Sales tax exemptions, exclusions under review

09/17/07 Seán Kinane
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The constitutionally-created Florida Taxation and Budget Reform Commission is meeting this year and is charged with examining and making recommendations for possibly changing the tax and spending policies of the state. The next time it will meet will be in 20 years. The commission met today in the Hillsborough County Aviation Authority boardroom at the Tampa International Airport.

One of the things that the Taxation and Budget Reform Commission is examining is the possibility of getting rid of some of the exemptions and exclusions on sales and use taxes in Florida. This would allow the state to raise funding but still lower property taxes. One of the members of the Commission, John McKay, is the former president of the Florida Senate and a longtime advocate for tax reform.

“Absent a broadening of the sales tax, or increasing the sales tax which was proposed in the House this year, how would you provide property tax relief for the state of Florida? … Given also that you can’t just come up with a simplistic answer that says well we need to cut government because that’s an exercise they’re going through now and that’s a bloodletting. So what’s the source of funds to reduce the property tax?”

Dominic Calabro is president and CEO of Florida TaxWatch. He told the commission that taxes can be levied on three things: income, property or transactions. Transactions include sales or services.

Florida has historically taxed sales, even though the sales tax affects the poor disproportionately more.

“We consider taxing services the holy grail of state and local taxation. No one has really learned how to do it and do it well. By that I mean a way that was sustainable, that made sense to the governed, made sense to major constituencies, the voters and taxpayers, the key economic groups that were going to be taxed, and then spent in a manner that was not abused.”

Calabro said that the sales and use tax exclusions in Florida amount to more than $96-billion per year and he recommended a streamlined sales tax, one with fewer exclusions and exemptions.

Exclusions are not subject to tax in Florida, while exemptions are things that would normally be taxed but have been specifically exempted from taxation by the Legislature. One recommendation that Calabro made was strengthening or enforcing requirements to collect sales taxes on remote transactions such as internet sales.

“And that’s why it’s all the more important that we capture remote sales, because we’re losing, in our estimation, somewhere between two to four billion dollars of actual tax revenue.”

Florida TaxWatch’s Calabro said allowing all exemptions and exclusions to be removed would cause instability for many businesses. Instead, he recommended further review of about 125 of the exemptions and excluded services.

The Commission can either offer its recommendations to the Florida Legislature or, with a two-thirds vote of the full commission, it can take recommendations to the voters through proposed constitutional amendments.

“In the next session or two, you could probably put together some of those exemptions or exclusions on you know, adult entertainment, on skyboxes, a dozen or two dozen items, I think it would actually pass both houses. They’re [legislators] looking for money and there seems to be no compelling reason to do it. And I think that’s probably a better way to do it: go slow, don’t overreach, and build the case. That’s proven to be a good policy for Florida. That’s how we built the sales tax and it’s worked pretty well for 50-plus years.”

Barney Bishop, president and CEO of Associated Industries of Florida, told the commission that his group also supported collecting taxes on internet sales. Bishop's group also favors creating incentives for the space industry and promoting trade with post-Castro Cuba.

He said that if exemptions or exclusions are removed for some types of goods or services they should be gradually phased in rather than go to the six-percent tax level right away and that business get some input before decisions are finalized.

“If a body, and again, we recommend the Legislature, was to look at sales tax exemptions, and they’re no longer determined to be justifiable … then we ask simply to allow the business community to have time to work with that group to understand how that money could be extracted in a taxable way that would not make that industry uncompetitive with other states.”

The Taxation and Budget Reform Commission will hold a public hearing in the County Center in downtown Tampa on October 3 from 4 to 7 p.m. The Commission will begin making proposals in November with the goal of making recommendations to the 2008 Legislature.

Learn More:

Taxation and Budget reform Commission

Florida TaxWatch

Associated Industries of Florida

National Federation of Independent Business

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