Florida Gov. Ron DeSantis has been urged to use funds from pending corporate tax refunds to help small businesses and the unemployed weather the impact of the coronavirus. (AP)
The lawmakers asked the governor to use his emergency powers to stop the payments, and instead use the money to help small businesses and the unemployed weather the economic downturn caused by measures to help stem the spread of the novel coronavirus.
"The corporate refund will not go to small or even medium-sized businesses," the letter said. "Only 1% of all businesses in the state of Florida pay any corporate income tax. These are some of the largest corporations in the country and in the world."
The letter is signed by Sen. Jose Javier Rodriguez, Rep. Anna V. Eskamani, Rep. Carlos Guillermo Smith, Rep. Javier Fernandez, Sen. Victor Torres, Rep. Cindy Polo and Rep. Margaret Good.
The governor's office didn't respond to requests for comment.
Florida's corporate tax refund policy goes back to the passage of the federal Tax Cuts and Jobs Act
in 2017. The federal act expanded the definition of income, largely by limiting deductions, but cut the federal corporate income tax rate from 35% to 21%. While Florida automatically conformed to the new definition of income, expanding the business income that the state could tax, its tax rate didn't change. Florida's corporate tax rate is imposed on net income of C corporations and financial institutions.In 2018, Florida passed H.B. 7093, which said if the state's 2018-2019 fiscal year receipts were more than the latest revenue estimate by more than 7%, any excess over 7% would be refunded to taxpayers and the tax rate would be proportionally reduced for one year. The refunds were based on collections, less refunds.
In 2019, the Legislature extended the refund and rate reduction methodology for two more years through H.B. 7127. The state's corporate tax rate was cut from 5.5% to 4.458% in 2019 and will go back to 5.5% starting in 2022, according to the Florida Department of Revenue.
Eskamani, D-Orlando, told Law360 the governor should cancel the refunds and use the money to help small businesses and the unemployed. She said most of Florida's 2.3 million businesses won't be eligible for the refunds.
"This $543 million corporate tax giveaway has never, ever made sense, and it especially doesn't make sense now as we're in the middle of a global pandemic with unemployed Floridians and small businesses waiting weeks to access any relief," Eskamani said.
Fernandez, D-Coral Gables, said during the news conference the crisis also highlights the failure of lawmakers to pass a remote sales tax bill, as most other states did after the U.S. Supreme Court's Wayfair decision. Experts have said Florida's approach to tax policy, relying overwhelmingly on the traditional sales tax, has put it in a uniquely precarious position.
Eskamani said DeSantis had already issued executive orders related to tax law, suspending taxes on documentary stamps on loans and delaying sales tax payment and property tax deadlines. Those demonstrate the governor could use his power to stop the refunds, she said.
"He's demonstrated that he's not afraid of that. He's bold about that. So let's take some bold action on this issue as well," Eskamani said.
But Republicans contacted by Law360 opposed the idea. Rep. Anthony Sabatini, R-Howey-in-the-Hills, told Law360 he didn't support stopping the refunds.
"The last thing we need to be doing is raising taxes on any person or any company — we need to be cutting taxes and cutting government," Sabatini said.
And Senate President Bill Galvano, R-Bradenton, in a statement, threw cold water on the proposal to stop the corporate refunds.
"While the rest of the country is working to reduce burdens on businesses as they grapple with the impacts of coronavirus on their workforces and their revenues, I do not support Florida creating an unanticipated tax burden by withholding refunds corporations have planned on and built into their business plans for the year," Galvano said.
In a letter Galvano sent to his fellow senators on April 2, he said the state expected to see "significant decreases" in revenue collections starting in April and through the end of the fiscal year in June. Between the state's general revenue reserves of cash and other state reserves, he said he didn't expect cuts in the current year budget. But lawmakers may need to return to Tallahassee "at the appropriate time" to formally act on federal relief funds provided in the CARES Act for the state's 2020-2021 fiscal year, he said.
H. French Brown of Dean Mead Egerton Bloodworth Capouano & Bozarth PA told Law360 that the state had received and kept $150 million because of the 7% cap authorized through the state legislation that enacted the refunds. He also said the additional revenues to the state were limited to business activity between April 1, 2017, and March 31, 2018, and didn't relate to current business activities.
"Those $543 million in refunds were paid to the state long ago, and businesses that paid into the system have planned for that money to return," Brown said. "Taking that money now would be further harming those businesses struggling during this pandemic."
Refunds will likely go to Florida's largest businesses because the corporate income tax generally applies only to C corporations and because the state has significant corporate exemptions to exclude small businesses, French said. But he said only companies that paid into the system would have a portion of their tax refunded to them.
Edie Ousley, a spokeswoman for the Florida Chamber of Commerce, said it was too soon to tell what actions would need to be taken to protect and strengthen Florida's economy and after the pandemic ends.
"We're myopically focused on helping workers keep their jobs, and businesses from going under," Ousley said.
But Sadaf Knight, CEO of the Florida Policy Institute, told Law360 the current crisis highlighted "serious flaws" in Florida's state tax system. She said the $543 million tax break shouldn't have been extended, but it wasn't too late for the governor to use his emergency powers to stop the refund payments.
"Florida doesn't have a state income tax, and so revenue is contingent on sales and use tax. Now, with the rapid rise and spread of coronavirus, it's urgent that those benefiting the most from our economy — wealthy corporations — pay their share," Knight said.
--Additional reporting by Maria Koklanaris and Daniel Tay. Editing by Vincent Sherry.
For a reprint of this article, please contact reprints@law360.com.