A bunch of corporations defied the Florida Legislature without consequence
The state is waiving millions in penalties
This is Seeking Rents, a newsletter devoted to producing original journalism — and lifting up the journalism of others — that examines the many ways that businesses influence public policy across Florida, written by Jason Garcia.
In 2019, the Florida Legislature passed an enormous tax cut for corporations despite not knowing how much it would cost. It was the second year in a row that state lawmakers had enacted a big corporate tax cut while essentially flying blind – all in response to an even bigger corporate tax cut in Washington that had caused ripple effects in states around the country.
But this tax cut was temporary – and it came with a catch. The law required corporate taxpayers to provide the state with more detailed information about their income taxes.
Supporters called it a responsible middle ground that would allow Florida to gather better data before making any permanent changes in response to the federal tax cuts.
There’s just one problem. Thousands of corporations ended up ignoring that law.
According to the Florida Department of Revenue, only about half of Florida corporate taxpayers filed the “additional information returns” for 2018 and 2019, the two tax years for which the requirement was in place. A spokesperson for the agency said 48.6 percent of corporate tax filers completed the returns for 2018 and 51.4 percent completed them for 2019.
State economists recently deemed the data from those information returns unusable, as they attempt to estimate the impact of the permanent corporate tax cuts that businesses are once again lobbying for this legislative session.
“I don’t have a lot of confidence that the information that we got in the informational returns is the right information to be using for this at all,” Vince Aldridge, a member of Florida’s Revenue Estimating Conference, said during a recent meeting to “score” the proposed tax cuts. “It’s definitely incomplete, and it’s incomplete in a way that suggests it’s unreliable.”
“I don’t think we can trust that information, either. I just don’t think it’s reliable,” added Robert Babin, another REC member.
The 2019 law wasn’t optional; it required corporations to file these information returns. And it called for penalties for those that did not comply: A fine of $1,000 or 1 percent of their tax due, whichever was greater.
But the Department of Revenue says it has decided not to impose penalties for incomplete returns because the Revenue Estimating Conference decided not to use the data from those returns – even though the REC decided not to use the data because the returns were incomplete.
This is a big financial decision. The revenue department declined to say whether it has calculated the total amount of money it has waived in fines for corporations who did not fille these information returns. But it appears to be at least $168 million – and potentially as much as $255 million, according to my estimates. (More about this at the end.)
That’s money that would have gone into the state’s general revenue fund – the unrestricted pot of money at the heart of the state budget, which lawmakers can spend on whatever they decide are Florida’s most important needs.
For perspective: Florida is spending $209 million this year on affordable housing.
Changes in Washington cause upheaval in Tallahassee
This is one of those arcane technical issues that ultimately has significant consequences. To understand why, you have to wind the clock all the way back to December 2017, when former President Donald Trump and the then-Republican-controlled U.S. Congress passed the “Tax Cuts and Jobs Act.”
The centerpiece of the TCJA was one of the biggest corporate income tax cuts in American history. But the legislation was a lot more complicated than a straight tax cut.
We’ll get into more detail in future stories. But the most important thing to understand for now is that state corporate taxes are linked to the federal corporate tax. So when Congress makes changes to the federal tax code, those changes affect Florida’s tax code, too.
And the Tax Cuts and Jobs Act made a lot of big changes. The net effect was that corporations ended up paying less in federal income taxes – but more in Florida income taxes.
State corporate taxes are a fraction of federal corporate taxes, so the TCJA was still a giant net tax cut overall. But corporate lobbyists have used this shifting mix to argue that Florida has now “raised” their taxes. They want state lawmakers to ignore – or “decouple” from – key provisions in the TCJA that have led to higher state tax bills while also “coupling” to yet another provision that would provide an extra state tax break.
The problem is that the Tax Cuts and Jobs Act made such sweeping changes that it’s been hard for state economists to get a firm grasp on just how much it would cost Florida to make corresponding changes at the state level. They’ve been struggling with this question for four years now.
This is why the Legislature agreed to pass temporary tax cuts in 2018 and again in 2019.
