Property Tax Appeals: Should You File a VAB Petition or Go Straight to Court?

January 17, 2012 — Sherri Johnson

Property owners who would like to appeal their property tax assessments are faced with two choices in Florida – they can file a petition to the county value adjustment board or they can file a lawsuit in circuit court.  Some attorneys contend that filing a VAB petition is a waste of time as the deck is stacked against the petitioner in those proceedings.  I disagree, and think that there are pros and cons to both venues.  This post will summarize the benefits of filing a VAB petition versus the benefits of going straight to circuit court.

Benefits of Filng a VAB Petition

1.  Limited Discovery Available to Property Appraiser.  In a circuit court action, both parties have the right to obtain documents from the other side, and to question the opposing parties under oath through written Interrogatories or in a deposition before a court reporter.  In a VAB proceeding, however, the Property Appraiser is at a distinct disadvantage in that, while the Property Appraiser’s documents are public records that must be made available upon request, the property owner need not disclose any documents other than the documents they intend to use as evidence.  While the Property Appraisers technically have statutory authority to obtain a subpoena for the production of taxpayer records, this mechanism is rarely used, except for very large taxpayers.  On the other hand, in a lawsuit, both parties have the ability to obtain documents from each other, including documents that the property owner may not want to produce.

2.  Value Disputes Heard by Appraisers.  If your dispute is solely a dispute over appraisal methodology and does not involve any complex legal issues, the VAB can be a good choice of venue, as value disputes in larger counties are heard by licensed appraisers, as opposed to judges, who may have very little knowledge of appraisal theories and concepts.

3.  Attorneys Not Required.  Normally, corporations, LLC and other such entities must be represented by an attorney.  However, in VAB proceedings, taxpayers are allowed to be represented by an unlicensed agent if they desire.  Please note, however, that testimony at a VAB hearing is recorded and may be used against you in a later court case.  Thus, if you think there is any chance that you might want to take the case to court, it would be advisable to be represented by counsel at your VAB hearing.

4.  Lower Costs.  The fee for filing a VAB petition is much lower than the cost of filing a circuit court action.  Also, for those who desire legal counsel, most attorneys will handle VAB petitions on a flat fee or contingent fee basis.

Benefits of Filing a Circuit Court Action

1.  Power to Subpoena Witnesses.  One of the most important benefits of a circuit court action is that, in a court proceeding, your attorney can subpoena witnesses to testify on your behalf and can depose adverse witnesses prior to trial.  Thus, testimony and evidence that may be unobtainable in a VAB proceeding can sometimes by compelled in a court proceeding.

2.  More Preparation Time.  In a VAB proceeding, the Clerk is only required to give you 25 days’ notice of the hearing and, in many smaller counties, the hearings are held very soon after the deadline for VAB petitions has expired.  Thus, if you need more than a few weeks to prepare your case, VAB is probably not the best venue for you.

3.  Cases Heard by Judge.  If your case involves a complex legal or evidentiary issue, you may be better off taking your case to circuit court, where it will be decided by a judge.  In contrast, value disputes before VABs are heard by either an appraiser or, in smaller counties, by the value adjustment board itself, which may not include anyone with a legal background.

4.  Flexibility in Scheduling.  One of the biggest disadvantages of the VAB process is the lack of flexibility in the scheduling of hearings.  In small counties, the VAB may only have two meeting dates available for your hearing.  In larger counties that hold hearings in front of special magistrates, the Clerk generally will not consult with the petitioner before scheduling the hearing and, once a hearing is scheduled, it can only be re-scheduled once, unless the petitioner shows good cause.  In court cases, on the other hand, the parties’ attorneys coordinate the scheduling of hearings around the parties’ schedules and hearings may be rescheduled even without good cause.

5.  Time to Present Case.  Finally, if you have multiple witnesses and boxes of exhibits to present, a VAB hearing may not be a good venue, as only a limited amount of time is allocated to each petitioner.

