Florida and the State Income Tax

Trevor L Taylor is a private investor based in Miami and the founder of Fortius Capital, and like every Florida resident he lives under a constitution that keeps the state out of personal income taxation. The rule is old, unusually durable and often cited as a reason people and firms come to the state. This entry explains where the ban came from, what Florida taxes instead, and how strong the evidence is that the missing tax moves people.

A ban written into the constitution

Florida does not simply choose a zero rate each year. Article VII, Section 5 of the state constitution says that no tax on the income of natural persons who are residents or citizens may be levied by the state beyond the amounts that can be credited against federal taxes, a limit the Florida Senate’s published text¹ sets out under the heading for estate, inheritance and income taxes. Because the federal government offers no such credit, the practical effect is that the state collects no personal income tax at all.

The rule dates to the land boom of the 1920s. The Florida Policy Institute describes how, ahead of the 1924 election, the Legislature put a measure known as Amendment 1 on the ballot to prohibit personal income and inheritance taxes². Supporters argued that a state without those taxes would attract wealthy residents, who would bring capital and growth with them. The same election turned on a promise of rapid road building, so the state was restricting its revenue at the very moment it was committing to large public spending. Tourism had already ballooned during the decade, and the boom itself collapsed by 1926, yet the tax ban survived.

Critics see a long shadow in that choice. In a public radio interview on the institute’s Florida Timeline project, its chief executive said the ban leaves the state heavily relying on the sales tax³, which falls harder on households with moderate and low incomes. She added that tax debates in the state still tend to ask who Florida is trying to attract, a framing that reaches back to the original campaign.

Changing the rule would be difficult by design. A research paper from the Mercatus Center notes that a personal income tax would require a constitutional amendment approved by voters, and that even advocates of such a tax rarely propose one because it would be politically unpopular. That paper opens on the constitutional point before turning to revenue, and it treats the absence of the tax as a fixed feature of state politics rather than a live debate.

What Florida taxes instead

A state still has to pay for schools, roads and services. According to the Mercatus analysis⁴, the sales tax is by far Florida’s biggest source of tax revenue, followed by the documentary stamp tax on real estate transactions, property taxes and motor fuel taxes. The paper found that taxes covered only about two thirds of state appropriations in the year it studied, with federal grants paying for most of the rest. It also recorded that the last broad state tax increase was a one point rise in the sales tax in 1988.

That structure makes Florida’s revenue sensitive to spending and to property markets rather than to paychecks. When the housing market collapsed in the late 2000s, total state tax revenue fell by 16 percent over a few years, and documentary stamp collections dropped by 73 percent, the Mercatus authors wrote. A state that leans on sales and real estate transactions feels a downturn quickly, because both slow at once. For a Miami real estate investor the link is direct, since transfer taxes and property taxes are part of every deal, a point developed in the entries on family offices in Miami and wealth succession planning.

The absence of a state income tax also shapes political arguments. A fact check by PolitiFact, published by WLRN during a recent governor’s race, pointed out that Florida has no state income tax⁵ and that a governor could not impose one on tips, overtime or retirement benefits, which residents pay only to the federal government. The fact check is a reminder that most tax arguments in Tallahassee concern other levies, because the income tax question is closed by the constitution.

Does the missing tax move people

The best data on interstate moves come from the Internal Revenue Service, which tracks taxpayers whose mailing address changes between returns. The Tax Foundation reads those records as showing that people and businesses favor states with low and structurally sound tax systems⁶, while cautioning that jobs, family, weather and cost of living also drive decisions. In its most recent update, the group reported that Florida gained a net 55,349 income tax filers in one year and $20.6 billion in adjusted gross income⁷, more income than any other state, while California and New York posted the largest losses.

High earners stand out in the numbers. Fortune, citing an analysis of IRS data, reported that Florida drew a net 20,263 high income households in one year, nearly four times the number⁸ that went to second place Texas, which also has no income tax. CNBC reported that between 2020 and 2021 more than 40,000 households earning $200,000 or more moved in, for a net gain of 27,567⁹ after departures.

Researchers warn against reading those totals as proof that taxes alone drive the moves. A study summarized by JSTOR Daily examined the tax records of every million dollar earner in the country over more than a decade. It found that millionaires do weigh tax rates when they move, but move less often than other people, and that when Florida was removed from the model, differences in tax rates had no effect¹⁰ on elite migration. That suggests Florida’s pull comes from a bundle of factors, including climate, housing, lifestyle and an established community of earlier arrivals, with the tax rule as one part of the package. The relocations described in the entry on finance firms moving to Miami fit that reading, since firms cited talent and clients as often as taxes.

For residents, the trade is clear enough to state simply. Florida spares wages and investment income from state tax, and in exchange it collects more through sales, deeds and property, which spreads the burden toward consumption and ownership. Anyone weighing a move to Miami does better to model the whole bill, weighing the income tax ban against the sales tax burden it shifts onto residents.