Tax Difference Between Florida and Virginia

Tax Difference between Florida and Virginia

Individual Income Tax Corporate Income Tax Sales Tax Property tax per capita
Florida 0% 5.5% 6% $1,368
Virginia 5.75% 6% 5.3% $1,377
Overall Rank Corporate Tax Rank Individual Income Tax Rank Sales Tax Rank Unemployment Insurance Tax Rank Property Tax Rank
Florida 5 13 1 18 6 16
Virginia 26 6 37 6 35 26
(Taxadmin, 2013)

Companies often encounter boundaries when it comes to creating efficient business processes whether in the form of distance or differences in local taxation rates, however, by overcoming such boundaries better business operations can be attained. In order for any company to continue to be competitive within the present day American market, it is necessary for it to be highly responsive to changes, receptive to new developments within its market, highly creative as well as espouses actions of innovation and continued increases in efficiency. It is within this context that this paper examines the differences in the rates of taxation between Florida and Virginia and how this would impact a company that would choose to operate in either state.

First and foremost, it should be noted that based on the analysis conducted on the corporate tax rank, income tax rank, sales tax rank and other tax rates available, it was noted that while Virginia has a lower sales tax rate as compared to Florida, the fact remains that people in Florida have a higher level of disposable income. Florida has a far lower income tax rate which is set at 0% which creates a “spill over effect” in the rates of product purchases made at a local level. Since income tax is not present, this enables local consumers to purchase more products which, from the perspective of a manufacturing company, can create a positive outcome due to the sheer number of products sold within a given sales quarter (Turbotax, 2013). In comparison, Virginia does have a lower sales tax as compared to Florida; however, it has a higher corporate income tax. While the difference may not seem like much since its merely.05 percent, the fact remains that with some companies often earning hundreds of millions of dollars in quarterly sales (ex. Wal-Mart, Whole Foods Market, Costco, etc.), that.05 percentile difference can result in millions of dollars in taxes. Unlike a sales tax which is often passed on to consumers, a corporate income tax cannot be passed on resulting in even a few differences in percentage creating high payments to the government. When taking into consideration the high potential for product purchases from Florida, coupled with its lower corporate income tax rate, it can be stated that Florida is a far better place to do business as compared to Virginia.

The following section delves into the reasons why companies would choose to operate in different states as compared to merely staying within the current state that they are operating in. It explains the various differences that may impact an entity that is conducting business in a multi-state environment.

Cost Savings

The main reason behind working across the boundary of distance are the cost savings involved in hiring someone in Virginia as compared to hiring someone from Florida to do the exact same type of job. Minimum wage requirements, taxation and other costs related to doing business are simply far lower in various places in the U.S. as compared to other states and, with the integration of local financial markets and supply chains due to globalization, it has now become more practical to simply have certain aspects of a company’s operations (usually manufacturing and customer service) to be located in other states with lower business costs.

Minimum Wage Rates

FLORIDA Basic Minimum Rate(per hour)
Increases based on state mandated cost of living formula $7.93
Increases based on set Federal guidelines on cost of minimum wage $7.25
Differences In Income Gained Through Minimum Wage
Florida Virginia
Daily $63.44 $58
Weekly $317.20 $290
Monthly $1,268 $1,160
Yearly $15,225.60 $13,920

Assumption of Calculation: Eight hour working days, five day working week for 12 months.

Differences in Income $1,305

Another difference between states that impacts a company’s operations manifests itself through differences in minimum wage. As it can be seen in the info-graphic above, there is a slight different in the minimum wage rates between Florida ($7.93) and Virginia ($7.25). While this may seem minor at first, the table shown below shows that under an average work cycle (i.e. 8 hours a day, 5 days a week, 12 months a year) a worker in Florida earns $1,305 more than a similar worker in Virginia. From a company operations perspective, differences in minimum wage, no matter how slight, can affect the cost of operations when taking into consideration the scale of most manufacturing operations (Giordano & Tabones, 2013). For example, if a company had a factory in Virginia that employed one thousand workers at the current minimum wage rate of the state then the total annual cost of employing these workers would be $13,920,000. In comparison, if a company had a similar factor in Florida with the same amount of workers and paid under the minimum wage rate set by state, the cost of operations for employing that many people would be $15,225,000. Based on the data given, it can be seen that a minor difference of just a few cents per worker translates into $1,305,000 over the course of a year. Taking this into consideration, the minimum wage rate is definitely one of the factors that impacts a company the most when conducting business in between various states. Companies need to determine whether the minimum wage rate in a particular state is viable enough to set up operations there or if another state with a lower rate would be better so that the company can save money in the long term (Giordano & Tabones, 2013). If a company does not take the local minimum wage rate into consideration, it may be implementing methods of operations that are more expensive than they have to be if the company simply chooses to operate in another state.

It should be noted operating in a multi-state environment should not be considered the “go to” solution when it comes to reducing corporate expenses. Utilizing the example of Wal-Mart and the faulty maintenance procedures that resulted from outsourcing aspects of the company’s operations, it can be seen that by not keeping things within the state that it has experience in operating in actually exposes the company to a multitude of possible problems related to mismanagement and improper operational practices that would not have occurred if they had been done by the main company instead of in another state (Giordano & Tabones, 2013). This shows how problems can occur in numerous areas of a company’s operations as a direct result of operating in a multi-state environment which can have dire consequences for consumers and businesses alike.

Working across boundaries such as distance and business culture is advantageous for any company due to access to a greater talent pool and product markets, however, the fact remains that along with such advantages comes distinct disadvantages in the form of ill-suited management practices in dealing with a diversified workforce and the potential for problems in a company’s supply chain due to lax standards on the part of their inter-state partners. Management practices in some of today’s technology oriented organizations need to facilitate better collaboration and communication between regional teams despite the distances involved.

