Florida insurance agents, in addition to countless other professions, have dodged a bullet. A proposed Amendment 5 was set to appear on state ballots in November. The amendment, which proposed to eliminate the education portion of local property taxes in exchange for some amorphous replacement “identified or created by the legislature,” was scotched by a circuit court judge in mid-August. An immediate and expected appeal to the Florida Supreme Court followed, and on September 3 the justices unanimously ordered Amendment 5 removed from the November ballot, stating, as had the lower courts, that the ballot title and summary were misleading to voters.

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

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

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

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

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 Other states passed similar measures only to have them repealed.

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

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

Well, It's Against the Law

While virtually all professions are against having a tax imposed on their services, insurance agents are particularly vituperative on the subject.

The Florida Association of Insurance and Financial Advisors has strenuously fought off attempts to institute sales taxes on services; our late Executive Vice President Herb Morgan was integral in spiking some of these initiatives. The obvious question is, “Why should we, as agents, be looked at any differently than lawyers, accountants, masseuses, barbers, or whomever with regard to this issue?”

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

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

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

Also, based on recent actions by Crist and Insurance Commissioner Kevin McCarty, it is quite doubtful that they would be willing to allow insurance rates to rise by five, six, or seven percent to satiate insurance agents' financial concerns. They, very likely, would say the agents can absorb the new cost and then attempt to reconfigure statutes to allow it.

Doubling Up on Taxes

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

Additionally, most insurance agencies are very small businesses with no system to calculate or remit this tax — this would be a job killer!

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

If imposed, it would take time for the legislature to come up with a menu of who would be taxed and how, placing incredible uncertainty on businesses already under the gun in a tough economy.

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

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

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Potential Sales Tax on Services Axed by the Courts

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