Sales taxes stir a fight

This time, the battle is in the budget reform commission.

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

TALLAHASSEE - The battle lines have been drawn once again on the future of Florida's sales tax system, and they look very familiar.

On one side is John McKay, a Bradenton real estate broker and former Senate president who has argued for years that Florida's sales tax base is much too narrow for such a big state.

McKay wants to expand the sales tax base by closing exemptions and taxing some services, using the new money to eliminate local property taxes that pay for schools, reducing property owners' tax bills by 40 percent or more.

On the other side are many of the same business interests who have fought McKay in the past, mobilizing once more to stop him and his allies in their tracks. They say taxing services or closing exemptions would shift a bigger chunk of the sales tax burden to businesses, put Florida at a competitive disadvantage with neighboring states and create a bureaucratic nightmare.

The battleground for these clashing forces is the Taxation and Budget Reform Commission, a panel of 25 prominent citizens formed every two decades to comprehensively study the state's tax system. McKay, a Republican who served as Senate president from 2000 to 2002, is one of its members.

On Friday, the commission's Government Procedures and Structure Committee debated the pros and cons of McKay's plan, and it was obvious that McKay once again will find himself fighting an uphill battle.

At issue are hundreds of exemptions from sales tax for items such as bottled water, charter fishing boats and newspaper advertising inserts, and services that are excluded from the tax code. They include real estate, legal and accounting services, lawn and swimming pool care and taxi and limousine rides.

McKay's plan, subject to approval by voters in 2008, would ask the Legislature to decide which exemptions to repeal, and which services to tax, to create about $9-billion a year in replacement revenue for the eliminating of a state-mandated property tax for schools known as required local effort. The major sales tax exemptions for groceries, prescription drugs, residential rent and electricity, would not be affected.

Broadening the sales tax base, McKay said, is like an investor diversifying his portfolio. It would insulate Florida from the boom-and-bust cycle of a depressed real estate market, the prime reason for state government's current fiscal mess. "If we don't broaden the tax base," McKay said in Friday's workshop, "there's going to be a huge, huge train wreck." He said Florida keeps piling more demands atop a narrow sales tax base, and the Legislature's growing reliance on local property taxes to fund schools illustrates the problem.

"I can't come up with an intelligent or philosophical reason for not taxing certain exclusions, like limousine service," McKay said.

The opponents were led by Gene Adams, a lobbyist for a group called the Coalition to Protect Florida's Economy, which he said speaks for 212,000 employers, including insurance and real estate agents, accountants, printing firms, the Florida Farm Bureau and National Federation of Independent Business. Adams cited studies that show business taxes are higher in Florida than in the Carolinas.

"We are not necessarily a low business-tax state," said Adams, who was joined by spokesmen for Associated Industries of Florida, the Florida Association of Realtors and the Florida Institute of Certified Public Accountants.

Associated Industries of Florida's Jose Gonzalez said his group welcomes a case-by-case review of sales tax exemptions. "Most of these exemptions serve a public purpose," he testified.

Rallying to McKay's cause was another tax commission member, Lee County Property Appraiser Ken Wilkinson, considered a founding father of the Save Our Homes assessment cap on homesteaded property. He said the prospect of a major property tax break would be embraced by taxpayers. But other commission members were openly skeptical.

"No government, state or local, has ever taxed its way into prosperity," said Jacinta Mathis, a West Palm Beach lawyer.

Another member, lobbyist Greg Turbeville, whose firm represents many business clients, said McKay's approach shifts taxation from one group to another. "We're changing who's paying the same amount of tax dollars," Turbeville said.

Nancy Riley, a Clearwater real estate agent, echoed the concerns of Realtors that McKay's plan could result in a tax on real estate commissions.

McKay said the political clout of Realtors means the Legislature would never allow that to happen. "We should not be naive," he said.

While the taxation commission debates eliminating sales tax exemptions, the Legislature is moving in a similar direction. Sen. Mike Haridopolos, R-Melbourne, chairman of the Senate Finance and Taxation Committee, said the panel would begin reviewing sales tax exemptions next month. He emphasized that the effort would be to preserve exemptions that promote the state's economy, not to create more revenue for government programs.