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As Nation Watches, Florida Tries Again to Tackle Embattled Services Tax

September 27, 1987

TALLAHASSEE, Fla. (AP) _ With other states watching nervously, Florida lawmakers resume a special session Monday to grapple again with their $2 billion question: what to do about the state’s much-hated services tax?

The 5 percent levy on service industries was enacted last spring as a way to help pay for the state’s rapid growth by ensuring enough schools, quality roads, clean water, dry gutters and safe streets.

It taxes such services as pest control and lawn care, and professional fees including lawyers, architects and engineers. Doctors’ fees are not included, however. The advertising industry also is covered under the law.

But Gov. Bob Martinez ran into a hail of criticism, including a media blitz from the advertising industry, after working diligently to pass the tax. He now wants it repealed as of Jan. 1 and the state’s $18.5 billion budget cut to accommodate the lost revenue - about $400 million.

Meanwhile, some of the revenue-strapped states that once fancied following Florida’s footsteps are thinking again about trying to sell a similar tax to their residents.

″It’s not a pretty picture,″ said Walter Hellerstein, a University of Georgia law professor and technical consultant on the tax. ″People are bemused about what’s going on in Florida. It’s somewhat of a political embarrassment.″

″After seeing what happened in Florida, you can somewhat judge the degree of opposition,″ said Jim Bray, assistant press secretary to Illinois Gov. James Thompson. Earlier this year, Thompson cut $363 million from Illinois’ budget after lawmakers rejected an attempt to tax some services.

In Texas, a $5.7 billion tax-reform package in July included a watered-down tax on a handful of services.

″There was enough resistance here to services, like Florida is encountering now, that we ended up compromising. ... Now the perception is being created ‘Oh, my God, look what happened in Florida,’ ″ said state Rep. Al Luna, who helpd pass the service tax that will raise $500 million by 1989.

A tax-reform panel in Wisconsin this month recommended raising $704 million in new revenue this year by taxing some services.

″Florida has been a super topic of conversation around here,″ said Bob Hurtgen, an aide to Republican state Sen. Don Stitt, who opposes a services tax. ″We’re using it as an example: don’t be hasty on this issue.″

Also watching the debate is a New York credit house, Standard & Poor’s Corp., that last week put Florida on a credit watch, a move that could cost taxpayers millions of dollars in interest on bond purchases if Florida’s credit rating is dropped.

Officials at Standard & Poor’s said they are watching because of uncertainty over public revenues in Florida that back those bond purchases.

Martinez, a first-term Republican, called lawmakers into session last Monday, but much of the Democratically controlled Legislature went home early when little was accomplished other than partisan bickering.

Various lawmakers, however, support a range of alternatives, including revision, or repealing and replacing it with a 1-cent hike in the general sales tax to 6 percent.

The service tax in its first year was to raise about $740 million, and in its second year, $1.2 billion.

The state’s 5 percent sales tax, however, met with a little trouble of its own recently when officials in the mail order industry said they were likely to ignore a new law applying the tax to orders by Sunshine State residents.

Dubbed the ″L.L. Bean tax″ when the Legislature passed it last spring, the tax takes effect Thursday. But there has been no rush by mail-order companies to register as collectors with the state Department of Revenue.

″Let us say they are not beating down our doors,″ despite a new incentive that permits the company collecting the tax to keep up to 10 percent of collections,said the department general counsel, William Townsend.

″We do not intend to collect sales tax on any goods that Florida residents might order from us,″ said Terry Wilson, a spokesman in the Chicago office of Land’s End, a clothing mail-order house.

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