REPORT AND RECOMMENDATIONS OF THE FLORIDA TANGIBLE PERSONAL PROPERTY TAX TASK FORCE

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1 REPORT AND RECOMMENDATIONS OF THE FLORIDA TANGIBLE PERSONAL PROPERTY TAX TASK FORCE November 2011

2 ReportandRecommendationsoftheFlorida TangiblePersonalPropertyTaxTaskForce Theadvaloremtaxationoftangiblepersonalproperty(TPP)inFloridaraisesapproximately$1.8 billionforcounties,cities,schoolsandspecialdistricts.itisarelativelysmallpartofflorida s $25billionpropertytaxsystem,butitplaysanimportantroleinmanylocalgovernments financialstructure,especiallysmallcountieswheretppcomprisesasignificantportionofthe taxroll. However,manybelievethatthetaxiscostlyforFloridabusinessestocomplywithandfor governmenttoadminister,thatthereisalackofuniformitytoitsapplicationtotaxpayersin differentareasofthestate,andthatthecurrentsystemallowsforsignificanttaxavoidance. Andperhapsmostimportantly,thereisaperceptionthatthetaxstandsasanimpedimentto capitalformationandjobcreationinourstate. AspartofhisfocusonjobcreationandenhancementofFlorida scompetitiveness,governor RickScottwantedtoexaminetangiblepersonalpropertytaxationinFlorida,focusingon whetherareductionoreliminationofthetaxcouldprovideaboosttoeconomicdevelopment. HeaskedformerstatesenatorandSarasotarealestatedeveloperPatNealtoleadtheeffort andaskedfloridataxwatchtocarryouttheresearch. Tothisend,FloridaTaxWatch,undertheguidanceofChairmanNeal,formedtheFlorida TangiblePersonalPropertyTaskForce.Thetaskforceiscomprisedofbusinessleaders, propertyappraisers,andtaxpractitioners.themissionofthetaskforcewastoexaminetpp taxationinflorida,issueareport,andmakerecommendationstothegovernorandtheflorida Legislature. ThisisthefinalreportoftheFloridaTangiblePersonalPropertyTaskForce.Itwaspresentedto thegovernoronseptember2,2011.(postscript:onoctober12,2011,thegovernorreleased his2012jobcreationandeconomicgrowthagendawhichrecommendsthatthelegislatureplace aconstitutionalamendmentontheballotthatwillcompletelyexemptanybusinesswithless than$50,000intangiblepersonalpropertyfrompayingtpptaxes.)

3 ExecutiveSummary Theadvaloremtaxationoftangiblepersonalproperty(TPP)inFloridaraisesapproximately$1.8 billionforcounties,cities,schoolsandspecialdistricts.itisarelativelysmallpartofflorida s $25billionpropertytaxsystem(7.5percent),butitplaysanimportantroleinmanylocal governments financialstructure. ManybelievethatthetaxiscostlyforFloridabusinessestocomplywithandforgovernmentto administer,thatthereisalackofuniformitytoitsapplicationtotaxpayersindifferentareasof thestate,andthatthecurrentsystemallowsforsignificanttaxavoidance.whiletheseare importantissues,thefocusofthisreportiswhetherthetaxstandsasanimpedimenttocapital formationandjobcreationinourstateoriftherepealorreductionofthetaxwouldspur economicdevelopment. ThereareamultitudeofvariationsonhowstatestaxTPP.Fourteenstatesatleastsubstantially exemptbusinesspropertyfromtaxation.nosoutheasternstateexemptstpp,indicatingan exemptioncouldbeanincentiveforbusinessestolocateinflorida. Propertytaxesarenowbyfarbusinesses numberonetaxexpensenationwide,comprising36 percentoftotalstateandlocaltaxes.thisiseventruerinflorida,whichhasthefourthhighest relianceonpropertytaxesforitstateandlocaltaxesinthenation.further,florida sproperty taxsystemshiftsbillionsofdollarsintaxburdenfromhomesteadpropertytononhomestead property. EliminationofTPPtaxeswouldaffectlocalgovernmentsinvariouscountiesverydifferently. WhilelargercountiestendtohaveasmallerportionoftheirtaxrollscomprisedofTPP(less than5.5percentinthethreelargestcounties),smallerruralcountiesrelyheavyonthetax. Threecountieshavemorethan40%oftheirtaxbasemadeupbyTPP.Whilesomeofthe larger,moreprosperouscountiescouldprobablyabsorblosttpptaxes,itwouldcreatesome realproblemsformanysmaller,fiscallyconstrainedcounties. Inaddition,localgovernments propertytaxbaseshavealreadydeclinedby21%since2007and thestatehasalsoseenitsrevenuesshrinkforseveralyears.thelegislaturewouldhavetofind anadditional$780millioninstatemoneytoreplacethelostfundingforschools orraise taxes toavoidareductionineducationfunding. Forallthesereasons,theTaskForceconcludedthat,whilethetotalrepealoftangiblepersonal property(tpp)taxesinfloridawouldlikelycreateasignificantaddedattractionforbusinesses

4 thatareconsideringlocatinghere,thecurrentenvironmentiscertainlynotfavorablefor reducingtherevenueofschoolsandlocalgovernmentsby$1.8billion. InsteadoftryingtototallyeliminateTPPtaxesnow,thestateshouldlookatprovidingtarget economicdevelopmentexemptionsfromtpptaxesthatcanpromotecapitalinvestmentin Floridaandcreatejobs.Exemptingallmanufacturingandthestate squalifiedtargeted Industrieswouldprobablyprovidethemost bangforthebuck. Onlytencountieshavea manufacturingsharethatexceedsthreepercentoftaxablevalueandonlyfourcountieshavea targetindustryshareabovetwopercent. FloridaTaxWatchperformedeconomicsimulationmodelingoffiveTPPtaxreductionoptions. FullrepealofTPPtaxescouldcreate,dependingonhowlocalgovernmentsdealtwiththe revenueloss,asmanyas100,000totaljobsovertenyears.thelossofgovernmentjobscould reducethattotal,dependingontheextenttowhichlocalgovernmentshadtoreducespending. Narrowerexemptionsformanufacturingandthetargetindustries(boththestate squalified TargetedIndustriesandhighimpactsectors)werealsomodeled.Allofthesescenariosshowed positivegrowthinprivatesectoremploymentandgrossdomesticproduct.assumingthelikely outcomethatmostcountieswillreplacethelostrevenueofthelesscostlyexemptions, exemptingbothmanufacturingandtargetindustriesshowsthemostprivatesectorjobs,the mosttotaljobsandlargestgdpincreaseoverthetenyearperiodofthesimulation.compared tototalrepeal,thisnarrowerexemptionproducesmorejobsrelativetothesizeofthetax reduction. TheexpectationthatreducingoreliminatingTPPtaxeswouldattractmorebusinessestolocate infloridawasalsoexamined.thisisalikelyscenariosincefloridawouldbecometheonlystate inthesoutheasttoexempttpp.ifthisexemptionledtoanincreaseinfloridamanufacturing jobsofonlyonetothreepercent(3,000to9,000jobs),between88,300and220,400additional jobswouldbecreatedovertenyears.thisisbetween35,000and60,000morejobsthanwould becreatedbytheinfluxofthesamenumberofnewjobsallocatedtoallindustries(insteadof justmanufacturing). 2

5 Insummary,theFloridaTangiblePersonalPropertyTaxTaskForcerecommendsthatthe Legislature: Passajointresolutionproposingaconstitutionalamendmenttogobeforethevotersin November2012thatgivestheLegislatureflexibilityintheareaoftaxationoftangible personalproperty. Intheshortterm,createTPPtaxexemptionsforallmanufacturersandotherstate targetedindustriesandhighimpactsectors.ataminimum,thestateshouldexempt newandexpandingbusinessesintheseareas,butstrivetoprovidefullexemptionsfor thesesectors. Thelegislaturecouldallowforlocalgovernments byreferendumto optout,or continuetotaxtpp.alternatively,thestatecouldconsiderreimbursinglocal governments particularlyfiscallyconstrainedcountiesforlostrevenue. TheLegislatureshouldsetagoaloftotaleliminationofadvaloremtaxationoftangible personalpropertyinthefuture,whenpropertyvaluesaregrowingatasignificantlevel again. 3

6 Wherethe$1.8BillioninTPPTaxesGo (million$) $ % $ % $ % $ % Counties SchoolDistricts SpecialDistricts Cities Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August

7 Introduction WhatisPersonalProperty? Ageneraldefinitionofpersonalpropertyispropertythatisnotattachedtothelandandcan thereforebemovedfromplacetoplace. TherearefourclassesofpersonalpropertyinFlorida 1 : Householdgoodswearingapparel,furniture,appliances,andotheritemsordinarilyfoundin thehomeandusedforthecomfortoftheownerandhisorherfamily,householdgoodsarenot heldforcommercialpurposesorresale. IntangiblePersonalProperty money,allevidencesofdebtowedtothetaxpayer,all evidencesofownershipinacorporationorotherbusinessorganizationhavingmultipleowners, andallotherformsofpropertywherevalueisbaseduponthatwhichthepropertyrepresents ratherthanitsownintrinsicvalue Inventory consistingofitemscommonlyreferredtoasgoods,wares,andmerchandisewhich areheldforsaleorleasetocustomersintheordinarycourseofbusiness TangiblePersonalProperty allgoods,chattels,andotherarticlesofvaluecapableofmanual possessionandwhosechiefvalueisintrinsictothearticleitself. Thefirstthreecategorieshouseholdgoods,inventory,andintangiblepersonalpropertyare exemptfromtaxationinflorida;onlytangiblepersonalpropertyissubjecttotaxation. WhatisTaxedasTangiblePersonalProperty? Generally,thetangiblepersonalproperty(TPP)taxispaidbybusinessesontheirmachinery, equipment,furniture,computers,signs,supplies,andothersuchproperty. Motorvehicles,boats,airplanes,trailers,trailercoaches,andmobilehomesaresubjecttoa licensetaxbutarenotsubjecttoadvaloremtaxes.mobilehomesfixedtothegroundare 1 5

8 treatedasrealproperty.however,mobilehomesnotfixedtothegroundandnothavinga licensecanbetaxedastpp. TPPComprises7.5%ofTotalStateTaxableValue 2011 $96.8billion 7.5% $1,287billion Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011. TheFloridaConstitutionprovidesthattheremustbeanexemptionforhouseholdgoodsofat least$1,000 2.TheFloridaStatutesprovidethathouseholdgoodsarenotTPP 3. TheFloridaConstitutionalsoprovidesthatinventory( propertyheldforsaleasstockin trade ) 4 maybeexemptortaxedataspecifiedpercentageofitsvalue.floridastatutesprovide thatinventoryisnottpp 5. 2 ArticleVII,Section3(b),FloridaConstitution 3 Section (11)(d),FloridaStatutes TangiblePersonalProperty AllProperty 6

9 TangiblePersonalPropertyTaxationinFlorida TPPtaxesareadvalorem(property)taxesleviedannuallybylocalgovernmentsandschool districtsbaseditsvalueasofjanuary1ofeachyear.itistaxedlikerealproperty,withthe FloridaConstitutionprovidingtheframeworkandthedetailsspelledoutinstatute. TheFloridaConstitutionprohibitsthestategovernmentfromlevyinganadvaloremtaxexcept onintangiblepersonalproperty. 6 Intangiblepersonalpropertytaxeswerephasedout, beginningin1998andtheannualtaxwasfinallycompletelyrepealed 7 effectivejanuary1, ThetaxablevalueofTPPisthejustvalue(fairmarketvalue)ofthepropertyadjustedforany exclusions,differentials,orexemptionsallowedbytheconstitutionandthestatutes.the Constitutionstrictlylimitsthelegislature sauthoritytoprovideexemptionsoradjustmentsto fairmarketvalue. Thetaxrateisthesamemillagerateleviedbycounties,cities,schooldistricts,andspecial districtsonrealproperty. TPPtaxpayersarerequiredtofiletaxreturnsinthecountywherethepropertyislocated,a separatereturnforeachlocationinthecounty. Annualtaxbillsar edinNovemberbasedonthepreviousJanuary1valuationand paymentisduebythefollowingmarch31.discountsaregrantedforearlypaymentandmost taxpayerspaybylatenovember. In1980,countiesandcitiesweregivenauthoritytoenactadvaloremexemptionsfornewand expandingbusinesses.theexemptionsmustbeapprovedbyreferendumofthelocalvoters. Theexemptionsexpirein10yearsunlessrenewedbyanotherreferendum. AllTPPtaxpayers(exceptmobilehomes)receivea$25,000exemptionwhichwascreatedas partofamendment1in Thereare1.24millionaccounts.Approximatelyonemillion(80 4 ArticleVII,Section4(c),FloridaConstitution 5 Section (11)(d),FloridaStatutes 6 ArticleVII,Section1(a),FloridaConstitution 7 Thereisstilla2millonetimetaxisimposedonobligationsforthepaymentofmoneysecuredbyliensonFloridareal property.thisisstillcalledtheintangiblestax. 8 Amendment1wasapprovedbythevotersin2008andprovidedtheTPPexemption,alongwithanadditionalhomestead exemption,a10%assessmentcaponnonhomesteadpropertiesandallowedtheportabilityofbenefitsearnedundersaveour Homes. 7

