Update: Senate says “cheers!” to tax break for 3-martini lunches, but House doesn’t

Florida legislators may be using the budget to cut government and services, but in the Senate they are also advancing proposals to deliver millions in corporate tax breaks to a select number of businesses — including a $31.6 million break to allow qualifying businesses to write off 100% of the cost of all business meals from their state income taxes.

Dubbed the “three martini lunch” tax deduction by critics when it was passed by Congress last year, it refers to the practice of taking long leisurely business lunches and deducting them on tax returns as a business expense. The idea was seen as a way to revive the ailing restaurant industry, battered by the pandemic, but critics say allowing companies to write off Florida taxes for the same meal that gets a federal tax break is a kind of double dipping the state can’t afford.

“You’re asking senior citizens and people with disabilities to give up their eyeglasses and their hearing aids, and their care for their feet,’’ said Karen Woodall, lobbyist for the Florida Center for Fiscal and Economic Policy, a progressive advocacy organization at a meeting of the Senate Finance and Tax Committee.

She said the budget legislators are advancing cuts funding to homeless coalitions, requires adults to give up over-the-counter drugs and expects 19- and 20-year-olds to give up their health insurance during the pandemic.” “It’s really a matter of balance,’’ she said. “The concern is, where is the balance?”

Because Florida taxes a percentage of a company’s total U.S. income, the state tax law must be synchronized every year with the federal corporate income tax. In most years, it’s not a complicated policy question but, this year, legislators have to decide whether they want to include all the tax breaks passed by Congress and signed by former President Donald Trump as part of the CARES Act and the December COVID relief bill.

About 1% of Florida businesses would qualify

On Wednesday, the state Senate Finance and Tax Committee decided to move ahead with SB 7082 to give corporations $212 million in state income tax savings in the 2021-22 tax year on top of federal income tax savings. The cost to the state treasury every year after that: $108 million.

On Friday, the House Ways and Means Committee advanced its corporate income tax bill that rejected the so-called “piggyback” of the federal tax savings this year, including the provision related to business lunches.

“The year we’ve been through, the things we’ve been through, we have to balance [to] have a balanced budget,’’ said Rep. Bobby Payne, a Palatka Republican and chair of the House Ways and Means Committee. “And I think this is the best avenue to get us a balanced budget this year.”

The House and Senate will have to reach agreement on their different approaches to the corporate income tax as they negotiated the budget in the final two weeks of the legislative session.

Only about 1% of all businesses in Florida would benefit from the proposal because only that fraction of businesses pay corporate income tax in Florida. Florida does not tax S-corporations or LLC corporations and only applies its corporate income tax to C corporations, which receive an exemption for the first $50,000 of taxes owed.

The biggest piece of the Senate package, which the House rejected, is a $180 million tax credit that will mostly benefit big-box retail stores to write off capital gains taxes. The concept was included in the federal legislation to fix a glitch that made it more difficult for these stores to write off their capital gains taxes.

But the piece of the Senate bill that drew the most discussion is the $31.6 million break that allows corporations to write off 100% of their expenses for “business meals” in 2021 and 2022.

State economists estimate the business meals break will cost the state $60.4 million over the next three years.

“It was viewed as a way to get people back, spending money at restaurants, and it was a way also to get restaurants to be able to cater to businesses for their employees,’’ explained Robert Babin, staff director of the Senate Finance and Tax Committee.

Under current law, corporations can only write off 50% of their meal expenses, but the new proposal, advocated by Trump and his economic advisers, would allow the full cost of the meal to be deducted.

Sen. Janet Cruz, D-Tampa, said the meal deduction was marketed as a way to get people back into restaurants but, because so few companies deduct income taxes, it only helps those restaurants with large corporate clients. She also suggested that because companies already get a federal tax break on the meal, “it’s double dipping” to also get a state tax break for the same meal.

“$31.6 million in taxes in the time of a pandemic worries me,’’ she said.

Sen. Shevrin Jones, a Miami Gardens Democrat, said that he doesn’t think many businesses in his community will be able to benefit from the tax breaks and suggested that wasn’t fair and urged them to reconsider the approach. “We still have work to be done on this,’’ he said.

Babin, the staff director, said SB 7082 is expected to undergo additional changes when it comes up again next week in the Appropriations Committee.

Legislature has tried to help businesses several ways

Woodall, of the Florida Center for Fiscal and Economic Policy, went through the list of revenue enhancements the Legislature has given businesses in the last year:

▪ Nearly $500 million in corporate income tax reductions to offset a tax increase from the federal Jobs Act of 2017

▪ Reducing the corporate income tax rate from 5.5% to 5.4%

▪ $4 billion reduction in unemployment compensation tax obligations

▪ Reductions in the business rent tax

“We have major concerns about giving additional tax breaks to mainly the largest corporations in the state, the 1% that pay the corporate income tax,’’ she said.

Ida Eskamani, lobbyist for Florida Rising, a progressive advocacy group, urged legislators to reject “the martini lunch tax break.”

“We’ve generally opposed corporations receiving extra state income tax breaks on top of the federal income tax savings they already get,’’ she said. During the pandemic, the state “nickel and dimed benefits for jobless workers” and agreed to impose online sales taxes “on working people.”

“So moving forward with a tax break for business lunches is, in our opinion, unconscionable,” she said.

French Brown, lobbyist for the Florida Retail Federation, did not speak to the meal deduction but said that because Congress recognized businesses were borrowing more to make it through the pandemic, they gave them some relief and, without the bill, businesses would see an increase in their corporate taxes.

The Senate Finance and Tax Committee also unanimously approved another tax reduction bill by Sen. Joe Gruters. Senate Bill 1390 would expand a tax credit for companies that invest in the state. Gruters said the bill is designed to attract more high-wage businesses to Florida, although companies that are already in the state would benefit if they add jobs and investment.

The committee also unanimously approved SB 1246, a tax credit for companies whose revenues fell below 50% from April 2020 through December 2020 compared to the same time the previous year.

State economists estimate that only three companies could apply for that tax credit: Royal Caribbean International cruise line, American Express Travel Co., and Hertz, the rental car giant. Only Hertz is expected to take advantage of the tax credit, economists said when they analyzed the bill, saving the company $2.3 million if its tax bill is high enough.

Note: This story has been updated to include developments from the House Ways and Means Committee on Friday.

Mary Ellen Klas can be reached at meklas@miamiherald.com and @MaryEllenKlas