflation adjusted tax revenue from
fiscal year 1980 through 2000 has grown from $1,086 per person (5.4% of
income) to $1,873 per person (6.6% of income). During the same time,
Florida’s sales tax revenue has grown from $523 per person (2.6% of
income) to $908 per person (3.4% of income). Thus, over a period of
time, which involves several recessions, the growth in Florida
government spending per person has outpaced Florida personal income per
person by nearly 61 percent. We believe that the state’s tax structure
is fundamentally sound.
The Task Force concludes that sales tax is more stable than an income
tax during economic downturns, because consumption does not decrease in
the same proportion as income. People and businesses use personal
savings and borrowing to supplement their incomes during recessions. The
sales tax could be made even more stable during downturns by eliminating
the exemption on such things as groceries, rent, and medicine, but that
would make the tax more regressive, and we are certainly not
recommending that be done. We believe that eliminating other exemptions
in the sales tax would ultimately result in a permanent increase in tax
collections, but would not appreciably reduce the cyclical variability
of the state’s tax structure, and might even make it worse.
Over the last 20 years, our state government appears to have grown by
revenues available rather than by a consideration of what government
should be providing. We should not spend all of available tax revenue,
but should save more during good times to supplement revenue during
times that are not so good. If our "rainy day fund" of 5
percent is not adequate perhaps additional allowances should be made. We
believe that when the final results are tabulated, Florida revenues
during fiscal year 2001, amid recession and terrorist attacks, will
still increase though at a smaller rate than was expected. Government
has shown that it will spend whatever it collects, and it is time we
begin consideration of what our state government should be undertaking
and planning its long-term needs for revenues and priorities. During
that consideration, we should keep in mind that the private sector
generally performs more efficiently than the public sector, and that
more economic freedom (including a lower tax rate) promotes growth in
per capita income at all levels.
We were asked to determine whether the state’s tax structure
"is adequate for supporting the continuing needs of the
state," and we conclude that it is. Regarding the effectiveness of
our tax system, we were directed to answer the following questions:
EFFECTIVENESS:
Q) Is the revenue raised by the system stable and adequate to fund
needed services or is it highly sensitive to economic fluctuations in
the short run?
(A) As noted above, we believe our tax system is sufficiently stable
both in the short run and the long run, and that no system would be
immune from the business cycle. An income tax would be less stable, and
broadening the base of the sales tax will not provide greater stability
unless you include items that people have to have to live such as
groceries, rent, and medicine.
(Q) Does the tax structure produce revenue that grows as the state’s
economy grows, thereby enabling the public sector to grow commensurately
with the private sector?
(A) As noted above, the tax structure has enabled the public sector
to grow faster than the private sector, and the Task Force does not
believe that the public sector should necessarily grow even as fast as
the private sector.
EFFICIENCY:
(Q) Is the Florida tax structure easily and economically
administered? Is compliance with tax provisions, by business and by
consumers, simple and inexpensive?
(A) Although Florida’s tax system would probably be easier to
administer if it consisted primarily of a consumer sales tax, in our
judgment, the system is not broke, and is better than most other states.
We are concerned about recommending substantial change unless and until
tax and spending limitations are in place, but would welcome review by
the Florida Association of CPA’s with a view toward clarifying or
simplifying Florida’s Tax Code. They testified before the Task Force,
but did not recommend any changes beyond what is being recommended by
the Task Force.
(Q) Does the tax system unnecessarily distort decision-making by
consumers or businesses?
(A) No. Not in our opinion, and there was no testimony otherwise.
(Q) To what degree can the tax burden be exported to the tourist, the
federal government, or out-of-state businesses?
(A) One of the major reasons that the sales tax suits Florida so well
is the state has a significant tourist industry, which allows our
visitors to contribute in a substantial way to the operation of our
state government, although they do not use our schools or most of the
government services. Exporting responsibility to the federal government,
if that be possible, is certainly not desirable, because the citizens of
Florida are a substantial portion of that government. Getting the
federal government to pay for it does not mean that it is free.
(Q) How does the state’s tax structure interact with federal or
local tax structures?
(A) Florida’s accountants and tax lawyers could better answer that
question, but testimony before this Task Force indicates that we have a
good system and it would not appear feasible to make changes just for
the sake of change. The Task Force heard testimony that Florida sales
tax would be simpler if it were primarily a consumer sales tax, but such
major reform would likely raise more problems than it would solve. We
need to be very careful that we do not "simplify" Florida’s
Tax Code in the same way that Congress has been "simplifying"
the income tax since its inception.
EQUITY:
(Q) Is Florida’s tax structure proportional or progressive in its
incidence among income groups? Are individuals with similar incomes
taxed uniformly? Are Florida’s taxes based on ability to pay?
(A) Yes. People determine how much tax they want to pay by how much
they want to buy. The exemptions of rents, groceries, medicine, etc.,
which claim the greater part of earnings of lower income people
alleviate regressivity of the sales tax.
(Q) How do other states treat the same or similar tax issues?
(A) Of course, we have not studied the tax system of all other
states, but are recommending that Florida continue to work with other
states on these issues.
(Q) Is the base of the tax system as broad as possible so that tax
rates and burdens are as low as possible?