Those temporary tax cuts are now saving corporations an estimated $3.6 billion – despite early predictions from supporters that the impact was “unlikely...to be anything substantial.” The savings are flowing only to the biggest businesses. That’s because 99 percent of Florida businesses don’t pay any state corporate tax at all.
‘What we’re doing is really responsible’
This brings us back to those “additional information returns” that lawmakers ordered as part of Florida’s 2019 tax cut.
“What we’re doing is, I think, really responsible in terms of gathering the information that we need in order to make the best possible decision,” Rep. Bryan Avila, the Republican from Miami Springs who sponsored the bill, said in 2019. “We certainly don’t want to make a permanent decision in terms of enacting certain policies without having all of that information at our disposal.”
Those returns, which corporations were supposed to file with their 2018 and 2019 taxes, were going to fill in the information gap that state economists have been struggling with.
They have not.
“I don’t give, unfortunately, really any weight to the information statement,” Amy Baker, another REC member, said during a recent meeting.
It’s not just that many corporations didn’t file the information returns. The REC members also made it clear during their discussions that they suspect some of the returns that did come in are inaccurate or incomplete.
And here’s why this ultimately matters (beyond the fact that Florida appears to be allowing many corporations to defy a state law without consequence while giving up tens of millions of dollars in general revenue in the process):
The Republican-controlled Florida Legislature is philosophically inclined to support almost any manner of tax cut. And this is a tax cut that is very important to some of the state’s biggest businesses – who are also some of the state’s biggest campaign contributors.
The only limiting factor in this debate may be the price tag that the Revenue Estimate Conference puts on this legislation. That’s because the number they assign to the tax cuts directly affects the amount of money available for next year’s state budget. The bigger the cost of the cuts, the less money lawmakers will have to spend.
This has already been the subject of some verbal wrestling between the members of the REC and business lobbyists urging them to adopt a lower “score” for this legislation.
During one meeting, Baker pushed back against the notion that the REC may be overestimating the cost of the tax cuts by pointing out that they tried to get better data from corporations – but many corporations decided not to provide it.
“One of our problems,” Baker said, “is the conference, as supported by the Legislature, made a concerted effort to try to....get that information sheet.”
A note about my estimates
The Florida Department of Revenue declined to provide any estimate of how much money it is forgoing by waiving penalties against corporations that didn’t file information returns. So I attempted an estimate myself. Because it’s such a big number, I want to explain the methodology.
First, remember the penalty is $1,000 or 1 percent of a company’s tax bill, whichever is greater. That means every fine would be at least $1,000.
The revenue department says it mailed out 113,862 delinquency letters after the 2018 filing deadline and another 140,976 delinquency letters after the 2019 deadline. That’s 254,838 delinquencies total. Assume that’s everyone who ultimately didn’t file, and each of them was fined $1,000, and you get just under $255 million.
That’s probably a decent upper bound for the estimate. Some of the biggest corporations would pay more than $1,000, because 1 percent of their tax bill is a lot more than $1,000. But you would also expect that some companies that got these delinquency letters reacted by filing the information returns.
Now, for the lower bound.
According to a letter DOR sent to state Rep. Angie Nixon (D-Jacksonville) in March 2021, there were 230,164 corporate income tax filers in 2018 and 223,338 filers in 2019. That adds up to nearly 454,000 filers over the two-year period.
In addition, DOR says it ultimately received “over 286,000” information returns. It’s not clear if that figure includes duplicates or erroneous returns that were later corrected. But if you assume that they are all unique final returns, and you subtract 286,000 from 454,000, that implies about 168,000 filers who did not file the information returns. Fine those companies $1,000 each, and you get $168 million.
A couple other points to consider. First, a spokesperson for the department said that imposing the penalties would “require new programming to distribute bills to delinquent filers, as well as significant audit resources to reconcile the returns with the federal returns.” In other words, it would cost some money to collect this money.
In addition, it’s quite likely that, if the department had enforced the penalties, more corporations would have filed these information returns. So you wouldn’t end up with all of this money (but you would end up with more data).
Lastly, this estimate only considers corporations that didn’t file information returns at all. It’s possible the penalties could have applied to corporations that filed incomplete returns, too.
When do we get to see the names of the companies? Would be pretty cool to do a map of them.