2018 Florida Legislature Enacts Numerous State and Local Tax Changes

The Florida Legislature concluded its 2018 Regular Session on Sunday, March 11, 2018.  Prior to the start of the session, the Legislature filed 3,189 bills for consideration.  At the conclusion of the extended 62 day session, only 200 bills were passed.[1]  While these bills are subject to approval or veto by Governor Scott, we summarize below the key provisions of the bills affecting Florida state and local taxes.  We will update the status of these bills once Governor Scott has acted within the next several weeks.

Constitutional Amendments

• Supermajority Vote for Taxes or Fees – House Joint Resolution 7001
  Provides that no state tax or fee may be imposed, authorized or raised by the legislature except through separate legislation containing no other subject and approved by two-thirds of the membership of each house of the Legislature. The proposed amendment would also apply to decreasing or eliminating a state tax or fee exemption or credit.  If approved by 60% of voters during the November 2018 general election, the amendment would take effect January 8, 2019.

Sales and Use Tax

• Rate Reduction for Commercial Leases – House Bill 7087; Effective January 1, 2019
  In 2017, the Legislature reduced the state sales tax rate on commercial leases from 6.0% to 5.8%.   This year, the Legislature further reduced the tax rate to 5.7% continuing the push to eliminate the State’s taxation of commercial leases.
• Florida Sales Tax Credit Scholarship Program for Commercial Leases – House Bill 7055; Effective July 1, 2018
  Creates a new sales tax scholarship program for any tenant paying the sales tax on commercial leases pursuant to Section 212.031, Fla. Stat.   Instead of paying the sales tax to the State, the tenant will make an eligible contribution to a nonprofit scholarship-funding organization and receive a dollar for dollar credit used to reduce the tenant’s sales tax liability.  The program is capped at $57.5 million, and the credit applications will be approved on a first-come, first-served basis.   Eligible contributions will first be used to fund Gardiner Scholarships for students with special needs, and any remaining funds will be used for the Florida Tax Credit Scholarship Program for students based on financial need.
• Credit for Contributions to the Hope Scholarship Program for Bullied Students – House Bill 7055; Effective March 11, 2018 (upon becoming law)
  Creates a new sales tax scholarship program for any purchaser of a motor vehicle after October 1, 2018.  A purchaser will be granted a dollar for dollar credit against the sales tax due on the motor vehicle for any eligible contribution made to an eligible nonprofit scholarship-funding organization.  The Hope Scholarship Program will allow the parent of a public school student who was subjected to an incident of bullying or harassment an opportunity to transfer the student to another public school or to request a scholarship for the student to enroll in and attend an eligible private school.
• Back-to-School Holiday – House Bill 7087
  Creates the annual back-to-school sales tax holiday exempting certain clothing and school supplies from sales tax.  This year’s back-to-school holiday will not include technology products.  The holiday period will be August 3 through August 5, 2018.
• Hurricane Preparedness Holiday – House Bill 7087
  Creates a sales tax holiday for certain disaster preparedness items for the period June 1 through June 7, 2018.
• Temporary Exemption for Generators at Nursing Homes and Assisted Living Facilities – House Bill 7087; Effective upon becoming law and retroactive to July 1, 2017
  Creates a temporary exemption for generators purchased between July 1, 2017 and December 31, 2018.  The exemption may be applied at the time of purchase or is available through a refund.  Refund applications must be submitted within 6 months of the effective date of the legislation or within 6 months after the date of purchase, whichever is later. The exemption is limited to a maximum of $15,000 for any single facility.
• Temporary Refund for Nonresidential Farm Buildings – House Bill 7087; Effective upon becoming law and retroactive to September 10, 2017
  Creates a temporary refund for building materials used in the repair of nonresidential farm buildings damaged as a result of Hurricane Irma.  The refund applies to materials purchased between September 10, 2017 and May 31, 2018.   The refund application and a signed affidavit must be submitted by December 21, 2018.
• Temporary Refund for Agricultural Fencing – House Bill 7087; Effective upon becoming law and retroactive to September 10, 2017
  Creates a temporary refund for materials used in the repair of farm fences damaged as a result of Hurricane Irma.  The refund applies to materials purchased between September 10, 2017 and May 31, 2018.   The refund application and a signed affidavit must be submitted by December 21, 2018.
• Aquaculture Exemptions – House Bill 7087; Effective July 1, 2018
  Expands various agricultural exemptions to clearly include aquaculture activities including exemptions for liquefied petroleum gas to be used in tractors or farm equipment, electricity used in the raising of aquaculture products, and machinery and equipment used in aquaculture activities.
• Community Contribution Tax Credit – House Bill 7087; Effective July 1, 2018
  Increasing funding for the program to $12.5 for fiscal year 2018-2019 and $13.5M for fiscal year 2019-2020.
• Recycling Roll Off Containers – House Bill 7087; Effective July, 1, 2018
  Creates an exemption for recycling roll off containers purchased by businesses primarily classified under NAICS code 423930.
• Improvements for the Florida Tax Credit Scholarship Program for Direct Pay Sales Tax Dealers – House Bill 7055; Effective July 1, 2018
  Clarifies that any eligible contribution made to an eligible nonprofit scholarship-funding organization from a direct pay permit holder is included in the dealer’s calculation for its sales tax collection allowance.
• Expanded Uses of Tourist Development Taxes – House Bill 7087; Effective date July 1, 2018
  • Expands the use of tourist development taxes to finance the improvement, maintenance, renourishment, or restoration of a channel, estuary, or lagoon.
  • Allows the acquisition, construction, improvement, maintenance, repair, or operation of public facilities if such facilities are needed to increase tourist-related business activities. A county may not exercise this option unless it receives at least $10M in revenues and at least 40% of all revenues collected are spent to promote and advertise tourism.  Additionally, the county must approve the use by at least 2/3 of the members and no more than 70% of the cost of the proposed facilities may be financed by the tourist development tax revenues.

