Corporate Close-Up: Proposed Florida Corporate Tax Cuts Buck National Trend Heading Into Legislative Session

The Florida Legislature began its 2017 legislative session on Mar. 7 facing a myriad of competing legislative priorities, including spending on education, healthcare and clean water, among other issues. Amidst these challenges, Gov. Rick Scott (R) and the heads of the Legislature have different ideas about how to fund these initiatives, and cuts to corporate taxes are at the center of the controversy.

Scott proposed his 2017–2018 fiscal budget on Jan. 25, as originally reported by Chris Marr in the Daily Tax Report: State. The budget includes two key tax cuts aimed at businesses:

  • a 25 percent decrease in the commercial lease tax rate for 2017 that would return $454 million in taxes to Florida businesses and
  • increasing the threshold on the corporate income tax exemption from $50,000 in income to $75,000.

As compared to other states controlled by Republican lawmakers and with the potential for a significant overhaul of federal corporate taxes, Scott’s proposed tax cuts are fairly modest and leave in place the core of Florida’s corporate and commercial rent tax system.

The commercial lease tax has long been a target of business interests in Florida as it is the only state to employ such a tax regime. Steve Hogan, a shareholder with Ausley McMullen told Bloomberg BNA that his practice “often see[s] landlords that fail to collect the tax and tenants that fail to pay it. This is largely due to the fact that they do not know that the tax is imposed on the amount of the commercial lease. Of course, in an ideal world every landlord would have counsel that warns them of this issue, but this is not always the case.”

In his budget proposal, Scott indicates that the increase in the corporate tax exemption will eliminate Florida income tax for 22.5 percent of Florida businesses. The exemption was increased to $25,000 in for tax year 2012 and $50,000 for tax years 2013 and after. An expansion to $75,000 would leave fewer than 20 percent of Florida businesses subject to the tax, and the governor’s office estimates that the increase in the exemption would reduce business taxes by $15 million annually.

Currently, the Florida corporate income tax is imposed on corporations conducting business or deriving income from sources in the state and is assessed at a rate of 5.5 percent. Gov. Scott’s proposal projects corporate tax receipts of about $2.24 billion for fiscal year 2017–2018, meaning that the proposed tax cuts will not take a serious bite out of the corporate income tax.

However, these proposals may face some pushback. It has been widely reported that Florida House Speaker Richard Corcoran (R) is slated to run for governor in 2018, and he drew a “combative tone” at the start of the 2017 legislative session, according to the Palm Beach Post. Corcoran has his own ideas, including targeting the property tax for rate cuts as Florida home values rise.

Additionally, the projected budget is extremely tight, and competing priorities amongst lawmakers may mean little in the way of tax cuts for business or commercial transactions, as Marr’s article detailed. Essentially, constituents in the business community recognize that they may not get everything that they want in this session.

Continue the discussion on BNA’s State Tax Group on LinkedIn: Will the Florida Legislature manage to find common ground with the governor on business tax cuts in the current legislative session?

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