FILE - Florida State Capitol

The Florida State Capitol in Tallahassee, Florida.  

(The Center Square) – Florida businesses face a 2% corporate income tax increase that could collectively cost them “hundreds of millions of dollars, perhaps exceeding $1 billion” beginning in July unless state lawmakers nix the hike during their 2022 legislative session, a Tallahassee-based taxpayer advocacy research nonprofit maintains.

Florida TaxWatch (FTW) suggests one way to avoid the sudden bite is by extending the state’s temporary 3.5% corporate income tax (CIT) rate beyond its July 1, 2022 sunset when it is scheduled to revert to 5.5% at the start of Fiscal Year 2023 (FY23).

The state can retain the 3.5% CIT rate and maintain “revenue neutrality” – generate as enough income as now – because under 2017 federal tax reform, Florida’s base of taxable businesses expanded by 13%, FTW maintains in its 10-page briefing, ‘Corporate Income Tax Issues for the 2022 Legislature.’

The report, one of several FTW studies examining issues lawmakers will contend with in 2022, also calls for making permanent provisions in the federal Coronavirus Aid, Relief & Economic Security (CARES) Act to remedy a “retail glitch” and address “in-kind” inequities in federal/state tax code.

“During the upcoming legislative session, we urge lawmakers to prevent the scheduled increase of the corporate income tax rate to 5.5%, which could lead to businesses being on the hook for another billion dollars in increased tax payments next year,” FTW President & CEO Dominic Calabro said. “We also encourage them to address the ‘retail glitch’ for Qualified Improvement Property (QIP) and provide relief to companies affected by the change to like-kind exchanges.”

The discord between federal and state tax codes stem from the December 2017 adoption of the federal Tax Cuts & Jobs Act (TCJA), which trimmed the federal CIT rate from 35% to 21%, broadened the taxable corporate tax base and imposed numerous changes, including a drafting error that precluded a large swath of commercial entities, such as restaurants, from recouping full depreciation on properties.

Florida, like most states, “piggybacks” its CIT code onto the federal CIT code. Every year, the Legislature adopts the Federal Internal Revenue Code as it exists on Jan. 1 into that year’s budget to include all federal changes.

When Florida lawmakers convened in 2018, the TCJA has only been on the books for three weeks. Its ramifications were still hazy but state economists warned under the bill, Florida’s taxable business base would expand by 13% and they’d pay millions more in annual taxes without corresponding adjustments in state code.

In 2018, lawmakers adopted House Bill 7093 to shield state businesses from “surprise liabilities” fostered by “bubbles of gain” created by the TCJA for one year.

HB 7093 triggered an automatic CIT reduction if FY19 collections exceeded estimates by 7%. For that year, CIT rates proved to be 4.458%. Also “excess collections” paid to Florida until tax codes were TCJA harmonized were to be refunded.

In 2019, the Legislature passed HB 7127, which extended HB 7093 through FY22 and included a provision that “decoupled” the state from a Global Intangible Low Tax Income (GILTI) levy created by the TCJA. Under HB 7127, the CIT in FY20 was 4.458% and 3.533% in FY21 and FY22, which began July 1.

Despite these efforts, Florida’s 2018 and 2019 measures raised taxes on Florida corporations, FTW notes.

“Even after the refunds and rate reduction, corporate taxpayers will have paid $1.7 billion more from FY19 through FY23 than was forecast before the TCJA was enacted,” it states.

FTW recommends lawmakers delay restoring the full CIT rate. “If the current reduced rate of 3.535% is determined to be too low, the Legislature should determine, as best as practical, the rate that makes the federal changes revenue-neutral to Florida,” it states.