Opinion ID: 1788757
Heading Depth: 1
Heading Rank: 9

Heading: Part IV. Chapter 87-6 as an Income Tax

Text: Those opponents of the sales and use tax on services contained in chapter 87-6 who believe the enactment constitutes an income tax argue that the tax treats the right to work and earn a livelihood by engaging in the business of selling services as a taxable privilege and that, therefore, the act constitutes the type of tax prohibited by article VII, section 5, Florida Constitution. We find this analysis to be oversimplistic. We first note that this Court has previously upheld the imposition of a gross receipts tax on businesses. In Gaulden v. Kirk, 47 So.2d 567 (Fla. 1950), the legislature had enacted, as part of the Florida Revenue Act of 1949, a tax upon persons engaging in the business of renting, leasing, or letting any living quarters, sleeping accommodation, or housing accommodation. 47 So.2d at 570. The tax was based on a percentage of the gross rentals charged for the accommodations. Gaulden operated a facility taxed under this provision and the Palm Beach County sheriff arrested him for refusing to pay the tax. This Court upheld the tax, finding the enactment to constitute a valid gross receipts tax on the privilege of engaging in the business of renting such accommodations. Id. at 576. Four years later, in Volusia County Kennel Club v. Haggard, 73 So.2d 884 (Fla.), cert. denied, 348 U.S. 865, 75 S.Ct. 87, 99 L.Ed. 681 (1954), this Court addressed the constitutionality of a tax on the daily gross receipts from gambling operations at dog racing tracks. Although the Court struck down the tax due to its arbitrary classification scheme, the Court rejected the argument that the tax amounted to an unconstitutional income tax, finding instead that the enactment constituted an excise tax upon the privilege of operating dog racing tracks in Florida. Id. at 886. The Court found the legislature's desire to base the tax on the amount of revenues collected to be both reasonable and constitutionally permissible. Id. at 887. We can see no meaningful difference between the taxes upheld in Gaulden and Volusia County Kennel Club and the tax before us now. As were the taxes approved in these two cases, the instant tax is levied upon the privilege of engaging in the occupation or business of selling services and is measured by the gross receipts derived therefrom. See also City of Lakeland v. Amos, 106 Fla. 873, 143 So. 744 (1932) (gross receipts tax on the privilege of selling electricity did not constitute an income tax). By its express language, the act imposes an excise tax upon the sale and use of services in Florida, not upon income. Ch. 87-6, § 1, Laws of Fla. Moreover, the tax has none of the vestiges of an ordinary income tax. First, it exempts from taxation the services that employees render to their employers and the services that partners supply to their partnerships. Ch. 87-6, § 3, Laws of Fla. (creating § 212.0592(2) & (4), Fla. Stat.). This provision effectively eliminates typical wages and salaries from taxation. Thus, the tax base that the instant act creates is inconsistent with the tax base of a traditional income tax. Moreover, the tax is wholly transactional in nature and makes no reference to profit or net income, a factor this Court found significant in analyzing the tax scheme considered in Amos, 106 Fla. at 878, 143 So. at 747. Indeed, at least one of the act's opponents acknowledge that this Court would have to recede from both Volusia County Kennel Club and Gaulden in order to conclude that chapter 87-6 constitutes a facially unconstitutional income tax. Even assuming we could so recede from precedent in an advisory opinion, no such action would be warranted. We agree with the opponents of the act that the true economic impact of a tax is what ultimately determines its nature. Owens v. Fosdick, 153 Fla. 17, 13 So.2d 700 (1943); State ex rel. McKay v. Keller, 140 Fla. 346, 191 So. 542 (1939). For the reasons stated above, however, we do not believe that chapter 87-6 has the realistic economic effect of creating an income tax. The act's treatment of prime contractors as the final consumer of new construction does not alter this conclusion. See ch. 87-6, § 5, Laws of Fla. (creating § 212.0594(3), Fla. Stat.). As to the argument that the act imposes an income tax upon the class of injured Floridians seeking judicial redress for lost earnings, we point out that section 42 of the act allows prevailing plaintiffs to recover any applicable sales or use tax due on legal fees from the defendant. Ch. 87-6, § 42, Laws of Fla. (amending § 57.071(3), Fla. Stat.). We believe that this provision effectively rebuts this facial challenge to the act. Finally, representatives of the construction industry argue that the act subjects prime contractors to double taxation. [12] Although the effect of chapter 87-6 at various levels in the stream of commerce may be a pyramiding of taxes, no unconstitutional double taxation occurs where there are two taxpayers and two separate taxable transactions or privileges. Ryder Truck Rental, Inc. v. Bryant, 170 So.2d 822 (Fla. 1964); American Video Corp. v. Lewis, 389 So.2d 1059 (Fla. 1st DCA 1980). Despite the industry's arguments to the contrary, and although the prime contractor collects and remits taxes for both his purchases from the subcontractors and his eventual sale to the ultimate purchaser, the pyramiding of taxes complained of appears to occur due to separate taxable transactions. We do not believe that the case law discouraging double taxation was intended to address such a situation. [13] In short, we do not view the instant tax on services to be fundamentally different in nature from the sales tax on goods, an enactment long recognized as a constitutional tax on the privilege of engaging in a business or occupation. Ryder Truck Rental, 170 So.2d at 825.