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Lawmakers Propose More Sales Tax, Less Property Tax

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By CATHERINE DOLINSKI, The Tampa Tribune

Published: November 16, 2007

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TALLAHASSEE - Want your property taxes to "drop like a rock?" How much are you willing to pay for it?

The concept of paying more in order to pay less is gaining ground among lawmakers and others who want to drop your property taxes even as state and local budgets are tightening.

With a stalled housing market accounting largely for the plunge of state revenue, conservatives argue that aggressive property tax cuts will act as an economic salve. But lawmakers and Gov. Charlie Crist failed to deliver on his rock-dropping promises during last month's special session on property taxes. The resulting proposed constitutional amendment, which will appear on the Jan. 29 ballot, will deliver an average statewide savings of only $240 for each owner with a homestead exemption, if it passes.

That outcome has fueled ongoing talk of swapping more sales tax for less property tax. How to achieve that, however, divides even fiscal conservatives within the same party, and threatens to short-circuit any legislative deal. The concept emerged and then died during last month's session, just as it had during the regular spring session.

That's why many state leaders hope the state Taxation Budget and Reform Commission will finish the job the Legislature started. Today, a key committee of the powerful commission will consider mandating reviews of existing sales tax exemptions and proposing an alternative source of revenue to replace a portion of the property tax.

It may sound simple. As the past 20 years of Florida's political history shows, it's anything but.

Repealing Exemptions Difficult

The Taxation Budget and Reform Commission, a group of 25 influential citizens appointed by the governor and Legislature, meets only once every 20 years. It possesses the power to place constitutional amendments on the ballot without consulting the Legislature. Four lawmakers also sit on the commission, but as nonvoting members.

Among the commission's more vocal members is John McKay, who has tried before to repeal the state's long list of sales tax exemptions, ranging from religious items to cell-phone towers to movie-production equipment.

Last week, McKay filed a proposal with the commission to eliminate the portion of property tax that pays for education. McKay would replace that money, which totaled $12.3 billion last year, by eliminating existing tax exemptions and extending the sales tax to professional services. The commission's Finance and Tax committee is considering related proposals.

Broadening the sales tax base by eliminating special-interest exemptions would adversely affect few regular citizens, McKay said. But he could not convince lawmakers while he was Senate president in 2000-02 to repeal the tax breaks.

Those lawmakers would have remembered the backlash against former Gov. Bob Martinez, after he convinced the Legislature in 1987 to tax the sale of services as well as products. That move created such a furor that lawmakers reversed their decision that same year. Martinez lost his bid for re-election three years later. Today, services ranging from financial planning to professional escorts remain untaxed.

House Speaker Marco Rubio, R-West Miami, said he does not oppose reviewing exemptions, but warned that sunsetting them would create harmful economic uncertainties for businesses. House leaders rejected calls from Democrats earlier this year to repeal sales tax exemptions, equating it with a tax increase.

McKay hopes the taxation reform commission will act. "I think there is a recognition on the part of the members that property taxes are a real problem in Florida right now, for everybody. Hopefully they'll see the wisdom of doing this."

Increasing The Tax

Last month, a plan to swap tax revenue made it through committee during a special session on property taxes, before losing out to more sweeping changes proposed by Democrats.

That plan, said co-sponsor Rep. Kevin Ambler, R-Tampa, would have raised $4 billion in a single year by adding 1 cent to the sales tax, offsetting an equal cut to the schools portion of property tax.

Watch for the "penny swap" plan to re-emerge this spring.

"I am completely committed to the proposal I put in," Ambler said recently. "That one penny represents an average of a 15 percent to 20 percent property tax cut across the board."

Florida isn't the only state looking at the sales tax as a way to give property tax relief, said Burt Weisen, an economic policy analyst for the National Conference of State Legislatures.

Lawmakers in Georgia and Idaho are also considering such measures.

But as Weisen noted, the tax systems vary widely among the states. Last year, when South Carolina replaced property taxes with an increased sales tax, the state's sales tax collections per capita ranked 15th among the states in 2004. By contrast, Florida's per-capita sales tax collections rank fourth highest in the nation.

Rubio pushed this spring to raise the sales tax by 2.5 cents to eliminate taxes on all homesteaded property. The Senate balked, and negotiations came to a halt.

"Property tax relief can benefit everybody - even renters," said Sen. Bill Posey, R-Rockledge. "The sales tax is a regressive tax. The poorer you are, the more disproportionate your portion of the tax burden."

Many economic experts have argued the same, but Rubio claims the sales tax is fairer.

"The consumption tax is based on how much you consume; you determine that. The property tax is based on what the government says your property is worth. It's a tax that doesn't adjust for economic reality."

Florida's sales tax is less regressive than that in some states, because Florida has exempted groceries, services and prescription medication, he said.

What proposals come out of the House next spring will depend largely, he said, on whether voters adopt the special-session Constitutional amendment on property taxes on Jan. 29.

The state's sputtering economy, Rubio said, only makes the need for stimulating tax cuts more immediate. While he waits to see what action the budget reform commission takes, he is shopping around for a citizen's petition to support that will aggressively lower property taxes.

Sen. Mike Haridopolos, chairman of the Senate Finance and Tax Committee, is one of several conservative lawmakers who have said they are ready to revisit existing sales tax exemptions.

But, the Indiatlantic Republican said, he would never support repealing exemptions to raise revenue, as some Democrats had suggested earlier this year. Instead, the senator would seek either to repeal exemptions as a means of lowering another tax, or to replace outmoded exemptions with new ones that better stimulate the economy.

Haridopolos also said that despite Senate discomfort with increasing the sales tax, it is time for the chamber to vet fully the House's proposals for some form of tax swapping.

With schools reliant on property taxes, former Senate President Gwen Margolis fears swapping that revenue source for sales tax revenue by any means.

"Property taxes are pretty reliable; we know how much we're going to gather," said Margolis, a non-voting member of the tax reform commission. "Sales tax is not as reliable, because when there's a recession, that money doesn't materialize."

The only safe way to swap those revenue sources, she said, is for the state to promise to shore up any shortfall that could occur from one year to the next.

Rubio said it comes down to a matter of perspective.

"There are some people who believe that government services are so important, they're more important than people's ability to pay for them ... I believe that people's ability to pay taxes comes first."

Reporter Catherine Dolinski can be reached at (850) 222-8382 or cdolinski@tampatrib.com.

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