Conclusion

As a general rule, cases involving multiple witnesses and complex legal issues should probably be filed in circuit court.  However, even in those cases, there may be a benefit to filing a VAB petition if you would prefer to have your case heard by a licensed appraiser or if you are concerned about being forced to turn over confidential business documents in discovery.  For simpler cases, filing a VAB petition can be an inexpensive way to challenge a property tax assessment without waiving your right to file a circuit court action if you are unsuccessful before the VAB.

Posted in Appeals to Circuit Court, Value Adjustment Board. Tags: , , , , , . 2 Comments »

New in 2011: Payment of Taxes During Pending VAB Appeal

July 12, 2011 — Sherri Johnson

Taxpayers who file Value Adjustment Board petitions in 2011 must now make sure that they pay their taxes before they become delinquent.  The newly-enacted Fla. Stat. 194.014, which took effect on July 1, 2011, requires taxpayers who file VAB petitions to pay all non ad valorem taxes and at least 75% of their ad valorem taxes before they become delinquent.  Likewise, taxpayers who challenge the denial of an exemption or classification or a determination that their improvements were substantially complete must pay all non ad valorem taxes and the amount of ad valorem taxes that they admit in good faith to be owing.  In Florida, property taxes become delinquent if not paid by April 1st of the next year.  Thus, if a taxpayer fails to pay their 2011 property taxes by April 1, 2012, the VAB is required to automatically deny their petition on that property.

What is not clear from the new statute is whether a taxpayer’s failure to pay its taxes before they become delinquent will also result in the dismissal of cases pending before the VAB from prior years.  Fla. Stat. 194.171(5), which applies to property tax cases in circuit court, requires the court to dismiss all pending cases if the taxes on the property in question become delinquent in any future tax year.  In some larger Florida counties, VAB cases are sometimes not resolved until several years after they are filed.  Thus, depending on how the statute is interpreted by the VABs, taxpayers whose taxes become delinquent in those counties could risk having all of their prior years’ pending VAB cases denied.

There is one silver lining for taxpayers, though.  The new statute also provides that, if a petitioner is entitled to a refund due to the granting of their VAB petition, the amount of taxes overpaid will accrue interest at the rate of 12% per year from the date the taxes would have become delinquent.

Posted in Property Tax Legislation, Value Adjustment Board. Tags: , , , , , , , . 3 Comments »

DOR Bulletins and VAB Training Materials Deemed Not Binding on VABs

June 28, 2011 — Sherri Johnson

A Florida Administrative Law Judge issued a Summary Final Order in Turner v. Dep’t of Revenue, finding that the Florida Department of Revenue’s advisory bulletins and Value Adjustment Board training materials are not binding on VABs or Special Magistrates, and that Rule 12D-9.020 contravenes Florida law to the extent that it provides that the disclosure of evidence by a VAB petitioner is optional.

Earlier this year, several county Property Appraisers filed a legal challenge to the Florida Department of Revenue’s 2010 Value Adjustment Board training materials and Property Tax Oversight Bulletin 11-01, contending that the materials were improperly-promulgated administrative rules that were contrary to the requirements of the Florida Constitution and statutes.  The Property Appraisers’ primary areas of concern were the DOR’s statements that the Higgs v. Good case did not apply to VABs, its statement that the petitioner has the option of initiating an evidence exchange, and its indication that a “costs of sale” adjustment under Fla. Stat. 193.011(8) should be made to values calculated by the cost and income approach, as well as the sales comparison approach.

On June 22, 2011, the Judge ruled that the bulletins and training materials do not constitute invalid, unpromulgated rules because the “value adjustment boards and their magistrates are not required to apply – and therefore possess the discretion to deviate from – the legal principles enunciated within the materials when conducting VAB hearings.”  In support of their contention that the materials should be treated as administrative rules and thus be subject to the same promulgation procedures, the Property Appraisers had submitted evidence that certain VABs and Special Magistrates had perceived the bulletins and training materials as being mandatory.  However, the Judge found that, regardless of the perception of those individuals, the DOR has no authority to enforce its bulletins or the statements in the training materials and that they were merely non-binding recommendations that the VABS and Special Magistrates were not required to adhere to.

