But after the Orlando Sentinel began asking questions about it, the business group that helped draft the tax break -- the Florida Chamber of Commerce -- said it has decided to stop lobbying for the measure.
Carolyn Johnson, a lobbyist for the chamber, said her organization dropped the issue after state economists determined recently that it could cost the state nearly $50 million a year.
“We decided to take a step back,” Johnson said. “We just thought this wasn’t the right year or the right time."
But one House member who has been working with the chamber said it is too soon to say for sure what will happen. The Florida Legislature opened its annual 60-day session on Tuesday -- and the Legislature’s Republican leadership sometimes waits until the very last minute to pass tax breaks for favored companies, industries or interest groups.
“I wouldn’t say it’s dead in the water,” said Rep. Tommy Gregory, a Republican from Sarasota. “It’s too early in the session.”
The chamber’s proposed tax break would expand an 8-year-old corporate incentive that even some supporters say has failed to work so far.
Under the existing law, enacted in 2011, companies that do at least $250 million in capital investment in Florida over two years can choose to use a different formula to calculate their state corporate income tax bill.
Typically, when deciding how much profit a big company earns in Florida -- which determines how much state income tax that company owes -- the state essentially averages the percentage of its sales that are made in Florida, the percentage of its employees who work in Florida, and the percentage of its property that is in Florida.
The alternative formula ignores the company’s employees and property and bases its Florida income tax bill solely on the percentage of its sales that occur in Florida.
Known as the “single sales factor,” the formula is a boon for companies that have lots of operations in the state but that sell much of their products or services in other parts of the world.
The tax break that chamber lobbyists and House staffers have written would reduce the amount of capital investment a company must make to qualify from $250 million to $100 million.
Pro-business groups that lobbied for the 2011 law predicted it would stimulate new capital investment and job growth. There’s little evidence that it did.
Just five companies qualified for the tax break: NextEra Energy Inc., the parent company of Florida Power & Light; Emera Inc., the parent company of Teco Energy and TECO Peoples Gas; phosphate miner Mosaic Co.; grocery chain Publix Super Markets Inc.; and telecom Verizon Communication Inc. And the companies met the $250 million spending requirement largely on spending they already planned or would have done regardless of whether the tax break had been passed.
NextEra and Mosaic both said they qualified based on projects they were already working on. Publix said when it began pursuing the break that it would qualify through its normal cycle of building new grocery stores, renovating existing ones and expanding warehouses. Emera, which initially qualified as TECO Energy Inc., said it met the test through “typical capital expenditures” to maintain and improve its power infrastructure. And Verizon said it qualified on general investments in its wireless and wireline businesses, as well as through the construction of an office in Lake Mary, for which Verizon received millions of dollars in separate tax incentives.
Another prediction about the new law proved to be wrong, too.
Throughout most of the 2011 session, the proposal included a restriction: Any company that qualified and decided to use the single sales factor would have to continue using the same formula for at least four consecutive years. The idea was to provide some stability for the state by preventing a company from switching back and forth between the normal formula and the new one each year, based solely on whatever lead to a lower tax bill.
But just before the bill was passed -- during closed-door budget negotiations -- lawmakers removed that restriction. Former Senate President Don Gaetz, R-Niceville, later defended the move, saying the restriction was unnecessary because companies wouldn’t go through annual accounting “convulsions.”
It turns out that’s exactly what they’re doing. A spokeswoman for Emera, for instance, said that company has used the single sales factor in two years since it became eligible to do so in 2013. The company has switched between formulas over differences of as little as 1 percent of its total tax bill.
Other companies appear to be going back and forth, too.
“We’ve seen by the folks who have qualified currently that that swings from year to year,” Robert McKee, the chief economist at the Florida Department of Revenue, said during a meeting of state economists to evaluate the new legislation.
David Brunori, a senior director at the accounting firm RSM, called it a “a little funky” to let companies choose which tax formula they are going to use each year. He said it is not very challenging for them to figure out which approach allows them to pay less tax.
“Those are all just mathematical calculations,” Brunori said. “And smart people and big companies usually have smart tax advisers.”
Florida lawmakers choose to keep corporate tax payments confidential, and none of the five companies currently allowed to use the single sales factor would say how much they have saved under it. But there are some hints that the savings may be substantial, at least for some of the companies. For instance, in disclosures to investors, Mosaic says its spending on state income taxes -- in all states, not just Florida -- has dropped by tens of millions of dollars in the past few years. The company declined to provide more precise figures.
Supporters of the 2011 law acknowledge that it hasn’t had the impact they hoped. But they argue that the solution is to make the single sales factor easier to get.
It’s not clear how many more companies could do so, though, if the capital investment requirement was lowered to $100 million. The state economists who examined the proposal estimated that fewer than three dozen companies would meet the test and choose to use the alternative formula.
They didn’t disclose specific names. But Melbourne-based L3Harris Corp. lobbied for the state’s original single sales factor law, according to people involved at the time. And other defense giants with big physical footprints in Florida -- including Lockheed Martin Corp. and Northrop Grumman Corp. -- have lobbied for single sales factor laws in other states.
Economists ultimately concluded that the proposed tax break written by chamber lobbyists and House staff would likely cost just under $50 million a year. And while House Speaker Jose Oliva, R-Miami, has promised to pass substantial tax cuts this year, expanding the single sales factor could take a big bite out of the roughly $60 million to $80 million that the House is budgeting for tax cuts, according to an email between House staffers and lobbyists.
Even if the tax break doesn’t pass this year, Johnson, the chamber lobbyist, said the group may push for it again in future years.
“I think we’re always interested in ways to make Florida more competitive,” she said.
©2020 The Orlando Sentinel (Orlando, Fla.). Distributed by Tribune Content Agency, LLC.