(A) The base could be broader and the rates could be lower by
eliminating all exemptions, but we do not recommend doing so for the
reasons stated above. We feel this would result in a permanent increase
in government unless and until serious constitutional tax and spending
limitations are in place.
(Q) Are tax exemptions consistent with state tax policies and the
economic impact of each exemption?
(A) Yes.
In addition, we were directed to provide an analysis of alternative
tax sources. We have not attempted to provide alterative tax sources at
this time, because we have concluded none are necessary, and that the
current system fairly meets the needs of the state.
The State Tax Reform Task Force offers this report as our best
efforts to fulfill the charge given us by the enabling legislation. The
Task Force created a set of six Principles of Taxation to be utilized in
evaluating Florida’s tax system. These Principles of Taxation are:
.
- Equity – The Florida tax system should treat individuals
equitably. It should impose similar tax burdens on people in similar
circumstances and should minimize regressivity.
- Compliance – The Florida tax system should facilitate taxpayer
compliance. It should be simple and easy to understand so as to
minimize compliance costs and increase the visibility and awareness
of the taxes being paid. Enforcement and collection of tax revenues
should be done in a fair, consistent, professional, predictable and
cost-effective manner.
- Pro-Competitiveness – The Florida tax system should be
responsive to interstate and international competition in order to
encourage savings and investment in plant, equipment, people, and
technology in Florida.
- Neutrality – The Florida tax system should affect competitors
uniformly and not become a tool for "social engineering".
It should minimize government involvement in investment decisions,
making any such involvement explicit, and should minimize pyramiding.
- Stability – The Florida tax system should produce revenues in a
stable and reliable manner that is sufficient to fund appropriate
governmental functions and expenditures.
- Integration – The Florida tax system should balance the need for
integration of federal, state and local taxation.
The Task Force believes that any revision or amendment to the tax
code should conform to these principles, but recommends that the tax and
spending limitations suggested by the Task Force be enacted prior to any
attempt at major reform. It is the recommendation of the Task Force
that, should the Legislature undertake an evaluation of the state’s
tax structure, a review of current tax exemptions, propose new tax
exemptions, or propose a reduction in the tax rate, the Legislature
utilize these Principles of Taxation in their review.
Recommendations of the State Tax Reform Task Force
Issue # 1: Constitutional Amendment to Limit State Appropriations
Amends Article VII, Sec. 1, of the State Constitution, to:
Replace the state revenue limitation with an appropriations
limitation that limits state appropriations for any fiscal year to state
appropriations for the prior fiscal year plus a growth adjustment of
inflation and population growth. As with the state revenue limitation,
the amendment provides for the transfer of excess revenues to the Budget
Stabilization Fund, until it is fully funded, and then refunds the rest
to taxpayers pursuant to general law. The appropriations limitation can
be suspended in any fiscal year in which the governor declares a state
financial emergency and the legislature must agree by three-fourths vote
in a separate bill containing no other subject.
Issue # 2: Constitutional Amendment to Limit Legislative Authority to
Increase Taxes
Require that any law that imposes new or increased taxes or repeals
exemptions from a tax be enacted in a bill for that purpose only by a
two-thirds vote of the membership of each house of the Legislature.
Issue # 3: Constitutional Amendment to Limit Local Authority to
Increase Taxes
Amends Article VII, Sec. 9, of the State Constitution, to:
Requires that any local rule or ordinance that imposes new or
increased taxes or repeals exemptions from a tax be enacted by a
majority plus one vote of the membership of the respective board,
council or commission.
Issue # 4: Streamlined Sales Tax Project
Chapter 2001-225, Laws of Florida, created the "Simplified Sales
and Use Tax Administration Act", authorizing Florida to participate
in discussions with other states for the purpose of developing a
multi-state, voluntary, streamlined system for the collection and
administration of state and local sales and use taxes. The project’s
primary objective is to reduce the complexity and administrative burden
currently borne by businesses in collecting use taxes in interstate
commerce. The project’s secondary objective is to secure the passage
of federal legislation whereby Congress would authorize the states
participating in the streamlined project to require remote vendors, such
as Internet and mail order sales, to collect and remit use taxes imposed
by those participating states.
Florida relies heavily on its 6 percent sales and use tax. In fiscal
year 1999-2000, sales and use tax collections accounted for 73% of
General Revenue and over 48% of all tax revenues. Florida is projected
to lose $1.2 billion in sales tax revenue in fiscal year 2001-02 from
both Internet and mail order sales. With Florida’s heavy reliance on
the sales and use tax, the State Tax Reform Task Force believes it is
imperative that Florida continues to actively participate in the
Streamlined Sales Tax Project.
Issue # 5: Repeal of the Intangibles Tax
Florida’s tax on intangible personal property was enacted in 1931,
and it is a tax on "all personal property which is not in itself
intrinsically valuable, but which derives its chief value from that
which it represents". Taxable intangible personal property
includes, among other things, stocks, bonds, notes, and other
obligations to pay money. The tax rate is currently 1 mill, or $1 per
every $1,000 taxable assets. The intangibles tax exemption for a natural
person is $20,000 and the married couple exemption is $40,000. Effective
January 1, 2002, the exemptions will be increased from $20,000 to
$250,000 for a natural person and from $40,000 to $500,000 for a married
couple. In addition, a new $250,000 exemption for non-natural taxpayers
was created effective January 1, 2002.
