Reform Repeat

Reform Repeat

GOVERNMENT WATCH by Mark Gordon | Managing Editor

Taxes are about to take center stage in Tallahassee - again - but this time it's not about sky-high property taxes. Reformers are aiming for the state's sales tax code.

For the past few months, a plan to overhaul Florida's sales tax system has been floating like a faint silhouette compared to the imposing shadow of the state's property tax crisis.

But the Jan. 29 passage of Amendment 1, which doubled the state's homestead exemption for non-school property taxes and is expected to save taxpayers an average of $240 a year, could mean sales tax reform proponents - as well as their opponents - are about to have their time in the spotlight.

"That was tax relief," says Lee County Property Appraiser Ken Wilkinson, who has been at the forefront of several state tax issues, including the original Save Our Homes assessment cap on homesteaded property. "Now we have to put the emphasis on tax reform."

This fight, much like ones waged in 1987, 1992 and 2002, revolves around exemptions and exclusions: From ostrich and racehorse feed to cattle growth enhancers to Super Bowl tickets, there are currently hundreds of products and services that are exempted from Florida's current tax code, totaling more than $10 billion a year. Services that are excluded from the code range from accounting to engineering to lawn care.

Former state Senate President John McKay, now a Bradenton real estate broker and developer, leads the side seeking reform. McKay and a few other supporters have been shepherding a plan through the state's government review process, with the ultimate goal of seeing it as an amendment for voters statewide to decide on in November. The proposal passed through one committee Jan. 15 and faces its next test Feb. 11, when the state Finance and Tax Committee debates it.

Substantial benefits

The gist of the proposed amendment is to allow state legislators to decide what services and products should fall under the exemptions and exclusions - something that hasn't been done since the sales tax was initially imposed by the state almost 60 years ago.

The reform plan, partially written by Tallahassee attorney Robert Nabors, calls for three-fifths of each legislative body to approve the elimination of any exemption or exclusion. Long-standing sales tax exemptions on goods and services such as groceries, prescription drugs, electricity and residential rent, known as necessities of life items, will not be up for debate.

The plan's supporters say by bringing the exemptions to the Legislature, Florida's sales tax base could be broadened to bring in as much as $9 billion a year in new money. That infusion, in turn, could be used to replace the state-mandated school property tax, known as required local effort. The reform proposal is explicit in that it is looking to broaden who pays the tax, as opposed to increasing the actual 6% sales tax.

The proposal, according to its supporters, could cut property taxes for individual homeowners by as much as 40%. Take that, Amendment One.

"My position is that there are so many exemptions and exclusions that are completely unjustified," says McKay, who is taking a leadership effort in the reform plan as a member of the Taxation and Budget Reform Commission, a statewide panel of 25 prominent citizens formed every 20 years to study tax issues. "There is nothing else that has existed since 1949 that has not gone through a modification. That is devoid of any common sense."

In addition to some other commission members, the overhaul plan has some well-thought-of economists and politicians behind it, including economist Hank Fishkind, widely considered a guru of Florida tax reform. In a memo to the state's Government Procedures and Structure Committee, the panel that debated and approved the proposal last month, Fishkind said the "amendment would generate very substantial economic benefits for Floridians."

Nonetheless, McKay and his fellow reformers realize they are a long way from celebrating like Gov. Charlie Crist and his team did after Amendment One passed by a 64% margin last month. Indeed, some state tax policy observers, in addition to the proposal's opponents, say the McKay-backed plan would be nearly impossible to carry out.

Tallahassee-based lobbyist Jennifer Green, for instance, says the only way the proposed amendment could realistically work is if taxes are raised in some other area. Green has testified before state panels on behalf of the Coalition to Protect Florida's Economy, which is made up of about 25 groups that oppose the proposed amendment, including Realtors, CPAs and insurance agents.

Says Green: "[The proposal] has a fatal flaw. There is nothing in it that prevents local governments from raising taxes. So taxpayers can be hit twice."

