Florida CIT Changes Possible in 2004  
On Thursday, November 20, 2003, the Florida Senate Committee on Finance & Taxation considered a report entitled “Why Did Florida’s Corporate Income Tax Revenue Fall While Corporate Profits Rose?” prepared by Committee staff. The conclusion that Florida CIT revenues fell is supported by comparing net revenues to Florida personal income, U.S. corporate before-tax profits, and Florida general revenue and is problematic. It is not clear why Florida’s corporate income tax collections should track personal income; it is not a levy against personal income. As the collections relate to corporate profits, while Florida CIT revenues were as high as 21% in 1986-87, they have moved up and down in a fairly tight range, namely between 14% and 16%, over the last nine years. They were at 14% in earlier years as well, viz. 1983-84 and 1990-91. Florida CIT collections have more or less steadily declined as a percent of Florida general revenue, but the absolute collection numbers do not track that movement, so some of the explanation is to be found in other segments of the GR pie such as sales tax collections.

The reported decline is attributed to the following factors, among others: 1. Non-taxation of Subpart F income; 2. The 100 percent tax credit for contributions to qualified scholarship funding organizations (currently a $50 million pot of tax credits); 3. Non-taxation of S corporations (Florida has no personal income tax that would reach distributions to shareholders), an alleged $700 to $850 million “loophole,” master limited partnerships and LLCs; 4. Use of Passive Investment Companies and transfer pricing to shift income to non-tax jurisdictions (the report alludes to and offers examples of “tax avoidance opportunities created by separate reporting”); 5. Absence of a throwback rule to tax “nowhere income;” 6. Aggressive classification of royalty and other income as non-business income allocable to a low- or non-taxing jurisdiction’ 7. Offshore incorporation; and 8. Changes such as bonus depreciation in the Internal Revenue Code.

The Report recommends the adoption of combined reporting to nullify the use of PICs and other tax planning strategies, the enactment of a throwback rule, and an aggressive redefinition of business income intended to capture licensing income. It also suggests that the Legislature consider taxing S corporations and LLCs. It does not indicate how double taxation of corporate partners in LLCs would be avoided.

The chairman of this Committee resigned just as the report was aired. While it is not clear that any of the recommendations will be implemented, the Florida Senate has been considerably more open to revenue-generating changes in Florida’s tax codes over the last couple of sessions. Bills and further hearings considering possible increases in Florida corporate income taxes are likely.

Posted: 2003-11-24 00:00:00.0

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