Legislature Passed Over Loopholes When Working On Budget

While the Florida Legislature slashed budgets for schools, children's health care and living assistance for the elderly in its recent special session, it ignored a couple of easy fixes - loopholes in corporate tax law -- that could have produced revenue to avoid some of the worst cuts.

But in its March regular session, facing an even bigger deficit in the coming year's budget, the Legislature almost certainly will have to look at those and other ways to increase state tax revenue.

In the special session that ended Jan. 14, Democrats reacted angrily to the refusal of Republican legislative leaders to consider two measures in particular:

*Closing a loophole that lets corporations sell high-value properties without paying the documentary stamp tax that's supposed to apply to all Florida real estate sales.

*Enacting laws already in force in many states that prevent corporations from "exporting" profits to other states, therefore avoiding Florida corporate income tax.

Those fixes could have produced an estimated $500 million in revenue, roughly what the Legislature cut from public schools, without actually increasing any tax, Democrats said.

"Even a few dollars would have been helpful in preventing some of the things we did that hurt people," said Rep. Mark Pafford, D-West Palm Beach, who proposed legislation on the "doc stamp" tax. "It's not a new tax, just closes a loophole people have been taking advantage of."

Republican Gov. Charlie Crist says he thinks the Legislature cut more than they should have, and he may veto some cuts - although the few specifics he's named so far are insignificant.

Republican legislative leaders gave several reasons why they wouldn't consider any measures to increase revenue in the special session, called to fill a gap in the current year's budget.

"The bottom line is our constituents have voiced very loudly, we cannot afford to pay more taxes right now," said state Sen. Victor Crist, R-Tampa. "Seven percent of our constituency is on unemployment. The last thing we want is government digging deeper in our pocket."

Crist added that with even bigger budget cuts looming, the state wanted to hold back any revenue cards until the regular session in March.

"That's going to be a very wrenching experience," he said.

Concerning the doc stamp tax, he said, "We didn't want to do anything to hinder an industry that has been brought to its knees."

Asked why he opposed considering revenue increases in the special session, House Speaker Ray Sansom, R-Destin, told the Tribune: "We agreed that takes time for the committee process and to let citizens have input on what we're doing. That really is a regular session issue."

But Democrats said closing the loopholes is a simple matter of tax fairness.

The Loopholes

Homeowners pay the tax when they sell a home, 70 cents for every $100 of the price, or $1,750 for a $250,000 home.

But in 2005, according to Democratic legislators, one Florida company sold six apartment complexes in a $300 million deal, but recorded the sale price as $60, avoiding $2.1 million tax.

The trick: Putting title to the real estate in a corporation, then selling the corporation instead of the real estate. The loophole, opened by a 2005 state Supreme Court decision, may cost Florida up to $200 million a year.

Even the Florida Association of Realtors hasn't objected to closing it. It's considering the issue, said President Cynthia Shelton.

"If this is fair and equitable, we'll be for it," she said.

The corporate tax loophole allows the Florida outlets of national companies to send some of their taxable income to sister companies in other states with lenient tax laws.

They do this by paying fees to those sister companies for such services as insurance or use of trademarks. Closing the loophole, state tax officials estimate, would gain the state $376 million a year.

Painful Cuts

While the Legislature was refusing to consider closing those loopholes, it enacted cuts and trust fund raids the legislative leadership acknowledged were painful:

*About $480 million from public schools, the second year of cuts in a row.

*$184 million from higher education.

*$1.875 million from Community Care for the Elderly, which provides in-home meals and living assistance for the elderly, a move state Sen. Nan Rich said will add about 300 people to the waiting list of more than 18,000.

*Up to $700 million from the Lawton Chiles Endowment, established with the proceeds of the state anti-tobacco lawsuit. It's supposed to provide a perpetual source of interest income to pay for Community Care for the Elderly and for Kidcare, health insurance for children of the "working poor" who don't qualify for Medicaid.

Veto Considerations

Crist has hinted he thinks the Legislature went too far in cutting education, but the only item he has specifically mentioned vetoing is an $11 million cut that decreased a salary bonus for nationally certified teachers from 10 percent to 8 percent a year.

The political pressure of the cuts is causing the GOP legislative leadership to back off more than a decade of refusals to take any action to increase state revenue.

"This is just the first step," state Senate President Jeff Atwater said of the special session. "We'll be beginning a new session in less than 60 days. We'll need to take a look at revenue."

He has told the Senate to review possible elimination of some sales tax exemptions - a measure often recommended in the past that could bring the state up to $4 billion a year -- as well as other measures.

Tait said it's past time for a review of the state's tax structure.

State revenue, he said, has declined as a percentage of total personal income in the state, the best measure of taxpayers' ability to pay. After hovering around 4.2 percent of total personal income for years through 2005, it's now down to 3 percent, he said.

Meanwhile, the Legislature is forcing local governments and school systems to make up the difference with local property taxes

A tax structure based solely on property and on sales of tangible goods is outmoded for the current global economy, he said.

"We don't deal with services and information, we don't deal with Internet sales. In the new information economy, we're taxing in essence a declining base," Tait said