Since 1998, the Legislature has made changes in the intangibles tax,
working toward their expressed goal of eliminating the tax. In 1998,
one-third of accounts receivable was exempted from the tax. In 1999, the
exemption for accounts receivable was increased to two-thirds and the
annual tax rate on intangible assets was reduced from 2 mills to 1.5
mills. In 2000, accounts receivable was fully exempted from the tax and
the annual tax rate was reduced further to 1 mill. The 2001 Legislature
had proposed reducing the tax rate further, but due to the down turn in
the economy, the Legislature settled for increasing exemptions instead.
The exemption for a natural person was increased from $20,000 to
$250,000, the married couple exemption increased from $40,000 to
$500,000, and a new $250,000 exemption for non natural taxpayers was
created. These changes were to go into effect January 1, 2002, but an 18
month delay in the implementation of the exemption increases was adopted
during Special Session C.
The Task Force recommends that the Legislature make a commitment to
continue the elimination of the intangibles tax when appropriate.
Issue # 6: Repeal of the Alcoholic Beverage Surcharge
In 1990, the Legislature created s. 561.501, F.S., which imposed an
alcoholic beverage surcharge on all alcoholic beverages sold by the
drink for consumption on a retailer’s licensed premises. The surcharge
was ten cents on each one ounce of liquor or four ounces of wine, six
cents on each 12 ounces of cider and four cents on each 12 ounces of
beer.
Since its inception, the alcoholic beverage surcharge has been viewed
as an onerous tax by alcoholic beverage retailers. There have been
several attempts to eliminate the surcharge since 1997. In 1999, the
Legislature reduced the surcharge by one-third and in 2000, the
surcharge was again reduced by one-third to its current rate of 3.34
cents on each one ounce of liquor or four ounces of wine, 2 cents on
each 12 ounces of cider and 1.34 cents on each 12 ounces of beer. It was
the Legislative plan to eliminate the final third of the surcharge in
2001, but as a result of the down turn in the economy, the surcharge was
not eliminated.
The Task Force recommends that the Legislature make a commitment to
continue the elimination of the alcoholic beverage surcharge when
appropriate.
Issue # 8: Roll Back of Sales Tax on Commercial Electricity and
Communications Services
In 1992, the State of Florida was faced with a revenue shortfall and
needed to raise revenue to meet the budget demands of state government.
In order to find sufficient funds, the Legislature raised the needed
revenue by primarily increasing taxes paid by businesses. Among the tax
increases enacted by the 1992 Legislature on business was the increased
sales tax rate on commercial telephone service and commercial/industrial
electricity from the standard 6% to 7%, which raised an estimated $55
million in 1992.
Consistently during the 1980’s and early 1990’s, the Legislature
fashioned tax increases to fall on businesses rather than individuals.
The business community understood the necessity for government to have
adequate funding to operate and, in many instances, did not object to
such tax increases because it was believed that government was
allocating its tax resources for the greater good of all Floridians.
The Task Force believes that there should not be a differential in
the sales tax rate between commercial and noncommercial electricity and
communications services. The Task Force recommends that the Legislature
make a commitment to roll back the state sales tax rate from 7% to 6% on
commercial electricity and commercial telephone service, when
appropriate.
Issue # 9: Repeal of the Health Care Assessment on Hospital
Out-Patient Services
The Health Care Assessment was originally enacted in 1984 to impose
an assessment of 1.5 percent against the annual net operating
revenue of each state-licensed hospital. The funds generated through the
assessment are used to expand Medicaid coverage and equalize the
financial burden of indigent health care among hospitals. Assessments
are deposited into the Public Medical Assistance Trust Fund (PMATF).
The 1991 Legislature extended the PMATF assessment to four additional
types of health care providers: clinical laboratories, ambulatory
surgical centers, diagnostic imaging centers, and freestanding radiation
therapy centers. In 1992 an assessment was imposed on nursing home
facilities in the amount of $1.50 for each patient day provided by the
nursing home, but was repealed in 1993. In 2000, the Legislature reduced
the annual assessment on net operating revenues attributed to hospital
out patient services from 1.5% to 1.0%. Further reductions were proposed
during the 2001 Legislative Session, but not adopted. As with the
intangibles tax and the alcoholic beverage surcharge, the Legislature
has expressed a desire to eliminate the PMATF assessment on hospital
out-patient services.
The Task Force recommends that the Legislature make a commitment to
continue the elimination of the PMATF assessment on hospital out-patient
services when appropriate.
Issue # 10: Documentary Stamp Tax on Unsecured Notes
Proposal 1: Cap at $2,450, the documentary stamp tax
due on an unsecured note executed in Florida. This translates into a
loan of $700,000, which means that all such loans of $700,000 or more
would have a tax liability of $2,450. The Legislature and the Department
of Revenue should monitor the response to this change to determine if
the loan threshold is appropriate.
Fiscal Impact: Revenue neutral
Explanation of why needed: Current law imposes the
documentary stamp tax on promissory notes, nonnegotiable notes, written
obligations to pay money, and assignments of salaries, wages, or other
compensation, at the rate of 35 cents per $100, if executed delivered,
sold, transferred, or assigned in the state. Florida residents and
businesses can avoid this tax by executing these agreements outside the
State of Florida. When the amount of tax that would be due on the
Florida transaction is significantly greater than the cost of closing
the deal outside of the state, the parties to the transaction have an
incentive to leave the state, and often do. This will not affect the tax
on notes secured by real property.
