Florida insurance agents, in addition to countless otherprofessions, have dodged a bullet. A proposed Amendment 5 was setto appear on state ballots in November. The amendment, whichproposed to eliminate the education portion of local property taxesin exchange for some amorphous replacement “identified or createdby the legislature,” was scotched by a circuit court judge inmid-August. An immediate and expected appeal to the Florida SupremeCourt followed, and on September 3 the justices unanimously orderedAmendment 5 removed from the November ballot, stating, as had thelower courts, that the ballot title and summary were misleading tovoters.

The removal brought shout-outs from heavyweights on both sidesof the issue. Governor Charlie Crist and the real estate communityexpressed distress and dismay, while consumer groups as varied asFlorida TaxWatch, AARP, teachers' unions and a roster of insuranceorganizations broke out in enthusiastic — if short-lived–applause.

We have learned over the years that advocates of sales taxes onservices and/or eliminating sales tax exemptions are indefatigable.We are already hearing calls for the legislature to take upproperty taxes in the next regular session or even in a specialsession, forcing us once again to fight back the services taxdemons.

Although Amendment 5 did not specifically call for a “servicestax” — the wording was so flexible it would have earned a “10″ inthe recent gymnastics competition in Beijing — no one seriouslydisagreed that the clear intention was to eliminate many of thecurrent exemptions.

If history is prologue, one would think sales taxes on serviceswould be the third rail of fiscal policy, given Florida'sexperience with such a tax.

Florida tried a services tax back in 1987 under Governor BobMartinez — the service sales tax only lasted six months, andMartinez didn't last much longer. Other states passed similarmeasures only to have them repealed.

Commenting on the passage of the proposal authored by theTaxation and Budget Review Commission, which gave birth toAmendment 5, House Minority Leader Dan Gelber said, “This will pita lot of ideologies against each other.” To which I have asked, innumerous speeches to our members around the state, “How has theinsurance ideology made out in recent years at the Capitol?”

During a conference call one of our agents — panicked by therealities presented by such statements — said, “If they take sevenpercent off my bottom line, I'm out of business!”

Well, It's Against the Law

While virtually all professions are against having a tax imposedon their services, insurance agents are particularly vituperativeon the subject.

The Florida Association of Insurance and Financial Advisors hasstrenuously fought off attempts to institute sales taxes onservices; our late Executive Vice President Herb Morgan wasintegral in spiking some of these initiatives. The obvious questionis, “Why should we, as agents, be looked at any differently thanlawyers, accountants, masseuses, barbers, or whomever with regardto this issue?”

There are really two answers to the question. The mostcompelling one, and one that could lead to such a tax on agents'commissions being knocked out upon judicial review, is that theFlorida Constitution prohibits an income tax. It clearly states:“No tax upon estates or inheritances or upon the income of naturalpersons who are residents or citizens of the state shall be leviedby the state, or under its authority….”

While other trades and occupational groups could pass along sucha tax to their customers and clients, agents are precluded fromdoing so by the insurance code. Since such a potential cost topolicyholders is not part of a rate filing submitted to the Officeof Insurance Regulation (OIR), it cannot be passed along.Therefore, the entire amount would have to come out of the agent'scommissions — or “income” — essentially amounting to anunconstitutional income tax.

Some might say, “Put the additional cost in a rate filing andsubmit it to OIR.” Well, that would mean every company would haveto make a new rate filing for every product currently sold toFloridians, which would require literally thousands of filings.This would entail significant costs, which would have to bereflected in higher rates, not to mention the tremendous strainsuch a deluge would put on the OIR to conduct reviews on all suchfilings within the statutorily mandated 90 days.

Also, based on recent actions by Crist and InsuranceCommissioner Kevin McCarty, it is quite doubtful that they would bewilling to allow insurance rates to rise by five, six, or sevenpercent to satiate insurance agents' financial concerns. They, verylikely, would say the agents can absorb the new cost and thenattempt to reconfigure statutes to allow it.

Doubling Up on Taxes

The other strong reason to oppose such a tax, assuming it wereallowed to be passed along, is that it would essentially be adouble-tax on policyholders, as there is already a premium tax onvirtually all policies sold in Florida. In fact, this tax willbring in an estimated $865 million for the 2008-2009 fiscal year,with $805 million of that amount expected to go into the generalrevenue fund.

Additionally, most insurance agencies are very small businesseswith no system to calculate or remit this tax — this would be a jobkiller!

While these are strong and valid reasons for not imposing a taxon agent commissions, we at NAIFA-Florida believe that any servicessales tax proposal would cripple an already ailing state economy.We are backed up in this view by the non-partisan FloridaTaxWatch.

If imposed, it would take time for the legislature to come upwith a menu of who would be taxed and how, placing incredibleuncertainty on businesses already under the gun in a tougheconomy.

Many businesses have already said they could not survive if theyhave to add six or seven percent onto their prices. Many said thatthey would have to move over the state line into Georgia orAlabama.

For these and countless other reasons, we firmly believe aservices sales tax is bad for insurance agents and bad for ouroverall business climate in the state of Florida. We urge lawmakersto just say no to proposals that would institute services salestaxes.