When the tax costs of operating in New York are only a fifth of the cost of locating the same operation in Wyoming, something unusual is going on. Yet that’s exactly what we find for new research and development (R&D...
- The Tax Policy Blog
- Florida Increases Corporate Income Tax Exemptions, Debate...
Florida Increases Corporate Income Tax Exemptions, Debates Repeal
Florida's government has a $69 billion annual budget, and about $2 billion of that comes from the state corporate income tax. Enacted in 1971, that tax currently stands at a rate of 5.5 percent.
Governor Rick Scott (R) took office this year and has sought full repeal of the tax, arguing that such a move would enhance job creation and economic growth. This year, he proposed reducing the rate to 3 percent, but policymakers instead increased the amount of income exempted from tax, from $5,000 to $25,000. Scott is expected to sign that bill soon. The revenue loss to the state from that move will be $30 million, but will reduce the number of corporations paying the tax from 30,000 to 15,000. (Note that this exemption, and the fact that unprofitable corporations by definition do not pay tax on their profits, are the reasons why "98 percent [of corporations] got a free ride," as one letter writer put it.)
An Associated Press article highlights critics of Scott's approach, who argue that repealing the state corporate income tax will have little or no impact on immediate job creation or boosting investment, or that spending should be prioritized over reducing revenues. The article lets stand uncorrected the canard that such a tax elimination is merely "giving tax breaks to wealthy corporations." Any good tax expert would have reminded the AP that corporations may write the check to the state treasury, but the economic burden of the corporate income tax is borne by shareholders (in the form of lower profits), consumers (in the form of higher prices), and workers (in the form of lower wages and/or reduced job opportunities). At various points, the article denies that the tax affects prices (using an example of two shirts purchased in 1971) and denies that it affects workers (citing an interview with CSX Corp. where they state that their investment plans are set). I don't doubt the veracity of their sources, but the economic literature and real-world experience over the last few decades show that corporate income taxes do indeed affect business behavior.
Also left unstated in the article is that a repeal would substantially reduce the compliance and administrative costs of the state corporate income taxes, costs that are much greater for that tax than other taxes. Many state corporate income taxes differ from the federal corporate income tax (The bill on the governor's desk,, for instance, decouples from federal rules on depreciation), requiring a separate calculation, and the added wrinkle of needing to comply with an array of non-uniform apportionment formulas and nexus rules makes this a very costly tax to pay. I don't know how much Florida companies of all sizes pay their accountants to comply with the tax, but it's probably a substantial amount of money that could be used for more productive purposes.
Thanks to Frederick Hubach for research assistance with this post.
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.