10 percent)aretotallyexemptbythe$25,000exemption.butwhilethegreatmajorityof businesseshavenotaxliability,theexemptionreducestotalleviesbyonlysevenpercent. TPPtaxesraised$1.8billionin2011(seechartonpage2). 120 TaxableValueofTPP (billion$) $96.3 $86.8 $88.3 $90.1 $91.9 $102.8 $106.6 $101.3$101.5 $101.1 $ Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011. TPPhasbeenafairlystable,slowgrowingrevenuesourceovertheyears.Thetaxablevalueof TPPhasonlyincreasedby11.5percentoverthelasttenyears(seechartabove).TheFlorida DepartmentofRevenuedoesnotkeepseparatetaxlevydataforTPP,butifyouapplythe averagestatewidemillageratein2001(whichwashigherthanitisnow)tothatyear staxable value,theresultisvirtuallythesameamountoflevies$1.82billionasin2011. Asthechartbelowshows,growthinTPPismuchflatterthanthatofrealproperty.WhileTPP increased11.5percentovertenyears,thetaxablevalueofrealpropertyhasincreased75 percent.tppvaluedidnotskyrocketduringthepropertyvalueboomandthereforehasnot fallenasmuchasrealpropertyafterthebubbleburst. 8

11 GrowthinTaxableValue TangiblePersonalPropertyvs.AllProperty 140% 120% 100% 80% 60% 40% 20% 0% TPP AllProperty Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011. TangiblePersonalPropertyTaxesinOtherStates Amongthefiftystates,thereareprobablyfiftyvariationsofhowtotaxtangiblepersonal property(tpp).statesdifferonhowtheytreatbusinessproperty,inventory,householdgoods, andmotorvehicles.therearewidelyvaryingexemptions,bothinthedollaramountof standardexemptions(suchasflorida s$25,000exemption)andindustryandpropertyspecific exemptions.somestatesgivelocaljurisdictionsmoreflexibilityinthetaxationoftpp. FloridaTaxWatchexamineddatafromthreeorganizations 9,someofitconflicting,totrytoget apictureofhowtppistreatedacrossthenation.thefocusisonbusinessproperty,whichis whatfloridataxes. 14StatesExemptTPP FourteenstatesatleastsubstantiallyexemptTPPfrompropertytaxation.Theseare: 9 InternationalAssociationofAssessingOfficers(IAAO),CCH,Inc.,andtheLincolnInstituteofLandPolicy 9

12 Delaware Maryland NorthDakota Hawaii Minnesota SouthDakota Illinois NewHampshire Ohio Iowa NewJersey Pennsylvania Maine NewYork ItshouldbenotedthatnosoutheasternstateexemptsTPP,meaninganexemptioninFlorida wouldgivethestateacompetitiveadvantageoveritsneighboringstates. 12StatesTaxInventory OneareathatFloridaexemptsalongwith38otherstatesisinventory,whichitexemptedin 1981.Twelvestatesstilltaxinventory.Theseare: Alaska Louisiana Pennsylvania Arkansas Massachusetts Texas Georgia Mississippi Wyoming Kentucky Oklahoma WestVirginia TPPTaxReliefinSelectedOtherStates ManystateshaveprovisionstoprovidenarrowerexemptionsorothermeansofTPPtaxrelief. Someexamples: Alaska allowsexemptionoftppbylocaloption Pennsylvania exemptsutilitiesandprovideseconomicdevelopmentexemptions Kansas citiesandcountiescanprovideeconomicdevelopmentexemptions RhodeIsland exemptsmanufacturers DistrictofColumbia$225,000standardexemption LikeKansas,Floridaalsoallowscitiesandcountiestoprovideeconomicdevelopment exemptionsforrealandtangiblepersonalproperty 10.However,atleastpartlybecausethereis areferendumrequirementtoapprovesuchexemptions,thiseconomicdevelopmenttoolisnot 10 ArticleVII,Section(3)(c),FloridaConstitution 10

13 widelyused.localgovernmentsinfifteencountiesprovideexemptionsworthapproximately onehalfofonepercentofthetotaltaxablevalueoftpp. SomeRecentDevelopments Inthelastdecade,severalstateshavetakensteptoeliminateorreduceTPPtaxes,including Ohio,whichisinthemiddleofaphaseoutofthetax OhiobeganaphaseoutofTPPtaxation Coloradobeganphasinginanincreasedexemption,in2015itwillbeindexedto inflation 2008 MaineexemptedTPP Indianaexemptedinventory D.C.createda$225,000exemption Floridacreateda$25,000exemption 2003 IowaexemptedTPP 2000 Montanacreated$20,000exemption 11

14 DoFloridaPropertyTaxesImpactEconomicDevelopment? Taxesarejustoneofthefactorsthatcaninfluenceacompany sdecisionaboutwhichstateto locateitsoperations.education,workforcequality,infrastructure,qualityoflife,andother factorsareallimportant.buttaxescertainlydomatter.thiscanbeespeciallytruewithtaxes thatimpactcapitalintensiveindustries.thefloridalegislaturerecognizedthisduringthe2010 SessionwhenitpassedelectiveSingleSalesFactorapportionmentofcorporateincomefortax purposesforcompaniesthatinvestover$250millioninourstate.thisincentivewasalong timerecommendationoffloridataxwatch. 11 Underthisnewlaw,aqualifyingcorporationmay choosetoapportionitsmultistateincometofloridausinga100percentsalesfactor,meaning thepercentageofitsincomeapportionedtofloridawillequalthepercentageofitssalesin Florida.ThisisanalternativetoFlorida sthreefactorformulaofsales,propertyandpayroll.by goingto100%sales,ataxdisincentivetoplacingcapitalinfloridaisremoved. Propertytaxes,particularlytangiblepersonalproperty(TPP)taxesalsoimpactcapitalintensive businesses.propertytaxesarenowbyfarbusinesses numberonetaxexpensenationwide, comprising36percentoftotalstateandlocaltaxes. 12 ThisiseventruerinFlorida,whichhas thefourthhighestrelianceonpropertytaxesforitstateandlocaltaxesinthenation(seechart onnextpage).dueinparttoanabsenceofapersonalincometax,florida sstateandlocal governmentsrelymoreheavilyonsalestaxesandpropertytaxes,withpropertytaxesbeingthe largestrevenuesource 41percentofthetotal(seetableonnextpage). ThesizeofFlorida spropertytaxburdenisalsooneofthelargestinthenation(seetableon page14).in2008(latestavailabledataforallstates),floridaranked10 th amongthe50states inpercapitapropertytaxcollections.florida spercapitaburdenof$1,632is21percenthigher thanthenationalaverage. Florida spropertytaxburdenisalsodisproportionatelybornebybusinesses.floridaproperty taxlawsfavorhomesteadresidentialpropertyoverotherpropertytypes.homestead exemptionsandthesaveourhomes 13 caponhomesteadpropertyshiftbillionsinpropertytax burdentononhomesteadproperties,includingbusinesses.thisisdiscussedlaterinthisreport (seechartonpage16).fallingpropertyvaluesinrecentyearshavediminishedthistaxshift, 11 FloridaTaxWatch, TransformingFlorida'sCorporateIncomeTaxtoEncourageCapitalFormationandJobCreation,March Ersnt&YoungandtheCouncilonStateTaxation, TotalstateandLocalBusinessTaxes, March Approvedbythevotersin1992,theconstitutionalamendmentallowstheassessmentofhomesteadpropertiestoincrease onlybythelesserof3percentorinflation. 12

15 butbothareexpectedtobeginincreasingagain 14.A10percentcapofnonhomestead propertyandthe$25,000exemptionfortppcontainedinamendment1helpbusinessasa whole,buttheadditionalhomesteadexemptionalsocontainedinthatamendmentismuch greaterthanthebusinessrelief.in2011,thehomesteadexemptionremovesmorethanfour timestheamountoftaxablevalue($84billion)fromtherollsastheothertwoprovisions combined 15. Floridahasthe4 th HighestRelianceonPropertyTaxesintheNation PercentofFlorida stotalstateandlocaltaxesbysource 3% 25% 41% 31% Property General Sales Corporate Income Other U.S.Average Property31%Sales23%PersonalIncome23%CorporateIncome4%Other19% 14 LatestresultsoftheFloridaAdValoremRevenueEstimatingConference,August3, FloridaDepartmentofRevenue,2011AmendmentIImpactReport 13

16 Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011 TheCouncilonStateTaxation s2011propertytaxadministrationscorecardgavefloridavery highmarksforitspropertytaxlaws B+,thethirdhighestgradeinthenation.Theonlyarea inwhichfloridawasdowngradedwasinequitybetweenresidentialandbusinessproperty. 16 Florida sbusinessclimate Thereareavarietyoforganizationspublishingbusinessclimaterankings,theresultsofwhich canberatherconfusing.afloridataxwatchreport 17 foundthatamongsevendifferent indices,floridaisrankedamongboththetoptenstatesandthebottomhalfofstatesforits competitivenessnationally.thevariabilityintheserankingsiscausedbythedifferentfactorsof thebusinessclimatebeingconsideredbyeachindexandthedifferentweightsassignedto thosemeasures. Thereportfoundthatitiswelldocumentedthattherelativetaxburdenleviedonbusiness directlyaffectsthedecisionsofentrepreneurs,firms,andinvestorsonwhethertostart, relocate,orexpandwithinastate.itfurtherfoundthatfloridarankednearthebottomforits overalltaxburden(37thand41stnationallybyforbesandcnbc,respectively.eachofflorida s neighboringstateswasrankedsignificantlybetter(lesscostlytobusiness).inallindices, Florida soveralltaxburdenwasfoundtobehigher(morecostlytobusiness)thantherestof thenationanditsneighboringstates. Florida spropertytaxrankingalsocomparesunfavorablytothestate scompetitors.florida wasranked37thnationallyduetoarelativelyhigherpropertytaxburdenbytheamerican LegislativeExchangeCouncil.EventheTaxFoundation,whichrankedFlorida5 th bestintotal businessclimate(duelargelytonopersonalincometax)rankedthestate28 th forproperty taxes,whichisdownfrom18 th placefouryearsago.inallthedifferentrankings,all neighboringstateshadalowerpercapitapropertytaxburdenthanfloridaandeveryneighbor excepttexas(onerankhigher)hadalowereffectivepropertytaxrate. Onelastrankingofnote,arecentstudybyErnst&YoungshowedthatFloridahasthe27 th lowesteffectivetaxrate(alltaxes)onnewcapitalinvestmentandthe29 th lowesteffectivetax 16 CouncilonStateTaxation, TheBestandWorstofPropertyTaxAdministration, May FloridaTaxWatch,KatieFurtickandKatieHayden,StateCompetitivenessIndices&Rankings:WhatNationalRankingsTellUs aboutflorida scompetitiveness,march

17 rateoncommercialequipment.areductionintangiblepersonalpropertytaxescouldhelp lowerthoserates. 18 Relativebusinessclimaterankingsaredifficulttomeasureeffectively,asevidencedbythe disparitiesinthevariousrankings.however,onethingisclearafterreviewingthedata, Florida spropertytaxburdenonbusinessesishigherthanmoststates.thissuggeststhat exemptingtangiblepersonalpropertyfromtaxationwouldhelpremoveacompetitive disadvantagenowfacingflorida. 18 Ernst&YoungandtheCouncilonStateTaxation, Competitivenessofstateandlocalbusinesstaxesonnewinvestment, April