Issue # 11: Tax Compliance
The Task Force recommends to the Legislature, the following tax
compliance and tax administration changes:
Sales Tax
Waiver of fees for online registration
Proposal: Statutory authorization to make permanent the temporary
$5 fee waiver for online registration.
Explanation of why needed: Current law requires a $5 registration
fee for businesses that collect sales and use tax. The Department of
Revenue now accepts applications over the Internet and for the first 6
months of the Internet application program the fee has been waived. The
department will begin to accept applications via the Multistate Tax
Commission’s online multi-jurisdiction registration process. This
proposal will encourage dealers to register online, which will reduce
costs for them and the department.
Verification of entitlement to credit
Proposal: Provide statutory authority for the department
to require a report to be submitted when filing a sales and use tax
return if the dealer is claiming credits against the tax.
Explanation of why needed: Sales and use tax dealers are eligible
for various credits under many programs, such as the urban high-crime
area job credit, enterprise zone credit, empowerment zone program, Front
Porch communities, designated brownfield areas, and urban infill areas.
Dealers may also claim credit for tax refunds, and other deductions and
exemptions. Sales and use tax returns currently used make it difficult
to verify whether a dealer is eligible for credits or refunds and
additional information must be requested, which delays the credit. If
information were provided on a separate report it would facilitate
approval of the credits, to the benefit of taxpayers. It would also make
it easier to track utilization of the credits and evaluate the programs
associated with them.
Insurance Premium Tax
Local Premium Tax Situsing Data Base
Proposal: Authorize the Department of Revenue to create databases
to be used by insurance companies in identifying the location of risks
insured by their property and casualty insurance policies. Insurers
using these databases would be exempt from any tax, penalty or interest
which would otherwise be due as a result of incorrectly assigning its
policies. Insurers that did not use the databases or exercise due
diligence would be subject to a 0.5 percent penalty on the premium of
each policy incorrectly assigned.
Explanation of why needed: Under current law, pension plans of
participating cities and special fire control districts receive annual
distributions of premium tax dollars for insurance policies written
within the boundaries of the cities or districts. Insurance premium
taxes are collected by the Department of Revenue, and a portion of the
revenue is transferred to the Police Officers’ and Firefighters’
Premium Tax Trust Fund at the Division of Retirement. Insurers must
report the geographic location of its insured risks to DOR in order to
determine the proper distribution of premium tax revenue to the police’
and firefighters’ pension funds. This process has been prone to
errors, and some municipalities have received improper distributions
from the trust fund.
Corporate Income Tax
Corporate income tax information returns
Proposal: Delete the requirement that corporations, which are not
otherwise required to file a tax return, must file an informational
return for the year in which they make an election pursuant to s.
1361(b)(3) or the Internal Revenue Code.
Explanation of why needed: This proposal reduces an
administrative burden on corporations that do not owe Florida income
tax. If these corporations owe tax in the future this information will
be received from the IRS and they can be added to Florida’s database.
Corporate income tax interest on underpayments
Proposal: Amend s. 220.23, F.S., to clarify that interest
is owed on underpayments from the original due date of the tax to the
date the tax is actually paid, even if the deficiency is discovered
during a federal audit.
Fiscal Impact: $10 million increase in General Revenue.
Explanation of why needed: Under current law, taxpayers generally
pay market-rate interest on corporate income taxes not paid in a timely
fashion. An exception to this general rule was created in 1999 by the
case of Barnett Banks, Inc. v. Department of Revenue, 738 So.2d
502 (1st DCA 1999), which ruled that the intent of the Florida
Legislature to impose interest on tax deficiencies discovered during
federal audits was not clearly expressed in the Florida Income Tax Code.
This ruling has created an inconsistency in the treatment delinquent
taxpayers.
Documentary Stamp Tax
Documentary Stamp Tax on Original Issues of Stock
Proposal: Repeal the documentary stamp tax on the original issue
of stock certificates.
Explanation of why needed: Under current law, the original issue
in Florida of certificates of stock or shares by a corporation or by any
joint stock company or other association is subject to documentary stamp
tax. Revenue from this tax source is very small because taxpayers can
avoid the tax by issuing certificates of stock out of state or minimize
the tax by issuing the stock at $.01 par value. Tax on the resale and
transfer of stock in Florida was repealed in 1987.
Intangible Personal Property Tax
Intangibles tax zero returns
Proposal: Repeal the requirement that corporations file a return
when no tax is due.
Explanation of why needed: Recent changes in intangibles tax law
have resulted in 90 percent of corporations being required to file
returns even though they owe no intangibles tax.
Intangibles tax information returns
Proposal: Repeal the requirement that corporations file annual
information returns regarding stock value and the related penalty
provisions.
Explanation of why needed: Current law requires each corporations
to file an information report that is a representative copy of the
notice of stock value for shares in the corporation’s stock or its
election to pay the intangibles tax as agent for its shareholders.
