“Join me in inviting @elonmusk to move @Twitter to the freest state in the nation! Florida would benefit the company as a whole—we have no state income tax and the perfect business climate. It’s time to book a one-way ticket,” said Florida CFO Jimmy Patronis in a tweet after it was announced that Elon Musk was in a $44-billion deal to purchase the social media platform. Patronis even created a website where Florida residents can add their names to the chorus calling for Twitter’s move from San Francisco.
On this matter, Musk remains mute. But relocating Twitter to Florida certainly wouldn’t be one of his most innovative moves—people and businesses are flocking to Florida more than ever before. According to new U.S. Census data, Florida’s population increased by 211,000 between July 2020 and July 2021, second only to Texas. The Sunshine State also accounted for more new business applications than any other state: of the 5.8 million applications filed between January 2021 and January 2022, 11.7% sought a home in Florida.
Why are businesses moving to Florida?
Families, businesses, and even large corporations are moving to Florida for a number of reasons:
- With the ability to work from home, large corporations are realizing that they are no longer tied to conducting business in larger (and often more expensive) hubs.
- Businesses pay less in taxes overall in Florida.
- Individuals in Florida are not subject to state income taxes.
- Business owners are not taxed at the state level on income that passes through from their small business to themselves.
- LLCs, sole proprietorships, and S-corporations are exempt from paying state income tax.
- Another factor contributing to the mass migration was the SALT (state and local tax) deduction cap of the 2017 Tax Cuts and Jobs Act (TCJA), which affected many high-income earners by limiting the maximum deduction for state income and property taxes to just $10,000.
Florida is one of nine states without income tax. On the other end of the spectrum, the highest income bracket in the state of New York is taxed at nearly 11%, so it’s easy to see why moving to Florida could have a significant impact on finances. In fact, it’s estimated that the savings from moving to Florida could be as much as 13.30% on taxable income. The state also has no state estate tax, and significantly lower property tax than its neighbors to the north.
According to CNBC, the states with the lowest tax burdens are:
- Alaska (5.06%)
- Tennessee (5.75%)
- Delaware (6.22%)
- Wyoming (6.32%)
- New Hampshire (6.41%)
- Florida (6.64%)
- South Dakota (7.12%)
- Montana (7.39%)
- Alabama (7.41%)
- Oklahoma (7.47%)
Along with personal and business tax benefits, Florida also boasts lower corporate taxes, lower operation costs, diversity of talent, the promise of economic and consumer growth, lower real estate costs, and (last but not least) year-round balmy weather.
Should you move your business to Florida?
While the tax advantages sound rather enticing, moving your business or household to another state is not a simple case of booking a plane ticket, and every situation is different.
The higher the tax rate in your current state, the more you can potentially save by moving to an income tax-free state, such as Florida. Remember, however, that every state needs money to operate, so if this money isn’t collected through state income taxes, it typically comes from other taxes. Major taxes collected in Florida include sales and use tax, intangible tax, and corporate income taxes.
Things to consider before moving your business to Florida:
- Is it beneficial for your type of business to move to Florida? (see more on this below)
- What type of talent are you looking for?
- Where do you need your employees to live?
- Have you considered the operational costs of the move?
- Have you secured office space or other premises?
- What are some of the tailored incentives you can provide to your employees in Florida?
- Are you doing a redomestication or foreign qualification?
How are different types of businesses taxed in Florida?
- S-Corps: Have many of the same legal protections as C-corporations but are exempt from the state’s 5.5% corporate tax.
- LLCs: LLCs that are not incorporated are exempt from state income tax. In addition, LLC owners do not owe any tax to the state of Florida on the personal income they get from their enterprises.
- Sole Proprietorships: For federal income tax reasons, money earned by a sole proprietor is treated as ordinary personal income, which means that it is not subject to state income taxes in Florida.
- Partnerships: Regardless of their designation, partnerships are not liable for state income tax in Florida.
- Corporations: Florida’s statutory corporate tax rate is 5.5% on federal taxable income, but exclusions can drastically reduce a corporation’s effective tax rate. Corporations must pay whichever is higher between the regular rate minus all exemptions and credits, or the 3.3% alternative minimum tax rate.
For small business owners seeking basic protection of their personal assets while having no state income tax burden, it’s advisable to form an LLC in Florida.
How to move your LLC to Florida
The good news is that moving an LLC to Florida can be accomplished relatively easily by filing out a few forms. The forms you will need to file will depend on whether you are redomesticating or applying for foreign qualification. Since Florida has no state income tax, you won’t need to figure out new payroll taxes.
You’ll need to ensure that all business license and permit requirements are fulfilled in Florida; these will vary depending on the nature of your business. For example, healthcare organizations in Florida are required to submit Proof of Financial Ability to Operate. Contact local professional organizations and do your research to learn about any requirements that affect your business and prevent hefty fines.
You can also make your business move easier by migrating your books and digitizing the business back office so that all your information can be accessed at the click of a mouse via the cloud.
For personal tax purposes, before you ditch the suit for swimming trunks, remember to ensure that you terminate tax residency in the state you’re leaving. Because Florida doesn’t have an estate tax, it’s also important to update your estate plan to reflect Florida’s laws.
See you in the sunshine!
From sub-tropical weather, to a better quality of life, and beneficial tax codes, business owners from around the U.S are transforming the Sunshine State into a hot new hub for investors, shareholders, and business owners.
If you are ready to relocate your LLC to Florida but need a hand bringing your business along send us a message. We’ve been running our CPA firm from jacksonville, Florida since 1978.