18 PerCapitaPropertyTaxCollections FY NewJersey $2, Washington $1,199 2 Wyoming $2, Ohio $1,178 3 Connecticut $2, Maryland $1,171 4 NewHampshire $2, NorthDakota $1,157 5 NewYork $2, Oregon $1,133 6 RhodeIsland $1, Indiana $1,089 7 Vermont $1, SouthDakota $1,072 8 Massachusetts $1, Georgia $1,063 9 Illinois $1, Arizona $1, Florida $1, Hawaii $ Maine $1, SouthCarolina $ Wisconsin $1, Missouri $ Alaska $1, NorthCarolina $ California $1, Utah $ Michigan $1, Mississippi $ Nebraska $1, Idaho $ Texas $1, Tennessee $ Virginia $1, Delaware $695 USAverage $1, WestVirginia $ Kansas $1, Kentucky $ Minnesota $1, Louisiana $ Colorado $1, Oklahoma $ Iowa $1, NewMexico $ Nevada $1, Arkansas $ Pennsylvania $1, Alabama $ Montana $1,221 Source:FloridaTaxWatch,usingdatafromtheU.S.CensusBureau,August

19 WhatistheRealFiscalImpactofTPPRepealorNewExemptions? WhenthestateRevenueEstimatingImpactConferencedevelopsafiscalimpact(changein revenues)onproposedpropertytaxchanges,theycalculatethechange simpactontaxable valueandthenapplycurrentmillagerates.theyhavetodoitthiswaybecausetheyare requiredtoassumecurrentlawandcannotpredictwhatlocalgovernmentswilldowithmillage rates.themostimportantfactordictatingtheimpacttolocalgovernmentistheannualvoteby localgovernmentsonmillagerates. Buttherealworldimpactoftaxreliefonstatewidelocalgovernmentrevenueandespecially expenditures maybefarless.taxesontangiblepersonalproperty(tpp)willraisean estimated$1.8billionin2011;however,thisdoesnotnecessarilymeanthatrepealoftpptaxes willreducelocalgovernmentspendingby$1.8billionoreventhattpptaxpayerswillsave$1.8 billion. Millageratescanbeadjusted,sopropertytaxexemptionsorassessmentcapsusuallyshifttax burdenfromoneclassoftaxpayerstootherclasses.increasedmillagerateswillevendecrease thetaxsavingsofthoseenjoyingnewexemptions.inmustberememberedthatlocal governmentsadoptnewmillagerateseachyear,andofficialscanadopttherolledbackrate withoutevenadvertisingataxincrease.therolledbackrateistheratethatwillproducethe sameamountofrevenueasthepreviousyearwhenappliedtothenewtaxroll,allowingfor growthrevenuesfromnewconstruction.forexample,sayajurisdictionhadnogrowthin propertyvaluesandanewexemptiondecreasedtotaltaxablevalue.therolledbackrate whichinthiscasewouldbehigherthanthepreviousrate couldbeadoptedtobringinthe samerevenueasthepreviousyear,plusanyrevenuesfromnewconstruction.anyupward pressureonmillageratesbroughtaboutbydecreasesintaxablevaluearealsonotaffectedby themillageratecapsenactedbythelegislaturein Itshouldbenotedthatwhilethisiseasywhenpropertyvaluesarerising,itismuchharder politicallywhenvaluesarefalling.ifthereisenoughgrowthtocovertheimpactofthe exemption,themillageratedoesnotevenhavetobeincreased.however,whenvaluesare falling astheyhaveforthepastfouryears localofficialswillgetsomeheatfromtaxpayers foranincreasedrate,evenifitistechnicallynotataxincrease. Still,intimesofrisingpropertyvaluesmanylocalgovernmentsaretypicallyabletoabsorb most,ifnotalloftheimpactsofchangesthatreducetaxablevalues.thisisnottrueformany 19 17

20 ofthestate ssmallerruralcountieswithsmalltaxrollsandalreadyhighmillagerates.thiswill bediscussedfurtherinthenextsectionofthisreport. TheSaveOurHomes(SOH)amendmentisillustrativeofhowstatewidepropertytaxrelief doesnotalwaysresultinrevenuelosstolocalgovernments.thesohdifferential the differencebetweenjust(market)valueandtheassessedvalueofhomesundersoh grew steadilyfromtheinceptionofthecapin1994andskyrocketedafter2000throughthehousing bubble(seechartbelow).thedifferentialhasbeendroppingsincethen,asthesoh recapture provision 20 hasincreasedhomesteadassessmentsdespitefallingmarketvalues.the differentialisexpectedtobegingrowingagainin2013.thedifferentialpeakedintaxyear2007 at$427.5billionintaxablevalue.thiswasworthover$7billionintaxes(basedontheaverage statewidemillageratethatyear). Save Our Homes Differential B I L L I O N $ O F J V $450 $400 $350 $300 $250 $200 $150 $100 $ $ % of Just Value % of JV 20 UnderSaveOurHomes,assessmentsonhomesteadpropertyincreasebythelesserofthreepercentorinflation,evenifthe marketvalueofthepropertydeclines,providedtheassessedvaluedoesnotexceedmarket(just)value.aproposed constitutionalamendmentcurrentlyonthenovember2012ballotcouldstopthisfromhappening. 18

21 ComparetheescalatingSOHdifferentialtopropertytaxleviesduringthattime(seechart below).fromfy2001tofy2008(taxyears2000to2007) 21,SaveOurHomesremovedmore than$1.5trillioninvaluefromthepropertytaxrolls,worthmorethan$28billionintaxes. However,duringthattimepropertytaxleviesbyalljurisdictionsinFloridaalmostdoubled, increasing$15.1billion.thelargestsingleyearincreaseinthedifferentialoccurredin2006, whenanadditional$158billioninvalue worth$2.9billionintaxes wasremovedfromthe rolls.stilllocalgovernments enjoyedtheirlargestpropertytaxrevenuesincreaseinhistory $4.7billion(18.3%). Florida Property Tax Levies B I L L I O N $ Theeffectofallthisisthatpropertytaxcutsthatreducetaxablevaluetendtoshifttaxesto othertaxpayerpopulations.moreover,totheextentthatmillageratesarehigherthanthey wouldhaveotherwisebeen,thetaxpayerstowhichtheexemptionorcapweretargeteddonot receiveallofthetaxrelieftheymightexpect.thiscertainlyhappenedundersaveourhomes 21 TaxyearsarebasedonthevalueofpropertyonJanuary1ofthatyear.Thepropertytaxesfromataxyearfundlocal governmentoperationsinthenextfiscalyear.forexample,currenttaxyear2011willfundfy201112(beginningoctober1, 2011.) 19

22 andtheincreasedhomesteadexemptionpassedin2008,asbusinessesandothernon homesteadpropertyhavehadbillionsofdollarsoftaxburdenshiftedtothem. Ofcourse,localgovernmentscanalsoincreaseotherrevenuesources,suchasimpactfees, specialassessments,licensesandpermits,andchargesforservices.localgovernmentshave beenincreasingtheirutilizationoftheserevenuesforsometime.a2006floridataxwatch reportfoundthateachoftheserevenuesourcesincreasedevenfasterthanpropertytaxesover thetenyearperiodendingin2004,withallsourcesatleastdoublingandchargesforservices tripling FloridaTaxWatch,KurtWenner, ControllingEscalatingPropertyTaxationandLocalGovernmentSpendingandRevenue:, December

23 HowWouldRepealofTPPTaxesImpactLocalGovernments? Thepropertytaxenvironmentdifferssignificantlyacrossthestate.Becausepropertyvalues andtheimpactexemptionshaveontaxrollsvarysignificantlyfromcountytocounty,the propertytaxburdenonfloridiansalsovariesgreatly.someexamples(2010): PerCapitaPropertyTaxLevies High$2,842(Monroe) Low$347(Holmes) Average$1,360 AverageTotalMillageRates High24.55(Alachua) Low10.58(Monroe) Average19.01 PerCapitaJustValue High$375,934(Monroe) Low$61,239(Jackson) Average$103,105 PerCapitaTaxableValue High$268,678(Monroe) Low$20,475(Holmes) Average$71,543 PercentofJustValuethatisTaxable High 83.6%(Walton) Low 23.2%(Union) Average 69.4% Theimpactonlocalgovernmentsofrepealingorreducingtangiblepersonalpropertywould alsovarysignificantlyfromcountytocounty. Asdiscussedintheprevioussectionofthisreport,reductionsintaxablevaluecanoftenbe absorbedbylocalgovernments,especiallyintimesofhealthypropertyvaluegrowth.however, whilestateestimatorsexpectvaluestobegintoriseagainthisyear,theforecastcallsforonly modestgrowththroughatleast2015(seechartonnextpage).theearliestrepealorreduction oftppcouldtakeeffectisintaxyear Currently,thetaxablevalueofTPPis$98.6billion ofthe$1.3trillionintotalcountytaxablevalue.growthintotalcountytaxablevaluein2013is estimatedat$60billion.by2015,annualgrowthisonlyexpectedtobe$91billion.so,growth intotalcountypropertytaxrevenueswillnotmakeiteasyforlocalgovernmentstoabsorbfull repeal. 23 TheFloridaConstitutioncurrentlydoesnotauthorizesuchexemptions.Ifthe2012Legislatureweretopassajointresolution tobringaproposedconstitutionalamendmenttotheballot,itcouldbevotedoninnovember2012,effectivejanuary1,2013. Thiswouldaffectrevenuesforthe201314localgovernmentfiscalyear,beginningOctober1,

24 Growth in County Taxable Value Statewide, Total Amount and Annual Growth B I L L I O N $ O F T V 1,800 1,600 1,400 1,200 1, ,599 1,468 1,390 1,307 1, TV of TPP - $96.8 billon Yellow numbers show growth revenues Forsomecounties,reducedtaxablevalueistoughtodealwithnomatterwhatthestateofthe economy.localgovernmentsinsomecountiesrelymuchmoreheavilyontaxesfromtppthan others.thetableonpage22showsthepercentageofcountytaxablevaluethatiscomprised oftangiblepersonalproperty.itrangesfromahighof51.76percentinhardeecountytoalow of2.78percentinmonroecounty.statewide,theportionis7.52percent.notsurprisingly, mostofthecountieswiththehighestpercentageofttptaxablevaluearesmallercounties. Withrelativelysmallpropertytaxbasesandgenerallylowerrealpropertyvalues,alargeTPP taxpayercanbeveryimportanttothesecounties. Thecountiesthatarelistedinredtypeinthetablesarethoseforwhichthecountygovernment hasalreadyreachedtheconstitutional10millcap(2010rates).theoneslistedinboldtype haveataxrateofatleast8.5mills.thetopthreecountiesareallinthesetwogroupsandtpp comprisesmorethan40percentofeachoftheirpropertytaxbases.allfiveofthe10mill countiesareamongthetenleastpopulouscounties. 22

25 Conversely,thethreemostpopulouscounties(MiamiDade,Broward,PalmBeach)havethe 56 th,57 th and58 th smallestrelianceontppfortheirtotalpropertytaxrevenue.eachcounty s percentageoftpptaxablevalueisbetween5percentand5.5percent.fiveoftenlargest countiesrankat50 th oflowerandhavetppmakinguplessthan7percentoftheirtaxrolls.all buttwo(hillsboroughandpolk)ofthetoptenmostpopulouscountieshavepercentagesless than10percent.polkcountyistheanomaly,wheretppcomprises19.73percentofthetax roll,rankingit12 th. Thenexttable(onpage23)showstheamountofeachcounty slevies(fromalljurisdictions withinthecounty)ontangiblepersonalproperty,whichproduces$1.8billionstatewide.while MiamiDadeCountycollectsapproximately$223millioninadvaloremtaxesfromtangible personalproperty,fourcountiescollectlessthan$1million. Forthehighmillagecounties,whileTPPcomprisesalargepercentageoftheirtaxbase,the dollaramountoftaxleviesisrelativelysmallwhencomparedtothe$1.8billioninproperty taxescollectedontpp.thefivecountiesatthetenmillcapcollectlessthan1percent(0.6 percent)$10.9million.thefifteencountieswithatleast8.5millscollect3.2percentofthe stateslevies$57.7million. Sowhilethetaxamountisrelativelysmall,thecountieswithalargepercentageofTPPand alreadyhighmillagerateswouldbesignificantlyadverselyaffectedbyatotaleliminationof tangiblepersonalpropertytaxes..whilesomeofthelarger,moreprosperouscountiescould probablyabsorblosttpptaxes,itwouldcreatesomerealproblemsformanysmaller,fiscally constrainedcounties. Inaddition,localgovernments propertytaxbaseshavealreadydeclinedby21%since2007 andlowgrowthisforecastfornextseveralyears.thestatehasalsoseenitsrevenuesshrink forseveralyearsandgrowthisnotexpectedtoexceedthegrowthinlarge,costlyprogramslike MedicaidandEducation.Billionsofdollarsinbudgetcutshavealreadybeenimplemented. TheLegislaturewouldhavetofindanadditional$780millioninstatemoneytoreplacethelost fundingforschools orraisetaxes toavoidareductionineducationfunding. Forallthesereasons,theTaskForceconcludedthat,whilethetotalrepealoftangiblepersonal property(tpp)taxesinfloridawouldlikelycreateasignificantaddedattractionforbusinesses thatareconsideringlocatinghere,thecurrentenvironmentiscertainlynotfavorablefor reducingtherevenueofschoolsandlocalgovernmentsby$1.8billion. 23

