Some hard truths about state's tax on intangibles
© St. Petersburg Times,
An "intangible" is something you can't touch, but is real anyway.
Love. Honor. Reputation. Pride.
But when it comes to paying taxes in Florida, the word "intangible" means stocks, bonds, money-market accounts, and so on.
If you own enough of those things -- more than $20,000 for a single person, or $40,000 for a couple -- then you have to pay the state an annual "intangibles tax." The tax is $1 for each $1,000 of value.
(You don't pay the tax on a 401(k), an IRA or another tax-deferred savings plan.)
How many people must pay? According to the state, the number this year is about 736,000 people and 163,000 businesses. They will pay just under $500-million.
Even before the current budget mess, this tax was a hot political issue in Florida.
Is it a tax on "the rich," to make sure they are paying a "fair share"?
Or it is an unwise tax that punishes even middle-class people for saving money?
Patti S. Patrick, who is an accountant in Spring Hill, makes a case for the latter. She told me how a lot of her retired clients feel: "I didn't have a retirement plan. I didn't have an IRA. I saved my own money and put it into stocks, bonds and mutual funds so I would have something to lean on when I retired."
Some of her clients who pay the intangibles tax have an annual household income of as low as $20,000. If they do earn dividends, they pay income tax. If they have a major expense and sell assets to pay for it, they pay capital gains tax. Whether their investments go up or down, they pay the intangibles tax.
In contrast, many of us in the yuppie generations squirrel away money tax-free. Even when we retire, we will pay taxes only on the portion that we withdraw. So, exactly who should be complaining about "the rich"?
"Besides," she concluded, "the REALLY rich guys set up a trust outside our state, preferably in Delaware, that doesn't tax anything, at the end of December. Then they bring it back in January and pay no tax on it."
Florida's governor and Legislature agree with Patrick. They have made annual reductions in the tax. Starting next Jan. 1, the exemption will be expanded more than tenfold. The first $250,000 of assets for a single person, and $500,000 for a couple, will be tax-free.
The change means that roughly two-thirds of the Floridians who now pay the tax now will no longer have to pay. The state will lose an estimated $130-million this year.
End of story?
No. As you know, Florida is now in a terrible budget crisis. The shaky economy means sharp drops in tax collections. The governor has called the Legislature into session for the week of Oct. 22 to cut spending.
These cuts will be painful. Everyone will suffer, probably even schools and social services. Pressure already is mounting on the Legislature to delay the changes in the intangibles tax. Framed in the harshest terms, here is the argument: You're going to cut money for little kids, but preserve a tax break to the people who already have the most?
Listen: Patti Patrick is right. The intangibles tax is just as bad as the critics say it is. It punishes the act of saving money. Somebody with a life's savings of as little as $20,000, which is when the tax kicks in, is hardly "rich." Judged by itself, the act of raising the exemption does not seem to me to be unjust.
Here is the trouble, though. We can't judge it by itself, at least not right now. We have to judge it against the rest of the state's budget problem. The real problem is that Florida has a foolish tax system that relies too much on the retail sales tax. Every slump in the retail economy throws us into crisis.
We live in a state that charges even the poorest citizen 6 cents of tax on the dollar for their childrens' shoes, for the clothes on their back, for the light bulbs over their heads -- but a state that does not tax the transactions of the wealthy or big business, the sales of advertisers, or accountants, or lawyers, or architects, or landscape designers.
So the question is not whether a particular aspect of Florida's tax structure is unfair. The question is where it ranks in line.
-- You can reach Howard Troxler at (727) 893-8505 or at email@example.com.
490 First Avenue South St. Petersburg, FL 33701 727-893-8111
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