Politics

Tax swap plan moves up

Services tax won't make it to the voters, but other changes could.

By Steve Bousquet, Tallahassee Bureau Chief
Published February 26, 2008

ADVERTISEMENT Related links Full list of tax exemptions from the sales tax (PDF) 'Painful' cuts on the table State house hires consultants to examine investment mess [AP photo] Former state Republican Senate president John McKay said excluding services from the sales tax benefits special interests at the expense of other taxpayers. Patricia Levesque supports property tax relief but opposes taxing services. [Handout]

TALLAHASSEE - Florida voters could decide in November on a huge property tax break, but they'd also have to agree to a higher sales tax rate and the elimination of some sales tax exemptions.

But one thing voters won't be asked to approve as part of the tax swap plan: a highly controversial sales tax on professional services, such as lawyers, accountants and hairdressers.

In the most significant vote yet for the Taxation and Budget Reform Commission, a committee of the commission backed the retooled tax swap Monday on a vote of 11-0, giving it a surge of momentum as it heads to the full commission for the final vote. Support of at least 17 of the commission's 25 members is needed to put the plan on the November ballot.

Under the plan, which would require 60 percent voter approval, the Legislature would have to wipe out $8-billion a year in mandated property taxes for public schools by 2011. School taxes account for about 27 percent of property taxes statewide.

The ballot measure would also require lawmakers to recover the $8-billion from various sources, including increasing the 6 percent statewide sales tax by up to a penny, cutting spending, and eliminating up to $4-billion in sales tax exemptions for items such as aircraft parts, boiler fuels, bottled water, charter fishing boats, electricity used in manufacturing and livestock feed.

But the plan would also allow lawmakers to reduce their requirement through an accounting sleight-of-hand: They could dedicate any increased tax revenue attributed to economic growth against the $8-billion requirement.

Monday's vote capped weeks of deliberation by the Finance and Taxation Committee, which agreed on cutting taxes, but not on whether to resort to a services tax. Some said the Legislature may take the tax swap as a green light to make drastic cuts in spending.

"If you want the Legislature to modernize the tax system, then you can't give them an out by letting them cut the budget," said commission member John McKay, a Bradenton real estate broker and former state Republican Senate president who has long argued that the state's tax base is insufficient. He said excluding services from the sales tax benefits special interests at the expense of other taxpayers.

It was his original tax plan - to apply a services tax and reduce sales tax exemptions in exchange for cutting school taxes - that was amended Monday on a 6-5 vote.

The retooled tax swap was sponsored by Patricia Levesque, a small business owner and director of former Gov. Jeb Bush's educational foundation, who supports property tax relief but opposes taxing services.

Powerful forces that had lobbied against the services tax were out in force Monday. They testified that taxing services would burden small businesses, be difficult to collect, would tax business inputs and damage Florida's competitive standing with other states that don't tax services.

Susan Story, CEO of Gulf Power in Pensacola and the committee's chairwoman, said 90 percent of Florida businesses have 20 or fewer employees.

"I think more small businesses will fail with a services tax," Story said. "That is why I am scared of a services tax."

McKay said opponents undermined his plan with fear-mongering and "disinformation."

Before the panel voted, two economists offered vastly different assessments of the effect of a services tax. Hank Fishkind, hired by McKay, called the school property tax "a bad tax - a state property tax in disguise" - and said that eliminating it would spur economic growth.

Tony Villamil and Robert Cruz, of the Washington Economics Group, said taxing services would mean higher prices for services; and that an estimated $650-million of the property tax break would flow to people who are not Florida residents.

Besides Levesque and Story, committee members who opposed taxing services were Publix executive Barney Barnett; Circuit Judge Bruce Kyle, a former Republican legislator from Fort Myers; Randy Miller, a lobbyist for the Florida Retail Federation; and Brian Yablonski, a St. Joe Co. executive.

Voting with McKay were lawyer-lobbyist Martha Barnett, telecommunications executive Julia Johnson, lawyer Jim Scott and Lee County Property Appraiser Ken Wilkinson.

Florida's lone experience with a services tax was a political disaster. The 1987 Legislature enacted an across-the-board tax that it repealed eight months later after an uproar. In its place, lawmakers increased the statewide sales tax from 5 cents to 6 cents.

"A services tax is not a good economic idea," said Gene Adams of the Coalition to Protect Florida's Economy, a group representing nearly two dozen professions.

The taxation commission, set up in the state Constitution, meets every 20 years to recommend budget and tax changes for Florida.

Steve Bousquet can be reached at bousquet@sptimes.com or 850 224-7263.

What's next:

The full 25-member tax panel will vote on the proposed tax swap, probably in March. Support from 17 of 25 members is needed to place it on the Nov. 4 ballot. Sixty-percent of voters would have to approve the measure for it to take effect.

By the numbers:

A tax swap proposal before Taxation & Budget Reform Commission could require the Legislature to find $8-billion a year in revenue to make up for the elimination of school property taxes. Here's where the money could come from:

- Up to 1 cent sales tax increase: $3.9-billion

- Elimination of sales tax exemptions: $4-billion

- Additional spending reductions: Unknown

- Increased revenue from economic growth: Unknown

[Last modified February 25, 2008, 23:33:23]