26 TangiblePersonalPropertyasaPercentofTotalTaxableValue 2011 County TPP/All TV % of state TPP TV Pop Rank County TPP/All TV % of state TPP TV Pop Rank 1 Hardee 51.76% 0.34% Volusia 9.45% 2.35% 11 2 Hamilton 47.05% 0.09% Wakulla 9.40% 0.11% 49 3 Liberty 41.56% 0.21% Alachua 9.17% 1.11% 23 4 Taylor 34.62% 0.42% Highlands 9.14% 1.12% 34 5 Citrus 25.60% 2.47% Duval 9.02% 0.05% 7 6 Putnam 24.24% 0.87% Sumter 9.01% 0.62% 36 7 Hendry 24.13% 0.79% Osceola 8.54% 1.47% 22 8 DeSoto 23.54% 10.54% Pasco 8.46% 1.78% 12 9 Suwannee 22.83% 0.35% Marion 7.93% 2.45% Madison 20.61% 0.09% Lake 7.77% 0.04% Gilchrist 20.54% 0.27% Clay 7.73% 0.65% Polk 19.73% 4.98% 9 46 Pinellas 7.57% 4.35% 6 13 Gadsden 18.84% 0.06% 43 Statewide 7.52% 14 Calhoun 18.72% 0.07% SantaRosa 7.24% 0.55% Washington 18.25% 0.16% Seminole 7.12% 1.77% Jackson 17.18% 0.54% Leon 7.05% 3.66% Lafayette 17.11% 0.09% Brevard 6.85% 1.76% Jefferson 16.70% 0.25% Lee 6.61% 1.25% 8 19 Bradford 16.69% 0.14% Bay 6.57% 0.97% Okeechobee 15.97% 0.24% Nassau 6.46% 0.44% Union 15.69% 0.04% Gulf 5.83% 0.08% Holmes 14.83% 7.08% Charlotte 5.52% 0.72% Hernando 14.34% 0.43% PalmBeach 5.48% 7.04% 3 24 Baker 14.28% 0.11% MiamiDade 5.46% 2.20% 1 25 Glades 13.20% 0.13% Broward 5.12% 6.69% 2 26 Escambia 12.45% 4.74% Okaloosa 5.06% 0.72% Martin 12.40% 1.23% Flagler 4.53% 1.71% SaintLucie 12.28% 1.83% SaintJohns 4.09% 0.74% Levy 11.50% 1.02% IndianRiver 3.95% 0.06% Columbia 11.28% 0.26% Sarasota 3.76% 1.54% Hillsborough 11.03% 0.44% 4 64 Walton 3.39% 0.38% Dixie 10.19% 0.34% Collier 2.89% 1.75% Manatee 9.97% 0.13% Franklin 2.83% 0.31% Orange 9.83% 8.28% 5 67 Monroe 2.78% 0.54% 39 Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011. CountyGovernmentsincountiesinREDareatthe10millcap(2010).ThoseinBOLDhavearateabove8.5mills.

27 EstimatedTangiblePersonalPropertyTaxLeviesbyCounty County TPP Levies % of state TPP Levies 2011 Pop Rank County TPP Levies % of state TPP Levies Pop Rank 1 MiamiDade 223,022, % 1 35 IndianRiver 8,509, % 33 2 PalmBeach 144,140, % 3 36 Hendry 7,905, % 47 3 Hillsborough 140,998, % 4 37 SantaRosa 7,743, % 13 4 Orange 140,809, % 5 38 Nassau 7,022, % 38 5 Broward 138,925, % 2 39 Highlands 6,970, % 34 6 Polk 85,862, % 9 40 Taylor 6,929, % 54 7 Pinellas 85,128, % 6 41 Hamilton 6,280, % 61 8 Duval 84,304, % 7 42 Suwannee 5,822, % 44 9 Lee 63,282, % 8 43 DeSoto 5,518, % Volusia 52,442, % Monroe 5,432, % SaintLucie 41,104, % Flagler 5,126, % Manatee 39,105, % Columbia 4,749, % Citrus 38,026, % Gadsden 4,675, % Martin 35,582, % Okeechobee 4,304, % Brevard 31,238, % Walton 3,601, % Seminole 29,249, % Jackson 3,547, % Pasco 28,932, % Levy 3,403, % Escambia 27,173, % Washington 2,731, % Marion 26,296, % Bradford 2,526, % Alachua 25,392, % Madison 2,405, % Osceola 24,802, % Gilchrist 2,247, % Sarasota 21,741, % Baker 1,921, % Lake 20,552, % Wakulla 1,779, % Collier 20,297, % Liberty 1,615, % Leon 18,775, % Jefferson 1,554, % Hernando 17,365, % Glades 1,485, % Putnam 15,889, % Gulf 1,320, % Hardee 13,772, % Calhoun 1,219, % Charlotte 12,018, % Dixie 1,078, % Bay 11,764, % Holmes 960, % SaintJohns 11,438, % Union 666, % Clay 10,011, % Lafayette 659, % Okaloosa 9,394, % Franklin 604, % Sumter 8,820, % 36 Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011.Leviesestimatedby using2010averagemillageforeachcounty(alljurisdictions). CountyGovernmentsincountiesinREDareatthe10millcap(2010).ThoseinBOLDhavearateabove8.5mills. 25

28 TargetedTPPExemptionsarePreferabletoRepealatThisTime Afterageneralconsensusthatatotaleliminationofadvaloremtaxesontangiblepersonal propertyinfloridaatthetimewouldbeproblematic,thetaskforcebegantofocusonmore targetedexemptionsthatcouldhelpspureconomicdevelopmentinthestate.thetaskforce feltthatsuchexemptionscouldbeusedtohelpattracthighwage,capitalintensiveindustries toflorida. Itwasdecidedtofocusonthestate squalifiedtargetedindustries(qti)andhighimpact sectors.thesearetheindustriesdefinedinlaw 24 thatareeligibletoreceiveqtitaxrefunds andhighimpactgrants.forpurposesofthisreport,theterm targetindustries meanboth QTIsandhighimpactsectors.ThelistofQTIscanberevisedbyEnterpriseFloridaeachyear basedonthefollowingcriteria: Futuregrowth Industryforecastsshouldindicatestrongexpectationforfuturegrowthinboth employmentandoutput,accordingtothemostrecentavailabledata.specialconsideration shouldbegiventobusinessesthatexportgoodsto,orprovideservicesin,internationalmarkets andbusinessesthatreplacedomesticandinternationalimportsofgoodsorservices. Stability Theindustryshouldnotbesubjecttoperiodiclayoffs,whetherduetoseasonalityor sensitivitytovolatileeconomicvariablessuchasweather.theindustryshouldalsoberelatively resistanttorecession,sothatthedemandforproductsofthisindustryisnottypicallysubjectto declineduringaneconomicdownturn. Highwage Theindustryshouldpayrelativelyhighwagescomparedtostatewideorarea averages. Marketandresourceindependent Thelocationofindustrybusinessesshouldnotbe dependentonfloridamarketsorresourcesasindicatedbyindustryanalysis,exceptfor businessesintherenewableenergyindustry. Industrialbasediversificationandstrengthening Theindustryshouldcontributetoward expandingordiversifyingthestate sorarea seconomicbase,asindicatedbyanalysisof employmentandoutputsharescomparedtonationalandregionaltrends.special considerationshouldbegiventoindustriesthatstrengthenregionaleconomiesbyaddingvalue tobasicproductsorbuildingregionalindustrialclustersasindicatedbyindustryanalysis. Specialconsiderationshouldalsobegiventothedevelopmentofstrongindustrialclustersthat includedefenseandhomelandsecuritybusinesses. 24 QTISection ,FloridaStatutes.HighimpactsectorsSection ,FloridaStatutes.

29 EconomicbenefitsTheindustryisexpectedtohavestrongpositiveimpactsonorbenefitsto thestateorregionaleconomies. TheTaskForceconcludedthatinsteadoffullrepealatthistime,focusingonsmaller exemptionsforthesetypesofindustriescouldbestleverageexemptadvaloremtaxdollarsto producethehighesteconomicdevelopmentreturns.inotherwords, getthemostbangfor thebuck. ThisechoesthelanguageintheQTIstatute 25 (emphasisadded): TheLegislaturefindsthatretainingandexpandingexistingbusinessesinthestate, encouragingthecreationofnewbusinessesinthestate,attractingnewbusinessesfrom outsidethestate,andgenerallyprovidingconditionsfavorableforthegrowthoftarget industriescreateshighquality,highwageemploymentopportunitiesforresidentsofthe stateandstrengthensthestate seconomicfoundation.thelegislaturealsofindsthat incentivesnarrowlyfocusedinapplicationandscopetendtobemoreeffectivein achievingthestate seconomicdevelopmentgoals.thelegislaturefurtherfindsthat higherwagejobsreducethestate sshareofhiddencosts,suchaspublicassistanceand subsidizedhealthcareassociatedwithlowwagejobs.therefore,thelegislature declaresthatitisthepolicyofthestatetoencouragethegrowthofhigherwagejobs andadiverseeconomicbasebyprovidingstatetaxrefundstoqualifiedtargetindustry businessesthatoriginateorexpandinthestateorthatrelocatetothestate. TheTaskForcedecidedonexaminingtheimpactofexemptingallmanufacturersandeachof thetargetindustrysectors. HowMuchDoTargetIndustriesPayinTPPTaxes? InordertoascertaintheamountofTPPtaxespaidbytheseindustries,wecompiledalistof NAICScodesforbothQTIsandhighimpactsectors.UsinginformationprovidedbyEnterprise Florida 26,wehadthecodesforthehighimpactsectorsandwereabletofindcodesformost companiesthatfitintheqtis. TheFloridaDepartmentofRevenue(DOR)wasabletopullTPPtaxdatabasedontheNAICS codes.thedordatawasalsobrokendownbycounty.mostofthehighimpactsectors overlappedtheqtis.theonehighimpactsectornotsubstantiallycontainedinaqticategory wastransportation. 25 Section (1),FloridaStatutes. 26 SeeappendicesBandC 27

30 Wecompileddataforthefollowingsectors: Manufacturing CleanTech\Energy InformationTechnology LifeSciences AviationandAerospace HomelandSecurityandDefense FinancialServices Transportation ResearchandDevelopment CorporateHeadquarters ThisisnotintendedtobeacompletelistofindustriesthatwouldfallundertheproposedTPP exemptions.otherindustriesandemergingtechnologiessuchasprofessionalservices,global logistics,marinesciences,materialsciencesandnanotechnologyfallundertheqtiumbrella.it isultimatelyuptothelegislaturewithinputfromenterprisefloridatodecideonthe industriestoincludeinanynewexemption. Thetableonthenextpageshowsthenumberoftangiblepersonalpropertyaccounts,just value,taxablevalue,andtheestimatedleviesfortheseindustriesduring2011.thereissome duplicationamongthegroups,forexamplemanyofthetargetedindustriesaremanufacturers, andsemiconductormanufacturersareinmultiplegroups. Thetotal(unduplicated)amountsare: Manufacturing $191.7million QualifiedTargetedIndustriesOnly $208.3million AllManufacturingandOtherTargetedIndustries $365.1million 28

