Florida Governor Rick Scott (R) has taken an important step toward making good on his election-year promise to reduce taxes by $1 billion in his second term by signing HB 33A into law, though the $400 million 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. reduction is significantly more modest than the Governor’s original proposal of $700 million in cuts. The bulk of the taxpayer savings will come from the reduction of the state’s Communications Services Tax (CST), with the rest deriving from certain sales and use tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. s.
Florida levies two communications taxes: the state’s primary communications tax, currently imposed at a rate of 6.65 percent, and the state’s gross receipts taxA gross receipts tax, also known as a turnover tax, is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. on communications, which adds an additional 2.52 percent. Under HB 33A, the state CST rate is permanently reduced from 6.65 percent to 4.92 percent, saving taxpayers an estimated $207 million. This should prove a welcome tax reduction for Floridians, who currently experience the 4th highest wireless tax rate in the country.
It’s easy for wireless taxes to quickly become burdensome, as wireless services are taxed multiple times: at the federal, state, and local level. In seven states, including Florida, consumers pay taxes and fees that equal at least 20 percent of their total bill.
The bill also alters Florida’s sales tax holidayA sales tax holiday is a period of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back-to-school supplies, clothing, computers, hurricane preparedness supplies, and more. schedule. Historically, the state held a back to school tax holiday weekend, but HB 33A lengthens the holiday to a ten-day stretch in August. While sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. holidays are often popular with consumers, they are plagued by compliance burdens and administrative costs. Additionally, in general, consumers simply shift the timing of their purchases instead of actually buying more, defeating one of the stated purposes of such policies.
The bill also exempts college textbooks from the sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. for one year, while permanently exempting some agricultural equipment and vehicles purchased in foreign countries by active duty military families.
More controversially, the bill caps tax receipts from boat repairs at $60,000. Senator Geraldine Thompson (D) and others have been outspoken in her opposition to this provision, while proponents have argued that it will promote Florida business in a highly mobile field. Most public finance scholars maintain that a well-structured sales tax would apply to all final transactions but not to business inputs, since that leads to tax pyramidingTax pyramiding occurs when the same final good or service is taxed multiple times along the production process. This yields vastly different effective tax rates depending on the length of the supply chain and disproportionately harms low-margin firms. Gross receipts taxes are a prime example of tax pyramiding in action. .
The CST reductions account for the largest share of the cuts and nearly all of the permanent reductions. They are a welcome improvement to Florida’s otherwise healthy tax climate. As we have noted previously, wireless taxes typically hit low-income users the hardest, an alarming fact given over 56 percent of all poor adults had only wireless service in 2013. This change will ultimately make Florida a more attractive location for businesses and taxpayers.
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