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Florida Increases Corporate Income Tax Exemptions, Debates Repeal

2 min readBy: Joseph Bishop-Henchman

Florida’s government has a $69 billion annual budget, and about $2 billion of that comes from the state corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. . Enacted in 1971, that taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. ), requiring a separate calculation, and the added wrinkle of needing to comply with an array of non-uniform apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. 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.