The Judge also ruled that the DOR’s Rule 12D-9.020 was contrary to Fla. Stat. 194.011, Fla. Stat, which requires the VAB petitioners to disclose their evidence at least 15 days before the VAB hearing.  However, the effect of this part of the ruling appears to be nominal, since the Judge also acknowledged that the only penalty for the petitioner’s failure to disclose its evidence is that the Property Appraiser is not required to disclose its evidence to the petitioner.  Thus, the effect on the requirements for exchange of evidence between the parties is essentially nil.  Basically, if the Property Appraiser requests documentation, that documentation must be provided 15 days before the hearing or it may not be admitted into evidence.  But as to evidence not requested by the Property Appraiser, the Petitioner only needs to disclose that evidence if they would like to see the Property Appraiser’s evidence before the hearing.

Posted in Evidence, Value Adjustment Board. Tags: , , , , , , , . 1 Comment »

Understanding the First & Eighth Criteria (or Must the Property Appraiser Always Deduct 15%)?

March 3, 2011 — Sherri Johnson

Florida property is required to be assessed at 100% of just value, which has been deemed equivalent to fair market value.  So why do the Property Appraisers sometimes deduct 15% for the “first and eighth”?  And does the Department of Revenue’s new bulletin require 15% to be deducted from the values of all property?  This post will briefly explain the first and eighth criteria of section 193.011, Fla. Stat., when those factors apply, what “costs of sale” may be deducted, and why a 15% deduction is commonly used.

What are the “first and eighth factors”?

The phrase “the first and eighth” refers to subsections (1) and (8) of Fla. Stat. 193.011.  Fla. Stat. 193.011 sets forth the eight factors that must be properly considered by the Property Appraiser in assessing property for tax purposes.  Subsection (1) requires the Property Appraiser to consider “the present cash value of the property, which is the amount a willing purchaser would pay a willing seller, exclusive of reasonable fees and costs of purchase, in cash or the immediate equivalent thereof in a transaction at arm’s length.”  The relevant portion of subsection (8) requires the Property Appraiser to consider “the net proceeds of the sale of the property, as received by the seller, after deduction of all of the usual and reasonable fees and costs of the sale, including the costs and expenses of financing, and allowance for unconventional or atypical terms of financing arrangements.”  Although these subsections contemplate consideration of a variety of information, the phrase “first and eighth” generally refers to the requirement that the Property Appraiser consider the costs of purchase and the costs of sale.”  In Turner v. Tokai Financial Services, the court explained that while subsection (1) contemplates the transaction from the buyer’s perspective and excludes fees and costs incurred by the buyer in addition to the purchase price, subsection (8) excludes the reasonable fees and costs that the seller would pay out of the proceeds received from the buyer.

Do the first and eighth criteria apply to both real and personal property?

Although some of the factors of section 193.011 are undoubtedly more relevant to appraisals of real property, the Tokai court held that, despite some legislative history to the contrary, because Fla. Stat. 193.011  is not expressly limited to real property, it should be interpreted as applying to both real and personal property.

What “costs of sale” should be deducted?

For real property, the Supreme Court of Florida has construed the phrase “reasonable fees and costs of sale” to include only those fees and costs typically associated with the closing of a sale of real property, such as reasonable attorney’s fees, broker’s commissions, appraisal fees, documentary stamp costs, survey costs and title insurance costs.  Determinining the costs of sale of tangible personal property can be a bit more challenging.  In Tokai, the court adopted the taxpayer’s market approach value for its used equipment, but rejected the taxpayer’s request for a 20% cost of sale deduction for sales commissions, advertising, warranties, delivery, installation and product demonstration, finding that such expenses were internal expenses, rather than external “costs of sale.”  For tangible property assessed by the cost approach, the Supreme Court later held in the Walmart case that sales tax should not be deducted as a cost of sale, because it is a generally accepted appraisal practice to include acquisition costs such as sales tax, freight and installation in the original cost when performing a cost approach valuation.

Does the “costs of sale” adjustment apply to values determined by the cost approach and income approach?

