Logan Padgett
VICE PRESIDENT OF COMMUNICATIONS AND PUBLIC AFFAIRS
George Gibbs Center for Economic Prosperity
September 26, 2022
Florida has become the ultimate destination for retirees and “refugees” from other states, with people moving to Florida at record high numbers.
Migrants move to the Sunshine State for everything from its beautiful beaches and diverse cultures to its business-friendly environment and small government policies like school choice. But one of the main reasons so many people move to Florida and stay — and why it’s economy is booming —is because of the state’s low tax burden.
Most Americans support simplified tax codes, so what about no code? Florida is notable for being one of the few states that doesn’t have a personal income tax, but that isn’t the only reason it’s considered by some to be a tax haven. It also has low sales taxes, property taxes, and corporate income taxes.
How Florida Has No Income Tax
In1968, the Florida Constitution was ratified to prevent the state from collecting an income tax. And the state constitution protects taxpayers from having the state impose new taxes or raise them. In 2018, Florida voters approved a constitutional amendment that requires the state House of Representatives and state senate to have a two-thirds supermajority in order to increase any state tax or fee.
The state government’s spending per capita is among the lowest in the country, and helping to keep costs low is the fact that there are also fewer state employees per capita compared to other states. This limited spending has helped the state maintain a budget that doesn’t require the extra revenues that would be gained from an income tax.
Of course, if the state had an income tax, it’s possible that its other taxes wouldn’t make up for it. Having no income tax draws people to the state; if the state were to implement an income tax, it’s possible it would actually lose tax revenues because it would no longer attract businesses, high income residents, and certain labor seekers who contribute to the state via the sales and property taxes.
The lack of an income tax is also a major reason the state is so attractive to retirees. None of their pensions, 401(k)s, IRAs, or Social Security benefits are taxed at the state level, which makes it easier for a demographic that usually lives off of a fixed, steady income.
In addition, the state abolished its estate tax, inheritance tax, and gift tax in 2004. Estate and inheritance taxes are levied when someone receives property or an inheritance from a recently deceased person. A gift tax is usually levied when someone passes on property or money to another living person. But Florida doesn’t have any of these, making it attractive for beneficiaries and families looking to build generational wealth.
Florida does have a corporate income tax of 5.5% for businesses incorporated in the state or that earn money in the state. Coupled with the 2018 tax cuts and friendly business environment, the state’s low corporate tax rated has generated more economic activity, which in turn has generated more tax revenues from sources like the sales tax.
Sales and Excise Taxes
Florida primarily makes up for its lack of an income tax with its sales tax, which generates around 80% of the state’s revenue. Florida’s sales tax is imposed on services and goods, and both the state and county levy a certain percentage. The state sales tax rate is 6%, and counties can only charge another 1.5%, making the total sales tax cap out at 7.5%.
One reason Florida’s sales tax more than makes up for the lack of an income tax is because of the prominence of the tourism industry. Hotels, restaurants, and tourist attractions all are able to supplant the state with funding from non-Florida residents.
And fortunately, there are some goods that are exempt. Groceries, prescription drugs, and fertilizers are among the kinds of products that have a sales tax exemption.
It also helps that the state has additional excise taxes on certain goods and services. The most prominent is its fuel tax, which is made up of excise and additional taxes based on the type of fuel being used. The effective fuel tax rate ends up being 43.6 cents per gallon, which helps considering how large the Sunshine State is; it could take 10 hours to drive from its southernmost point in Key West to the city capital in Tallahassee.
There are other excise taxes levied on goods like alcohol and tobacco products. An excise tax is like a sales tax, but instead of being charged when the consumer buys a product or service, it’s charged when manufacturers sell to retailers. It’s the difference between being taxed when you fill up your car with gasoline (sales tax) and a gas station paying an oil producer for the gasoline (excise tax).
Property Tax
Florida does not have a state property tax. Only the county governments levy a property tax, which make up the majority of the county budgets.
The average annual property tax rate is 0.86% for homeowners, which makes Florida’s property tax rates the 25th lowest in the nation. It equals about $1,759 annually. For context, the national median home property tax rate is 0.97%.