31 Florida Tangible Personal Property - Selected Sectors DESCRIPTION # OF TAX 27 PAYERS JUST VALUE TAXABLE VALUE Manufacturing 11,231 11,663,269,900 10,268,975,636 CleanTech ,276, ,133,854 LifeSciences ,521, ,462,701 AviationandAerospace ,152, ,670,959 InformationTechnology 16,744 9,059,232,607 8,556,110,457 FinancialServices 3, ,731, ,202,885 Transportation ,066, ,118,265 LEVIES ,670,458 8,461,930 15,408,328 5,929, ,106,695 13,150,865 6,718,955 CorporateHeadquarters 94 49,741,761 47,544, ,917 HomelandSecurity/Defense 1, ,969, ,776,800 ResearchandDevelopment ,393,885 83,350,617 10,283,214 1,736,775 Source: 2011 Preliminary N.A.P Tax Rolls, Property Tax Oversight, Florida Department of Revenue, August Levies estimated by Florida TaxWatch. SeeAppendixAforinformationontheindustriesineachsector. 27 Numberofaccounts.Asinglebusinesscanhavemultipleofaccounts.Eachlocationrequiresitsownreturnand account. 28 Estimatedbyapplying2010averagemillagerates(alljurisdictionsincounty)totaxablevalue.Computedatthe countylevelthensummedforstatewidetotal. 29

32 ManufacturingandTargetIndustriesasa%ofTotalTaxableValue 2011 All Target* Pop All Target* Pop County Manuf. Industries Rank Manuf. Industries Rank 1 Taylor 19.80% 1.10% Bradford 0.80% 0.10% 50 2 Liberty 18.10% 17.80% Okeechobee 0.80% 0.60% 46 3 Hendry 11.90% 0.10% Orange 0.80% 1.20% 5 4 Putnam 7.80% 1.40% Clay 0.70% 0.50% 24 5 Madison 7.40% 0.90% Hillsborough 0.70% 0.40% 4 6 Baker 5.50% 2.00% Pasco 0.70% 1.20% 12 7 Escambia 4.60% 1.80% Seminole 0.60% 1.20% 20 8 Suwannee 4.30% 0.00% Hamilton 0.50% 0.00% 61 9 Polk 4.00% 2.00% 9 42 SantaRosa 0.50% 0.10% Gadsden 3.10% 0.00% Osceola 0.50% 1.10% Nassau 3.00% 0.00% SaintJohns 0.40% 0.60% Gilchrist 2.90% 1.60% Holmes 0.40% 0.00% Hernando 2.60% 2.20% Hardee 0.40% 1.00% Union 2.30% 2.10% MiamiDade 0.40% 0.70% 1 15 Sumter 2.20% 0.10% PalmBeach 0.40% 0.80% 3 16 Duval 2.20% 1.60% 7 49 Broward 0.30% 1.00% 2 17 Alachua 2.20% 1.50% Levy 0.30% 1.80% Glades 1.90% 1.00% Gulf 0.30% 0.90% Manatee 1.60% 1.00% Sarasota 0.30% 0.80% SaintLucie 1.50% 1.10% Martin 0.30% 0.10% DeSoto 1.40% 0.00% Lafayette 0.20% 2.10% Columbia 1.20% 2.50% Leon 0.20% 0.10% Bay 1.10% 0.20% Okaloosa 0.20% 0.10% Jackson 1.10% 0.10% IndianRiver 0.20% 0.20% Dixie 1.00% 0.20% Flagler 0.20% 0.10% Wakulla 1.00% 0.40% Lee 0.20% 0.70% 8 27 Volusia 1.00% 1.30% Charlotte 0.10% 0.70% Washington 1.00% 0.10% Walton 0.10% 0.00% Marion 1.00% 1.10% Calhoun 0.10% 0.00% Pinellas 1.00% 1.30% 6 63 Collier 0.10% 0.60% 17 Statewide 0.80% 0.90% 64 Citrus 0.10% 0.00% Lake 0.80% 0.80% Franklin 0.10% 0.00% Highlands 0.80% 0.00% Jefferson 0.00% 0.10% Brevard 0.80% 0.10% Monroe 0.00% 0.40% 39 Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011. CountyGovernmentsincountiesinREDareatthe10millcap(2010).ThoseinBOLDhavearateabove8.5mills. * TargetIndustries includequalifiedtargetedindustries(qti)andhighimpactsectors.

33 TPPLeviesonManufacturingandTargetIndustries 2011 TargetIndustries Manufacturing TargetIndustries Manufacturing Levies* Levies Levies* Levies 1 Dade 30,464,223 15,207, Baker 267, ,675 2 Broward 28,426,599 8,890, Hardee 259, ,981 3 PalmBeach 20,049,075 9,707, Okaloosa 229, ,994 4 Orange 16,849,912 10,822, Leon 218, ,832 5 Duval 14,806,814 20,844, Taylor 211,405 3,959,351 6 Pinellas 14,460,024 10,689, Gulf 208,457 72,233 7 Polk 8,839,354 17,361, Gilchrist 174, ,037 8 Lee 7,100,170 1,949, Okeechobee 152, ,808 9 Volusia 6,988,709 5,492, Flagler 144, , Hillsborough 5,146,137 8,941, Glades 109, , Seminole 5,024,020 2,457, Madison 101, , Sarasota 4,707,963 1,640, Union 90,630 96, Alachua 4,146,988 5,988, Lafayette 80,408 9, Pasco 4,133,406 2,275, SantaRosa 75, , Collier 4,114, , Wakulla 72, , Escambia 3,988,557 9,943, Sumter 62,221 2,199, Manatee 3,819,006 6,425, Hendry 45,017 3,882, SaintLucie 3,612,599 5,133, Walton 43, , Marion 3,558,739 3,210, Bradford 20, , Osceola 3,173,968 1,313, Jackson 19, , Hernando 2,658,580 3,158, Highlands 19, , Lake 1,984,909 2,236, Dixie 15, , Charlotte 1,615, , Washington 14, , SaintJohns 1,543,207 1,168, Citrus 12, , Columbia 1,041, , Jefferson 12,086 2, Putnam 935,956 5,116, Suwannee 12,003 1,101, Monroe 830,907 17, DeSoto 7, , Clay 703, , Gadsden 6, , Liberty 692, , Nassau 1,739 3,255, Brevard 675,902 3,649, Franklin , Levy 526,136 94, Calhoun 7, IndianRiver 336, , Hamilton 68, Martin 291, , Holmes 26, Bay 278,063 1,975,776 Source:FloridaTaxWatch,usingdatafromtheFloridaDepartmentofRevenue,August2011.Leviesestimatedbyusing2010 averagemillageforeachcounty(alljurisdictions).* TargetIndustries includesqtiandhighimpactsectors. CountyGovernmentsincountiesinREDareatthe10millcap(2010).ThoseinBOLDhavearateabove8.5mills.

34 Thetablesontheprevioustwopagesshowtheimpactonindividualcountiesofexempting manufacturingand/ortargetedindustries.thefirsttableshowsthepercentageoftotaltaxable valuethatwouldbelostfromexemptingtheseindustries.earlierinthisreport,weexamined thelosttaxablevalueoffullrepealandfoundthatsomesmallercountieshadverysignificant portionsoftheirtaxrollsmadeupoftpp.threecountieshadmorethan40percentoftaxable valuemadeupoftpp.thetableonpage28showsmuchmoremanageableamounts. Generally,thetableshowsthatmanufacturingTPPmakesupmoreofthetaxrollsinsmaller countiesthantargetedindustrytpp,whilethetargetedindustryshareislargerinlarger counties. Threesmallcountieshavemorethan10percentoftheirtaxrollsdevotedtomanufacturing TPP.Onlyonecountyhasmorethan10percentcomingfromtargetedindustries.Thatis LibertyCounty,whichhasalargesawmill(whichisahighimpactsectorbusiness).Thesawmill showsupinbothcategories. Onlytencountieshaveamanufacturingsharethatexceedsthreepercentoftaxablevalueand onlyfourcountieshaveatargetindustryshareabovetwopercent. WhoPaysFloridaTangiblePersonalPropertyTaxes? 3.3% 11.0% 12.0% 31.6% 7.0% Utilities 9.8% Information Manufacturing 10.6% WholesaleandRetail Entertainment,Recreation,Accommodation,FoodService Finance,Insurance,RealEstate,ProfessionalServices MiningandConstruction Other 14.7% Source:FloridaTaxWatch,fromFloridaDepartmentofRevenuedata,August2011.

35 ResultsofEconometricModelingforTPPTaxReduction Options UsingthedynamicmodelfromRegionalEconomicModels,Inc.(REMI),fivesimulationswere runwiththefollowingtaxreductions: Simulations TPPAmount TotalRepealofTPP $1,893,311,094 5YearPhaseoutofTPP $378,662,219peryear ExemptallManufacturing $199,337,276 ExemptallTargetIndustries $216,627,019 ExemptallManufacturingandTargetIndustries $379,755,761 Sincetheearliestachangecouldtakeeffectwouldbetaxyear2013(FY201314)estimatesof taxvaluesfortheseexemptionsmadebyfloridataxwatchthatarediscussedearlierinthis reportwereincreasedbytheofficialstateforecastedgrowthoftpptaxablevalueforthenext twoyears(4percent). ShownabovearefivesimulationsthatweremodeledusingtheRegionalEconomicModelsInc. software,remipi+.simulation1,totalrepealoftpptax,completelyrepealsalltpptaxesin 2014.Simulation2,5yearphaseoutofTPPtax,reducestotalTPPtaxesby20percenteach yearuntilitiscompletelyphasedout,beginningin2014.insimulation3,4,and5,business taxesareloweredandcreditedtoareductionincapitalcostforthetargetedtypesof businesses(manufacturing,targetindustries,andboth).oneshouldnotethatthereissome overlapbetweentargetindustriesandmanufacturing.somemanufacturingisintarget Industries,butnottheentiremanufacturingsector.Duplicationswereeliminatedforthe simulationofexemptingbothgroupstogether. Thesimulationsaremodeledwithareductionofgovernmentspendingforeachdollarof reductionintpptaxes.onefeatureoftheremimodelisthatthisresultsinsignificantlossesin publicsectorjobs(asopposedtoprogramcutsorcostsavingsinitiatives),especiallyintheearly simulationperiodresults.however,asdiscussedearlierinthisreport,propertytaxreliefdoes nottranslateintoadollarfordollarreductioningovernmentspending.therefore,foreachof thesesimulations,threeseparatescenarioswererun.firstwasaneliminationoftpptaxes withnoincreaseofothertaxestomakeupthetpptaxrevenueloss.secondwasanincreasein thetaxonrealpropertytomakeup50percentofthetpptaxrevenueloss.thirdwasan increaseinthetaxonrealpropertytomakeup100percentofthetpptaxrevenueloss.this 33

36 providesarangeofpossibleoutcomes,dependinguponhowlocalgovernmentswouldchoose todealwithreducedtaxreceiptsintheirjurisdictions. ToshowthebenefitofreductionorrepealoftheTPPtax,ineachscenariotheamountofthe TPPtaxthatisreducedisthenallocatedtoareductionincapitalcostforeachofthetargeted groupsinthefiveaforementionedsimulations.insimulation1and2,thereductionincapital costisallocatedtoallfloridabusinesses,anditisproratedonapercentageoftheirvalue addedinflorida.inotherwords,ifoneindustrycreatesfivepercentofthevalueaddedin Florida,itisallocatedfivepercentofthereductionincapitalcost.Similarly,thisisalso calculatedforsimulation3,4and5,butisdirectedatallmanufacturingindustries,only targetedindustrygroupsandbothmanufacturingandtargetedindustrygroups,respectively. TomodelthesescenariosinREMI,localgovernmentspendingisreducedbytheamountofTPP taxrevenuereduction.inthefirstscenario,localgovernmentspendingisreducedbythe amountthatatotalrepealoftpptaxwouldequateto.forthesecondscenario,local governmentspendingisreducedbyhalfofthetpptax.forthethirdscenariolocalgovernment spendingisassumedtostaythesame. ForScenarios2and3foreachsimulation,therecoupmentoflostTPPtaxesismodeledby simulatingtheincreaseofrealpropertytaxesbythatamount.theresultofthisisincreased productioncostsforallindustriesinfloridaandincreasedlivingcostsforhomeownersand renters.tobeclear,nomatterwhichindustriesreceivelowercapitalcostsbytheelimination oftpptax,whenthosetaxesarereplacedbyrealpropertyitwillcauseproductioncostsforall industriestogoup.industriesthathaveintensiverealpropertyinputswillpaymorethan thosethatarelessintensiveinrealpropertyinputs. ResultsofEconometricSimulationsofTPPFullandPartialRepeal ComparisonofallScenarios Thechartbelowshowstheresultsofallfiveofthesimulationswitheachofthescenarios tested.the 0%TaxRecoup barsinblue,showthescenariowherelocalgovernmentspending isreducedbytheamountofthetpptax,andnoneofthelosttpptaxrevenueisrecoveredby increasingthetaxrateonrealproperty.underthe 50%TaxRecoup scenario,local governmentspendingisreducedbyhalfofthelosttpptaxrevenue,andhalfofthetpptax receiptlossismadeupbyincreasingthetaxrateonrealproperty.finally,the 100%Tax Recoup scenarioshowswherelocalgovernmentspendingisnotchanged,andthelosttpptax revenueisrecoveredbyincreasingthetaxrateonrealproperty. 34

