Airlines fight 'Florida box' formula for calculating taxes
Founded nearly 50 years ago with three planes serving three cities in Texas, Southwest Airlines today is the country’s largest airline, flying nearly 135 million customers on 750 jets last year alone. The airline provides service to seven airports in Florida.
A few years ago, executives at Southwest — with help from accountants at Deloitte — decided the company had been overpaying its Florida corporate income taxes for years. In September, according to records obtained by Florida Trend, the Dallas-based airline filed five years’ worth of refund claims totaling nearly $7 million.
Southwest and other airlines believe Florida’s corporate income tax law has a major defect. In general, the state calculates corporate income tax based on how much of their income companies earn within Florida. To figure out how much companies that provide land or sea transportation owe, the state uses a formula based on the percentage of total “revenue miles” traveled in Florida.
The state’s formula, however, doesn’t follow the peninsular border. The law, written more than 25 years ago, counts any miles flown or sailed within a giant square drawn, roughly speaking, from Pensacola to the west, Palm Beach Shores to the east, the Alabama line to the north and Key West to the south.
That “Florida box,” as accountants call it, includes vast swaths of open water in the Gulf of Mexico and Atlantic Ocean. For instance, the distance between Indian Shores outside St. Petersburg and the western boundary of the box in the Gulf of Mexico is roughly 280 miles. The distance between Atlantic Beach outside Jacksonville and the eastern boundary in the Atlantic Ocean is about 110 miles.
What’s more, the lines established by the tax statute appear to conflict with what the Florida Constitution calls the boundaries of Florida — generally, three miles into the Atlantic Ocean and nine miles into the Gulf.
A number of airlines have seized on the discrepancy in recent years. In 2006, for instance, American Airlines sued the Florida Department of Revenue over the issue, seeking an undisclosed refund from its 1998, 1999 and 2000 tax payments. Ten years later, UPS, which operates a major freight airline, sued the agency for $750,000 worth of taxes from 2009, 2010 and 2011.