2000 Oc⁠t⁠ober – Backgrounder #27 – Flor⁠i⁠da’s Tax S⁠t⁠ruc⁠t⁠ure: An Overv⁠i⁠ew and Evalua⁠t⁠⁠i⁠on

By: The James Madison Institute / 2000

Executive Summary

Florida’s tax structure is well designed to provide for the state’s future revenue needs. Throughout the 1990s, revenue grew faster than both inflation and the population, providing increased revenues per person. Minor refinements could be made to the tax system but Floridians should ensure that proposed changes would improve rather than worsen the system.
Florida is one of nine states with no personal income tax. The general sales tax provides slightly more than half of the state’s tax revenues. The sales tax base is appropriate to Florida’s tourist economy. Out-of-state visitors, who also use state services, pay sales taxes on their purchases, whereas a state income tax would only be paid by residents.
The absence of a state income tax is beneficial because income taxes slow economic development. Since revenues from income tax tend to decline more than revenues from sales tax during recessions, Florida’s tax revenues are more stable over the business cycle than if the state had an income tax.
There is some concern that e-commerce could erode Florida’s sales tax base, but research shows that while the Internet provides an inexpensive way to access many potential customers, it is not a threat to sales tax revenues.
Florida’s intangible property tax is undesirable for so many reasons and the legislature appears to be phasing it out. Overall revenue growth is strong enough that the tax shold be repealed in 2001.
The most problematic aspect of Florida’s tax structure is its heavy reliance on motor fuel taxes to finance transportation. Despite increasing overall tax revenues throughout the 1990s, transportation revenues were almost unchallenged. As cars get improved gas mileage and motor vehicles that use alternative fuels are developed, the gas tax will be an increasingly less productive source of transporation revenues. For this reason, tolls and user fees would be more suitable sources. While there is no crisis in transportation funding, now is the time to begin developing alternatives.
A major concern about any tax system is its fairness. Florida’s tax system is equitable. It charges people for their use of government services as much as is feasible and it levies higher taxes on those with a greater ability to pay. Because the sales tax exempts food and rent, two major expenditure categories, it also provides a substantial tax break for residents at the lower end of the income distribution.