Behind the Numbers: What Floridians Should Know About the FY 2025-26 Tax Package

Introduction to the 2025-26 Tax Package

Each year during the regular legislative session, state lawmakers pass an omnibus tax bill – commonly known as the Legislature’s “tax package” – that offers an opportunity to make temporary or permanent changes to the state’s tax code. According to the House’s Ways and Means Committee and the Senate’s Finance and Tax Committee, their tax package (HB 7031) for FY 2025-26 will cost the state approximately $1.29 billion – made up of $1.25 billion permanent cuts and $35 million one-time costs. The Legislature’s tax package is also about $377 million more costly than the current FY 2024-25 tax package.

The End of Sales Taxes on Commercial Leases

In HB 7031, just over 70 percent of the tax cuts are for the elimination of Florida’s sales tax on commercial rentals. While Florida is the only state in the nation that charges a business rent tax on commercial property, it is also true that Florida offers generous exemptions that make it so that 99 percent of businesses owe nothing in state corporate income taxes (CIT). Even among the corporations that are not exempt, only 1 out of 10 owes CITs.

On the one hand, eliminating the state’s business rent tax should help small businesses. On the other hand, widespread elimination is not exclusively targeted to small businesses and could, therefore, also benefit multistate and multinational corporations doing business in Florida. Given that Florida already allows these corporations to shift profits into tax havens by exploiting CIT loopholes, getting rid of the state’s business rent tax could offer yet another advantage at the expense of smaller competitors and Florida’s budget.

Codifying Florida’s Back-To-School Sales Tax Holiday and Creating a New Exempt Period for Ammunition and Other Hunting, Fishing, and Camping Products

Additionally, nearly 23 percent of the FY 2025-26 tax cuts are for a permanent back-to-school sales tax holiday every August, and permanent tax exemptions on certain disaster preparedness items (e.g., batteries and certain portable generators). The bulk of the one-time tax cuts (nearly $35 million) are for a “hunting, fishing, and camping sales tax holiday” to take place from September 8 through December 31, 2025. This proposed new sales tax holiday would exempt the retail sale of ammunition, firearms and related items, bows and related items, as well as camping and fishing supplies.

Sales tax holidays are not cheap. Revenue lost through sales tax holidays must be made up somewhere else, either through spending cuts or increasing other taxes (e.g., back-to-school holidays may reduce revenue for schools). In addition to resulting in lost revenue, these holidays seem to offer no significant retail or economic boost. Lastly, sales tax holidays create administrative difficulties for state and local governments, and for retailers who must collect the tax. Retailers, particularly newer or smaller businesses, can easily be overwhelmed trying to comply with the various sales tax holiday rules. The FY 2025-26 “hunting, fishing, and camping sales tax holiday” is the latest holiday in a series of annual legislative decisions to forfeit revenue for ineffective “relief” periods instead of using the money to boost Florida’s underfunded public services.

By codifying Florida’s back-to-school sales tax holiday to take place every August, policymakers are giving more Floridians the opportunity to benefit. The same is true of the permanent sales tax exemptions related to select disaster-preparedness items. At the same time, these permanent changes will cost nearly $300 million annually and solidify policymakers’ decision that these exemption periods are preferable to investing in the provision of public goods.

The Tax Package Continues Policymakers’ Habit of Raiding Housing Trust Funds

The William E. Sadowski Affordable Housing Act of 1992 created a dedicated source of revenue for affordable housing in Florida from a portion of documentary stamp taxes on the transfer of real estate. From 1992 to 2002, the Legislature fully funded the Sadowski trust fund to help meet the state’s affordable housing needs. However, between 2002 and 2022, the Florida Legislature started “sweeping” or transferring affordable housing dollars away from the Sadowski trust fund to finance other needs. Specifically, since 2002, the Legislature has swept over $3 billion away from the state’s housing trust fund.

In 2021, after decades of sweeping affordable housing funds, policymakers passed SB 2512 to prohibit trust fund sweeps while also permanently reducing the amount of revenue, from documentary stamp taxes, for affordable housing (e.g., per the latest Florida Tax Handbook, in FY 2020-21, the distribution for affordable housing was around $531 million; in FY 2021-22, the distribution dropped to about $320 million). Then, in 2023, policymakers passed the Live Local Act, which included an additional $150 million for affordable housing to be distributed annually for ten years.

Unfortunately, the Legislature’s FY 2025-26 tax package now eliminates the $150 million annual contribution; all serving as a reminder of policymakers’ habit of taking money from affordable housing.

