In the three decades since voters enacted a business income tax, Florida has more than doubled in size and business profits have never been higher. So why, a new Senate report asks, did corporate taxes fall while corporate profits rose?
The answer is that companies hired lawyers to find ways to duck their tax obligations, so much so that the businesses left paying the tax are being played for fools. In 2001, according to an analysis by Times writer Sydney P. Freedberg, just 5,303 of the state's 1.5-million businesses paid 98 percent of the tax. Nine of every 10 businesses paid nothing at all. Verizon Communications Inc., with $6-billion in pretax earnings, was among them.
"It just doesn't look fair, and it isn't," says Senate President Jim King, a Jacksonville businessman. "I don't mind doing my fair share, but it bothers me that others are getting a free ride on the backs of those who are paying."
The Senate Finance and Taxation Committee will get its first look at the report on Thursday, and the list of tax tricks is lengthy. Take the exemption for companies that reorganize as so-called "pass-through entities." Their new status allows them to count their business profits as personal income, except that Florida has no personal income tax, which means no profit is taxed. The annual loss to the state is estimated at $700-million. There is also the game of creating a shell company in a state with no corporate income tax, and then pretending ssets belong to the shell company. That's one of several income-shifting ploys that cost Florida as much as $500-million. There is also the "nowhere income" ploy that multistate companies use by shifting income across borders. Cost to Florida: $18.7-million.
The report reminds lawmakers that "corporations that operate entirely within Florida cannot take advantage of these strategies." It also points out, vividly, the consequences to all taxpayers who are left to make up the difference. Corporate taxes used to provide almost 10 percent of the state general government budget; now they contribute less than 5 percent. If the corporate tax had only kept up with personal income growth over the past 23 years, the report says, it would now be providing $1-billion more to the treasury each year to help run schools, build roads and operate prisons. Repeat: $1-billion lost to corporate tax dodges.
Even more disturbing than the findings of this report is the indignity of a governor shrugging his shoulders and insisting "there's nothing wrong" with businesses that "take advantage of all tax benefits allowed by law." Gov. Jeb Bush, who has refused to answer direct questions about the tax games, used a letter to the editor to in effect portray the chicanery as a form of tax policy, boasting that the state is "business-friendly" and that "this philosophy is working."
This "philosophy" may work for businesses willing to move their corporate addresses to Bermuda to hide profits from taxation, but it is an insult to all other taxpayers. Corporate attorneys like to describe these practices as "tax avoidance," as though that somehow legitimizes them. But this is not akin to itemizing mortgage interest on a federal income tax return. This is the creation of entire business structures that serve no legitimate purpose other than to evade taxation. This is not fair play, and a governor who can't distinguish the difference is only inviting more cheating.
