Florida Appeals Court Upholds $2.7 Million Tax Ruling Against State Farm

State Farm, one of the leading insurance companies, has been ordered to pay nearly $2.7 million in corporate taxes following a decision by a Florida appeals court. This ruling confirms the initial judgment made by a circuit court in a dispute with the Florida Department of Revenue.

Central to this legal battle was the interpretation of Florida’s corporate income tax code, specifically concerning the treatment of interest from state and local bonds. This code mandates insurance companies to add back the amount of interest excluded from their federal taxable income.

State Farm contended that it shouldn’t be required to add back the entire interest amount from state and local bonds, arguing that 15% of this interest had been used to reduce its losses incurred deduction, and thus wasn’t entirely excluded from its federal taxable income.

However, the Florida Department of Revenue argued that the phrase ‘excluded from taxable income’ in the state tax code broadly covers both explicit exclusions and deductions. They insisted that State Farm should add back the total interest amount, regardless of its treatment in the federal tax code.

Judge Adam Tanenbaum of the First District Court of Appeal, in his ruling, conducted a textual analysis of the phrase ‘excluded from taxable income.’ He noted the lack of qualifying terms in the statute and its similar usage in the Internal Revenue Code. The court determined that the phrase refers to the total amount of interest that is either omitted from or deducted from gross income, rather than the net effect of other tax liability calculations.

The appellate court ultimately upheld the circuit court’s judgment, agreeing with the Florida Department of Revenue’s assessment of back taxes and interest against State Farm. Judge Tanenbaum affirmed that the circuit court’s interpretation of section 220.13(1)(a)2. was consistent and legally sound.