Florida Tax Swap Plan Could Lead to Ad Tax Battle

The sales tax exemptions under Florida law for advertising and other business services may once again be under attack. 

Last week, the Florida Taxation and Budget Reform Commission approved a proposed constitutional amendment to substantially revamp the way the state pays for schools. The amendment would cut local property tax bills by at least 25 percent and require the Florida Legislature to replace the lost revenue, which is estimated to be at least $9 billion. The proposed amendment directs the legislature to choose among one or more of four options for making up the lost revenue: (1) repealing sales tax exemptions "which are determined not to advance or serve a public purpose;" (2) increasing the current sales tax rate by one percent; (3) spending cuts in other state programs; and (4) "other revenues identified or created by the legislature." A one percent increase in the sales tax would raise only about $4 billion, so there would be considerable political pressure to repeal exemptions to make up the difference.  

The proposed constitutional amendment (CP0002) was pushed through the Commission by former State Senate President John McKay, a longtime proponent of repealing the sales tax exemptions for various business services.  The proposal will be on the ballot in the November election and must be approved by 60 percent of voters to be adopted. The tax swap would take effect on January 1, 2010. The language of the proposed constitutional amendment is available at the Commission's website.

According to press reports, a number of major industry groups in the state, including the Florida Association of Broadcasters and the Florida Retail Federation, plan to mount a major public campaign against the proposal.

ANA is working closely with member companies and other industry groups to determine how best to respond to this proposal. Florida was once ground zero for advertising taxes. In 1987, the Florida Legislature passed a broad tax on all professional services, including advertising, but repealed it one year later after considerable industry lobbying. We are very concerned that passage of this proposed constitutional amendment could ultimately lead to a repeat of that battle over taxing advertising.

The former Senate President has fought this battle before. In January of 2002, he proposed a bill to eliminate the sales tax exemptions for almost all products and services, including advertising time and space.  On the last day of the session, the Legislature approved a proposed constitutional amendment to create a special legislative panel to review all sales tax exemptions, including the exemption for advertising services. That proposal was struck down by the courts and never made it to the ballot.

Senator McKay was term-limited out of office in 2002 but continued his battle as a private citizen. In 2005, he joined with former Comptroller Bob Milligan and former Attorney General Bob Butterworth to propose a similar constitutional amendment to repeal most business service exemptions. That proposal was also struck down by the courts and never made it to the ballot.

While there may also be a legal challenge to this proposal, the Taxation and Budget Reform Commission has specific authority to take such proposals directly to the voters in the form of a constitutional amendment.