BRADENTON -- Gov. Rick Scott looks to Texas, Ohio and Nevada and sees those states winning over businesses in Florida.
Those states have no corporate income tax. Florida has a 5.5 percent corporate tax rate, the sixth lowest in the nation.
Scott wants Florida to do better.
“Eliminating the corporate income tax will have a minimal effect on state revenue while making Florida globally competitive,” Scott states on LetsGetToWork.net, which outlines the governor’s budget recommendations.
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The governor’s proposal to cut and eventually phase out Florida’s corporate income tax is one that both the private and public sector will follow closely this session.
The small business community sees great opportunity in the proposed savings, a 2.5 percent reduction to the tax in the first year and a 0.5 percent cut every year thereafter.
Local businesses say the money they save on taxes gives them more money to reinvest on expenditures that will help their companies flourish.
“Whether that may be additional equipment or research and development, our ability to make continued investments in the business will fuel our success in the long run,” said Tricia Fulton, chief financial officer for Sun Hydraulics, a Manatee County-based manufacturer of cartridge valves. “That will lead to more profitability, which will give us more to invest and grow and add jobs as we need them.”
But critics question how much the savings for small business will cost education and other public services.
Florida’s corporate income tax makes up about 9 percent of the general revenue budget. For fiscal year 2010-11, the corporate income tax will generate an estimated $1.9 billion.
If the corporate income tax is reduced to 3 percent in fiscal year 2011-12, the tax would generate $1.5 billion, an estimated $458 million decrease to the general revenue.
In 2012-13, a proposed 2.5 percent corporate income tax rate would generate $1 billion.
“This is a direct trade-off,” said Alan Stonecipher, spokesman for the Florida Center for Fiscal and Economic Policy. “If you give that money back to corporations, it doesn’t go into the state treasury. So what doesn’t it fund? It doesn’t go to pay public schools. It doesn’t go to pay health care services under Medicaid. It doesn’t go to services for people with disabilities. All of those things that we rely on take a cut.”
Manatee County Schools Superintendent Tim McGonegal says he has concerns about what future education funding will look like with a reduced corporate income tax.
“We’ve cut $46 million out of the budget over three years, and we’re projected to cut $15 million more out next year,” McGonegal said. “We’re already in a hole, and that would make it a bigger hole to dig out of.”
The corporate income tax also helps fuel funding to Florida’s Tax Credit Scholarship program.
Businesses that have to pay corporate income tax can donate to the scholarship program and receive tax credits equal to their donation to apply to their corporate income tax liability.
Removing the corporate income tax would remove the incentive for many businesses who donate.
“The corporate tax is still by far the largest funding source, it represents 63 percent,” said Jon East, spokesman for Step Up for Students, a nonprofit that oversees the scholarship program.
Last year, the pro- gram helped fund 33,000 school vouchers. There are 8,000 students on a waiting list.
Officials with the scholarship program are hoping for minimal impact as the Legislature in the past two years has added two other funding sources to help pay for more scholarships.
The Legislature also raised the maximum amount of tax credits that may be granted to $140 million from $118 million last year.
“We’re going to have to wait and see,” East said. “The governor in his campaign and since he’s been elected has voiced strong support for low-income students and he said regardless of what he did with the tax policy he would hold this program harmless.”
Proponents of the corporate income tax reduction say the governor’s proposal has potential to foster economic growth.
Keeping more profit in businesses will allow companies to flourish, expand and create jobs, supporters say.
“The incentives that are available through easing the tax burden will stimulate growth in the private sector, which in turn will create careers, more citizens will be gainfully employed and pay taxes,” says Peter Straw, executive director of the Sarasota Manatee Manufacturers Association.
The local manufacturing group has advocated for less taxes in a number of areas to encourage business growth and expansion.
Last year, SAMA pushed Sarasota County to give a property tax break to certain companies relocating or expanding to the area and plans to ask Manatee County to consider the measure.
This session, Straw said, SAMA will continue to ask state lawmakers to remove Florida’s tangible personal property tax that is assessed on manufacturing equipment.
“What we need to do is continue working at how do we encourage and help stimulate business growth,” Straw said.