Lingering Issues With Florida’s Tax Code

Historically, Florida’s tax decisions — and the state’s current tax code — limit revenue sources to sales (or consumption) above every other option. According to revenue projections for fiscal year (FY) 2024-25, sales taxes account for 75 percent of all general revenue collected in the Sunshine State. In terms of who pays general sales taxes, for every $1 of sales tax revenue, the state collects approximately 66 cents from households, 18 cents from businesses, and 16 cents from tourists. Although Florida’s general sales tax offers a relatively stable source of revenue, the tax also overburdens households on the lower-end of the income spectrum, which is a characteristic of sales taxes and regressive tax structure. According to the Institute on Taxation and Economic Policy (ITEP), Florida’s tax code is the most regressive in the nation.

When it comes to most progressive tax codes in the country, ITEP notes, states rely more heavily on income and wealth taxes instead of sales taxes. Additionally, states with progressive tax codes offer refundable credits targeted to households with low to moderate income, such as state Earned Income Tax Credits (EITCs), Child Tax Credits (CTCs), and “circuit breaker” programs to offset property taxes. Since Florida’s constitution prohibits personal income taxes, options to offset Florida’s regressive tax code are limited to closing corporate income tax (CIT) loopholes; as well as enacting targeted tax credits (and other expenditures) and circuit breakers that help Floridians who need it most.

Policymakers Reject Opportunities To Make Florida’s Tax Code Fairer

Considering Florida’s ranking as having the most regressive tax structure in the country, it is important to consider whether the tax legislation passed by the Legislature seeks to close CIT loopholes, offer tax credits to families with low-to moderate income, and/or implement circuit breakers.

The Legislature’s FY 2025-26 tax package does not include provisions to close CIT loopholes via a policy called “combined reporting.” Before policymakers extended the regular legislative session, members of the Florida House had an opportunity to adopt an amendment to include combined reporting in their proposed tax package, and they voted against it. The Senate did not even consider the provision in their preliminary tax package.

While the final tax package (HB 7073) includes a permanent back-to-school sales tax holiday and other exemptions, as well as a “hunting, fishing, and camping sales tax holiday,” these tax provisions are open to everyone, including tourists and wealthy residents with more disposable income than households struggling to afford the basics. As such, these provisions sacrifice equitable tax reform for a one-size-fits all solution.

Finally, policymakers did not include any rebate programs for households nor circuit breaker programs to help homeowners who spend the greatest share of their income paying property taxes. Also, lawmakers did not include HB 1331/SB 1158 in their tax package, which would have created the Working Floridians Tax Rebate (WFTR) program to boost over 2 million households that are earning a low to moderate income.

Instead of a circuit breaker program, the final tax package includes a $1 million appropriation to the Office of Economic and Demographic Research (EDR) to “analyze the potential impact of eliminating or significantly reducing ad valorem assessments on homestead property and provide policy options for mitigating negative fiscal consequences.” The tax package affirms that the study’s findings must be ready by November 1, 2025; essentially giving EDR about 4 months to submit findings and recommendations that could drastically impact the fiscal autonomy of local governments throughout the state. Ultimately, the governor vetoed the study, but continues to push for the elimination of property taxes.

Nothing in the Tax Package Prepares Florida for Looming Federal Cuts

According to the state’s latest Long-Range Financial Outlook, Florida faces a projected $2.8 billion deficit in FY 2026-27, followed by an increase to $6.9 billion in FY 2027-28. However, this forecast does not include the costs of major reductions in federal funding. Given that three-out-of-ten dollars in Florida’s state budget come from federal sources, significant reductions in federal funding could exacerbate future deficits and limit our state’s ability to: (1) meet the demands of current budget challenges; and (2) provide good quality public services.

It is important to mention that because the Florida Constitution mandates a balanced budget, cutting revenue – whether it’s due to federal cuts or the $1.29 billion cut in the FY 2025-26 tax package – leaves policymakers with two options: (1) raise taxes or, (2) make budget cuts. The Legislature’s tax package offers no plan to raise revenue in case of major reductions in federal funding or to pay for the Legislature’s $1.29 billion cut. Consequently, if federal policymakers continue with their plans to massively cut health care and basic needs programs (alongside other provisions that cut clean energy tax credits and punish immigrants), Floridians will pay for these choices with state budget cuts and the loss of vital services.

Closing Thoughts

Once again, policymakers are pursuing tax cuts and plan to pay for them with budget cuts. All the while, three-quarters of Florida prisons do not provide A/C; over 2.5 million Floridians are without health coverage; thousands of homebound adults and disabled individuals are stuck on long waitlists for home and community-based care; and the state’s affordable housing crisis continues.

Tax reform in our state is long overdue, not only to ease the cost of living of over 4 million households currently struggling to afford the basics, but to also balance the state budget so that Floridians have recurring access to programs and services that improve their quality of life.

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