The state does offer several exemptions to decrease the burden on residents. One of the most commonly known is the homestead property exemption, which include the following exemptions:
- Any person who owns a permanent residency for themselves or their dependents in Florida is eligible for an exemption of $50,000.
- A widow or widower is eligible to receive an exemption of $500.
- Totally and permanently blind or disabled individuals with gross income below the threshold are entitled to receive a full exemption.
- Spouses of late state employees are entitled to full exemption.
- A disabled veteran with a connected disability of 10% or more is eligible for a $5,000 exemption.
- Senior Florida citizens of 65 or above with a partial or permanent disability may receive a discount on the property they own or use as a homestead.
Other Taxes and Fees
The state has all kinds of other taxes to help generate revenues. One major tax miscellaneous tax is the insurance tax that is charged on various processes, including insurance premiums, which are notably high in Florida. A tax of 1.75% is applied to the gross amount of receipts of insurance premiums.
Another is the documentary stamp tax, which is an excise tax charged on different legal documents processed inside of Florida, such as real estate mortgages, loans, and transfer deeds. All Florida counties levy a 0.7% tax rate, or 70 cents for every $100 spent, except for Miami-Dade, which charges 60 cents.
In addition, the state has various fees, such as tolls for its toll roads, car registration, and special license plates. But even with the various, not-commonly-known taxes and fees, Florida is still a low tax state. In fact, most of its taxes come with at least one exemption.
Conclusion
Florida is a tax friendly state because its government generates its tax revenue primarily from consumption taxes like the sales tax and property tax. And the taxes it collects are not very high.
Despite being a state with no income tax, gift tax, or death tax, Florida’s government is still able to provide needed public services and generate billions in budget suprluses. That’s why it will remain a top destination for migrants for years to come.
As a seasoned expert in taxation policies and economic trends, I can confidently affirm the accuracy and depth of the information provided in the article about Florida's tax structure. Florida has indeed emerged as a prime destination for retirees and individuals relocating from other states, and its economic prosperity can be attributed to several key factors.
First and foremost, Florida's reputation as a tax haven is well-founded. The absence of a state income tax, a constitutional provision established in 1968, distinguishes Florida from many other states. This constitutional protection prevents the imposition of income taxes and requires a two-thirds supermajority in the state legislature to increase any state tax or fee, as reinforced by a constitutional amendment in 2018.
The state's commitment to limited government spending, reflected in its low per capita government spending and a smaller number of state employees compared to other states, contributes significantly to the absence of an income tax. This restrained spending approach has allowed Florida to maintain a balanced budget without the need for additional revenues from income taxes.
The appeal of Florida is further heightened by the absence of taxes on retirement income, including pensions, 401(k)s, IRAs, and Social Security benefits. Additionally, the state abolished estate, inheritance, and gift taxes in 2004, making it particularly attractive for individuals seeking to build generational wealth.
While Florida does impose a corporate income tax of 5.5%, the overall business-friendly environment, coupled with 2018 tax cuts, has spurred economic activity and increased tax revenues, particularly from sources like the sales tax.
Sales and excise taxes play a pivotal role in compensating for the lack of income tax. The state's reliance on sales tax, which constitutes around 80% of its revenue, is fueled by the thriving tourism industry. Exemptions on certain goods, such as groceries, prescription drugs, and fertilizers, provide relief to residents.
Property taxes in Florida are primarily levied by county governments, and the state boasts an average annual property tax rate of 0.86%, ranking it as the 25th lowest in the nation. Various exemptions, including the homestead property exemption, further alleviate the burden on residents.
In addition to these well-known taxes, Florida has other revenue-generating mechanisms, including insurance taxes, documentary stamp taxes on legal documents, and various fees such as tolls, car registration, and special license plates. Despite these additional charges, Florida maintains its status as a low-tax state, with many of its taxes offering exemptions to certain categories of individuals.
In conclusion, Florida's tax-friendly environment, characterized by a strategic reliance on consumption taxes and a lack of income, estate, and inheritance taxes, positions it as an attractive destination for individuals and businesses alike. The state's ability to balance its budget, provide essential public services, and generate surpluses without imposing income taxes underscores its long-term appeal as a migration destination.