This, of course, is the hot question of the day.  Years ago, the court held in Bystrom v. Equitable Life Assur. Society that a costs of sale adjustment to a value arrived at by the income approach was improper because subsection (8) could only be applied if there had been an actual sale of the property.  Fast forward to January 2011, when the Florida Department of Revenue issued PTO Bulletin 11-01 , advising all county value adjustment boards that they may make cost of sale adjustments to values determined by any of the three traditional approaches (cost, income, or sales comparison).  This came on the heels of the DOR issuing VAB training materials that indicated that the eighth factor should result in a value less than fair market value. 

Many Property Appraisers take issue with the DOR’s interpretation and contend that it contravenes established Florida law.  Hillsborough County Property Appraiser Rob Turner has filed a challenge to the DOR’s VAB training materials, asking that they be deemed invalid.  The Clay County Property Appraiser and the Florida Association of Property Appraisers have joined in that action.  A separate rule challenge was also recently filed by the Property Appraisers of Alachua, Monroe and Okaloosa counties.   Also, the DOR’s bulletin, even if accepted and followed by the Property Appraisers, is carefully phrased to only require the VABs to make an eighth criterion adjustment “when justified by sufficiently relevant and credible evidence.”  Thus, absent a directive from the courts, it is doubtful that taxpayers will suddenly see lower assessments as a result of this bulletin, although it may provide them with an additional argument to be raised in VAB hearings.

Is the “cost of sale” adjustment always 15%?

Under the law, the Property Appraisers are only required to make such adjustments as are justified by the facts, and those adjustments may be higher or lower than 15%.  In the past, some county property appraisers were called out by the courts for unfairly assessing property at a level of assessment that was less than 100% of just value.  Thus, in reviewing each county’s tax roll, the DOR conducts sales ratio studies to ensure that the county property appraisers are sincerely attempting to reflect the full fair market value of the property in their jurisdiction.  In conducting those studies, the DOR generally assumes a 15% adjustment for costs of sale and uses those adjusted values to evaluate the fairness of the county’s tax roll.  Also, every year the Property Appraisers must submit Form DR-493 to the DOR to notify the DOR of the “costs of sale” adjustments made to each type of property in their county, and Rule 12D-8.002(4) requires them to submit documents justifying any adjustments in excess of 15%.

The confusion tends to arise because the certifications made by the Property Appraiser relate to the adjustments made in their mass appraisal process.  Thus, while a Property Appraiser may certify that they made a 15% adjustment during the mass appraisal process, if a taxpayer challenges their assessment, the Property Appraiser may prepare a fee appraisal using all three approaches to value, and may or may not make similar adjustments in each approach.  However, while the Property Appraisers may take issue with the DOR’s bulletin, the bulletin seems to suggest that if a Property Appraiser has certified that they used a 15% adjustment on Form DR-493, the VAB would be justified in making a 15% adjustment to any values that do not affirmatively appear to include such a deduction.  Until the courts weigh in, this will likely continue to be a hotly contested issue before the VABs and the courts.

Posted in Appraisal Methods, Value Adjustment Board. Tags: , , , , , , , , . 2 Comments »

FAQs About the 10% Cap on Commercial Property Assessments

February 3, 2011 — Sherri Johnson

In 2008, Florida voters amended the Constitution to give non-homestead property owners some protection against dramatic increases in their annual property tax assessments.  As amended, the Florida Constitution now prohibits the assessment of certain non-homestead property from increasing by more than 10% per year.  Ironically, this amendment passed just as assessments of commercial property began to decrease, so few property owners have seen the benefits of this cap, but that may begin to change in 2011.  Thus, this post will address common questions about the 10% cap such as who qualfies, how the cap can be lost, and what to do if your value increases by more than 10%.

What property is protected by the 10% cap?

The 10% cap applies to most types of commercial property, including nonhomestead residential property (i.e. apartments and other rental property) and nonresidential property (i.e. commercial property and vacant land).  Property that is not protected by the 10% cap includes agricultural property, conservation land, and certain other property that is already accorded favorable tax treatment.  Of course, it also does not apply to homestead property, as homestead property is protected by the 3% cap of the Save Our Homes Amendment.  The requirements for residential property are set forth in Fla. Stat. 193.1554, and the requirements for other commercial property are set forth in Fla. Stat. 193.1555.