Recent changes to the intangibles tax law have resulted in 90 percent of
all corporate filers having no tax due each year, but they will still be
required to file zero returns and provide an information report
regarding stock value. A penalty of $100 can be assessed against a
corporation that does not timely file these information returns.
.
Unemployment Tax
Annual filing for domestic service employees
Proposal: Change the due date for annual filing from April 1 to
January 1 and change the delinquency date from April 30 to January 31.
Amend the statute to allow most employers of domestic employees to file
annually by removing some exceptions that exist in current law.
Explanation of why needed: Federal law allows annual filing for
unemployment tax for domestic service employees, but current state tax
law filing dates do not allow employers to take full credit for payment
of state unemployment taxes if they file their federal returns annually.
Issue # 12: Encourage Consistency within the Department of Revenue
In order to ensure consistent tax treatment by the Department of
Revenue, the Task Force recommends the following amendment to s.
213.015, F.S., the "Florida Taxpayer’s Bill of Rights":
213.015 Taxpayer rights.—There is created a Florida Taxpayer's Bill
of Rights to guarantee that the rights, privacy, and property of Florida
taxpayers are adequately safeguarded and protected during tax
assessment, collection, and enforcement processes administered under the
revenue laws of this state. The Taxpayer's Bill of Rights compiles, in
one document, brief but comprehensive statements which explain, in
simple, nontechnical terms, the rights and obligations of the Department
of Revenue and taxpayers. The rights afforded taxpayers to assure that
their privacy and property are safeguarded and protected during tax
assessment and collection are available only insofar as they are
implemented in other parts of the Florida Statutes or rules of the
Department of Revenue. The rights so guaranteed Florida taxpayers in the
Florida Statutes and the departmental rules are:
- Florida taxpayers shall have the right to fair and consistent
application of Florida tax laws by the Department of Revenue.
.
.
Task Force Meetings and Presentations
September 19, 2001 Full Task Force Meeting
The full Task Force met after a lengthy recess on September 19, 2001.
The state of the economy had significantly changed since the last full
meeting of the Task Force, as a result of the economic downturn. In
addition, the impact of September 11th on the economy and, in
particular, on the tourist industry of Florida could not yet be
quantified.
Chairman Blosser provided a brief update.
The Steering Committee Members provided a list of future meeting
dates as follows:
- October 17, 2001 - Tallahassee
- November 13 and 14, 2001 – Public forum meetings scheduled for
South Florida, Central Florida and North Florida (tentative
locations: Ft. Lauderdale, Orlando and Jacksonville)
- December 12, 2001 – Tallahassee
- January 16, 2001 – Tallahassee (tentative)
Next, the Task Force divided into their various subcommittees for
discussion purposes.
After the Task Force returned from their subcommittee meetings, Dr.
Ed Montanaro of the Office of Economic and Demographic Research gave an
outlook on the State’s forecasted general revenues and working capital
funds for the 2002-2003 fiscal year in comparison to the prior fiscal
year.
- There has been a large jump in unemployment.
- Consumer confidence is down.
- Recessions result from a significant economic imbalance and
weakened economy.
- Generally, recessions result from some external shock to the
economy.
- Effect of Recession on State Budget
Consumer confidence is usually a short-term problem.
Transportation sector/tourism is a longer-term problem that
primarily affects air traffic.
Out-of-state tourism accounts for 13-14% of sales tax collections.
Fuel tax collections should increase as more visitors choose to
drive instead of fly.
- Recessions are usually relatively short
1990 recession – approximately 8 months
1982 recession – approximately 16 months
1974 recession – approximately 16 months
The Subcommittees gave reports of their earlier meetings.
- Mr. Cashin gave the report for the Evaluation and Simplification
Subcommittee.
The subcommittee requested information on a breakdown of the
documentary stamp tax revenue by category.
The subcommittee felt the insurance premium tax was difficult to
revamp and difficult to increase compliance.
The subcommittee recommended that they get feedback from the
industry regarding the impact of a cap on the documentary stamp tax
on unsecured notes executed in Florida.
Commenting on the worthiness of all of the sales tax exemptions
is too large in scope for this Task Force and would consume too much
time relative to other aspects of taxation.
The subcommittee was in favor of the Streamlined Sales Tax
Report.
- Mr. Miller spoke on behalf of the Taxes and Economic Growth
Subcommittee and said they were now focused on helping the
Evaluation and Simplification Subcommittee with its various issues.
- The Honorable Mr. Hilton spoke on behalf of the Constitutional
Expenditure and Revenue Limitations Subcommittee and requested that
Dr. Randall Holcomb of the FSU Economics Department speak to the
Task Force.
Senate Finance and Taxation Committee staff provided data on the
State revenue outlook and on the effect that the Economic Growth and Tax
Relief Reconciliation Act of 2001 (the "Act") would have on
the State of Florida as a result of the phased reduction and eventual
repeal of the Federal estate tax in year 2010.
- The Act was written in such a way that it impacts Florida’s
estate tax on a much more accelerated timetable than the repeal of
the Federal estate tax itself.
- The Federal estate tax credit for state estate taxes is reduced
25% in 2002, 50% in 2003, 75% in 2004 and eliminated in 2005.
