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Tax tit for tat

March 3, 2007

For the last several weeks I’ve been immersed in a project involving state tax laws. It’s finally over (yay!) and today I was sifting through and archiving the data I had collected during the process.

The tidbit below from Florida didn’t make it into the finished state tax project because it’s prospective and we were looking at what’s in effect now. But it deals with taxes that everyone, regardless of where they live, can relate to: sales taxes and property taxes.

Almost every state collects sales taxes. Only Alaska, Delaware, Montana, New Hampshire and Oregon forgo a state levy. In many states, local jurisdictions, from cities to counties to special taxing jurisdictions (e.g., transit areas) also are allowed to add a few percentage points to the state-imposed tariff. Even in Alaska, localities can charge sales taxes if they wish.

Property taxes, usually collected at the county level, also are a major source of revenue. In the wake of the housing boom of the last few years, property taxes also have been a major source of contention between public officials and homeowners.

When the Sunshine State’s legislature opens its 2007 session next week, property taxes will be at the top of the legislative list in Tallahassee. Florida home sellers and governments greatly benefited from the housing boom; sellers from the profits they pocketed and governments that saw their tax collections rise in conjunction with the higher home values.

Now, however, the homeowners paying those higher property taxes are unhappy. And unhappy homeowners, especially those who vote or threaten to do so, make for unhappy politicians.

So Florida lawmakers have been kicking around ways to placate residential voters. Pre-session proposals getting attention include doubling the homestead exemption, allowing homeowners to take their favorable tax rates (the Save Our Homes law) with them when they move and restricting property appraisers’ abilities to determine how much a property is worth.

Now here’s the fun suggestion: Eliminate property taxes entirely for homeowners. To make up for the lost real estate revenue, the state’s sale tax would be hiked.

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That tax tit for tat, however, presents a whole ‘nother set of concerns.

First, the increase from 6 percent to 8.5 percent, making it the highest state assessment in the United States, would have to be approved by voters. While the property owning contingent would obviously approve the switch, would non-homeowners close ranks and keep it from happening?

If homeowners prevail at the ballot box, would the added costs of shopping mean that consumers would cut back? If shoppers suddenly became more frugal, state and local governments would have to reduce their budgets accordingly. Some numbers crunchers say that the shift of the tax base would automatically produce a $5.7-billion deficit between what’s currently collected in property taxes and what governments would receive from the sales tax increase.

And, of paramount concern for bargain hunters, would the state continue its annual sales-tax holidays (it had two in 2006, the regular back to school one in the fall and another one before the June hurricane season kicked off) knowing that by doing so, it would be giving away a big chunk of its only source of income?

Finally, there’s the issue of fairness. The sales tax is a regressive levy that disproportionately hits the poor and the middle class. Fans of this type of tax argue that it is fair, since every consumer has control over their taxes by choosing to buy or not buy. But eventually, we all must purchase some goods and services. And taxes on those expenses represent a smaller portion of a wealthier person’s income.

Here’s a simplified example. Someone who makes $200,000 and buys in a year $10,000 worth of items that are taxed at 5 percent would pay $500 in taxes. That’s a 0.25 percent tax rate. But a person making $50,000 who spends that same $10,000 in a year would in effect be paying 1 percent of his income in sales taxes, four times that of the person who is, ironically, making four times the income.

So while the one rate would be "fair" in the sense that it would be the same for all, wealthy, poor or in-between, the effective result would be that the tax’s relative rate in regard to income or consumption would be a larger burden for lower-income earners.

Costliest to consumers: OK, I know that since you read that a hike to 8.5 percent would give Florida the highest state sales tax rate, you’ve been wondering which one currently holds this unwanted title. It’s a four-way tie. Mississippi, New Jersey, Rhode Island and Tennessee each collect 7 percent on products their residents buy.

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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