Paxety Pages

The centerpiece of the plan, trading homestead property taxes for increased sales taxes, is the most radical feature of the plan, and in the end, the most problematic. It raises questions of tax equity, stability and administration as well as significant issues of economic competitiveness and the effect on Florida’s business climate.

• It is inequitable to exempt one large class of taxpayers from a significant source of government income, while increasing another tax that everyone pays to replace it.
• It would be a significant tax increase on people that do not own homestead property.
• It would replace a proportional tax with one that is more regressive.
• It would increase taxes for business, which have already been bearing the brunt of massive property tax increases. It will cut the cost at one end, for homesteaded homeowners, but this tax shift will add tremendous costs to business inputs, increase the cost of doing business in Florida, and make the state far less economically competitive with our neighboring states.
• Florida would have the highest state sales tax rate (8.5%) in the nation and the total rate would be as high as 10% in some counties. This would

1.           Make Florida retailers less economically competitive with other states,
2.           Make Florida more expensive (and less desirable) for tourists
3.           Hasten the eroding of Florida’s sales tax collections from Internet and other remote sales, and
4.          Create some major enforcement issues. With sales taxes that high, people will search for ways to avoid them.

• The increased sales tax rate would have an impact on current state sales tax collections.
• Increasing the state rate to 8.5% will likely result in a reduction in the revenue produced by the current 6% tax rate.
• How would the sales taxes be distributed back to the local government? If all local governments were held harmless (get the same dollar amount or the same proportion of total sales tax that jurisdiction got from property taxes), some local areas would be subsidizing the cost of local government in other areas. Any other method would be a major political battle and would create winners and losers.
• It could have an impact on local governments’ bond ratings. By replacing a large source of revenue that may be increased locally with one that locals have no ability to increase, a government’s tax capacity would be reduced. Bond rating agencies consider tax capacity a major factor in a credit rating. A lowered rating increases the cost of long term debt,which is most often used to finance local infrastructure such as roads, bridges, and jails.

• It would reduce local flexibility. While local governments have the ability to adjust millage rates, they would have no ability to change the state sales tax rate.

• Without a limit on overall local revenues, the plan will surely result in increases in other local taxes and fees, including special assessments, impact fees and charges for services.

Florida Tax Watch goes on to discuss the Governor's plan and the plan proposed by the Democrats.  In the end, FTW finds all of the plans need more work.  It proposes:

Florida TaxWatch recommends that the 2007 Legislature work to provide smart, meaningful and equitable property tax relief during this session. However, the Legislature should not attempt major reform of the property tax system through proposed constitutional amendment this session, especially by calling a special election in 2007.

This approach would give immediate relief through property tax reductions for all taxpayers and allow the Taxation and Budget Reform Commission to continue the debate on property tax reform and fully deliberate and examine the options, with an eye toward comprehensive, nonpolitical solutions.

To achieve the first step , property tax relief, Florida TaxWatch recommends that the Legislature should require all cities, counties and special districts to roll-back their taxes, similar to what the House proposed, but on a smaller scale. Instead of going all the way back to 2001 (and adjusting forward), the Legislature should require local governments to reduce their rolled-back rates for next year by 10%. This would give taxpayers a real tax cut of approximately $1.8 billion. To reward local governments that have shown fiscal responsibility, the required reduction could be the lesser of 10% or a two-year roll-back of rates (adjusted forward as in the House plan).

Secondly, the Legislature should find as much state revenue as possible to buy down the Required Local Effort (RLE). RLE is the millage rate the state requires school districts to levy in order to participate in Florida’s school funding program. The increase in the amount of RLE mandated by the Legislature has been a significant part of Floridians’ increasing property tax burden and therefore the state should contribute to relief. Reducing this burden provides equitable relief to all taxpayers.

In order to maintain school funding, the state would have to make up the reduced RLE revenue. This is shaping up to be a tough budget year. But this needs to be done even if the Legislature has to use non-recurring general revenue. The state will be asking local government to tighten their belts to provide property tax relief so the state should do the same and provide a minimum $1 billion RLE reduction. Every $1 billion in reduced RLE is $1 billion of direct property tax relief, giving taxpayers an average 8.1% reduction in their total school property taxes (a 13.5% reduction in RLE taxes).

Thirdly, the Legislature should propose a $25,000 exemption for tangible personal property. This is one constitutional proposal that could be offered now, as there is a broad consensus on it. Florida TaxWatch has long been a proponent of exempting small business from tangible personal property taxes and we commend the Governor for recommending this. Businesses have borne the brunt of Florida’s property tax increases. This will help small businesses cope with the large property tax increases they have experienced. Also, complying with the law creates a lot of work for both the public and private sector with (in the case of small businesses) relatively little return.

Other statutory improvements that can be achieved this session include enhancements to the Value Adjustment Board process and the Truth-in-Millage notices. With the Legislature providing property tax relief this year, the Taxation and Budget Reform Commission (TBRC) can turn its attention to reforming the system and Save Our Homes. The TBRC held its first meeting last week and it has the ability to take proposed constitutional amendments directly to the voters.