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From Governing’s Supplemental information | Introduction
But before any other state could copy the idea, Florida backed down. The new law included a tax on advertising, and companies that sell it, such as newspapers, radio and television stations, covered the state with anti-tax ads. Significant political turmoil followed, and then-Governor Bob Martinez reneged on his support for the tax. He asked the legislature to rescind the new tax law, which it did. And it doesn’t take a Ph.D. in political science to guess the lesson other states learned.
Florida’s treasury has yet to recover from the debacle. The state constitution prohibits enactment of an individual income tax, so Florida depends on general and selective sales taxes for about three-quarters of its revenue. This, inevitably, means the state is extremely regressive. Meanwhile, corporate taxes have declined, the estate tax is being phased out, and ballot initiatives and court decisions have mandated billions in additional spending. Forty years ago, when the state’s population was about 5 million, tourism provided enough sales tax money to finance most of what the government wanted to do. Now, with triple the population, milking hotel guests and restaurant diners won’t balance the budget anymore. “It’s pretty darn hard to run the 2002 state government on a 1949 engine,” says John McKay, Florida’s former Senate president. The absence of a personal income tax has been an advantage for Florida in one way: It has helped it avoid the roller-coaster fluctuations of states that rely on volatile income tax collections. In fact, unlike most of them, Florida met its 2002 revenue projections, buoyed largely by auto sales from last year’s ubiquitous “0% financing” campaigns, and managed to avoid deficits through November 2002. “Our tax system has performed better than most,” says Dominic Calabro, president and CEO of Florida TaxWatch. “But there are limits to how much you can push it.” Those limits may already have been pushed too far. The 2003 budget includes half a billion dollars in one-time funds. Add in new constitutionally mandated spending for the state’s court system, a high-speed rail network, and a just-passed ballot measure requiring smaller class sizes (at an estimated cost of $20 billion over eight years), and “the storm is on the radar,” says one legislative staff member. “It’s unavoidable.” Some officials are still pushing to broaden the sales tax base, despite the dubious outcome of Martinez’s efforts in the 1980s. “Nobody’s come up with any other answers,” says Larry Fuchs, the state’s former revenue director. In the Senate last year, McKay pushed hard to eliminate almost 100 sales tax exemptions and reduce the overall rate from 6 percent to 4.5 percent with the increased revenue. McKay argued that this not only would bring in badly needed money but also would improve the equity of Florida’s taxes, which hit lower-income residents harder than those who earn more. That plan was opposed by Governor Jeb Bush and defeated soundly by the Florida House, after which McKay tried to get a constitutional amendment on the 2002 ballot to give a permanent legislative commission the authority to review exemptions and eliminate some of them. McKay ultimately lost in a state appeals court, which ruled that the amendment’s description on the ballot didn’t tell voters enough about how it would work. Even if it had gone to the voters, however, there’s little reason to believe it would have been approved. In any case, it seems unlikely that anyone will pick up the torch that burned both Martinez and McKay. “I don’t think our tax system is considered regressive enough that it’s going to spur a change,” says Lois Frankel, former Democratic leader in the Florida House. Much more impressive than the tax structure is the state’s revenue management, which makes heavy use of performance measures and is widely admired around the country. “What gets measured gets managed,” says Jim Evers, director of the General Tax Administration program. Partly as a result of the use of measures, the average number of days needed to resolve audit disputes dropped from 318 in 1995 to just 143 in 2002; voluntary compliance was up to 97.6 percent last year, from 96.8 percent in 1995. Much of Florida’s improved efficiency can be traced to the use of technology. About 78 percent of the state’s revenues are collected electronically, and an integrated tax information system was scheduled to go online early this year. That should help with audit selection, the one commonly noted fault in the Department of Revenue’s operations. “If we select better audits, we have a better chance of getting money out of them,” says Gerald Johnson, the department’s director of information services. “Right now, too many are a waste of time.” Copyright © 2003, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. Governing, City & State and Governing.com are registered trademarks of Congressional Quarterly, Inc. |
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sked why their states avoid taxing services, legislators from coast to coast respond with a single word: Florida. Back in 1986, a sales tax study commission recommended applying sales taxes to nearly every service in Florida, including those provided by building contractors and lawyers. The legislature went along. Other states watched, realizing that if they could do the same thing, lowering sales tax rates on a newly stretched base of payers, they could solve some of their most pervasive fiscal problems.