And Kurt Wenner, a senior analyst with nonprofit research group Florida Tax Watch, says the state's tax structure could become even more complicated than it already is if state legislators start messing around with it.

"I don't think the proposal, the way it's written, is a good one," Wenner says. "Trying to find $9 billion worth of exemptions without raising the sales tax will be difficult to do."

Laundry and lawns

Difficult yet necessary, McKay says.

His approach to the fight is similar to what he said in 2002, his final year in the Senate, when he proposed a plan to eliminate $9.5 billion in sales tax exemptions and lower the sales tax rate to 4%. McKay's referendum proposal never got to voters when one appeals court judge ruled the measure was misleading to voters.

To McKay though, the issue is too crucial to Florida's future financial viability to give up. He says broadening the sales tax base is a simple diversification strategy - no different than an investor adding bonds to a portfolio made up of only stocks. A narrow tax base, he says, relies too much on a limited amount of industries, such as real estate.

Plus, the current system has so many holes it's sometimes comical. McKay, speaking as a senator in a November 2001 speech, touched on some highlights that still resonate six years later. Said McKay back then: "Hair care products are taxed; hair cuts are not. Laundry detergent is taxed; dry cleaning is not. Lawn mowers are taxed; lawn care is not."

Despite the opposition and history of failed efforts, McKay and Wilkinson are confident this time around. Wilkinson, for example, says he hears positive feedback on the proposal every time he runs into a Fort Myers-area legislator. Says Wilkinson: "There's a stronger movement in the Legislature than I've ever seen before to do this."

If the Finance and Tax Subcommittee approves the proposal during the two-day hearing that starts Feb. 11, it will then go to the full Taxation and Budget Reform Commission. If 17 out of 25 of those members approve it, the proposal then begins to go through the courts process, the final step to becoming an amendment proposal on the November ballot.

"The only argument against it," McKay says, "is from people that enjoy its benefits."

What would you do?

The debate over how, or even if, to reform Florida's sate sales tax has come up at least four times over the last 20 years. The latest proposal, which supporters hope to see as an amendment up for statewide vote in November, calls for state legislators to decide what services and products should fall under the exemptions and exclusions. Long-standing sales tax exemptions on goods and services such as groceries, prescription drugs, electricity and residential rent, known as necessities of life items, will not be up for debate.

If Election Day was today, how would you vote? Send your thoughts to Mark Gordon at [email protected].

The Tax Man

The 2007 Florida Tax Handbook lists 246 exemptions to the sales tax code. Some, such as "materials used for packaging," are as old as the tax code itself, dating back to 1949. Others, such as a "small private aircraft fleet of more than 25 planes," are as recent as 2006.

The exemptions, in total, were worth more than $10 billion in 2007, according to the handbook. The packaging materials exemption was worth $35.2 million, while the aircraft fleet exemption was worth $100,000.

Some other examples include:

Newspaper and magazine inserts: Enacted in 1998, worth $41.3 million in 2007;

High school and college team's stadium skyboxes: Enacted in 1999, worth $900,000 in 2007;

Printing for out-of-state customer, when he provides the paper: Enacted in 1992, worth $18.4 million in 2007;

Paint color cards and samples: Enacted in 1998, worth $400,000 in 2007;

Works of art provided to an educational institution: Enacted in 1992 and 1999, worth $7.8 million in 2007;

Film rentals, when admissions are charged: Enacted in 1949, worth $5.1 million in 2007;

Charter fishing boats: Enacted in 1998, worth $63.5 million in 2007;

The sale or use of satellites or other space vehicles: Enacted in 1989, worth $124.6 million in 2007;

Advertising materials distributed free by mail in an envelope: Enacted in 2006, worth $800,000 in 2007;

Contractors' use of rock, shell or fill dirt for own use: Enacted in 1998, worth $1.7 million in 2007.

Source: The 2007 Florida Tax Handbook

REVIEW SUMMARY

Issue. State sales tax reform

Agency. Taxation and Budget Reform Commission

Key. Some members of the commission have proposed a constitutional amendment that would overhaul Florida's sales tax system.