- The estimated impact of H.R. 1836 on Florida’s estate tax is as
follows:
State Fiscal Year |
Old Estimate |
New Estimate |
Loss in Revenues |
FY 01-02 |
$ 730.00 |
$ 730.00 |
$ 0.00 |
FY 02-03 |
$ 766.50 |
$ 613.20 |
$ 153.30 |
FY 03-04 |
$ 833.70 |
$ 444.60 |
$ 389.10 |
FY 04-05 |
$ 906.20 |
$ 241.70 |
$ 664.60 |
FY 05-06 |
$ 974.60 |
$ 48.70 |
$ 925.80 |
FY 06-07 |
$1,022.20 |
$ 0.00 |
$1,022.20 |
Marshall Stranberg of the Department of Revenue presented information
on the activities of the Streamlined Sales Tax Project. A write-up of
his presentation is included in Appendix 1.
.
October 17, 2001 Full Task Force Meeting
The Task Force convened on October 17, 2001.
Dr. Randall Holcomb of Florida State University made a presentation
on tax and expenditure limitations, which made the following points:
- Florida’s current tax limitation is ineffective. Over time the
limitation becomes less and less of a constraint because the
allowable growth in the limitation far exceeds the growth in
revenues.
- Other states have implemented tax or expenditure limitations;
however most of these programs are also ineffective because of poor
structural design.
- There are several ways in which a state can implement a tax or
expenditure limitation. The program can either be adopted through
voter referendum or by legislation. Voter referendum is more binding
than legislation. A limitation on expenditures is more effective
than a limitation on revenues.
- Some conditions that would strengthen Florida’s limitation are;
Use the previous year’s appropriation’s base rather than the
previous year’s tax limitation as a premise to estimate future
growth;
Assess the limitation on all revenues;
Estimate future revenue growth based on population and inflation
rather than income.
Marshall Stranberg of the Department of Revenue gave an update on the
Federal Internet Tax Freedom Act legislation.
- On the previous day (October 16, 2001), the U.S. House of
Representatives had passed a bill which would extend until November
1, 2003 a moratorium preventing the taxation of Internet access and
multiple and discriminatory Internet taxes. The three-year
moratorium was scheduled to expire the following Sunday.
- There are four major pieces of House legislation and nine major
pieces of Senate legislation proposed by the 107th Congress
regarding the taxation of electronic commerce.
- The National Conference of State Legislatures (the "NCSL")
supports the amended version of H.R. 1552, "The Internet Tax
Nondiscrimination Act", as reported by the House Judiciary
Committee, which would extend the moratorium for a two-year period
and retain the grandfather clause which allows those states that
imposed a tax on Internet access as of October 1, 1998 to continue
to do so. The NCSL believes the two year moratorium would allow
states time to simplify sales and use tax collection systems.
- The NCSL supports S.B. 1481, "The Internet Tax Moratorium
Extension Act", which is similar to H.R. 1552.
- The NCSL opposes the majority of the House and Senate bills,
believing they would be unfunded federal mandates imposed upon the
States.
- The Center for Business and Economic Research presented updated
estimates on State and Local Sales Tax Revenue Losses from
e-commerce (authored by Donald Bruce, Assistant Professor of The
University of Tennessee and William F. Fox, Professor of The
University of Tennessee) based on the Forrester Research, Inc.
e-commerce forecast.
- This report updated estimates of losses from e-commerce provided
in 2000. In 2001, the updated study projected a 41% increase in lost
revenue over the previous report primarily due to a higher forecast
of e-commerce business-to-business transactions.
- "Total" e-commerce loss is the total sales and use tax
loss due to all sales on the Internet. This includes sales that
would not have been subject to sales tax anyway because purchases
were made via telephone or catalog.
The total e-commerce estimated state and local government revenue
loss for all states in 2001 is $13.3 billion.
The total e-commerce estimated state and local government revenue
loss for all states in 2006 is $45.2 billion.
The total e-commerce estimated state and local government revenue
loss for all states in 2011 is $54.8 billion.
- "New" e-commerce loss is sales and use tax loss
resulting from sales made through the Internet both on goods that
would have otherwise been purchased from the over-the-counter method
and projected new goods to be purchased over the Internet. In
comparison to the "total" e-commerce loss, all
"new" e-commerce loss is attributable to transactions that
otherwise would have been subject to sales and use tax.
The new e-commerce estimated state and local government revenue loss
for all states in 2001 is $7 billion.
The new e-commerce estimated state and local government revenue
loss for all states in 2006 is $24.2 billion.
The new e-commerce estimated state and local government revenue
loss for all states in 2011 is $29.2 billion.
In 2011, states are estimated to lose anywhere from 2.6 percent
to 9.92 percent of their total state tax collections to total
e-commerce losses.
- In general, the sales tax base has declined for several years
relative to state personal income. The decline is due primarily to
three factors:
E-commerce, catalog, telephone and cross-state shopping have all
increased rapidly in recent years.
There has been a shift toward greater consumption of services and
less consumption of goods.
Many states have increased the amount of legislative exemptions
to their state’s sales and use tax.
Next, Lisa Echeverri of the DOR outlined various legislative
proposals to improve tax compliance and reduce administrative costs.
These proposals have been adopted by the Task Force and are included in
the recommendations of the Task Force.
Waiver of fees for online registration.
Verification of entitlement of credit (i.e., provide statutory
authority for DOR to require a report be submitted if dealer is
claiming credit on sales and use tax return.
