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Enacted in the '70s, outdated over time

Tied to the IRS code, the state's corporate tax base took a hit each time it went along with new federal laws.

By SYDNEY P. FREEDBERG, Times Staff Writer
Published October 26, 2003

Eighty years ago, long before real estate booms and waves of tourists changed it from a national backwater to a mega state, Florida consigned itself to a tax system that favors business and well-to-do residents.

In 1924, the state's voters approved a constitutional amendment to ban a personal income tax.

And in the years that followed, governors and legislators tried to attract and keep businesses and wealthy residents with a permissive corporate code.

Increasingly, individual Floridians found themselves digging deeper into their wallets to pay for the state's explosive growth.

State and local governments, left without a personal income tax and a corporate income tax, had to rely more and more on increases in sales taxes and property taxes to build schools and roads and keep the water clean and the streets safe.

By the late 1960s, the state's tax system was badly out of kilter.

"The banks in Florida were getting the cheapest tax ride," said Ralph Turlington, speaker of the Florida House of Representatives in 1967-69.

Turlington proposed a corporate income tax. It would, he said, help the state deal with spiraling budget problems while forcing companies to pay more for public services they used: schools that educated their future workers, roads that got their goods to market, courts that enforced their business contracts.

Corporate lobbyists killed the proposal.

In 1970, however, a state senator who had denounced Turlington's idea changed his mind shortly after he announced his bid for governor. Reubin Askew of Pensacola urged voters to elect him so that he could pass a "fair-share tax program," including a corporate income tax.

"We Floridians are tired of bearing the burden of unrealistic taxes while the favored special interests get by almost scot-free," Askew declared.

Opponents of the proposed tax said it would drive up prices. Askew countered with statistics showing that companies were charging Floridians the same prices for cars, cereal and other goods that consumers were paying in the 43 states that already levied the tax.

To the surprise of the political establishment, Askew won the election, beating better-known rivals in the Democratic primary and then defeating the incumbent, Republican Gov. Claude Kirk.

A year later, in November 1971, voters amended the state Constitution to authorize a tax on corporations and "other artificial entities." The amendment included a limit of 5 percent of net income unless the Legislature approved an increase by a three-fifths vote.

Askew then pushed the tax through the Legislature. The new revenue enabled the governor and the Legislature to remove the sales tax on household rent and utilities.

To stay corporate friendly and keep compliance costs low, the Legislature tied the new tax closely to the Internal Revenue Service code, a practice known as "piggybacking."

Piggybacking proved to be a major problem. Each time Florida went along with a new law passed by Congress, the state saw its own corporate tax base erode.

"The federal code became so bloated with loopholes, tax dodges and overseas credits that they undermined the collection of state corporate taxes," said Gregory Johnson, Askew's key aide on the tax.

On top of the federal changes, successive legislatures carved their own loopholes, credits and deductions for favored industries and individual companies.

As a result, the corporate tax has never generated much revenue for the state. Though the tax rate was increased to 5 1/2 percent in 1984, tax collections have dwindled as the Legislature repeatedly tinkered with tax laws and rules.

In 1992, a citizens commission on budget and tax reform recommended an overhaul, but the report gathered dust.

Govs. Bob Graham, Bob Martinez and Lawton Chiles all tried to close some of the corporate loopholes. All three failed.

Meanwhile, the state attempted, with limited success, to adapt to major changes in the corporate world.

"It's been a mad scramble to keep up with companies that no longer conduct business like they did when the laws were written," said Larry Fuchs, who served as the state Department of Revenue's executive director from 1992 until 2000.

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