Guest Author
Last week, there was some debate in the Florida Legislature that mischaracterized an attempt by some lawmakers to fix an inadvertent tax increase on a vital economic driver in Florida — the vehicle leasing and car rental industry.
While there are several proposals debated in the Legislature that one could easily describe as a tax cut or a tax break, in this instance it is simply not mathematically accurate. This over-taxation the Legislature is seeking to fix is not a tax break. The proposal they are debating is actually fixing a bad tax policy that was a result of an oversight — an oversight that has led to an increase of millions of dollars in annual taxes on a single industry.
So how did we get here?
The significant tax increase on the vehicle leasing and car rental industry is the result of federal tax reform and those reforms not being anticipated correctly at the state level. To explain, at the federal level, the tax paid on vehicle lease and rental assets remains the same as it did before the federal Tax Cuts and Jobs Act. However, federal reforms changed the federal theory of taxation but the state did not address this change in methodology in 2018 or 2019.
During the Great Recession, Florida started requiring companies to depreciate assets over seven years, regardless of how long the company owned the assets. Continuing this long-standing Florida treatment to the new federal methodology for vehicle lease and rental assets results in extensive Florida tax increases for these companies.
Because Florida continues to extend depreciation schedules, significant assets remain on these companies’ Florida balance sheets years after the assets are sold. This is purely a timing issue, which results in large interest-free loans to the state. After the federal methodology changes, the amount of these loans to the state paid by vehicle lease and rental companies skyrocketed.
And what is the actual impact to corporate taxpayers because of this increase? Well, the answer is significant.
A corporate taxpayer that has been paying around $5 million annually in state taxes for the last decade in Florida, suddenly paid $50 million in 2018 and $50 million in 2019.
They went from $5 million to $50 million overnight and nothing changed in their business model to trigger this massive increase.
And this significant increase in taxation isn’t just impacting companies in these industries, it is also impacting Florida consumers. The front-loading of this massive tax increase has a direct cost to consumers because businesses cannot survive a 500-1,000 percent increase in costs without increasing their prices.
This impacts the company, which in turn impacts consumer pricing.
It’s time to fix this oversight for Florida companies and consumers. This revenue-neutral remedy is the fix we need to help a major economic driver in the state of Florida — the vehicle leasing and rental car industry and everyday Floridians who lease and rent cars.
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David Hart is the Executive Vice President of the Florida Chamber of Commerce. He can be reached at [email protected].