Differences in the Application of Right to Work Laws

Aside from differences in taxes impacting the competitive environment of some states, there is also the application of localized “Right to Work” laws on a state by state basis. Hogler, Shulman & Weiler (2004) explains the following regarding this particular type of law: “A Right to Work law guarantees that no person can be compelled, as a condition of employment, to join or… to pay dues to a labour union”. (Hogler et. al., 2004)

From the perspective of companies that work in a multistate environment, this can actually be advantageous. Hogler et. al. (2004) delves more into this issue by explaining that while the impact of Right to Work laws are still ambiguous when it comes to how they truly impact company operations, the fact remains that the Hogler et. al. (2004) study shows that workers who worked in states with Right to Work laws actually experienced a reduction six to eight percentage reduction in accumulated yearly income as compared to their contemporaries in non-Right to Work states. One of the reasons behind this was explained by Vedder (2010) as a result of a disempowerment of unions through Right to Work clauses which limited their capacity to operate and defend workers from the actions of the company. Since unions are often the main proponents towards wage increases and the application of particular benefits towards workers, a lack of union strength in states with Right to Work laws can actually be considered as advantageous for a company since it allows a certain degree of flexibility when it comes to operations. Weaker or non-existent unions enable companies to pay competitive wages, allow it to decrease or expand its workforce based on market conditions as well as set metrics to encourage employee performance (Vedder, 2010). It is based on this when choosing to expand operations into particular states through intrastate businesses (i.e. a company that has operations in more than two states and has facilities in those locations), it is advisable that a company determine whether Right to Work laws exist in those states since this can help to improve their capacity to function in a more cost efficient manner. A graph showing which states have Right to Work laws has been included below as a helpful reference.

Work State

Differences in Consumer Demographics

Another factor that may impact an entity that is operating in a multi-state environment are differences in consumer demographics that influences the popularity of certain products. For example, going back to the difference between Florida and Virginia, there is a higher percentage of the 45-65 age demographic within Florida as compared to Virginia since Florida is considered a good state to retire due to the lack of income tax. In comparison, Virginia has a higher rate of people within their early 20s rather than their late 50s, 60s and 70s. This distinctly impacts the popularity of certain products that are sold within each individual state.

Studies such as those by Heffetz (2012) explain that in the case of the 45-65 age demographic, buying decisions on food are oriented more towards long term healthy food choices and, as such, they are willing to spend considerable amounts on food that they know is healthy (Heffetz, 2012). Evidence of this can be seen in the creation of several companies that produce products specifically targeted at this demographic, such as high fibre cereals, vitamin enriched bread, various types of multi-vitamins and a variety of other products (Heffetz, 2012). Not only that, the study “Disparities in the Frequency Of Fruit and Vegetable Consumption by Socio-Demographic and Lifestyle Characteristics in Canada” (2011) which examined consumer trends in healthy eating revealed that as consumers age they tend to take into consideration the type of food they eat given their susceptibility to illnesses due to their advanced age (Disparities in The Frequency of Fruit and Vegetable Consumption, 2011). As a result, they are willing to spend more to get better high quality food that is rich in vitamins, fibre and other nutritious elements. From these studies, it is evident that consumer buying behaviour for the 45-65 demographic is oriented more towards healthy food choices wherein they first consider the health benefits of what they consume as opposed to its affordability or popularity. While muffins are not as popular as compared to burgers, shakes, and fries, they are a healthier choice which appeals to the 45-65 age demographic.

Environmental Hazards

As population centres continue to grow within the U.S. (i.e. those within Florida and Virginia), the issue of disease prevention is becoming an increasingly prevalent issue within the past few years. Outbreaks of the West Nile virus in Miami coupled with the occurrence of Dengue fever in other parts of Florida as well as an assortment of other mosquito borne illnesses has shown the necessity of developing planning frameworks for government agencies such as the Centre for Disease Control (CDC) in order to mitigate and control the outbreak of mosquitoes in and around populated urban environments. For companies looking to expand into developing a multi-state method of operation, expansion into Florida presents an assortment of hazards that are not present within Virginia. The main problem with urban centres in Florida is the fact that the level of population density with nearly 1,000 people per city block within the city of Miami alone results in a greater likelihood for the spread of infection. Female mosquitoes do not need to fly as far in order to extract blood from multiple hosts thereby facilitating the spread of diseases within a relatively short amount of time. Coupled with the proximity of Miami to large bodies of water and the ubiquitous nature of salient pools of water within many urban locations (i.e. rooftops, alleyways, backyards, derelict warehouses etc.) this has created a “perfect storm” for the proliferation of mosquitoes within the state.

Reference List

Disparities in the frequency of fruit and vegetable consumption by socio- demographic and lifestyle characteristics in Canada. (2011). Nutrition Journal10(1), 118-125.

Facts and Figures. (2013). How does your state compare. Web.

Giordano, J. A., & Tabones, E. (2013). The minimum wage, unemployment, and the youth workforce (ages 16-19): A correlation and comparative analysis of select categories including the general U.S. labour population for years 2003-2012. Journal Of International Business & Economics, 13(4), 135-144.

Heffetz, O. (2012). Who sees what? Demographics and the visibility of consumer expenditures. Journal Of Economic Psychology, 33(4), 801-818.

Hogler, R., Shulman, S., & Weiler, S. (2004). Right-to-work Laws and Business Environments: An Analysis of State Labor Policy. Journal Of Managerial Issues, 16(3), 289-304.

Taxadmin. (2013). Tax structure. Web.

Turbotax. (2013). A comparative look at state taxes. Web.

Vedder, R. (2010). Right-to-work laws: liberty, prosperity, and quality of life. CATO Journal, 30(1), 171-180.