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Initial Details Released on COVID-19 Impacts to Florida Tax Revenues

Published: May 27th, 2020

By: H. French Brown, IV

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Florida’s general revenue fund is the main source of discretionary funding for the State.  This January, the State’s economists estimated that the State would receive $36.2B in general revenue during the State’s fiscal year July 1, 2019 – June 30, 2020. Of that amount, approximately $12.5B (34.5%) was expected to be received in March through June 2020. 

Yesterday, May 26, the State’s Office of Economics and Demographics Research released an initial glimpse of how COVID-19 has impacted State and local budgets.  The April Detailed Revenue Report provides details regarding receipts and distributions to the State’s general revenue fund during the month of April and reflects March sales and use tax activity. 

Prior to the April report, the State general revenue fund was projected to have a state fiscal year end unused balance of approximate $2.1B.  Normally, that amount of funds collected, but not used, would roll over to be available for use in the following state fiscal year.  However, after COVID-19’s impact on April collections & March sales tax activity, that estimated unused balance has been reduced to approximately $1.2B.  While, this $915M statewide revenue reduction may seem extreme, a large portion of the reduction is due to some tax filing and payment deadlines being extended until June thereby only delaying collection of those revenues.

Sales and Use Tax

  • From March through June 2020, the State previously estimated it would collect approximately $8.9B in sales tax revenue to be deposited into the general revenue fund. Traditionally, eighty to ninety percent of the revenues in the general revenue fund come from sales and use tax.
  • In March, state sales and use tax collections were $507.7M under the estimated $2.7B in revenues (-18.7%).
    • More than half of this shortfall was driven by tourism associated activities ($287.2M under estimate or -42.7%).
    • Automobile sales for the month were $105.6M (-22.9%) under estimate.
  • For local governments, the half-cent sales tax distributions were $56.8M (-26.9%) under estimate and revenue sharing was $20.3M (-22.2%) under estimate.

Corporate Income Tax

  • From March through June 2020, the State previously estimated it would collect approximately $1.3B in corporate income tax revenue to be deposited into the general revenue fund.
  • On April 27th, the Florida Department of Revenue deferred the May 1st corporate income tax payment deadline to June 1st for calendar year filers. See Emergency Order #20-52-DOR-003.  While this deferral resulted in a reduction of $246M (-53%) in April estimated corporate income tax receipts, it’s likely that those payments will be shifted to June 1st.
  • In April, the State also paid out $542M in corporate income tax refunds to taxpayers that paid corporate income tax to the State for tax years beginning between April 1, 2017, and March 31, 2018. See Section 220.1105, Fla. Stat.  This refund was based on increased Florida corporate income tax collections due to the base-broadening measures contained in the Federal Tax Cuts & Jobs Act.

Corporate Filing Fees

  • While not normally a significant monthly general revenue source, corporate filing fees were substantially reduced in April. From April through June 2020, the State previously estimated it would collect approximately $181M in corporate filing fees to be deposited into the general revenue fund.  Historically, this three-month period accounts for 44% of the annual corporate filing fee collections.
  • On March 27th, the Florida Department of State extended the corporate filing and payment deadlines to June 30, 2020. See Emergency Order DOS 2020-01.  While this deferral resulted in a reduction of $56.9M (-61.2%) in April estimated corporate filing fees, it’s likely that those payments will be shifted to June 30th.

Ultimately, Florida’s resilient fiscal policies have put it in a good position to weather this economic storm.  Assuming the approximately $275M in corporate income tax and filing fees are timely paid in June, then the cost of shutting down the state for half the month of March was approximate $600M in revenues.  This cost will first be borne by the unused general revenue reserve, which as discussed above, was projected to be $2.1B before the April Report/March sales tax activity.  This means the State could be in a good position to make it through the pandemic without tapping into additional reserve funds assuming the economy’s recovery is not unnecessarily prolonged.

However, if necessary, the State has $1.5B in its reserve Budget Stabilization Fund, approximately $773M in the Lawton Chiles Endowment Fund, and $4.6B currently available under the CARES Act.  While there is some question and debate regarding the states’ use of the CARES Act allocations, the first two fund sources may be used by the State to help stabilize the budget.  Florida’s responsible budgeting and fiscal policies have prepared it to be able to make it through this.

French Brown is a shareholder in Dean Mead’s Tallahassee office where he assists businesses with Florida tax planning and controversies. Brown began his legal career at the Florida Department of Revenue and now offers clients more than 12 years of experience practicing in state and local taxation. He may be contacted at fbrown@deanmead.com.