Florida proposal to limit the corporate deduction for interest.

Tax Executives Institute urges the rejection of a proposal to limit the deduction for interest expense, which is contained in FT 92-10 in the House version. A similar proposal has been introduced in the Senate. The proposal would --

* violate longstanding and legitimate tax law principles;

* retroactively penalize taxpayers; and

* discourage business investment in Florida.

BACKGROUND

Tax Executives Institute (TEI) is the principal association of corporate tax executives in the United States and Canada. Our 4,800 members represent more than 2,000 of the leading corporations in the United States and Canada. The Institute's Florida members represent more than 60 corporations in nearly all industry sectors. In addition, a large number of our non-Florida members work for corporations that, while not headquartered in Florida, have substantial operations or sales in the State. The Institute's membership represents a cross-section of the business community in Florida and, indeed, all of North America.

Because of the diversity of the Institute's membership, TEI does not take positions on parochial or industry-based issues. Rather, we dedicate ourselves to educational endeavors, to promoting the uniform and equitable enforcement of the tax laws, and to minimizing the costs of tax administration and compliance to the common benefit of government and taxpayers. In the United States and Canada, TEI meets with tax administrators at all levels to advance these principles and, where appropriate, submits comments to state legislatures. That we have undertaken to prepare these comments is a measure of our serious concern over the enactment of legislation limiting the deduction of a corporation's interest expense.

DISCUSSION

The House and Senate bills include a proposal to limit the interest deduction for corporations by requiring a percentage of a corporation's interest expense to be added back in computing Florida taxable income. (1) TEI opposes the proposal to deny a full deduction for interest paid for the following reasons:

1. The proposal violates longstanding and legitimate tax law principles. Under current law, taxpayers are properly accorded a deduction for ordinary and necessary business expenses. Interest paid on business-related indebtedness is one such expense. Thus, if a company borrows to purchase equipment that is used in its business, the interest on the loan should be deductible as a legitimate cost of acquiring and utilizing that asset in...