Without an individual income tax and with relatively low corporate, unemployment and property tax rates, Florida boasts the fourth best business climate in the nation, according to the Tax Foundation.
Florida placed fourth overall for the fourth consecutive year in the 14th annual comparison of state business tax policies produced by the Tax Foundation, an independent, 81-year-old tax policy research organization based in Washington, D.C.
The 80-page 2019 State Business Tax Climate Index was compiled by the Tax Foundation’s Center for State Tax Policy and is designed to enable business leaders, government policymakers and taxpayers to gauge how states’ tax systems compare with each other.
The index measures more than 100 variables in the five areas of taxation – corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes
The 10 highest-ranked, or best, states in this year’s Index are: Wyoming, Alaska, South Dakota, Florida, Montana, New Hampshire, Oregon, Utah, Nevada and Indiana.
The 10 lowest-ranked, or worst, states in this year’s Index are: Vermont, Ohio, Minnesota, Louisiana, Iowa, Arkansas, Connecticut, New York, California, New Jersey.
These states “tend to have a number of afflictions in common: complex, non-neutral taxes with comparatively high rates,” according to the Tax Foundation.
Florida, one of seven states that do not levy an individual income tax, ranked first in that category, second in unemployment insurance tax rates, sixth in corporate tax rate, 11th in property tax rates and 22nd in sales tax rates.
Florida has had a 5.5 percent corporate tax rate since raising it from 5 percent in 1984, but climbed from no. 19 in 2018 to sixth-best in 2019 because other states raised rates and exemptions adopted in 2011 and 2012 have matured.
About 98 percent of the state’s businesses – C-Corporations, S-Corporations and limited liability corporations – are exempt from paying any tax on their first $50,000 in taxable income.
According to the state’s Department of Revenue, more than 200,000 businesses pay Florida’s 5.5 percent corporate tax rate, collecting about $2.2 billion annually. It’s the state’s second biggest source of general revenue dollars, other than the $25 billion raised by the sales tax.
The corporate tax rate is a significant campaign issue in the governor’s race between Republican Ron DeSantis and Democrat Andrew Gillum, who wants to raise it to 7.75 percent – making it the 13th highest in the nation – to generate $1 billion annually to fund Medicaid expansion and pay teachers a minimum salary of $50,000.
Florida’s corporate tax structure drew praise from The Tax Foundation for not including brackets, but took hits for offering job, research and development credits while imposing an Alternative Minimum Tax (AMT).
The Tax Foundation generally has a dim view of incentives, and said in Florida’s instance, job credits may not be a benefit.
“Even if administered efficiently, job tax credits can misfire in a number of ways,” the report states. “They induce businesses whose economic position would be best served by spending more on new equipment or marketing to hire new employees instead. They also favor businesses that are expanding anyway, punishing firms that are already struggling.”
Florida is one of only eight states that levy AMTs on corporations, mimicking the federal AMT.
"Unfortunately,” the report said, “it (creates) a parallel tax system to the standard corporate income tax code. Evidence shows that the AMT does not increase efficiency or improve fairness in any meaningful way. It nets little money for the government, imposes compliance costs that in some years are actually larger than collections, and encourages firms to cut back or shift their investments.”
Florida’s unemployment insurance (UI) rate has been ranked second-best by the Tax Foundation for four straight years. Its minimum rate is 0.1 percent and its maximum rate is 5.4 percent beginning at $7,000 taxable income.
Florida, Oklahoma, Delaware, Louisiana, Mississippi and Ohio have the “least damaging” UI rates, according to the Tax Foundation.
“Comparatively speaking, these states have rate structures with lower minimum and maximum rates and a wage base at the federal level,” the report reads. “In addition, they have simpler experience formulas and charging methods, and they have not complicated their systems with benefit add-ons and surtaxes.”
The Tax Foundation also ranked Florida’s sales tax structure as 22nd best four years in a row.
Florida has a 6 percent statewide sales tax and is among 38 states that allow counties and municipalities to levy “local option” sales taxes. Collectively, Florida has an average sales tax of 6.8 percent.
Tennessee has the highest combined state and local rate of 9.46 percent, followed by Louisiana at 9.45 percent.
The Tax Foundation ranked Florida 20th in 2016, 10th in 2017 and 2018, and 11th in 2019 in property taxes, noting great regional and local variation “could be uniquely important determinants of intraregional location decisions.”
According to the study, every 1 percent increase in property taxes reduces annual employment growth by 2.44 percent.
“States which keep statewide property taxes low better position themselves to attract business investment,” the report cites. "Localities competing for business can put themselves at a greater competitive advantage by keeping personal property taxes low."
Variations in property and sales taxes between states, even between nearby communities, often get overlooked in discussions about “big picture” economics, the Tax Foundation maintains.
“Even in our global economy, states’ stiffest competition often comes from other states,” the report claims. “The U.S. Department of Labor reports that most mass job relocations are from one U.S. state to another rather than to a foreign location. States need to be more concerned with companies moving from Detroit to Dayton rather than from Detroit to New Delhi, India.”