With values decreasing, does anyone really benefit from the 10% cap?

Actually yes.  In my experience, the taxpayers who really benefit from the 10% cap are those who successfully obtain a reduction of their assessment by the Value Adjustment Board process.  In the past, a taxpayer could obtain a reduction in one tax year, but have to fight the same battle over and over in future years.  Now, any reduction obtained during the VAB process is somewhat protected for future tax years as well.

What events will trigger the loss of the 10% cap?

The protection of the 10% cap is lost when there is a change of ownership or control.  This includes the transfer of the property by sale, foreclosure, or other means (other than tranfers to correct an error, transfers between spouses, and transfers between legal and equitable title).  If the property is owned by a corporation, LLC, partnership or other such entity, the cap will also be lost upon a transfer of more than 50% of the ownership in that entity.  Thus, a stock transfer may also trigger loss of the cap and re-assessment of the property at fair market value.  However, in 2010, the legislature amended the statute to create an exception for publicly-traded companies if the transfer of the shares occurs through the buying and selling of shares on a public exchange.

For nonresidential property, the cap can also be lost by adding an improvment that increases the value of the property by at least 25 percent.  Thus, while more routine changes, additions and improvements may only slightly affect the assessment, a substantial improvement that increases the overall value by 25% or more will result in the reassessment of the entire property at fair market value.

How does the Property Appraiser know if there has been a change of ownership or control?

Normally, the Property Appraiser learns that a property has been transferred when a deed is recorded in the public records.  However, the public records will generally not disclose if a property is owned by the same entity, but the entity itself has undergone a change of control.  Thus, Fla. Stat. 193.1556 requires any person or entity who owns property that is protected by the 10% cap to notify the Property Appraiser of any change of ownership or control on a form provided by the Department of Revenue.   If a property owner fails to notify the Property Appraiser and the Property Appraiser later discovers that the property was erroneously continuing to receive the 10% cap, the Property Appraiser can record a tax lien for the back taxes, a 50% penalty and 15% interest, which is the same penalty applied in cases of homestead fraud.

I met the requirements, so why did my assessment increase more than 10% this year?

Assuming that you met all of the requirements for the 10% cap, it could very well be that the Property Appraiser made a mistake.  It seems that some of the Property Appraisers’ computer systems have had difficulty processing the 10% cap.  Quite a few taxpayers contacted me in 2010 with concerns about the fact that their assessments erroneously increased more than the 10% cap and almost all of those issues were due to simple computer or data entry errors.  Thus, I would recommend contacting the Property Appraiser’s office, as it may be a simple issue to correct.  If that does not work, then you may be able to seek relief through the VAB process.

Posted in Commercial Property, Property Tax Legislation. Tags: , , , , , , , . 8 Comments »

The Actual Use Doctrine in Florida: Tax Exemptions Determined as of January 1st

January 12, 2011 — Sherri Johnson

When it comes to property taxes in Florida, everything revolves around the January 1st assessment date.  Property values are determined as of January 1st.  A person’s right to a homestead exemption is determined based on whether they qualified on January 1st.  The taxability of newly-constructed improvements is determined based on whether they were substantially completed as of January 1st.  And, according to the Florida courts, a property’s entitlement to an exemption or special classification must also be based on how the property was actually used as of January 1st.  This “actual use doctrine,” as it is commonly referred to, can cause headaches for owners of agricultural property and owners of vacant land or other property that is in a state of transition.  This article will attempt to address some of those issues.

Fla. Stat 194.042 provides that all property shall be assessed according to its just value as of January 1st of each tax year.  It also goes on to provide that improvements shall not be taxed unless they are substantially completed as of January 1st of the tax year in question.  Likewise, Fla. Stat. 196.031 requires a taxpayer’s entitlement to the homestead exemption to be determined as of January 1st of each tax year.  Notably, the statutes do not expressly require the taxability of other types of property to be determined as of January 1st.  However, Florida courts have held that the character of a particular parcel of land, including whether or not it should be classified as agricultural, is determined by its use as of January 1st.

