On Tuesday, Florida TaxWatch (FTW) released “Corporate Income Tax Issues for the 2022 Legislature: Repeal the Impending Tax Increase and Fix the ‘Retail Glitch’ and Like-Kind Exchanges.”
The report analyzes the impact of federal corporate income tax (CIT) reform in Florida and the state’s response to the Tax Cuts and Jobs Act (TCJA). FTW also warned of an impending major tax increase and calls for corrective action from the Legislature in 2022.
Florida TaxWatch President and CEO Dominic Calabro weighed in on the report on Tuesday.
“No state works harder to help businesses remain competitive than Florida. Florida TaxWatch commends the Florida Legislature for supporting our favorable business climate by keeping corporate taxes low through cuts whenever possible and by maintaining revenue neutrality when cutting isn’t an option,” Calabro said.
“But tax policy and administration is complex in the best of times, and it was complicated even more by the many federal reforms that went into effect before and during the pandemic. Challenges coordinating state and federal corporate tax policies over the past five years have actually caused us to increase taxes on businesses in Florida. In fact, even after refunds and rate reductions, corporate taxpayers will have paid $1.7 billion more from Fiscal Year 2018-2019 through Fiscal Year 2022-23 than was forecasted before federal tax reform was implemented – despite COVID-19’s negative impact on tax collections. And while formulating a response to the Tax Cuts and Jobs Act, changes made led to tax increases across the state, and some barriers to investment were put in place, which largely impacted businesses hardest hit by the pandemic,” he added.
“During the upcoming legislative session, we urge lawmakers to prevent the scheduled increase of the corporate income tax rate to 5.5 percent, which could lead to businesses being on the hook for another billion dollars in increased tax payments next year. We also encourage them to address the ‘retail glitch’ for Qualified Improvement Property and provide relief to companies affected by the change to like-kind exchanges,” Calabro said in conclusion.
In the report, FTW provided the following recommendations for lawmakers to consider during the 2022 Legislative Session:
· Repeal the CIT’s scheduled rate increase and consider maintaining the current reduced rate of 3.535 percent. If it is determined to be too low, shift to a rate that makes the federal changes revenue neutral to Florida. And if more corporate income data is required, postpone the rate increase.
· Adopt the federal fix to the “retail glitch” – a drafting error in the TCJA that resulted in 39-year depreciation schedule for certain improvements to the interior of nonresidential buildings, known as Qualified Improvement Property (QIP), instead of the intended 15 years. The CARES Act resolved this at the federal level, but Florida did not adopt the provision during its normal “piggyback” process.
· Address the massive tax increase for some companies, particularly those in car rental and leasing, which was created by preventing taxpayers from deferring gains from Internal Revenue Code 1031 – or “like-kind” – exchanges of tangible personal property.