MIAMI, JUNE 24 -- Florida's controversial new tax on advertising and other services is sending a chill through the Sunshine State's traditionally warm business climate, fanning worries that it may damage economic growth.
Opponents fear that the tax, due to take effect July 1, may soon be copied by other revenue-hungry states if it survives largely intact after judicial review by the Florida Supreme Court.
The law extends the state's 5 percent sales tax to dozens of services, including advertising, legal assistance, banking, accounting and data processing. It applies to all advertising in the state's newspapers, magazines and broadcast media.
In protest against the tax, major national advertisers, publishers and trade associations have begun canceling conventions and withdrawing their ads from the state.
"The boycott is disorganized right now, but if the trend continues, Florida's economy is going to suffer substantial damage," said Raymond Lacombe, chief economist for Professional Bancorp in Coral Gables.
At the request of Gov. Bob Martinez, a Republican who signed the tax into law in April, the state Supreme Court this week began reviewing the tax. Court officers said the court was expected to issue its advisory opinion next month after the tax takes effect.
Advertising and publishing concerns have spearheaded the effort to convince the court to strike down the law, which contains the nation's first-ever tax on advertising. They charge that the tax is ill-conceived and unconstitutional.
The governor and most state legislators defend the tax, saying they have no intention of repealing the law or radically altering its provisions.
"We're not backing down," said John Peck, the governor's press "Taxing services was possibly the only alternative to letting the state fall apart."
Carol Taylor, economist, University of Florida
secretary. "The governor is absolutely certain this is a reasonable and fair tax."
Since the law was passed in April, companies have canceled at least 60 meetings and conventions, and the Florida Hotel and Motel Association said the statewide loss to date may top $100 million. More than a dozen consumer products companies have announced plans to cancel or curtail advertising in the state if the law takes effect.
"The message is going out loud and clear to Florida that corporate America will no longer look favorably on Florida if it imposes this heinous tax," said Howard Bell, president of the American Advertising Federation.
Florida officials dismiss the boycott as a temporary problem, saying it will fall apart when advertisers found that they cannot pass up the fifth-largest and fastest-growing state.
The new law has been regarded as an oddity in Florida, a state of 12 million people long regarded as a haven against taxes. Florida ranks 47th in state and local taxes. Its constitution has banned a personal income tax since 1924, a policy credited with luring millions of retirees to the state.
But Florida's rapid growth in population -- 900 new residents arrive every day -- has put a severe strain on public services, forcing state officials to seek new ways to raise revenue.
"Taxing services was possibly the only alternative to letting the state fall apart," said University of Florida economist Carol Taylor.
Although other states have introduced taxes on services, none has made them as comprehensive and far-reaching as Florida. Services make up 80 percent of the state's economy.
The law also taxes beyond Florida's borders, requiring payment by out-of-state ad agencies, law firms and accountants and magazine publishers on in-state business.
The services tax -- which amounts to the biggest tax increase in Florida's history -- was expected to raise $750 million in the coming fiscal year and more than $1 billion in the following year.
But state officials acknowledge that preparations for administering the tax have led to widespread confusion.