- Create local premium situsing database for Insurance Premium Tax
- Corporate Income Tax
Delete the requirement that corporations file a state informational
return in the year they make a federal election.
Amend statute to clarify that interest is owed on underpayments
from the original due date of the tax to the date the tax is
actually paid, even if the deficiency is discovered during a federal
audit.
Repeal the documentary stamp tax on original issues of stock
certificates.
Cap the amount of documentary stamp tax due on an unsecured note
executed in Florida.
- Intangible Personal Property Tax
Repeal the requirement that corporations file a return when no tax
is due.
Repeal the requirement that corporations file annual information
returns regarding stock value and the related penalty provisions.
Change the due date for annual filing from April 1 to January 1 and
change the delinquency date from April 30 to January 31. Amend the
statute to allow most employers of domestic employees to file
annually by removing some exceptions that exist under current law.
Current state tax law filing dates do not allow employers to take
full credit for payment of state unemployment taxes if they file
their federal returns annually.
Senate Finance and Taxation Committee staff provided an update on the
general revenue forecast based on the Revenue Estimate Conference held
on October 15, 2001.
- Together with reductions from the estimating conference held on
September 15, 2001, the new estimate of General Revenue collections
has been reduced by $1,317.5 million from the original estimate used
to develop this year’s appropriations act (i.e., a 6.6%
reduction).
- Together with reductions from the estimating conference held on
September 15, 2001, the new estimate of General Revenue collections
for fiscal year 2002-2003 has been reduced by approximately $783.5
million.
- The new estimate for the General Revenue/Working Capital Fund for
the current fiscal year, together with other available funds,
projects a $928.5 million deficit without taking into account
reserve funds of $940.9 million in the Budget Stabilization Fund.
- The new estimate for the General Revenue/Working Capital Fund for
fiscal year 2002-2003 is approximately $19,595.2 million.
Next, Richard Hunt, Richard H. Hunt & Associates, P.A., gave a
presentation on behalf of the Florida Tax Watch on Florida’s
participation in the Streamlined Sales Tax Project ("SSTP").
- Florida enacted qualifying legislation to participate in the SSTP
in 2000, but was not listed as a participating state until 2001.
- The purpose of the SSTP is to (i) replace revenues lost to states
as a result of the aftermath of the Quill case, (ii) reduce the
administrative and economic burdens of collecting the tax and (iii)
provide remote vendors with adequate and fair compensation for their
collection activities and risks.
- The SSTP has approved a model act and agreement (the "SSTP
Act and Agreement").
- The NCSL has also approved model legislation (such legislation, as
amended, the "NCSL Amendment").
- Florida has relied on the NCSL Amendment and enacted the first 10
sections of the Simplified Sales and Use Tax Administration Act into
law.
- As of August, 2001, 17 states, including Florida, are considered
"Governing States" in the SSTP and 33 states are
considered "Participating States". (6 of these 33 states
are formal "Observers"). Collectively, 44 of the 50
states, including Florida, have signaled their commitment to work
cooperatively toward sales and use tax simplification and to reduce
the burdens of use tax compliance upon remote vendors by conforming
their sales and use tax laws to norms adopted by voluntary
reciprocal state action.
- Congress, in Senate Bill 512, the "Internet Tax Moratorium
and Equity Act", which is supported by Senator Graham, has
incorporated many ideas of the SSTP and the NCSL.
Finally, Randy Miller presented an overview to the Task Force of
draft legislation entitled "Airline Economic Incentive and
Stabilization Act" that Associated Industries of Florida is
proposing be enacted into law at the October 22, 2001 Special Session.
- Commercial airlines are substantially cutting back nationwide
routes.
- Florida needs to establish an incentive package so that it
receives the highest level of airline service possible to support
its tourism industry.
- The following proposals are suggested:
Abate the 6.9¢ per gallon aviation fuel tax effective immediately
through July 1, 2003 (Florida’s aviation fuel tax is the highest
in the country).
Reinstate the proration provisions in former § 206.9825(2), F.S.
for air carriers that utilize mileage apportionment for the
corporate income tax.
Reinstate the fuel tax credit for air carriers offering
transcontinental jet service that increase their workforce in
Florida by 1000% and at least 250 employees, retroactive to July 1,
2001.
Remove sales tax on:
- Catering provided to commercial airlines.
- Crew and hotel rooms rented and leased by commercial airlines.
- Security services at airports.
- Airline ground support equipment.
- Airport construction.
November 14, 2001 Full Task Force Meeting
.
The full Task Force originally scheduled public forum meetings on
November 13 and 14, 2001 to be held in South Florida, Central Florida
and North Florida. However, in an effort to save costs appropriated to
the State Tax Reform Task Force, the Commission voted to cancel the
November 13th meeting and conduct the November 14th meeting as a public
forum in Tallahassee.
The Task Force commission received public testimony from the
following:
Sam Ard of the Florida Farm Bureau, who said:
- Most other states outside of Florida have a complete exemption
from sales and use tax relating to the purchase of farm equipment
used in farming activities.
- After September 11, 2001, the farming industry may be the largest
revenue generating industry in the State of Florida.
- Currently, the farming industry is bearing the majority of the
necessary increased costs to protect its crops from potential
bioterrorist attacks.
