Politics

Is a services tax the answer to property tax dilemma?

By STEVE BOUSQUET, Tallahassee Bureau Chief
Published November 16, 2007

TALLAHASSEE - In the never-ending debate over how to change Florida's tax system, the upcoming property tax vote is hardly the only game in town.

A powerful statewide panel today will tackle anew the familiar question of whether to ease the property tax burden by shifting some of it to the sales tax, and taxing services that are now tax-free, which critics say mostly benefits businesses and their clients.

The question comes before the 25-member Taxation and Budget Reform Commission and its 11-member committee charged with scrutinizing the tax code. The commission is appointed every two decades by the governor, House speaker and Senate president.

The smaller group also will study whether to apply the sales tax to Internet sales, the fairness of the property tax system and local government spending caps.

Leading the charge to end some sales tax exemptions is John McKay, a Bradenton real estate broker and former state Senate president who tried during and after his presidency to expand the tax base.

He faced a storm of business and political opposition. The exemptions and exclusions, worth a combined $35-billion a year, remained intact.

But despite those setbacks, McKay sees an opening because of revulsion over a property tax system skewed by the Save Our Homes assessment cap that gives huge breaks to homesteaded property owners at the expense of second-home owners, snowbirds and businesses.

"There's been a transfer of taxation from homesteaded property to all these other properties that has caused a very rapid escalation in their property tax bills," McKay said.

His proposed constitutional amendment would require the Legislature to choose and repeal exemptions and exclusions from sales tax and use the money to replace local property taxes that support public schools, or about $9-billion this year.

For taxpayers, it would amount to a property tax savings of 30 to 45 percent.

But the proposal is a long way from reality.

Even if it garners support from a majority of the 11 committee members today, it would need support from two-thirds of the 25 commission members to reach the November 2008 ballot, where it would then need approval from 60 percent of voters to become law.

McKay's first of many roadblocks is that the taxation panel has many probusiness members who defend the current system, such as Randy Miller, executive vice president of the Florida Retail Federation.

Miller, a former state revenue director, agrees that all exemptions should be reviewed and that "stupid" tax breaks for things such as ostrich feed need to be eliminated.

But he said it would be foolish for Florida to tax electricity in manufacturing, one of hundreds of exemptions in the code.

"Don't kill them initially," Miller said. "Call them up and look at them. You should not knock them out with a broad brush simply because you're on a revenue search."

Others oppose McKay's tax swap for another reason. They say property taxes are a more stable source of revenue than sales taxes, which ebb and flow with the housing market - a prime reason for the state's current budget mess.

"When you're talking about sales tax, you're not talking about a stable, reliable source of revenue," said Sen. Gwen Margolis, D-Aventura, a nonvoting tax panel member.

Chief Financial Officer Alex Sink said in a speech in Largo Thursday that she favored putting a expiration date on all sales tax exemptions and forcing the Legislature to justify each one.

McKay's proposal would not touch the most sacred sales tax exemptions for food, prescription drugs, health care, residential rent and electric bills. Nor does he seek to apply the sales tax to lawyers or advertising, two services that pack immense political clout.

But McKay cites tax breaks for courier services, pro sports franchises, adult escort services, lawn care and swimming pool cleaning as nonsensical. He says it makes more sense to tax services.

A nonpartisan research group, the LeRoy Collins Institute, agrees that it makes more sense to broaden the tax base and lower the tax rate.

"What you really have to do is restructure the sales tax so that it covers more of the economic activity," said former state Sen. Curt Kiser, the institute's chairman.

What's also driving McKay is a belief that many tax breaks are the result of lobbying by special interests, rather than a comprehensive public policy.

"If there's an exemption, that means somebody isn't paying taxes on their product, which results in the rest of us picking up that part of the tax burden," McKay said.

Times staff writer Christina Rexrode contributed to this report.

[Last modified November 16, 2007, 00:35:08]