PRESS RELEASE February 11, 2002

TALLAHASSEE - Florida TaxWatch's Center for a Competitive Florida today released two special reports showing Florida's sales tax exemptions are overstated and a tax on services doesn't belong in the Constitution. The special reports, authored by two nationally noted tax attorneys, are part of a continuing effort to conduct an independent and comprehensive analysis of how to best modernize Florida's tax system.

In Florida Sales Tax Exemptions Overstated, author Cass D. Vickers provides a careful review of the nearly $23 billion in exemptions cited in the 2001 Florida Tax Handbook. Vickers concludes the exemptions label is being misused to describe billions of dollars in transactions that the State is barred from taxing by the U.S. Constitution or by other controlling law or is simply not a transaction to which the sales tax was intended to apply.

"An exemption by definition is a matter of legislative grace, a favor granted by which a transaction that would otherwise be subject to tax is carved out from the tax," Vickers explains. "Neither the assertion that Florida's sales tax exempts more than it reaches or that there is anything approaching $23 billion in exemptions withstands scrutiny. The repetition of those myths does no service to those who would make decisions on this important front."

After tossing out items not really exempted, the real exemptions equal $10 billion at most. Some specific examples of mislabeled "exemptions" cited in the report include:

A $27 million "exemption" for materials used for packaging retail items
Under Florida law, items purchased for resale are not subject to tax. The cost of packaging materials is included in the price of the item being packaged, and the tax is levied on the retail sale of the product to consumers.

A $13.2 million "exemption" on utility charges billed to tenants by their landlords
The tax is collected from the landlord. This is not an exemption, just a measure to avoid double taxation on a single item.

A $97 million "exemption" on Internet Access Fees
Taxation of Internet access fees is prohibited by federal legislation

According to the report, the inclusion of a long list of services on the "exempt" list is also misleading. The legislature has not exempted medical, dental, engineering, legal, banking, insurance, securities, construction and other services from the tax. These services are simply beyond the pale of the tax as enacted by the Florida Legislature in 1949 and amended through the years.

The report A Tax on Services Does Not Belong in the Constitution is a fact-based, historic perspective on Constitutional Amendments. Author Robert S. Goldman says the Constitution is not the proper vehicle for advancing the need for tax reform.

"The subject of taxation is always volatile and legislative leaders cannot be blamed for perceiving that popular support would assist them in achieving their goal," Goldman says in the report. "The voters of Florida have determined that the Legislature is best qualified to make decisions concerning the objects of taxation ...... this structural feature of Florida government should not be repudiated for political expediency."

Last week, Florida TaxWatch announced its opposition to the proposed tax reform plan, and urged lawmakers to consider comprehensive and nonpartisan tax reform study information prior to making revolutionary tax changes.

Dominic M. Calabro, President of Florida TaxWatch, said the tax reform proposal is well intentioned, but off the mark.

"This is further evidence of the shortcomings in the proposed tax reform plan," Calabro said. "Fundamental changes in Florida's tax policy must be deliberate and based on sound data. Now is not the time for hasty, ill-informed changes."