Introduction
Taxation is one of the major sources of revenue in every government. Taxation is a practice in which citizens and corporations make a compulsory contribution of a predetermined percentage of their income to the government to pay for public goods and services (CCH, 2007). In the United States, the federal government uses a uniform scale to tax every citizen’s income. However, each state has the right to levy various taxes to meet its financial needs. The most common taxes include personal income, sales, property, and estate taxes. This paper will analyze the similarities and the differences between taxation in Florida and Virginia.
Personal Income Tax
Payment of personal income tax in Florida is prohibited by the state’s constitution (FDR, 2014). This means that the citizens living in Florida do not have to contribute any portion of their monthly or annual income to the state government as tax. However, the residents of Florida are required to pay personal income tax to the federal government. Lack of a personal income tax is one of the factors that have contributed to the low tax burden in Florida (CCH, 2007). As a result, most retirees in the US opt to relocate to Florida in order to take advantage of the personal income tax exemption. Generally, exemption from personal income tax enables the residents of Florida to have a higher disposable income than their counterparts in states that charge personal income taxes.
Unlike Florida, residents of Virginia have to pay personal income tax on their earnings. The personal income tax is imposed on the entire (gross) income earned by the residents within the taxable year (CVDT, 2014). For nonresidents, the tax is imposed on the portion of the income generated from employment or business activities conducted within Virginia. Individuals who stay in Virginia for less than a year are required to fill a part-year resident tax return. This means that the tax is imposed only on the portion of an individual’s income generated during his stay in Virginia. Employers are required by law to deduct and withhold taxes on the wages that they pay to their employees for any work done in Virginia (Healy & Schadewald, 2009). In this context, the employers act as the state agents who collect taxes from the residents who are in gainful employment. Generally, all earnings that are subject to federal withholding taxes are also subject to state taxation in Virginia. The government of Virginia uses a progressive tax system to levy personal income tax. This involves using four tax brackets in which the tax rates range from 2 to 5.75 percent (CVDT, 2014).
Corporate Income Tax
Corporations and artificial units that undertake business activities within Florida are required to pay taxes. The tax is imposed on any income received or earned in Florida within the taxable year (Ervin, 2008). All corporations are required to file their tax returns even if they do not owe the state government any tax within a given taxable year. However, several types of businesses are exempted from paying income taxes. Thus, they do not have to file tax returns every year. In Florida, corporations pay income tax at a fixed rate of 5.5% (FDR, 2014). This rate benefits corporations with large incomes since only a small portion of their earnings is used to pay taxes.
The corporation income tax in Virginia is similar to that of Florida in that all companies are required by law to pay taxes on their earnings (Healy & Schadewald, 2009). Another similarity is the fact that corporations in Virginia have to file tax returns even if they do not have any tax liability. In addition, corporations in Florida and Virginia are expected to pay penalties for late payment of their tax liabilities or filing tax returns. Despite these similarities, corporate income taxation in Florida and Virginia are different in the following ways. First, the corporate income tax rate in Florida is 5.5%, whereas in Virginia the rate is 6% (Tax Foundation, 2013). Second, corporations in Virginia are expected to declare their estimated income taxes if the taxes are considerably higher than $1,000. In Florida, the declaration is required if the income is greater than $2,500 (FDR, 2014). Finally, the corporations that are exempted from income tax are different in the two states. In Virginia, the corporations include public service companies and non-profit corporations. In Florida, the exempted entities include “sole proprietorships, individuals, estates of decedents, and testamentary trusts” (Ervin, 2008, p. 136).
Sales Tax
Businesses and residents of Florida are required to pay sales tax on the various goods and services that they purchase in the state. The tax is also imposed on goods that have been hired or rented in Florida. The sales tax is calculated by increasing the retail price of a good or service by a predetermined percentage. The sales tax is collected at the time of purchase (Ervin, 2008). The local counties in Florida also have the right to impose taxes on sales within their territories. Generally, the government of Florida charges sales tax at a fixed rate of 6% of the value of the good being sold (FDR, 2014). However, the county governments use different sales tax rates within their territories. This means that the total amount of sales tax paid by the residents of Florida varies according to the counties in which they live.
The residents of Virginia are also expected to pay sales taxes (Healy & Schadewald, 2009). The taxes are imposed by the state government and county governments. Thus, the sales tax varies from region to region within the state. The sales tax in Virginia is similar to that in Florida in several ways. To begin with, both states exempt several goods and services from taxation. These include transportation, medicine, groceries, and equipment installation services (CVDT, 2014). In both states, the purchaser of the good or service that is subject to taxation is responsible for paying the tax. However, the sellers are often required to collect the tax from the buyers and to remit it to the government. The main difference between sales taxation in Florida and Virginia is that the later uses different rates for various sales activities, whereas the former uses a uniform rate for all sales. For instance, retailers pay an average sales tax of 5% of their gross sales, whereas sellers of aircrafts pay 2% of their sales in Virginia (Healy & Schadewald, 2009). In 2011, the sales tax collection per capita in Florida was $1021, whereas in Virginia the collection per capita was only $429 (Tax Foundation, 2013).
Property Tax
The state government of Florida does not levy property taxes (CCH, 2007). However, the local governments in various counties levy property taxes, which serve as their main source of revenue. The property tax rates vary from county to county. Generally, the amount of tax that a resident is expected to pay depends on the value of his or her property.