• Expanded Uses of Local Government Infrastructure Surtax – House Bill 7087; Effective date July 1, 2018
  • Clarifies that the surtax may be used to construct, reconstruct, or improve facilities that are necessary to carry out governmental purposes, including, but not limited to, fire stations, general government office buildings, and animal shelters.
  • Expands the term “infrastructure” to mean instructional technology used in school classrooms.

• Requiring Performance Audits Related to Discretionary Sales Surtaxes – House Bill 7087; Effective upon becoming law

Requires counties and school districts to conduct an independent performance audit at least sixty days before the referendum is held to adopt or amend a discretionary sales surtax.

Corporate Income Tax

• Corporate “Piggyback” – House Bill 7093; Effective for tax years beginning on or after January 1, 2018
  • Adopts the January 1, 2018 version of the Internal Revenue Code, including the Tax Cuts & Jobs Act.
  • Decouples from bonus depreciation under sections 167 and 168(k) of the Internal Revenue Code, and requires corporations take the federal deduction over seven years.
  • Creates a Department of Revenue working group to examine how the Tax Cuts & Jobs Act will affect the state Corporate Income Tax. The group must create a report by February 1, 2019.  The working group must conduct at least two public workshops to gather public input.  This will be the opportunity for affected taxpayers to participate in the process.
  • Creates an automatic rate reduction if the net corporate income tax collections from July 1, 2018 through June 30, 2019 exceed the estimated collections by more than seven percent. Therefore, if the net collections exceed $2,325,752,000 ($2,173,600,000 estimate x 107%), the corporate income tax rate (5.5%) will be reduced proportionately.  Any additional amount of net collections exceeding this amount will be used to provide proportionate refunds to corporate taxpayers.
• Improvements for the Florida Tax Scholarship Program – House Bill 7055; Effective for tax years beginning on or after January 1, 2018
  • Timing – Currently, corporations must apply for the program and make contributions before the end of its tax year. This can create difficulties if the corporation has not fully determined its potential liability at such time.   This legislation allows corporations to apply and make contributions anytime before the corporation’s return is due.[2]
  • Estimated Taxes – Provides that an eligible contribution made to an eligible nonprofit scholarship-funding organization at any time will be used to offset the corporation’s first estimated tax payment and any remainder carried forward to offset subsequent estimated payments.
  • Credit Carryforward – Extends the credit carryforward period from five years to ten years. Removes the requirement to seek approval from the Department of Revenue before carrying forward an unused credit amount.
• Brownfields Credit – House Bill 7087; Effective July 1, 2018
  Increasing funding for the program to $18.5 for fiscal year 2018-2019.

