TALLAHASSEE — Toys R Us could be forced to stop shielding its Florida income from taxes. American Airlines could pay taxes based on the number of flights that land in Florida. And Bank of America’s international banking division could lose a big tax break.
Those are just some of the effects of a sweeping Senate plan to close loopholes and update Florida’s corporate income tax code to bring in more money to fill the state’s $3 billion budget hole.
The measure won unanimous approval last week in the Senate Finance and Tax Committee and is on the fast track to the Senate’s budget committee. Legislative analysts will calculate Monday how much money it could generate but to the bill’s chief sponsor, Sen. Thad Altman, that’s not the point.
“We don’t look at this as a revenue grab but an effort to have a tax structure that’s updated and modernized,” said Altman, a Melbourne Republican and chairman of the Senate Finance and Tax Committee.
He argues that Florida’s corporate tax policies, most of which were written in the 1970s, reward businesses for moving their investments and housing their headquarters outside of Florida.
“We have a lot of corporations in this state but, for some reason, we don’t have a lot of home-grown companies,” he said. “We need a tax code that doesn’t encourage businesses to move jobs out of the state.”
While lawmakers ignored many of these and other tax policies in times of plenty, Altman believes that when lawmakers are strapped for cash, the loopholes should be closed.
The proposal has a long road ahead of it, however. Gov. Charlie Crist wouldn’t comment on the proposal last week except to say “we’ll see what happens.” House Finance and Tax Chairman Rep. Ellyn Bogdanoff said she doesn’t think lawmakers have time to take it up.
“The problem is, there are winners and losers, and you have to be careful,” she said. ‘‘That’s not something that you do when you have only a couple weeks left of session.”
Florida taxes corporate income generated from a company’s operations within the state at a rate of 5.5 percent. Companies that operate in several states determine their Florida tax using their federal tax amount as a base. They divide that amount by the percentage of their Florida business to arrive at the amount they pay to Florida.
But over the years, these multi-state companies have found ways to lower their taxes by shielding their income and assets in subsidiaries housed in other states.
Companies that operate only in Florida are at a competitive disadvantage, Altman said, because they “can’t take advantage of these corporate tax loopholes. I love these big corporations. I shop at them. But at the same time they bring jobs, they take jobs from smaller, home-grown businesses.”
For example, during the 1990s, companies such as Aaron Rents and Toys R Us began to create holding companies in other states to isolate their assets from taxes in Florida, a Senate analysis said.
The Senate bill would end that practice by requiring these companies to “add back’’ the deductions to increase their taxable Florida income.
Senators say it’s a fairness issue. Business lobbyists warn that the Senate plan goes too far and will have unintended consequences. “I’m not going to stand here and tell you there are no abuses by taxpayers out there, because there are,” said Vicki Weber, lobbyist for the Florida Chamber of Commerce.
But while some companies “have created sham corporations’’ to shield income, not all companies that transfer their income and assets to another state are engaging in “sham transactions,” she said.
Weber, a former general counsel for the Department of Revenue, said that the department already has the power to go after abuses. She warned that if the wholesale changes are adopted, it will discourage companies from investing in Florida.
Other provisions in the Senate bill would change the way Florida taxes airlines. To encourage air travel to Florida, lawmakers have allowed airlines to calculate their corporate tax rate based on the miles they fly in the state. The Senate would change that to apply the tax based on landings -- a move airline industry lobbyists say would increase corporate taxes 2.5 times and discourage airlines from establishing hubs in Florida.
“You want as many landings in the state of Florida as you can,” said Ron LaFace, lobbyist for the Air Transport Association. “This will discourage it.”
Another element of the plan would revise the way Florida treats companies with international banking divisions. Current law allows a company to deduct certain international banking expenses to lower its taxes. The Senate bill would repeal these provisions.
Mike Fields, lobbyist for Bank of America, said the provisions were enacted to encourage banks to open international divisions in Florida. If those tax credits are repealed, “to my company, this is a big time tax increase,” he said.
“At the end of the day, it is a tax increase on banks in Florida that are actively engaged in international banking.”
Several senators challenged the assumptions of the business lobbyists.
Sen. Mike Bennett, a Bradenton Republican who owns several businesses, said he doubted any multi-state corporations would pull business out of Florida if the state closed its tax loopholes. “They’re not going to do it. End of story,” he said. “They may not like the taxes, but the fear of losing companies — I have never been able to buy that argument and I doubt if I ever will.”
Mary Ellen Klas can be reached at meklas@MiamiHerald.com