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Property Tax Plan Will Boost Home Sales, Builder Told

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The Associated Press

Published: August 3, 2008

ORLANDO - Florida's homebuilders were told Saturday that a proposal to slash property taxes raised for schools in exchange for other new revenue will boost home sales and help an industry that's suffering through an economic downturn.

And they were also told the proposal won't be worth it because they'll be paying more taxes on materials and services.

Both sides of the Amendment 5 debate presented their cases to members of the Florida Home Builders Association and gave a much different views of how the proposed constitutional amendment will affect the industry.

The proposal would eliminate property taxes that go to schools, which make up an average of about 25 percent of property owners' total tax bill. Lawmakers would be given a wide latitude to find other ways to make up the difference, but it would most likely be through a 1 percent sales tax increase and the elimination of tax exemptions on some goods and services.

Another provision would lower the cap on annual assessment increases from 10 percent to 5 percent for all property except primary homes, which already have a 3 percent limit.

Former Senate President John McKay, a member of the Taxation and Budget Reform Commission that put the measure on the ballot, said passing the amendment is critical to the state's future as well as the homebuilding industry. He said the top complaint the commission heard from citizens was high property taxes.

"Each of you know first hand how high property taxes have had a damaging effect on business," said McKay, who is also a commercial developer.

Fewer people are moving to Florida because there is a perception that property taxes are too high, said economist Brian Martin, who predicted the amendment will generate nearly $7 billion in new construction by the fifth year after it's enacted.

He added that the average savings for the owner of a $200,000 home would be $867, meaning the same person would have to spend more than $86,000 on taxable goods before the sales tax increase would eliminate property tax savings.

But the picture isn't that rosy, said state Sen. Mike Haridopolos, who chairs the Finance and Tax Committee. While money may be saved on property taxes, homeowners will have less to deduct from their federal taxes.

"One group that's guaranteed to win from this proposal? The IRS, because they're going to take 18 percent of that tax break," said Haridopolos, R-Indialantic.

Also, a 1 percent sales tax increase would only raise $4 billion and the state would have to raise another $7 billion, most likely from taxing services that are now exempt, he said.

"You would have to raise taxes in a massive way, or a new way, to make that happen," Haridopolos said. "Count me in for the tax cut, but the rest of the story has not been told."

Tax exemptions now in place cover a wide range of services, from haircuts and limousine rentals to architectural fees and advertising.

"I can tell you one thing with certainty, your taxes will go up," said Randy Miller, executive vice president of the Florida Retail Federation.

Lawmakers will have 2.5 years to figure out how to make up the difference in the uncollected property taxes, and the uncertainty about which exemptions lawmakers might eliminate will have a chilling effect on businesses looking to move to or expand in Florida, said Florida TaxWatch President Dominic Calabro.

Some homebuilders are already concerned, noting that every $1 million in building supplies like wood and bricks will cost them another $10,000 just on the sales tax increase. And, depending on what tax exemptions are eliminated, they could be paying more for lawyers, architects and other services.

"In the best of times I'm worried about how the government is going to stick it to me," said Zac Extejt, whose Charlotte County business builds seawalls and docks. "You're telling me to trust a government ... (that's) trying to screw us."

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