Taxation of property in Virginia follows principles that are very similar to those used in Florida. Specifically, property tax is mainly collected by the local governments in various counties (CCH, 2007). The types of properties that are subject to taxation include land and buildings. Moreover, the counties are allowed to set their tax rates. Thus, the property tax rate varies from county to county. In addition, the property tax is calculated as a percentage of the fair market value of the property.
There are tax relief programs in both states to reduce the property tax burden (Healy & Schadewald, 2009). In Virginia, the tax relief programs mainly benefit the elderly and the disabled. However, in Florida the beneficiaries of the property tax relief program also include widowers, widows, and war veterans. Most citizens in Florida are eligible for property tax relief for properties with values of up to $50,000 (Ervin, 2008). In 2011, Florida’s average property tax rate of 1.08% was ranked as the 20th highest in the US. By contrast, Virginia’s average property tax rate in 2011 was only 0.82%. Generally, property tax rates are higher in Florida than in Virginia (Tax Foundation, 2013).
Use Tax
The state government of Florida also levies use tax. The tax is imposed on goods and services that are subject to taxation, but their sales tax was not paid at the time when they were sold to the user (FDR, 2014). Residents of Florida are expected to pay use tax under three main circumstances. First, residents are required to pay use tax if they purchase a taxable item, but fail to pay sales tax (FDR, 2014). Second, traders are required to pay use tax when they purchase items that are exempted from taxation and use them for personal needs rather than reselling them. Finally, use tax has to be paid for taxable goods that were bought outside the state (other countries and states in the US), but their sales tax was not paid.
Use tax in Virginia is levied using the same principles that are used in Florida. Specifically, the tax is imposed on taxable goods for which sales tax was not paid at the time when they were sold. In addition, it is imposed on goods and services that were bought tax-free in other states but used in Virginia. Although the two states use the same principles to levy use tax, they use different rates. In Virginia, the use tax rate is 5%, whereas in Florida the rate is 6% (CVDT, 2014).
Transfer Tax
A transfer tax is paid when the ownership of a property is passed from one person to another. Estate taxes are not levied in both Florida and Virginia. An estate tax is a type of transfer tax that is imposed when ownership of a property changes through inheritance (CCH, 2007). Although Florida and Virginia do not charge estate taxes, they charge other transfer taxes. In Florida, the sale of real property is subject to documentary stamp tax. The tax is imposed “on documents such as warranty deeds that are used to transfer ownership of the property” (CCH, 2007, p. 78). The documentary stamp tax is usually collected by the clerk of court at the time when the transfer of ownership is recorded. Generally, the documentary stamp tax is levied at a rate of $0.70 for every $100 (FDR, 2014). However, in the county of Miami-Dade, the rate is $0.60 on all transfer documents. Moreover, documents that are used to transfer other properties apart from a single family residence are subject to a surtax of $0.45. The government of Florida also levies documentary stamp tax on promissory notes, bonds, liens, mortgages, and renewal notes. The effective tax rate that is applicable to these documents is $0.35 for every $100 (FDR, 2014). However, the tax imposed on promissory notes cannot exceed $2,450.
In Virginia, documentary stamp taxes are also levied for the recordation of a variety of documents, which include deeds, mortgages, leases and deeds of trusts. The tax amount is determined and collected by the clerk of court in which the documents are recorded. The main difference between the documentary stamp tax in Florida and Virginia is that the later imposes the tax at a very low rate. In particular, the government of Virginia imposes the tax at a rate of $0.25, which is significantly lower than the $0.70 charged in Florida (CVDT, 2014).
Unemployment Insurance Tax
Unemployment insurance tax is collected by state governments to provide financial support to workers who lose their jobs due to faults that are not their own. Unemployment insurance tax in Florida and Virginia are similar in several ways. To begin with, the employers have to bear the entire tax burden in both states. The tax is applicable to all employers who employ one or more individuals for twenty or more weeks during the taxable year. Generally, employers with a payroll of at least $1,500 are required to pay the tax in both states. New companies benefit from special rates for a period of between 18 and 29 months (CCH, 2007). After this period, the “tax rate varies according to the employer’s experience” (CCH, 2007, p. 96). Specifically, employers who are able to provide stable employment benefit from low rates and vice versa. Despite these similarities, the two states have different tax rates. In Virginia, the unemployment insurance tax rate ranges from 0.18% to 6.28% (CVDT, 2014). New employers on average pay the tax at a rate of 2.58% (CVDT, 2014). In Florida, on the other hand, the tax rate ranges from 1.02% to 5.40%. New employers are expected to pay the unemployment insurance tax at a rate of 2.7% (FDR, 2014).
Conclusion
The residents of Florida and Virginia pay similar taxes, which include sales tax, use tax, corporate income tax, and transfer taxes. Unlike Virginia, the residents of Florida are exempted from personal income tax. In the both states, most taxes are levied by the state and the county governments. In addition, tax relief programs are available to reduce the tax burden among specific groups of residents such as the disabled. The main difference in taxation between Florida and Virginia is the tax rate. Generally, the tax rates in Florida are higher than those in Virginia.
References
CCH. (2007). U.S master state tax practice and procedure guide. Chicago, CH: Illinois.
CVDT. (2014). Laws, rules, and decisions. Web.
Ervin, J. (2008). Guidebook to Florida taxes. New York, NY: McGraw-Hill.
FDA. (2014). Taxes. Web.
Healy, J., & Schadewald, M. (2009). Multistate corporate tax guide. New York, NY: McGraw-Hill.
Tax Foundation. (2013). Facts and figures: How does your state compare? Web.