Corporate Income Tax Issues for the 2022 Legislature

Repeal the Impending Tax Increase and Fix the “Retail Glitch” and Like-Kind Exchanges

Federal corporate income tax reform, which had the general aim of broadening the base and lowering the rate, has reduced the federal tax burden on many corporations. However, since Florida adopted most of the base expansion measures without a concurrent rate reduction, federal tax reform has resulted in increased taxes at the state level, even after subsequent state refunds and rate cuts. Under current state law, Florida’s corporate income tax (CIT) rate is scheduled to return to 5.5 percent, meaning a much bigger tax increase is headed for Florida businesses. Moreover, the treatment of Qualified Improvement Property (QIP)--another result of federal tax reform and Florida’s response to it--has created increased taxes and a barrier to investment for many companies, especially some of those that were hardest hit by the COVID-19 pandemic, including restaurants, hotels, and other retailers.

The 2022 Legislature must act to stop the scheduled return of the corporate income tax rate to 5.5 percent, fix the “retail glitch” relating to Qualified Improvement Property, and provide relief to companies most affected by the change to like-kind exchanges.

The Scheduled Increase of Florida’s CIT Rate Percent Would Apply to a Much Larger Tax Base

Florida, like most states, “piggybacks” its corporate income tax code with the federal tax code. In filing their state tax returns, Florida corporate taxpayers start with their federal taxable income and make additions and subtractions to reflect federal provisions or treatments that the state has elected not to adopt.

Every year, the Legislature passes a corporate income tax (CIT) piggyback bill that adopts the Federal Internal Revenue Code as it exists on January 1 of that year. This picks up any federal changes. The annual piggyback bill is usually fairly straight forward, but in recent years it has become more complicated due to federal tax reform. This started with the federal Tax Cuts and Jobs Act (TCJA) of 2017, which made a number of changes to the CIT code, as well as individual income taxes. The CIT rate was significantly reduced, and tax base was expanded to help offset the revenue loss. This base expansion was accomplished through the reduction or elimination of certain business deductions and credits.

For Florida, adopting the tax base expansion provisions of the TCJA without a reduction in the state tax rate would have resulted in a significant tax increase for Florida corporations. The 2018 Florida Legislature had little time to formulate a response to the TCJA, which was enacted on December 22, 2017, less than three weeks before session began. The state’s revenue estimators could not determine how adopting all these changes would impact Florida CIT revenue. Others estimated the federal changes would increase Florida’s tax base by 13%, most of that from the interest expense deduction limitation and the taxing of Global Intangible Low Tax Income (GILTI).