Florida’s Department of Revenue recently announced its corporate income tax is dropping to slightly more than 3.5%. The decrease will be applicable to 2021 onward. The reduction in corporate income taxes is a component of the Tax Cuts and Jobs Act that requires altering the corporate income tax rate when net collections for fiscal years surpasses adjusted forecasted collections in the same year.
An Inside Look at Florida’s Corporate Income Tax Situation
The state’s legislature provided corporate income refunds for hardworking taxpayers in the event that collections hit specific thresholds. The Florida Revenue Estimating Conference also stated the threshold that will lead to corporate income tax refunds in the early months of the year ahead has already been met.
The Department made it clear to state taxpayers that the corporate income tax rate will be 5.5% in ’22. Therefore, when estimated tax payments are calculated for ’22, taxpayers that assumed they could simply match the taxes paid in the previous year will have to base subsequent payments on that level yet with a tax rate of 5.5%.
Digging Deeper into Florida’s ’21 Corporate Income Tax Cut
The Sunshine State’s corporate income tax decrease in 2021 is important as it is a sign of an overarching trend. Florida was the ninth state to reduce corporate income taxes in the year. The reduction makes Florida’s tax rate for corporate income the second lowest in the country. Aside from Florida, five other states implemented corporate income tax cuts through legislation in ’21. Indiana and Arkansas provided rate relief as a component of phased reductions enacted in the past. Florida joined Colorado with the implementation of similar reductions when triggered by revenues surpassing specific thresholds.
However, it must be noted the structure of Florida’s corporate income tax rate decrease is that there is the potential for the rate to escalate by nearly 2% after declining merely a couple months earlier. In other words, there is a level of uncertainty in the state’s corporate income tax reduction. The uncertainty might set the stage for Florida’s legislature to implement even more reforms to lock in the reduced rate, potentially permanently.
The Rate Cut is Florida’s Second in Three Years
The state’s corporate income tax rate cut earlier this past September represents Florida’s second reduction since ’19. Though the rate decline announced this September was only one percentage point and has the potential to revert back within three months, most Florida residents and business owners agree it is still a step in the right direction. It is quite possible the reduction in corporate tax rates will lead to a wage hike for hardworking employees employed by Florida corporations.
Time will tell how Florida corporations respond to the tax policy change. Corporate readjustment will likely be a boom for the state’s economy, resulting in a hiring spree, wage increases and heightened economic activity throughout the Sunshine State. Stay tuned to see if Florida’s reduced corporate income tax rate holds steady across the new year and beyond. If the rate moves back toward its prior level, there might be a public outcry for it to revert to the level announced in September of ’21, providing the momentum necessary to motivate local legislators to implement a lasting corporate income tax reduction.