- The Farm Bureau proposes that the sales tax exemption for food and
pesticides as well as the partial exemption on farm equipment be
continued.
Russell Hale, Akerman Senterfitt & Eidson, presented testimony on
behalf of the Florida Bankers Association requesting that a limit be
placed on the maximum amount of documentary stamp tax that would be
imposed by the State of Florida on the execution of an unsecured note in
the State of Florida.
- Currently, Florida imposes a documentary stamp tax at the rate of
35 cents per $100 of consideration on unsecured bonds, certificates
of indebtedness, promissory notes and other financial instruments
executed in the State of Florida.
- The documentary stamp tax is avoided if the financial instrument
is executed outside of the State of Florida, including being
executed in international waters. House Bill 1009 and Senate 2140
from the 2001 Legislative session would have capped the documentary
stamp tax on all obligations of $700,000 or more, resulting in a
maximum tax of $2,450.
- At this level, the Revenue Estimating Conference believed the cap
would have a revenue neutral effect because many taxpayers would pay
up to the $2,450 cap rather than go through the additional time
burden, extra record keeping and expense of travel outside of the
state.
- The cap on the documentary stamp tax on unsecured obligations is
being proposed as a revenue neutral proposal. The proposal could
have a sunset provision and in the event it was later determined the
cap had a revenue positive or revenue negative effect, the cap could
be adjusted accordingly in later years.
Dominic Calabro, President and CEO of the Florida Tax Watch, also
presented testimony regarding placing a cap on the imposition of the
documentary stamp tax on unsecured obligations.
In addition, on November 7, 2001, Dominic Calabro, on behalf of the
Florida Tax Watch, distributed A Report by the Center for a Competitive
Florida dated April, 2001 (the "April Report") which further
supported a $2,450 documentary stamp tax cap on unsecured obligations
executed in the State of Florida.
.
- The April Report stated that in addition to keeping transactions
from leaving Florida, because 39 states have some form of
documentary stamp taxation, financial transactions from other states
could flow into Florida.
- The April Report did raise one concern with respect to the
imposition of a cap on the documentary stamp tax on unsecured
obligations with respect to the more than $2.6 billion of revenue
bonds issued by the State of Florida and payable from and secured by
documentary stamp taxes.
- The April Report suggests that the bill sponsor request from the
Division of Bond Finance a legal opinion from bond counsel that the
bill would not constitute an impairment of the bondholders’
contractual rights or otherwise create legal problems for the state
on such bond issue or future bond issues.
- Florida TaxWatch does not believe the bill would create any
impairment of the bondholders’ rights but believes it would be
prudent to get an opinion to avoid potential future challenges or to
make appropriate adjustments to secure the public benefits intended
by the legislation.
Next, Members of the Task Force presented additional testimony.
Representative Rob Wallace presented testimony of a Tax and Expenditure
Limitation Bill that would amend Section 1 of Article VII and Section 21
of Article XII of the Florida Constitution to limit the state
appropriations (excluding any portion spent from receipt of federal
funds) for any fiscal year to the state appropriations (excluding any
portion spent from receipt of federal funds) for the prior fiscal year
plus the sum of the average of inflation and population change for each
of the prior three years.
- State appropriations in excess of any fiscal year in excess of the
state appropriations limitation would be transferred to the Budget
Stabilization Fund until the fund reached its maximum balance and
thereafter would be refunded to the taxpayers.
- The state appropriation limitation would not apply in any fiscal
year in which the governor declared a state of financial emergency
on the order of war, a natural catastrophe, an economic depression
or an event of similar magnitude.
- Any suspension of the state appropriations limit would require a
three-fourths vote of the membership of each house in a separate
bill that contains no other subject matter.
- An adjustment to the appropriations limitations would be made to
reflect the fiscal impact of transfers of fiscal responsibility
between the states and other levels of government.
- The amendment to the state appropriations limitation would take
effect at January 1, 2003 if adopted at the general election in
November, 2002.
- The proposed state appropriations limitations would replace the
existing limitation which limits increases of state revenue
collected in any fiscal year to a growth factor equal to the average
annual rate of growth of Florida personal income over the most
recent twenty quarters.
- The prior limitation has proved completely ineffective in placing
any meaningful limitation on the growth of state revenues.
- Representative Wallace displayed charts illustrating the lack of
impact of the current state revenue limitation (a copy of which is
attached as Exhibit A entitled Budget Population, Budget Per Capita
and Family Income 1975-2001) and illustrating from 1975-1999, then
per capita state budget increased approximately 5.4 times. The state
budget as a portion of a Florida family of four income increased
from approximately 3.56 percent in fiscal year 1975-76 to
approximately 5.669 percent in fiscal year 1998-1999.
- Exhibit B, Appropriations, Population and Inflation illustrates
the difference in where the state appropriation limitation would
have been over the last 25 years if such limitation would have been
in effect.
The Honorable Charlie Hilton introduced language for a proposed House
Joint Resolution which would limit:
- at the state level, the ability of any law enacted after January
1, 2002 to impose, expand the base of, increase the rate of, or
repeal any exemption from any tax unless the law was enacted in a
separate bill for that purpose only by a two-thirds vote of the
membership of each house of legisl
