Under other circumstances, you might expect a vigilant press to expose these hypocrisies, but the state's media were right in there demanding their own exemption. A sales tax applied to advertising sales, argued the Florida Press Association, was nothing less than an unconstitutional restraint on the right of free speech. When the legislature turned aside its far-flung constitutional argument, the group filed suit in federal court.
By the time the orgy of hyperbole and arm-twisting was completed, the Florida legislature had produced a new sales tax law with no fewer than 41 exemptions. The bill itself ran to some 170 pages. When the state revenue department went to write up its preliminary analysis of the thing, that document came to 844 pages -- so big that the department could afford to print only 100 copies.
Besides being vast, unwieldy, and transparently unfair, Florida's version of the service sales tax suffered from a second major problem: it had overreached itself. As written, the new tax would cover not only bona fide Florida transactions, but also sales by national and international companies that, directly or indirectly, had Florida components to them. Whether such an extraterritorial sales tax is constitutional is a matter open to dispute -- the New Mexico Supreme Court didn't think so back in 1956. Whether it was politically astute, however, is no longer at issue.
In the Florida case, the most controversial aspect of this extraterritorial provision concerned the national advertising sales of the major TV and radio networks, and national publications such as this one. In each case, Florida proposed to tax that portion of advertising sales that could be attributable to their Florida viewers and readers. The idea generated not only the opposition of the national media and advertising agencies, but also their customers, who number most of the large corporations in America. Together, these opponents mounted something of a national boycott against Florida, including cancellation of conferences and sales meetings that hit directly at the state's key tourist industry, and generated -- not surprisingly -- almost weekly stories about the "sales tax debacle" in the national press.
Meanwhile, from within the state, Florida businesses were discovering their own problem with the service tax -- namely, that in many instances it was turning out to be much more than a 5% tax after all. Originally, the sales tax was conceived as a one-time levy collected from consumers at the point of sale. But as structured,, the Florida tax was being collected at every point along the business chain. Thus a business that itself was purchasing taxable goods and services was building those taxes into the price of its products -- and then collecting 5% on top of that at the time of sale. The result was a form of double taxation, or a pyramiding of taxes on top of taxes. Other states have had some success avoiding the pyramiding problem by exempting many business-to-business transactions from the sales tax, but Florida, desperate to squeeze as much revenue as possible out of its new, exemption-ridden tax, decided not to follow their example.
What with all these problems, it was not surprising that Florida's Republican governor and some Democratic legislative leaders soon declared themselves unalterably opposed to the sales tax on services, and began maneuvering to repeal it. But their retreat still left the state short of revenue, and shorter still of options. Desperate for new sources of funds, Florida's leaders finally reached for an old chestnut, and in December lawmakers raised the existing tax on tangible goods from 5% to 6%. An unfair and regressive tax was thus made more unfair and regressive.
"Clearly the state needs the money," says Jim Brainerd, a lobbyist for the Florida Chamber of Commerce, which is not exactly your typical tax-and-spend organization. "You can argue about how much it needs, or how the money is spent, but there is a need for more revenue. A service tax is not necessarily a bad way to raise it. But the way they went about it -- it's really been a mess."
What is the moral of this Florida tale? It is not, as some ideologues and interest groups suppose, that a sales tax on services is a bad idea. Rather, the lesson is that a bad sales tax on services is a bad idea. Human nature particularly opposes any new tax, or even an old tax on new things, but reason dictates against such prejudice. Sometimes a new tax is simply the best among a set of distasteful alternatives -- the fairest and most efficient way to raise needed revenue. Forty years ago it was the hardware store owner and restaurateur who predicted that the sales tax and meals tax would complicate their bookkeeping and cripple their industries, but they and their customers seem to have survived and even prospered. Now come the real-estate agent, the lawyer, and the newspaper publisher with some of the same predictions of dire consequences. History would suggest they are wrong.
