Florida Today: Amendment 5 worries local businesses

Monday, July 07, 2008

They fear tax bill will only pass undue woes onto them

BY MARIA SONNENBERG
FOR FLORIDA TODAY

The atmosphere is not peachy at Sky Advertising in Satellite Beach, where owner Jackie Barker worries that the passage of Amendment 5 this fall would lead to an exodus of her agency’s clients to Georgia.

Amendment 5, on the Nov. 4 general election ballot, promises lower property taxes but could mean higher costs to do business with Florida service industries. From ad agencies and hair stylists to lawn maintenance and law firms, these businesses are currently exempt from the state’s 6 percent sales tax.

“If it’s going to cost 6 percent more to do business with ad agencies in Florida, clients are just going to go across the border to Georgia,” said Barker.

Florida’s Taxation and Budget Reform Committee earlier this year proposed what proponents describe as long-overdue tax relief but what opponents see as a tax swap with the potential to evolve into the largest tax increase in Florida history. Should more than 60 percent of voters approve, the measure would take effect in 2010.

Amendment 5 proposes to eliminate the current required local effort portion of school property taxes, which amount to 25 percent to 35 percent of a typical tax bill. But the lost revenue, projected to be somewhere around $9.3 billion in 2010, has to come from somewhere.

Beyond repealing the exemptions, other options to generate the lost tax revenue are to raise the sales tax by one cent to 7 cents on the dollar, consider reductions in state spending and find some means to generate other revenues.

Tax relief or swap?

Barker, governor of the 4th District of the American Advertising Federation, which includes Florida and the Caribbean, is concerned about the implications of the amendment for all service industries in the state.

Ad agencies saw national accounts dry up, forcing some agencies to leave the state in order to stay competitive.

Consulting company Global Insight predicts that a 6 percent sales tax on advertising alone would result in a loss of $18.4 billion in Florida sales, with a loss of 89,751 jobs.

At a leadership conference next week in Cocoa Beach, the federation will supply members with information to present to consumers highlighting its particular stance on Amendment 5.

If the elimination of sales tax exemption for services sounds vaguely familiar, it’s because it was already tried in 1987 under Governor Bob Martinez. Universally protested by the business community, the service tax lasted only six months before being repealed.

After Florida tried it, other states passed similar service taxes, only to later repeal them.

“As the owner of a service business, I am concerned about Amendment 5,” said Amelia Woodbridge of the McBride Woodbridge agency in Indialantic. “While property tax relief is an important issue, I question a solution that just transfers taxes in a way that would dramatically affect all of us personally.”

A proposal to curb property taxes smells sweet to Floridians struggling with skyrocketing property taxes and insurance premiums. However, Amendment 5 opponents claim that that this particular proposal is not a true tax relief, but rather a swap.

“They’re robbing Peter to pay Paul,” said Barker.

Opponents of the measure contend that, because nothing in the proposal requires state government to decrease spending, the amendment lowers taxes in one place while hiking them in another.

“We consider this a simple bait-and-switch . . . and under the guise of property tax relief we think in a lot of ways this is a wolf in sheep’s clothing,” Sen. Mike Haridopolos, R-Indialantic and a vocal opponent of the measure, said last month.

“If Amendment 5 passes, what happens is a tax swap,” said Susan McGrath vice president for resource development with the United Way of Brevard and incoming president of the local Advertising Federation Chapter.

“The amendment will cut property taxes but the legislature has to find some way to replace that lost tax revenue. Everyone in the service industry will be affected.”

Realtors disagree

Amendment 5 was proposed by John McKay, a former Senate president and current Bradenton real estate developer who served on the Taxation and Budget Reform Commission.

McKay said it’s wrong to conclude the measure would force a services tax.

He is joined in his support of the measure by two high-profile allies: Gov. Charlie Crist and the Florida Association of Realtors. FAR, which spent $1 million in the campaign to pass the Amendment 1 tax cut in January and says it intends to spend at least as much on Amendment 5 this fall.

“Some of the groups that stood against this, I haven’t seen any comprehensive property tax relief coming from them,” John Sebree, FAR vice president of public policy, has said, according to the association’s Web site. “Is any property tax relief good to them?”

Sebree said the relief from Amendment 5 would reach much further than the effects of Amendment 1, which primarily targeted homesteaders.

“This amendment would affect every property owner in Florida,” he said.

Sebree said FAR plans to form a political committee to counterbalance what he sees as efforts to “confuse” the public over Amendment 5.

Gauging consumer impact of Amendment 5, like so many elements of the political discussions, depends on whom is asked.

According to Florida Tax Watch, “the economic impact of replacing property taxes with sales taxes is at best debatable, at worst detrimental.”

Economist Tony Villamil predicts rising costs and diminished demands, with the loss of as many as 55,000 jobs the first year.

Furthermore, consumers could conceivably have to pay sales tax on many items and services currently exempt, from electrical power to dry cleaning.

But another leading authority, economist Hank Fishkind, projects that the property tax reduction would increase wealth and save the average household $53 every year.