Ad Valorem Tax

• Citrus Processing – House Bill 7087; Applies to the 2018 tax roll
  Tangible personal property owned and operated by citrus fruit packaging or processing facility will be valued no greater than its salvage value if the property is no longer used in the operation of the facility due to the effects of Hurricane Irma or to citrus greening. The State will offset any reductions in revenues to fiscally constrained counties.
• Agricultural Classification Extension – House Bill 7087; Applies to the 2018 through 2022 tax rolls
  Lands classified as agricultural, which are not currently being used for agricultural production due to a 2017 hurricane, will continue to be classified as agricultural lands through December 31, 2022, unless the lands are converted to a nonagricultural use.
• Required Local Effort Millage – House Bill 5001; Applies to 2018 taxes
  Each year the Legislature sets the required local effort millage to be used for K-12 education.   In 2016 and 2017, the Legislature used general revenue funds to offset the amount of local taxes required to be collected.  The statewide average rates for those years were 4.694 and 4.322 mills, respectively.  This year, the Legislature reduced the statewide average to 4.091 mills, which is a reduction of approximately 5%.
• Multiple Parcel Buildings – House Bill 7087; Effective upon becoming law
  Directs property appraisers to assign a unique tax identification numbers to each parcel within a multiple parcel building, such as a mixed-use structure containing residential condominiums on top and commercial establishments on the bottom. Under current law, such buildings share one tax ID number so an entire building is susceptible to tax-deed sale if a single parcel fails to pay property taxes.
• Abatement of Taxes for Residential Improvements Damaged or Destroyed by Hurricane Hermine, Matthew, or Irma – House Bill 7087; Applies to 2019 taxes
  Provides a disaster relief credit for residential improvements rendered uninhabitable for at least thirty days due to damage or destruction caused by one of the three named hurricanes.  Property owners are required to file an application no later than March 1, 2019.  The disaster relief credit will reduce the taxes due in 2019.  The State will offset any reductions in revenues to fiscally constrained counties or Monroe County.
• Exemption for Disabled Servicemember or Surviving Spouse – House Bill 7087; Effective July 1, 2018
  Removes the requirement that the surviving spouse of a disabled servicemember had to be married for at least five years before receiving the exemption applying to $5,000 in value.
• Florida Governmental Utility Authority Clarification – House Bill 7087, Effective July 1, 2018
  In December 2017, the 5^th DCA affirmed that the water and wastewater facilities owned by the Florida Governmental Utility Authority were not exempt from ad valorem taxes, as the facilities served members located outside the entity.   The legislation clarifies that such entity was created for the public health, safety, and welfare regardless of whether the property is within or outside the jurisdiction of members of the entity.

Documentary Stamp Tax

• Exemption for Spousal Transfers – House Bill 7087; Effective July 1, 2018
  Creates an exemption for the transfer of homestead property between spouses if the only consideration is the amount of a mortgage or lien encumbering the homestead property if the deed or instrument is recorded within 1 year after the date of the marriage.
• Exemptions for Certain Loans – House Bill 7087; Effective July 1, 2018
  Creates exemptions for loans made under the Florida Small Business Emergency Bridge Loan Program and the Agricultural Economic Development Program.
• Exemption for Notes and Mortgages Made by a Housing Finance Authority – House Bill 7087; Effective July 1, 2018
  Creates an exemption for any note or mortgage given in connection with a loan made by or on behalf of a housing finance authority.  The housing finance authority must record an affidavit which affirms that the loan was made by or on behalf of the housing finance authority. The affidavit or letter must be recorded with the mortgage.

Motor Fuel Tax

• Terminal Supplier Export Exemption – House Bill 7087; Effective July 1, 2018
  Allows a terminal supplier to purchase otherwise taxable motor fuels from another terminal supplier at a terminal without paying the tax when the fuel will be sold to a licensed exporter for immediate export from the state.
• Temporary Refunds for Agricultural Transportation – House Bill 7087; Effective upon becoming law and operating retroactively to September 10, 2017
  Creates a partial refund for fuel purchased from September 10, 2017 through June 30, 2018, which was used for agricultural shipments to an agricultural processing or storage facility.
• Natural Gas Fuel Tax Extension – House Bill 7087
  Extends the effective date of the natural gas fuel tax from January 1, 2019 to January 1, 2024.
• Aviation Fuel Tax – House Bill 7087; Effective July 1, 2018Creates an exemption for air carriers under part 121, part 129, or part 135 of 1.42 cents per gallon of the aviation fuel tax.  The refund under this section and section 206.9855 may not exceed 4.27 cents per gallon.

