The state of Florida imposes both a statewide sales tax of 6% and a corporate income tax of 5.5%, which has been temporarily cut to 4.458% through 20211,2. Despite the statutory rate of 4.458%, the effective rate paid by businesses is often below even the alternative minimum tax rate of 3.3%3. Because of corporate evasion, exemptions and loopholes, only 1% of businesses in Florida are subject to the income tax3. By comparison, the Florida sales tax is easy to collect, with limited exemptions for necessities4. The sales tax has, over time, become a disproportionate source of revenue for the state when compared to the corporate income tax5. In 2019-2020, sales taxes are projected to generate roughly ten times as much revenue for the state compared to the corporate income tax5.
This background is essential for comparing a 1% increase in the sales tax to a 1% corporate income tax rate increase. A 1% sales tax increase would affect almost every purchase in the state while a corporate tax hike would only impact a sliver of business activity of the state. Assuming that the effective tax rate for corporations is the statutory rate of 4.458%, a 1% increase would raise $621 million5, author’s calculations. A 1% increase in the sales tax would raise $4.362 billion by contrast5, Author’s calculations.
Sales taxes are more regressive than corporate income taxes because the burden of sales taxes falls on low income households directly, whereas corporate income taxes fall partially on wages, which has an effect on low income earners, and partially on capital, which low income households generally do not own6. Comparing the taxes in terms of household burden borne by the taxes shows that the sales tax increase is more regressive.
Despite being the more regressive option, the sales tax increase is the superior choice for several reasons. First, simplicity has its benefits in the tax code. A sales tax is easy to collect because it is uniform with few exemptions. Florida’s corporate tax code is complex, with lots of exemptions and loopholes, making a 1% increase difficult to implement. At the end of 2021, the corporate income tax rate is scheduled to increase by about 1% under current statute2. Florida’s corporate income tax’s complexity and low effective rate has earned the state a fourth-place business tax ranking from the Tax Foundation while North Carolina, with a statutory 2.5% corporate income tax, earns a fifteenth place ranking3,7. Second, the amount of revenue raised by the sales tax increase is sufficiently larger than the revenue from the corporate tax hike for the new spending to outweigh the regressive nature of the tax.
In Florida’s new budget, Governor Ron DeSantis vetoed several spending items (worth $1 billion) that would assist individuals at risk and the neediest. DeSantis vetoed housing assistance for low income families, funding for resources for the opioid epidemic and provider rate increases for caregivers for those with disabilities8. Despite lagging consumer spending, a higher sales tax, while regressive, could fund these programs for the vulnerable. (499)
- Florida Department of Revenue. (2020). Florida Sales and Use Tax. Retrieved from https://floridarevenue.com/taxes/taxesfees/pages/sales_tax.aspx#:~:text=Sales%20tax%20is%20added%20to,%2C%20and%206.95%25%20on%20electricity.
- Florida Department of Revenue. (2020). Florida Corporate Income Tax. Retrieved from https://floridarevenue.com/taxes/taxesfees/Pages/corporate.aspx
- Garcia, J. (2019, November 13). In Florida, 99% of companies pay no corporate income tax — with lawmakers’ blessing. Orlando Sentinel.
- ITEP. (2018). Options for a Less Regressive Sales Tax in 2018. Retrieved from https://itep.org/options-for-a-less-regressive-sales-tax-in-2018/
- Economic and Demographic Research. (2018). Florida Revenue Estimating Conference. Retrieved from http://edr.state.fl.us/Content/conferences/longtermrevenue/2018longtermrevenueanalysis.pdf
- Harris, B. H. (2010, February 22). Is the Corporate Tax Progressive? Retrieved from https://www.taxpolicycenter.org/taxvox/corporate-tax-progressive
- Cammenga, J. (2020, January 28). State Corporate Income Tax Rates and Brackets for 2020. Retrieved from https://taxfoundation.org/state-corporate-income-tax-rates-brackets-2020/#:~:text=Florida’s%20corporate%20income%20tax%20rates,%5B5%5D
- Lemongello, S., Rohrer, G., & Santich, K. (2020, June 29). Gov. DeSantis slashes $1 billion from state budget amid coronavirus outbreak. Orlando Sentinel.