OUR VIEW: Tax exemption is flawed

Our friends in the Sarasota business community are not going to like what you’re about to read:

Our inclination is to vote “no” on the Economic Development Ad Valorem (Property) Tax Exemptions on the Aug. 24 primary ballot in Sarasota County and the city of Sarasota.

Three weeks ago, in our sister paper, The Sarasota Observer, we recommended a “yes” vote on this upcoming ballot measure. Unfortunately, we spoke before we researched the devil behind the details.

It’s almost anathema to oppose any measure that improves a community’s business climate. And this one would do that. The problem is it would apply only to a chosen few. Once again, the politicians and policymakers have crafted the game board that picks winners and losers.

Let’s go back to the beginning. To begin with, the one-sentence ballot question is vague and uninformative (see box).

As you can read, if voters approve, the Sarasota County Commission will be given the authority to grant property-tax exemptions to new and expanding existing businesses according to what is permitted in Article VII, Section 3, of the Florida Constitution.

But what does that mean?

Now go to Article VII, Section 3 (see box). On a casual reading, it seems straightforward. It says that with voter approval, the County Commission may grant property-tax exemptions to new and expanding existing businesses on the improvements these companies make to their “real property” and the “tangible personal property” related to the new business or the expansion.

As we wrote three weeks ago in The Sarasota Observer, this measure sounded and looked appealing because, if passed, it would allow Sarasota County to eliminate for new and expanding businesses one of Florida’s dumbest, most anti-business taxes — the tax on business equipment. With this ballot question, the exemption would be applied to new equipment used by the new or expanding business. Likewise, if a company added on to its physical plant, the new addition could be exempted from property taxes.

These two steps would improve the region’s business climate, particularly in terms of making Sarasota County more attractive to manufacturers. What manufacturer would want to come to Florida where he is taxed for every piece of equipment he adds to his plant? What’s more, tax advocates always fail to realize that when they tax businesses, those businesses never really pay taxes; they pass them on to their customers.

But here’s where the devil is in the details of the ballot measure and what the voters are not likely to know: There’s a sneaky sentence in Article VII, Section 3. On its face, this constitutional provision sounds as though these tax exemptions could be granted to any and all businesses — new businesses opening in Sarasota County or existing businesses expanding their physical plants. Every growing business, theoretically, could obtain an exemption.

But that is not so. Article VII says: “The amount or limits of the amount of such exemption shall be specified by general law.” That is the devil.

That one sentence gives every county and city commission the authority to shape and tilt the exemptions to pick winners and losers, to decide what companies a county wants to reward and subsidize, which ones will not be eligible or qualify to receive tax exemptions and how big or small the exemptions will be.

And sure enough, that’s what the Sarasota County Commission did earlier this summer. It adopted two ordinances and a resolution that specify the criteria for winning a property-tax exemption. In advance of the election, the county commission already decided what the rules will be for who wins and who loses, for which businesses it favors and those it does not.

Most voters likely will not know this. Most voters likely will have no idea that this ballot measure is not equal and available to every business.

We have reprinted some of the qualifications and criteria for receiving the exemptions. Clearly, they establish a caste system and show the government wants to be the judge deciding which jobs and businesses are more valued than others. This is wrong.

Every job and business have value. And while some jobs and some businesses are more valued than others, why should the government be the arbiter of which job or which business has more or less value and deserves more or less of a tax exemption?

What’s more, this ballot measure illustrates the fallacy of economic development incentives. The fact the government must intervene and change laws to improve a community’s business climate demonstrates that government has adopted flawed laws to begin with. This is yet another illustration of the Milton Friedman theory of lawmaking: Lawmakers create a law to address a perceived unfairness and/or bestow a benefit. In time, lawmakers must create another law to correct the unintended consequences of the first law. And on and on.

Neither Sarasota, Sarasota County nor Hillsborough, Desoto or Charlotte counties would need to adopt these exemptions if the Legislature would get it right to begin with.