37 35 Althoughsomeoftheresultsintheabovechartmightbecounterintuitive,thechartbelow demonstratessomeofthedynamicsintheremimodelthatleadtotheresults.ineachcase whenlocalgovernmentspendingisreduced,oneofthefeaturesoftheremimodelisthatit decreaseslocalgovernmentemployment,ratherthancuttingprograms,whichperhapswould bethemostlikelyactionatthelocalgovernmentlevel.ineachcaseof 0%TaxRecoup,local governmentemploymentisimmediatelyaffected.inthesecases,thelossingovernment employmentoverwhelmsgainsintheprivatenonfarmemploymentsectorandthecumulative totaljobsoverthe10yearhorizonisnegativeforallthescenariosasshowninthechartbelow. 0 20,000 40,000 60,000 80, , ,000 FullRepeal 20%Repeal PerYear MfgExempt TgtIndustries Exempt Mfg&Tgt Industries Exempt NumberofJobs CumulativePrivateNonFarmJobsCreatedfromTPPTaxChanges ( ) 0%Tax Recoup 50%Tax Recoup 100%Tax Recoup 80,000 60,000 40,000 20, ,000 40,000 60,000 80, , ,000 FullRepeal 20%Repeal PerYear MfgExempt TgtIndustries Exempt Mfg&Tgt Industries Exempt NumberofJobs CumulativeTotalChangeinJobsfromTPPTaxChanges ( ) 0%Tax Recoup 50%Tax Recoup 100%Tax Recoup

38 36 WherelocalgovernmentspendingisonlyreducedbyhalfoftheTPPtaxloss,asshowninthe 50%TaxRecoup scenariosinredinthechartonthepreviouspage,localgovernment employmentdropsonlybyhalfthelevelofinthe 0%TaxRecoup scenario.bytheendofthe 10yearhorizonofthissimulation,privatenonfarmemploymenthasbeenabletoincreaseby morethantheamountoflocalgovernmentemploymentinfourofthefivescenarios,producing anetjobgain. Inthescenario 100%TaxRecoup,themodeldoesnotdroplocalgovernmentemployment becausethereisassumedtobenochangeintaxreceipts.thereforetheprivatenonfarm employmentgainsbegintoaffectnetjobcreationimmediatelybecausetheydonothaveto overcomesignificantlocalgovernmentemploymentlosses.thegraphbelowshowsthe cumulativechangeingrossdomesticproductafter10yearsofamendmentorappealofthetpp taxacrossallscenariosandsimulations. ThechangeinGDPacrossallscenariosispositiveandhasatrendthatissimilartothechangein totalprivatenonfarmemploymentmentionedabove.oneshouldnotethatinthe manufacturingexemptsimulationwiththezeropercenttaxrevenuerecovery,gdpisactually higherthanthosescenariosinwhich50percentor100percentoftaxrevenuesisrecovered. Thissuggeststhatgivingthemanufacturingsectorincentivetoinvestintangiblepersonal propertyhasagreaterpositiveeffectongdpthatripplesthroughflorida seconomythandoes thenegativeeffectfromreductioningovernmenttaxrevenues.inthezeropercenttaxrevenue recoveryscenario,acrossallothersimulationsgdpislowerthanifapartialortotalrecoveryof governmenttaxrevenuesreplaceswhatislostintpptaxrevenues. Inthefollowingsections,wewilllookatmoredetailofeachofthesimulations. $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 FullRepeal 20%Repeal PerYear MfgExempt Tgt Industries Exempt Mfg&Tgt Industries Exempt Millionsof(2005)Dollars CumulativeChangeinGDPAccrossallScenarios 0%TaxRecoup 50%TaxRecoup 100%TaxRecoup

39 1. FullRepeal 100,000 FullRepealwith0%TaxRevenueRecovery (100%GovernmentSpendingReduction) CumulativeNumberofJobs 60,000 20,000 20,000 60, , ,000 PublicSector PrivateNonFarm Employment NetJobs 180, AfullrepealofTPPtaxwith100percentreductioningovernmentspendingcausesasignificant amountofpublicsectorjoblossinthemodelsimulation,andhasanetnegativejobcreation. Thenumberofpublicsectorjobslostoverwhelmsthenumberofprivatenonfarmjobsgained. Acumulativenetlossof76,850jobsisestimatediflocalgovernmentspendinginthemodelis reducedbythefullamountofthetpptaxlosswithnoreplacementofthoselostrevenuesby localgovernments. FullRepealwith50%TaxRevenueRecovery (50%GovernmentSpendingReduction) 100,000 CumulativeNumberofJobs 80,000 60,000 40,000 20, ,000 40,000 60,000 80, PublicSector PrivateNonFarm Employment NetJobs 37

40 Thecumulativenumberofprivatenonfarmjobsisslightlyhigherthanthenumberofpublic sectorjobslost.approximatelyacumulative17,100jobswillbegainedintotalby2023witha fullrepealofppttaxand50percentreductioningovernmentspending. 120,000 FullRepealwith100%TaxRevenueRecovery (0%GovernmentSpendingReduction) CumulativeNumberofJobs 100,000 80,000 60,000 40,000 20,000 PublicSector PrivateNon Farm Employment NetJobs ThereisnojoblossandonlyapositiveincreaseinjobcreationwithafullrepealoftheTPPtax andazeropercentreductioningovernmentspending.approximately111,371jobswillbe createdcumulativelyby2023,thevastmajorityofwhicharemadeupofprivatenonfarm employmentasshowninthechartabove. A baselinescenario willbeusedfortheremainderofthescenariosofrepealingorreducing tangiblepersonalpropertytaxes.thebaselinescenariowillbea50percentrecoveryintax revenues.graphsshowingallthreescenarios,withzeropercent,50percentand100percent recoveryoftaxrevenuescanbefoundintheappendixforthefollowingsimulations %PhaseoutofTangiblePersonalPropertyTax ThechartbelowshowsthescenariowhereTPPisrepealed,butisphasedinat20percentofthe totaleachyear.comparedtothesimulationwhereallofitisrepealedthefirstyear,thelocal governmentjoblossesaresignificantlylessintheearlyyears.therearealsonotasmany privatenonfarmjobscreatedinthisscenariowhencomparedtothefullrepealinthefirstyear. 38

41 CumulativeNumberofJobs 20%RepealofTPPTaxAnnuallywith50%RecoveryinTaxRevenues (50%inGovernmentSpendingReduction) 80,000 60,000 40,000 20, ,000 40,000 60,000 80, PublicSector PrivateNonFarm Employment NetJobs OneofthekeyresultsisthatnetjobcreationispositiveinthescenarioinwhichtheTPPtaxis phasedoutoverfiveyearsbeginningin ManufacturingSectorExemptfromTPPTax InthesimulationofexemptingthemanufacturingsectorfromTPPtaxes,aclearpositivenetjob creationoccurs.thisisaresultofthelowercostofcapitalallocatedtomanufacturers,who havethehighestmultiplierofallindustries.asseeninthechartbelow,althoughlower governmentspendinginthesimulationdecreaseslocalgovernmentjobs,thegainsfromprivate nonfarmjobsoverwhelmsthelossesoflocalgovernmentjobs. CumulativeNumberofJobs 14,000 12,000 10,000 8,000 6,000 4,000 2, ,000 4,000 6,000 8,000 ManufacturingSectorExemptfromTPPTaxwith50%Recoveryin TaxRevenues(50%GovernmentSpendingReduction) PrivateNonFarm Employment PublicSector NetJobs 39

42 4. TargetIndustrySectorsExemptfromTPPTax InthesimulationofTargetedIndustriesbeingexemptfromTPPtax,netjobsincreasesimilarly tothoseinthemanufacturingsimulation. CumulativeNumberofJobs 20,000 15,000 10,000 5, ,000 10,000 TargetedIndustriesExemptfromTPPTaxwith50%RecoveryofTax Revenues(50%GovernmentSpendingReduction) PublicSector PrivateNonFarm Employment NetJobs 5. BothManufacturing&TargetIndustrySectorsExemptfromTPPTax ThechartbelowindicatesthesimulationwhenboththeTargetedIndustriesandall manufacturersareexemptfromtpptax.onecanseethatthelossoflocalgovernment employmentishigherthaninthepreviousscenarios.duetoahigherlossoflocalgovernment employment(andthewagesassociatedwiththosejobs),theincreaseinprivatenonfarm employmentislessthaninsomeoftheearlierscenarios.however,assumingthelikely outcomethatmostcountieswillreplacethelostrevenueofthelesscostlyexemptions, exemptingbothmanufacturingandtargetindustriesshowsthemostprivatesectorjobs,the mosttotaljobsandlargestgdpincreaseoverthetenyearperiodofthesimulation.compared tototalrepeal,thisnarrowerexemptionproducesmorejobsrelativetothesizeofthetax reduction. 40

43 TargetedIndustries&ManufacturingExemptwith50%Recoveryof TaxRevenues(50%GovernmentSpendingReduction) NumberofJobs 20,000 15,000 10,000 5, ,000 10,000 15,000 20, PublicSector PrivateNonFarm Employment NetJobs CumulativeNumberofJobs 50,000 40,000 30,000 20,000 10,000 0 TargetedIndustries&ManufacturingExemptfromTPPTaxwith 100%RecoveryofTaxRevenue(0%GovernmentSpending Reduction) PrivateNonFarm Employment PublicSector NetJobs TheImpactofAttractingMoreBusinessestotheState OnelikelyscenarioifTPPtaxesarereducedoreliminatedisthatFloridacouldattractmore businessestorelocatetothestate,sincefloridawouldbetheonlysoutheasternstateto exempttpp.tosimulateincreasedrelocationstoflorida,twoscenariosweredevelopedfor simulationmodeling.fortheseproposedjobscenarios,estimatesof1percentand3percent additionalmanufacturingjobcreationweremodeled.giventhatthereareapproximately 300,000manufacturingjobsinthestateofFlorida,theestimatesusedwere3,000and9,000 newjobsperyear.alternativescenarioswerealsorunshowingtheimpactofaddingthesame 41

44 numbersofnonmanufacturingjobs.thisshowsthedifferencebetween9,000manufacturing jobsand9,000jobsallocatedincurrentproportionstootherexistingindustriesinthestate. Thesejobs(bothscenariosof3,000jobs/yearand9,000jobs/year)werecreatedexogenously. Inotherwords,themodeldemandwasnotmanipulatedtoincreasejobs.Althoughitcanbe done,thattechniqueincreasesthedifficultyofseparatingtheeffectsandinterpretingthe results. Animportantpointtonoteisthatthesejobincreasesdonotaccountforanyconstructionof newbuildingsorretrofittingoldbuildingstostartproduction.implictintheassumptionisthat thenewemployeeswouldbefitinexistingfirms.itisreasonabletoassumethatsome unknownnewconstructionandretrofitting(likelyasignificantamount)wouldoccurwiththe introductionofnewfirmstoflorida.theincreasedconstructionandretrofittingwouldcreatea significantamountofextraeconomicactivity.thereforetheseestimatesshouldbeviewedas highlyconservative. Simulation1 IncreaseManufacturingJobsbyOnePercentperYear Inthisscenario,jobswerecreatedtwoways.First,the3,000jobswereallocatedonlyto manufacturing.thesewereallocatedinproportiontotheexistingmanufacturinginflorida. Eachtypeofjobcreatedhasamultiplierinthatonenewjobhelpscreatejobsintheinputand outputsectorsoftheeconomy.inmanufacturing scase,ithasthelargestmultiplierofany industry.secondly,the3,000jobswereallocatedacrossallsectorsofthefloridaeconomyin theexistingproportionsofindustry.therefore,someofthejobswenttomanufacturingmany wenttotourism,agriculture,miningandalltheothersectors.onecanseeonthechartbelow thatallocatingallthejobstomanufacturingproducedsignificantlymorejobseachyear.over the10yeartimeframeofthissimulation,whenjobswereallocatedacrossallsectors,there wereapproximately53,000jobscreated.whenthenewjobswerestrictlymanufacturingjobs, therewereatotalof88,300created.thismeansthatmorethananadditional35,000jobswere createdinfloridawhenallthe3,000yearlyjobswereallocatedtomanufacturing. ThissupportstheTaskForce sconclusionthattargetedtppexemptionsformanufacturingand targetindustrieswouldproducealargerpositiveimpactperdollaroftaxreductionthanthe averagesector. 42

