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Florida's tax law exemptions

The Florida Legislature started charging a sales tax 70 years ago. It’s been handing out tax exemptions ever since.

It gave one of the first sales-tax exemptions to an industry that once was among the state’s most influential: Newspapers. Buried deep inside the General Revenue Act of 1949 — tucked between sales tax breaks on garden seeds and film rentals — was a provision declaring newspapers exempt from the sales tax. The exemption applied to all newspaper sales, whether through a subscription, at a newsstand or from a vending bin.

Magazines weren’t happy. They decided their subscribers shouldn’t have to pay the sales tax, either. They sued, lost in court, but turned to lobbyists, and the Legislature added an exemption for magazines in 1957.

Next to seek an exemption were publishers of free publications — community newspapers and “shoppers” with lots of classified ads and little news like Morris Communications’ the Neighbor, a free publication the Georgia-based publisher distributed in Tampa. Since the publications were free, there were no taxes on sales to readers, but the publishers sought to have sales taxes lifted on the ink and paper they bought to produce the freebies.

The community papers were even joined by some traditional newspapers that published free weeklies and sought to stretch the boundaries of their original sales-tax exemption. Boca Raton Publishing, which was owned by Knight Ridder, the parent company of the Miami Herald, attempted to get out of the tax it paid on the ink and paper it bought to produce its free publications.

All lost in court. But then came the Alligator case. In 1980, the Department of Revenue charged the non-profit publisher of the independent student newspaper at the University of Florida for three years’ worth of unpaid sales tax on its printing-related purchases. The Alligator sued, arguing that it was being unfairly excluded from the newspaper tax break simply because it was free.

The 1st District Court of Appeal agreed, and that decision extended a tax break on the sale of a newspaper to the production costs of a free newspaper.

In 1987, the tax-exemption merry-goround screeched to a halt. In the course of enacting an ill-fated tax on services, the Legislature repealed a host of tax breaks — including the sales tax exemption for newspapers and magazines. The changes spurred intense criticism from the industries hit hardest by the changes — newspapers among them. And less than a year later, Gov. Bob Martinez and the Legislature repealed the services tax and doubled the sales tax.

In the process, they didn’t restore all the previous sales tax exemptions. But they did bring back some — including the exemption for newspapers. According to Tallahassee lore, the exemption for newspapers “came as a trade-off for the newspapers not trashing the Legislature — the Miami Herald was particularly out front on that,” says one former Department of Revenue staffer.

Magazines, furious, went back to court. The Magazine Publishers of America, Hearst Corp., Time Inc., Golf Digest/ Tennis Inc. and Meredith Corp. sued, arguing that Florida’s newspaper-only sales tax exemption unconstitutionally discriminated against one form of journalism over another. Newspapers, led by the Miami Herald, opposed the suit.

While newspapers and magazines fought in court, publishers of free publications resumed their lobbying push in the Legislature. And at the very end of the 1990 legislative session, lawmakers inserted an obscure provision into an enormous tax package that exempted shoppers, community newspapers and any other free publications that were “published on a regular basis” and whose content was “primarily advertising.”

Expanding breaks

The floodgates opened, and a combination of Department of Revenue opinions and court decisions soon bestowed the tax exemption on industry trade publications, community association newsletters, apartment guides, real estate listings and business directories.

The magazines won their case a few year later — but not in the way they’d imagined. A 1993 Florida Supreme Court ruling found that it was unconstitutional to limit the sales tax break to newspapers. But instead of declaring magazines tax exempt, the court declared that both newspapers and magazines should have to pay the tax.

Meanwhile, all the shoppers and advertising publications kept their tax exemption.

The magazines had a backup plan — the Legislature. Time, which had a customer-service center in Tampa that employed about 2,000 people, hired former House Speaker H. Lee Moffitt to lobby lawmakers to restore the exemption. The company warned it might close the fulfillment center and move the operation to another state.

The Legislature, which had just come under Republican control, was reluctant. Republicans increasingly regarded newspapers as liberal opponents, and the new tax on newspapers was generating quite a bit of money for the state. Time and its lobbyists wrote a revised exemption that would apply to both magazines and newspapers — but only when they were delivered through the mail.

The Legislature passed the exemption, meaning most newspaper subscriptions were taxed, while most magazine subscriptions weren’t. (The center, which was bought years later by Meredith Corp., has since closed.)

Newspapers were suddenly on the sidelines, exemption-less. But the exemption for advertising-dominated publications continued to grow. Clothing retailer American Eagle Outfitters, for instance, avoided at least $200,000 a year in sales tax in the mid-2000s when it had brochures, postcards and other advertising mailers printed in Florida, according to documents filed in litigation with the state.

Those documents showed that American Eagle, which does $4 billion a year in sales, was, at least at the time, spending more than $2 million annually printing mail in Florida that qualified for tax-exempt publications.

Not everyone was that successful. Sharper Image, for instance, lost a court case seeking to have its catalogs deemed tax-exempt.

But then there is always the Legislature. In 2003, Valpak, the St. Petersburg-based direct-mail marketer that fills millions of mailboxes around the country with coupons in its signature blue envelopes, sued the state seeking a refund to $1.6 million worth of sales taxes it had paid over a roughly five-year period. The company argued its coupons were advertising publications covered by the sales-tax exemption.

The 1st DCA disagreed, ruling that a bunch of coupons stuffed in an envelope could hardly be considered a “publication.”

The company turned to the Legislature, which, in 2006, passed a sales-tax exemption specifically to cover Valpak’s mail, too. Rep. Thad Altman, a Republican from Brevard County who sponsored the legislation to help Valpak, said the issue was simply a matter of fairness.

“When you would send flyers out with coupons — no tax. But if you happened to put them in an envelope, suddenly you were taxed. It didn’t seem to make a lot of sense,” says Altman, who was first elected to the House in 2003 and has moved back and forth from the House and the Senate. “The Valpak people were wanting fair treatment.”

Exemptions galore

And this is where things stand today. A tax break passed 70 years ago for publishers of newspapers today saves money for magazines (including Florida Trend), community papers, apartment guides, industry newsletters and all kinds of junk mail — almost everything except newspapers. The once-tiny tax break costs the state an estimated $40 million a year.

It is, of course, a relatively small amount in the context of the roughly $30 billion a year the state makes overall from sales taxes. But experts say it illustrates a frequent pattern with many of the tax exemptions, credits and breaks that dot Florida’s tax code. While an individual tax cut may start out narrow and small, it is very likely to grow over time as more taxpayers figure out ways to squeeze into it, or as industry and technology evolve in ways that weren’t foreseen, or lobbyists persuade lawmakers to cut their clients in, too.

Florida’s sales tax alone includes more than 270 exemptions. “These things get into place — some of them for very valid reasons — and then they continue to expand and expand,” says Andrew Appleby, a tax law professor at Stetson University. “The next thing you know — sometimes a couple of years later, sometimes 30 years later — you have all these exemptions. And now your tax base is much lower.”

Others, like Anne Mackenzie, are more blunt. Mackenzie served in the Legislature from 1982-98, a Democrat representing Broward County whose tenure included a term leading the House’s finance and tax committee.

“What happens is, as soon as somebody realizes that somebody else is getting a better deal, they want to level the playing field,” Mackenzie says. “So, of course, they come to the Legislature.”

 

Read more in Florida Trend's July issue.

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