As we noted three weeks ago, corporate welfare — subsidies, tax incentives, whatever you call them — are a transfer of wealth, giving favor to one at the expense of another. Frenchman Frederic Bastiat called this legal plunder. Ayn Rand would call it immoral looting.

No other news organization is more pro-business and a bigger defender of laissez-faire capitalism than we. But we cannot support the details behind the ad-valorem tax exemption. If Sarasota wants to improve its business climate, state lawmakers must be persuaded to eliminate Florida’s corporate income tax and the tangibles tax on business equipment. Every business — not just a few — should have the same optimum climate in which to operate.

The ballot doesn't have the fine print

THE BALLOT QUESTION:
ECONOMIC DEVELOPMENT AD VALOREM TAX EXEMPTIONS
Shall the Board of County Commissioners of Sarasota County be authorized to grant, pursuant to s. 3, Art. VII of the State Constitution, property tax exemptions to new businesses and expansions of existing businesses?

THE FINE PRINT:
FLORIDA CONSTITUTION, ARTICLE VII, Section 3: (c) Any county or municipality may, for the purpose of its respective tax levy and subject to the provisions of this subsection and general law, grant community and economic development ad valorem tax exemptions to new businesses and expansions of existing businesses, as defined by general law. Such an exemption may be granted only by ordinance of the county or municipality, and only after the electors of the county or municipality voting on such question in a referendum authorize the county or municipality to adopt such ordinances. An exemption so granted shall apply to improvements to real property made by or for the use of a new business and improvements to real property related to the expansion of an existing business and shall also apply to tangible personal property of such new business and tangible personal property related to the expansion of an existing business. The amount or limits of the amount of such exemption shall be specified by general law. The period of time for which such exemption may be granted to a new business or expansion of an existing business shall be determined by general law. The authority to grant such exemption shall expire 10 years from the date of approval by the electors of the county or municipality, and may be renewable by referendum as provided by general law.

WHO WINS, WHO LOSES; WHO QUALIFIES, WHO DOESN’T:
ORDINANCE 2010-050
If Sarasota County voters approve the tax-exemption ballot question, here are some of the criteria to be eligible for an exemption, according to the ordinace adopted June 22:
• Expansion of an existing business:
1) “A business establishing 10 or more jobs to employ 10 or more full-time employees in the county which manufactures, process, compounds, fabricates or produces for sale items of tangible personal property at a fixed location and which comprises an industrial or manufacturing plan; or
2) “A business establishing 25 or more jobs to employ 25 or ore full-0time employees in the county, the sales factor for which, as defined in Sec. 38-0235 (m), herein, for the facility with respect to which it requests an ad valorem tax exemption is less than 50% inside the Metropolitan Statistical Area for each year the exemption is claimed.
• New business:
1) Same criteria as 1) and 2) above.
3) Also: “An office space in the county leased or owned and used by a corporation newly domiciled in the county; provided such office space houses 50 or more full-time employees of such corporation; provided that such business or office first begins operation on a site clearly separate from any other commercial or industrial operation owned by the same business …”

HOW BUSINESSES WILL BE SCORED TO WIN EXEMPTIONS:
• NUMBER OF NEW FULL-TIME EMPLOYEES
1) Under 10 — below average score
2) 10-25 — average
3) 26-50 — above average
4) More than 50 — excellent
• AVERAGE WAGE
1) Under region’s annual average — below average score
2) Between region’s average and up to 125% of average — average
3) Between 125% of region’s average and up to 150% of average — above average
4) More than 150% of region’s average — excellent
• AMOUNT OF CAPITAL INVESTMENT
1) Less than $2.5 million — below average
2) Between $2.5 million and $5 million — average
3) Between $5 million and $10 million — above average
4) More than $10 million — excellent
• INNOVATIVE BUSINESS
1) Type of business
2) Energy efficiency
3) Recipient of awards
4) Community involvement
• COMMITMENT TO LOCAL PROCUREMENT
• NET POSITIVE CONTRIBUTION TO COMMUNITY
1) Exporting percentage
2) Business diversification
• SALES FACTOR
What % of a company’s sales occur outside of the region.