45 NmuberofJobs CumulativeJobCreation from3,000jobincreaseperyear (000) Jobs 3000Mfg.Jobs Simulation2:IncreaseManufacturingJobsbyThreePercentperYear Tosimulateanincreaseof3percentofmanufacturingjobs,thesametechniqueasabovewas used.thesametechniqueofaddingjobsexogenouslywasused;thereforethesesimulation resultsaredirectlycomparabletotheabovesmallerincrease. 250 CumulativeJobCreation from9,000jobsperyear (000) NumberofJobs Jobs 9000Mfg.Jobs Fromthechartabove,eachyearthereisanextraincreaseinjobcreationformanufacturingjobsrelative totheallocationtoallindustriesonaproportionalbasis.inthecaseofallindustries,anincreaseof 9,000jobsperyearanditsassociatedmultipliereffectcreatesatotalof159,200Floridajobsoverthe 10yearperiodofthesimulation.Ifthose9,000jobswereallmanufacturingjobs,thetotalbecomes approximately220,400jobs.thisisanincreaseofmorethan60,000jobscreatedoverthe10year periodwhenthenewjobsareallocatedonlytomanufacturing. 43

46 ConclusionandRecommendations Whilethetotalrepealoftangiblepersonalproperty(TPP)taxesinFloridawouldlikelycreatea significantaddedattractionforbusinessesthatareconsideringlocatinghere,thecurrent environmentiscertainlynotfavorableforreducingtherevenueofschoolsandlocal governmentsby$1.8billion.localgovernments propertytaxbaseshavealreadydeclinedby 21percentsince2007andlowgrowthisforecastfornextseveralyears.Whilesomeofthe larger,moreprosperouscountiescouldprobablyabsorblosttpptaxes,itwouldcreatesome realproblemsformanysmaller,fiscallyconstrainedcounties.thestatehasalsoseenits revenuesshrinkforseveralyearsandgrowthisnotexpectedtoexceedthegrowthinlarge, costlyprogramslikemedicaidandeducation.billionsofdollarsinbudgetcutshavealready beenimplemented.thelegislaturewouldhavetofindanadditional$780millioninstate moneytoreplacethelostfundingforschools orraisetaxes toavoidareductionin educationfunding. TheLegislatureshouldstriveforthefuturetotaleliminationofadvaloremtaxationoftangible personalpropertyinthefuture,whenpropertyvaluesaregrowingatasignificantlevelagain. Thiscouldhelpavoidrepeatingtheexperienceduringthehousingbubble,whenlocal governmentsdidnotrollbackmillageratesenough,insteadspendinghugeincreasesin propertytaxrevenues.spendingthiswindfallallowedmanylocalgovernmentstobudgetat unsustainablelevels,makingdealingwiththesubsequentdropinpropertytaxvalueevenmore difficult. InsteadoftryingtototallyeliminateTPPtaxesnow,thestateshouldlookatprovidingtarget economicdevelopmentexemptionsfromtpptaxesthatcanpromotecapitalinvestmentin Floridaandcreatejobs.Exemptingallmanufacturingandthestate squalifiedtargeted Industrieswouldprobablyprovidethemost bangforthebuck. Thesetypesofindustriesare notcaptiveandoftentaxesplayalargeroleinlocationdecisions.inaddition,economic simulationmodelingshowsthatexemptingmanufacturingandtargetedindustrybusinesses thatarealreadyherewouldprovideasignificantincreaseinprivatesectorjobsandgross domesticproduct. Ataminimum,thestateshouldexemptnewandexpandingbusinessesintheseareas,but strivetoprovidefullexemptionsforthesesectors.exemptingnewandexpandingbusinesses willnoterodethecurrenttaxbaseandafullexemptionwouldremoveonlyasmallpartofthe currentpropertytaxbase,worthabout$379millionintaxes.thisisonly21percentofcurrent TPPtaxesandonly1.5percentofallpropertytaxes. 44

47 FloridaTaxWatchperformedeconomicsimulationmodelingoffiveTPPtaxreductionoptions. FullrepealofTPPtaxescouldcreate,dependingonhowlocalgovernmentsdealtwiththe revenueloss,asmanyas100,000totaljobsovertenyears.thelossofgovernmentjobscould reducethattotal,dependingontheextenttowhichlocalgovernmentshadtoreducespending. Narrowerexemptionsformanufacturingandthetargetindustries(boththestate squalified TargetedIndustriesandhighimpactsectors)werealsomodeled.Allofthesescenariosshowed positivegrowthinprivatesectoremploymentandgrossdomesticproduct.assumingthelikely outcomethatmostcountieswillreplacethelostrevenueofthelesscostlyexemptions, exemptingbothmanufacturingandtargetindustriesshowsthemostprivatesectorjobs,the mosttotaljobsandlargestgdpincreaseoverthetenyearperiodofthesimulation.compared tototalrepeal,thisnarrowerexemptionproducesmorejobsrelativetothesizeofthetax reduction. TheexpectationthatreducingoreliminatingTPPtaxeswouldattractmorebusinessestolocate infloridawasalsoexamined.thisisalikelyscenariosincefloridawouldbecometheonlystate inthesoutheasttoexempttpp.ifthisexemptionledtoanincreaseinfloridamanufacturing jobsofonlyonetothreepercent(3,000to9,000jobs),between88,300and220,400additional jobswouldbecreatedovertenyears.thisisbetween35,000and60,000morejobsthanwould becreatedbytheinfluxofthesamenumberofnewjobsallocatedtoallindustries(insteadof justmanufacturing). ConstitutionalAmendmentNeeded ToallowtheLegislatureneededflexibilitytobeginreducingtangiblepersonalpropertytaxes,a proposedconstitutionalamendmentwouldbeneeded. Thefollowingproposedconstitutionalamendmentwhilenotmandatinganyreductionsin taxeswouldallowforavarietyofoptionstobedebatedbythelegislature(underlinedtextis addedlanguagetothecurrentfloridaconstitution.seefootnotebelow). 29 ArticleVII,section3: (e) Bygenerallawandsubjecttoconditionsspecifiedtherein,notlessthantwentyfive thousanddollarsoftheassessedvalueofpropertysubjecttotangiblepersonalproperty taxshallbeexemptfromadvaloremtaxation.pursuanttogenerallawalltangible personalproperty,orthetangiblepersonalpropertyofspecifiedindustriesorofnewor 29 Thislanguageshouldnotbereviewedasfullyvettedconstitutionallanguage.Thislanguageismeantonlyasastartingpoint forlegislativedeliberationsonaproposedjointresolution. 45

48 expandingbusinesses,orofanycombinationofspecifiedindustriesandnewor expandingbusinesses,maybevaluedfortaxationataspecifiedpercentageofitsvalue ormaybeexemptedfromtaxationandthelegislaturemayauthorizelocalgovernments, inamannerprescribedbygenerallaw,toelectnottoparticipateinsuchvaluationata specifiedpercentageofvalueorexemption,inwhicheventtaxationoftangiblepersonal propertybyalocalgovernmentexercisingsuchelectionshallbeasotherwiseprescribed inthisconstitution. Thislanguagewouldpreservethecurrent$25,000exemption,whilekeepingthedooropenfor possiblefuturerepeal.allowingfortaxationataspecifiedpercentageofvaluewouldallowfor aphaseoutthatwouldapplytoalltaxpayersequally.forexampleunderafiveyearphaseout, TPPcouldbetaxedonthefollowingschedule: 1 st Year 80% 2 nd Year 60% 3 rd Year 40% 4 th Year 20% 5 th Year 0% Theamendmentwouldalsoallowfortheeconomicdevelopmenttargetedexemptionsfor manufacturingandthestate stargetindustriesandhighimpactsectors. Acknowledgingthefiscalstrainthatrepeal orevenexemption oftpptaxesmayplaceon somelocalgovernments,thelegislaturecouldallowforlocalgovernmentsto optout or continuetotaxtpp.thisshouldrequireareferendum approvalbylocalvoters.alternatively, thestatecouldconsiderreimbursinglocalgovernments particularlyfiscallyconstrained countiesforlostrevenue.ifmanufacturingandtargetedindustriesareexempteditwould costthestate$379milliontoreimbursealllocalgovernments(includingschools)andrelatively littletoreimbursethesmallcountiesmosteffectivebytheexemption.toillustrate,thetop25 counties(intermsoflevies)comprise96percentofthetotalstateleviesofthetppoftarget industriesand90percentoftppleviesonmanufacturing. 46

49 Insummary,theFloridaTangiblePersonalPropertyTaxTaskForcerecommends thatthelegislature: Passajointresolutionproposingaconstitutionalamendment(seelanguageabove)to gobeforethevotersinnovember2012thatgivesthelegislatureflexibilityinthearea oftaxationoftangiblepersonalproperty. Intheshortterm,createTPPtaxexemptionsforallmanufacturersandotherstate targetedindustriesandhighimpactsectors.ataminimum,thestateshouldexempt newandexpandingbusinessesintheseareas,butstrivetoprovidefullexemptionsfor thesesectors. TheLegislaturecouldallowforlocalgovernments byreferendum to optout,or continuetotaxtpp.alternatively,thestatecouldconsiderreimbursinglocal governments particularlyfiscallyconstrainedcountiesforlostrevenue. TheLegislatureshouldsetagoaloffuturetotaleliminationofadvaloremtaxationof tangiblepersonalpropertyinthefuture,whenpropertyvaluesaregrowingata significantlevelagain. ThisTaskForcereportwaswrittenbyKurtWenner,FloridaTaxWatchVicePresidentforTax Research,withassistancefromTaskForcemembers.Economicsimulationmodelingperformedby JerryD.Parrish,Ph.D.,ChiefEconomist,withtheassistanceofandKatieFurtick,ResearchAnalyst. TheTaskForcethanksFloridaDepartmentofRevenueExecutiveDirectorLisaVickersandherstaff fortheirconsiderableassistanceincompilingthedatausedinthisreport. MarshallCriser,III,Chairman;DominicM.Calabro,President,Publisher,andEditor. FloridaTaxWatchResearchInstitute,Inc. CopyrightFloridaTaxWatch,November

50 Florida(Tangible(Personal(Property(Tax(Task(Force(Membership( Chairman: The Honorable Pat Neal President Neal Communities Carlos Beruff President Medallion Homes Gulf Coast Barney Bishop, III President & CEO Associated Industries of Florida Dominic Calabro President & CEO Florida TaxWatch Colleen Castille Principle The Fiorentino Group Marshall Criser, III President & CEO AT&T Florida Florida TaxWatch Chairman Steve Evans Vice President (Ret.) IBM David Mann Chairman & CEO North Florida Suntrust Bank Chris Flack Executive Director, External Relations Progress Energy Florida The Honorable Bill Furst Property Appraiser Sarasota County Danny Gaekwad President NDS Jim Grainger Owner Grainger Farms Charles Gray Chairman & CEO GrayRobinson, P.A. Todd Jones Executive Managing Director Collier International Tampa Steve Lezman Director Government Affairs Pepsico/Tropicana CJ Evans, Jr. Director Ryan, LLC Ron Nation Owner, President & CEO JVI Solutions, LLC The Honorable Jim Overton Property Appraiser City of Jacksonville John Andrew Smith Smith & Smith Consulting Michael Sole Vice President State Government Affairs Florida Power & Light Stam Stathis President Florida Institute of CPAs Kelly Underhill Director Tax & Treasury Publix Supermarkets, Inc. Kurt Wenner Vice President of Tax Research Florida TaxWatch 48