Miscellaneous

• Taxpayer Rights Advocate – House Bill 7087; Effective July 1, 2018
  Moving the Taxpayer Rights Advocate to be located under the Chief Inspector General.  Requiring the Taxpayer Rights Advocate to prepare annual reports
• Marketplace Contractors – House Bill 7087; Effective July 1, 2018
  Creates Chapter 451 of Florida Statutes related to Marketplace Contractors. Provides that an online marketplace contractor is not an employee for workers’ compensation or reemployment tax purposes.
• Agricultural Truck Tractors License Plate Fees – House Bill 7087; Effective July 1, 2018
  Expanding the current 150-mile radius for tractor trailers used for forestry, agriculture, or horticulture products to also allow statewide travel.

• Local Business Tax Exemption for Veterans and Low-Income Persons – House Bill 7087; Effective July 1, 2018

Creates an exemption from the local business tax for a veteran, a surviving spouse of a veteran, a spouse of an active duty servicemember, and a person receiving public assistance. A municipality that imposes a business tax measured by gross receipts may continue to impose such tax at the same rate of tax, and revise the definition of “merchant.”

Conclusion

Taxpayers and practitioners should begin planning now to accommodate the impact of these potential changes in Florida tax law.  For assistance in evaluating the potential ramifications of these changes, please contact a member of our State and Local Tax Team.

About the Authors:
H. French Brown, IV focuses on state and local taxation, governmental relations and lobbying, and administrative law. Prior to joining Dean Mead, Mr. Brown was in private practice at another Tallahassee law firm. He began his legal career at the Florida Department of Revenue, where he quickly rose to the position of Deputy Director of Technical Assistance and Dispute Resolution. Mr. Brown also assists businesses with Florida tax planning and controversies. He may be reached at fbrown@www.deanmead.com.

Michael B. Dobson practices in Dean Mead’s Tallahassee office. His practice focuses on Governmental Relations, Real Property, Public Records and Administrative law. Prior to joining the firm, Mr. Dobson worked as a staff attorney for the Florida House of Representatives, Ways and Means Committee. In that role, he drafted and analyzed legislation, counseled legislators and staff on a variety of ad valorem tax and Florida constitutional law issues, and presented at committee meetings. During law school, Mr. Dobson served for two sessions with the Florida House’s Appropriations Committee. He may be reached at mdobson@www.deanmead.com.

Robert S. Goldman offers clients over 30 years of experience practicing in state and local taxation. He represents clients in audits, protests, litigation, rulemaking, tax planning, and legislation. His experience includes all the major state and local taxes (sales taxes, property taxes, corporate income taxes, communications service taxes, gross receipts taxes, insurance premium taxes, documentary stamp taxes). Mr. Goldman’s range of experience spans diverse industries including retail, manufacturing, energy, leasing, hospitality, telecommunications, government contracting, health care, transportation, and the service sector. He may be reached at rgoldman@www.deanmead.com.

Mark Holcomb has more than 32 years of experience practicing in state and local taxation. He represents clients before the Florida Department of Revenue and local taxing authorities, and in litigation at the trial and appellate levels. Mr. Holcomb advises clients on a broad range of state and local taxes, including corporate income and franchise tax, sales and use tax, documentary stamp tax, communication services tax, insurance premium tax, ad valorem tax and motor fuels tax, in tax controversy work and in planning opportunities. He may be reached at mholcomb@www.deanmead.com.

[1] The amount of bills passed this year was significantly lower than any session since before 2001.

[2] If a corporation applies and is approved for a credit after timely requesting an extension to file, the approved credit will not reduce the amount of tentative tax due at the time the extension was requested.  Additionally, if the corporation fails to comply with the requirement to pay tentative taxes, credits approved after the extension will be revoked.