51 Florida Tangible Personal Property Data Targeted Industries and High Impact Sectors 2011 DESCRIPTION NAICS # of Accounts JUST VALUE TAXABLE VALUE CleanTech/Energy ,276, ,133,854 Semiconductor and Other Electronic Components ,045, ,112,435 All Other Basic Organic Chemical Manufacturing ,254,706 92,129,706 Solar energy heating equipment manufacturing , ,448 Turbine and Turbine Generator Set Units ,168,429 66,743,429 Industrial Gas Manufacturing ,490,025 21,606,262 Storage Battery Manufacturing , ,366 Environmental Consulting Services ,325,065 11,320,573 Other Scientific and Technical Consulting Services ,224,622 38,188,264 R&D in the Physical, Engineering, and Life Sciences ,956,833 4,395,527 Sawmills ,388,010 72,539,060 Starch and Vegetable Fats and Oils Manufacturing ,400,784 5,250,784 Ethyl Alcohol Manufacturing DESCRIPTION NAICS # of Accounts JUST VALUE TAXABLE VALUE InformationTechnology 16,744 9,059,232,607 8,556,110,457 Office Machinery Manufacturing ,363,143 2,086,243 Computer and Peripheral Equipment Manufacturing ,022,314 90,789,095 Telephone Apparatus Manufacturing ,472,196 60,072,196 Radio, TV and Wireless Communications Equipment Manufacturing ,617,439 60,996,998 Semiconductor and Other Electronic Components ,045, ,112,435 Software Publishers ,725,917 19,200,079 Telecommunications ,530 8,357,218,870 7,880,582,577 Data Processing, Hosting, and Related Services ,230, ,897,114 Computer Systems Design and Related Services , ,536, ,373,720

52 Florida Tangible Personal Property Data Targeted Industries and High Impact Sectors 2011 DESCRIPTION NAICS # of Accounts JUST VALUE TAXABLE VALUE LifeSciences ,521, ,462,701 Pharmaceutical and Medicine Manufacturing ,460, ,375,198 Semiconductor and Other Electronic Components ,045, ,112,435 Analytical Laboratory Instrument Manufacturing ,916,484 1,791,484 Irradiation Apparatus Manufacturing , ,047 Medical Equipment and Supplies Manufacturing ,983, ,328,429 R&D in the Physical, Engineering, and Life Sciences ,722,983 75,513,108 AviationandAerospace ,152, ,670,959 Aerospace Product and Parts Manufacturing ,697, ,085,844 Fluid Power Valve and Hose Fitting ,428,155 1,228,155 Fluid Power Cylinder and Actuator Manufacturing ,189,219 13,164,219 Fluid Power Pump and Motor Manufacturing ,138,237 16,088,237 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instruments ,165,541 24,765,541 Other Support Activities for Air Transportation ,534,651 41,338,963 50

53 Florida Tangible Personal Property Data Targeted Industries and High Impact Sectors 2011 DESCRIPTION NAICS # of Accounts JUST VALUE TAXABLE VALUE FinancialServices 3, ,731, ,202,885 Monetary Authorities-Central Bank ,976,886 98,768,461 Nondepository Credit Intermediation ,948, ,976,655 Activities Related to Credit Intermediation ,875, ,100,378 Securities, Commodity Contracts, and Related Activities 523 1, ,677, ,833,052 Insurance Carriers ,250, ,432,645 Funds, Trusts, and Other Financial Vehicles ,002,409 13,091,694 CorporateHeadquarters 94 49,741,761 47,544,936 Corporate, Subsidiary, and Regional Managing Offices ,741,761 47,544,936 ResearchandDevelopment ,393,885 83,350,617 Scientific Research and Development Services ,393,885 83,350,617 51

54 Florida Tangible Personal Property Data Targeted Industries and High Impact Sectors 2011 DESCRIPTION NAICS # of Accounts JUST VALUE TAXABLE VALUE Transportation ,066, ,118,265 Aerospace Product and Parts Manufacturing ,697, ,085,844 Fluid Power Valve and Hose Fitting Manufacturing ,428,155 1,228,155 Fluid Power Cylinder and Actuator Manufacturing ,189,219 13,164,219 Fluid Power Pump and Motor Manufacturing ,138,237 16,088,237 Motor Vehicle Manufacturing ,127,131 20,349,937 Motor Vehicle Body Manufacturing , ,317 Military Armored Vehicle, Tank, and Tank Components , ,448 R&D in the Physical, Engineering, and Life Sciences ,722,983 75,513,108 HomelandSecurity/Defense 1, ,969, ,776,800 Optical Instrument and Lens Manufacturing ,741, ,266,866 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instruments ,165,541 24,765,541 Small Arms Ammunition Manufacturing ,567,345 6,492,345 Ammunition (except Small Arms) Manufacturing ,068,161 1,018,161 Other Ordnance and Accessories Manufacturing ,009, ,760 Military Armored Vehicle, Tank, and Tank Component , ,448 Ship and Boat Building ,422, ,442,959 Computer Systems Design and Related Services , ,536, ,373,720 52

55

56 HighImpactSectors 54

57 TotalRepealofTPPTax FullRepealwith0%TaxRevenueRecovery (100%GovernmentSpendingReduction) 100,000 CumulativeNumberofJobs 60,000 20,000 20,000 60, , , , PublicSector PrivateNonFarm Employment NetJobs FullRepealwith50%TaxRevenueRecovery (50%GovernmentSpendingReduction) CumulativeNumberofJobs 100,000 80,000 60,000 40,000 20, ,000 40,000 60,000 80, PublicSector PrivateNonFarm Employment NetJobs CumulativeNumberofJobs 120, ,000 80,000 60,000 40,000 20,000 0 FullRepealwith100%TaxRevenueRecovery (0%GovernmentSpendingReduction) PublicSector PrivateNon Farm Employment NetJobs 55

58 FiveYearPhaseoutofTPPTax CumulativeNumberofJobs CumulativeNumberofJobs CumulativeNumberofJobs 20%RepealofTPPTaxAnnuallywith0%RecoveryinTaxRevenues 100,000 (100%inGovernmentSpendingReduction) 60,000 PrivateNonFarm Employment 20,000 PublicSector 20,000 60, , ,000 40,000 20, ,000 40,000 60,000 80, NetJobs 20%RepealofTPPTaxAnnuallywith50%RecoveryinTaxRevenues (50%inGovernmentSpendingReduction) 80,000 60,000 PublicSector 40,000 20,000 0 PrivateNonFarm Employment NetJobs 20%RepealofTPPTaxAnnuallywith100%RecoveryinTaxRevenue (0%inGovernmentSpendingReduction) 100,000 PublicSector 80,000 PrivateNonFarm 60,000 Employment NetJobs

59 ManufacturingSectorExemptfromTPPTax CumulativeNumberofJobs CumulativeNumberofJobs CumulativeNumberofJobs ManufacturingSectorExemptfromTPPTaxwith0%RecoveryinTax Revenues(100%GovernmentSpendingReduction) 15,000 PublicSector 10,000 5, ,000 10,000 15,000 20,000 14,000 12,000 10,000 8,000 6,000 4,000 2, ,000 4,000 6,000 8,000 10,000 5, ManufacturingSectorExemptfromTPPTaxwith50%Recoveryin TaxRevenues(50%GovernmentSpendingReduction) PrivateNonFarm Employment NetJobs PrivateNonFarm Employment PublicSector NetJobs ManufacturingSectorExemptfromTPPTaxwith100%Recoveryin TaxRevenues(0%GovernmentSpendingReduction) 20,000 PrivateNonFarm 15,000 Employment PublicSector NetJobs 57

60 TargetIndustriesExemptfromTPPTax CumulativeNumberofJobs 12,000 8,000 4, ,000 8,000 12,000 16,000 20,000 TargetIndistriesExemptfromTPPTaxwith0%Recoveryoftax Revenue(100%GovernmentSpendingReduction) PublicSector PrivateNonFarm Employment NetJobs CumulativeNumberofJobs 20,000 15,000 10,000 5, ,000 10,000 TargetedIndustriesExemptfromTPPTaxwith50%RecoveryofTax Revenues(50%GovernmentSpendingReduction) PublicSector PrivateNonFarm Employment NetJobs CumulativeNumberofJobs 30,000 25,000 20,000 15,000 10,000 5,000 0 TargetIndustriesExcludedfromTPPTaxwith100%RecoveryofTax Revenues(0%GovernmentSpendingReduction) PrivateNonFarm Employment PublicSector NetJobs 58

61 ManufacturingandTargetIndustriesExemptfromTPPTax Manufacturing&TargetIndustriesExemptfromTPPTaxwith0% RecoveryofTaxRevenues(100%GovernmentSpendingReduction) 20,000 NumberofJobs 10, ,000 20,000 30,000 Government PrivateNonFarm Employment NetJobs 40, NumberofJobs 20,000 15,000 10,000 5, ,000 10,000 15,000 20,000 TargetedIndustries&ManufacturingExemptwith50%Recoveryof TaxRevenues(50%GovernmentSpendingReduction) PublicSector PrivateNonFarm Employment NetJobs CumulativeNumberofJobs 50,000 40,000 30,000 20,000 10,000 0 TargetedIndustries&ManufacturingExemptfromTPPTaxwith 100%RecoveryofTaxRevenue(0%GovernmentSpending Reduction) PrivateNonFarm Employment PublicSector NetJobs 59

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63 About Florida TaxWatch Florida TaxWatch is a statewide, non-profit, non-partisan taxpayer research institute and government watchdog that over its 32-year history has become widely recognized as the watchdog of citizens hardearned tax dollars. Its mission is to provide the citizens of Florida and public officials with high quality, independent research and education on government revenues, expenditures, taxation, public policies, and programs, and to increase the productivity and accountability of Florida Government. Florida TaxWatch's research recommends productivity enhancements and explains the statewide impact of economic and tax and spend policies and practices on citizens and businesses. Florida TaxWatch has worked diligently and effectively to help state government shape responsible fiscal and public policy that adds value and benefit to taxpayers. This diligence has yielded impressive results: in its first two decades alone, policymakers and government employees implemented three-fourths of Florida TaxWatch's cost-saving recommendations, saving the taxpayers of Florida more than $6.2 billion -- approximately $1,067 in added value for every Florida family, according to an independent assessment by Florida State University. Florida TaxWatch has a historical understanding of state government, public policy issues, and the battles fought in the past necessary to structure effective solutions for today and the future. It is the only statewide organization devoted entirely to Florida taxing and spending issues. Its research and recommendations are reported on regularly by the statewide news media. Supported by voluntary, tax-deductible memberships and grants, Florida TaxWatch is open to any organization or individual interested in helping to make Florida competitive, healthy and economically prosperous by supporting a credible research effort that promotes constructive taxpayer improvements. Members, through their loyal support, help Florida TaxWatch bring about a more effective, responsive government that is accountable to the citizens it serves. Florida TaxWatch is supported by all types of taxpayers -- homeowners, small businesses, large corporations, philanthropic foundations, professionals, associations, labor organizations, retirees -- simply stated, the taxpayers of Florida. The officers, Board of Trustees and members of Florida TaxWatch are respected leaders and citizens from across Florida, committed to improving the health and prosperity of Florida. With your help, Florida TaxWatch will continue its diligence to make certain your tax investments are fair and beneficial to you, the taxpaying customer, who supports Florida's government. Florida TaxWatch is ever present to ensure that taxes are equitable, not excessive, that their public benefits and costs are weighed, and government agencies are more responsive and productive in the use of your hard-earned tax dollars. The Florida TaxWatch Board of Trustees is responsible for the general direction and oversight of the research institute and safeguarding the independence of the organization's work. In his capacity as chief executive officer, the president is responsible for formulating and coordinating policies, projects, publications, and selecting professional staff. As an independent research institute and taxpayer watchdog, Florida TaxWatch does not accept money from Florida state and local governments. The research findings and recommendations of Florida TaxWatch do not necessarily reflect the view of its members, staff, distinguished Board of Trustees, or Executive Committee, and are not influenced by the positions of the individuals or organizations who directly or indirectly support the research. Florida TaxWatch Values: Integrity Productivity Accountability Independence Quality Research

64 Improving Taxpayer Value, Citizen Understanding, and Government Accountability 106 N. BRONOUGH STREET (32301) P.O. BOX (32302) TALLAHASSEE, FLORIDA Copyright Florida TaxWatch, November 2011