Impact on Agricultural Property

Established agricultural operations generally should not have difficulty establishing their entitlement to an agricultural classification as of January 1st of each tax year.  The problems tend to arise when a property is being newly converted to agricultural use or when it is being transitioned from one type of growing crop to another.  For cattle-grazing operations, problems can also arise if the cattle is frequently rotated among different parcels, leaving some parcels with no cattle present on January 1st.  Thus, in the agricultural context, the question of what constitutes actual use of the property for agricultural purposes can be a bit tricky.  If a parcel is used throughout the year as part of a larger cattle grazing operation, but the cows happened to be grazing another parcel on January 1st, does that mean that the property was not actually used for agricultural purposes on January 1st?  Unfortunately, the courts have offered little guidance on this issue, and thus the answer tends to vary from county to county.

With respect to growing crops, the most common issue seems to be whether a property is being actually used for agricultural purposes if no crops have yet been planted as of January 1st.  One appellate court held that there was no evidence of agricultural use as of January 1st where the crops were not planted until late January and, as of January 1st, 90% ofthe property was not even cleared.  In effect, the property was being prepared for future use, but was not actually used for growing crops as of January 1st.    However, if a property owner has in fact made significant efforts to clear, plow, irrigate and otherwise prepare the property for planting, that would seem to constitute actual agricultural use, especially if the crop in question is one that is not usually planted until the spring.  In such a situation, it is critical that the property owner document every effort made to prepare the property for planting.

Unfinished and Remodeled Buildings

Fla. Stat. 196.192 provides that all property owned by an exempt entity and used for exempt purposes shall be exempt from taxation.   The seminal case dealing with application of the actual use doctrine to exempt entities is the Supreme Court of Florida’s decision in Dade County Taxing Authorities v. Cedars of Lebanon Hospital Corp.  In that case, the patient care facility in question was completed in mid-1973 and issued a certificate of occupancy in August 2003.    However, the facility was not used for patients during 1973 or 1974.  The court thus found that it was not exempt because it was not actually usd as a hospital or other exempt facility on January 1, 1974.  Other courts have followed the Cedars of Lebanon case, albeit reluctantly in some cases.  In one case, the appellate court reluctantly denied an exemption to a Miami Dade Community College building that was acquired on January 1st, where the remodeling for use as an educational facility was not completed until July of that year.   Thus, charitable and other exempt entities should be mindful of the actual use doctrine before engaging in any property acquisition or remodeling projects.

Vacant Land

Of course, the actual use doctrine also applies to vacant land owned by exempt entities although, as discussed below, the legislature has loosened the doctrine with respect to churches and charities such as Habitat for Humanity.  Years ago, following the Cedars of Lebanon case, the courts generally denied exemptions to churches, charities and other exempt entities that owned vacant land.  In one case, the court denied an exemption to the American Lung Association for vacant land on which it planned to construct its new corporate headquarters.  Another court denied an exemption to the Palm Beach Community Church for 47 acres on which it had planned to build a church.  Following these cases, many counties had difficulty deciding whether to grant an exemption to vacant land owned by Habitat for Humanity, which was being held for future building purposes.  The circuit court in Sarasota County ruled against Habitat for Humanity on two occasions, but those cases were not appealed.

In 2007, the Legislature amended Fla. Stat. 196.196 to provide that property owned by an exempt entity is considered to be used for religious purposes as long as the church has taken affirmative steps to prepare the property for use as a house of public worship.  Such “affirmative steps” may include permitting activities, creation of plans, land clearing, site preparation,  and similar activities.  When that legislation passed, the Property Appraisers inquried as to whether that standard could also be applied to charities like Habitat for Humanity, but in AGO 2008-52, the Attorney General replied in the negative.  Thereafter, in 2009, the Legislature passed a similar statute allowing charities like Habitat for Humanity to receive an exemption on vacant property if they have taken affirmative steps to prepare the property to provide affordable housing to low-income persons or families.

Naturally, the question arises as to whether this standard could be applied to vacant land owned by other exempt entities that have acquired land for future use.  The Attorney General opinion indicates that the “affirmative steps” standard is limited to religious property, and now future low-income housing property owned by charities such as Habitat for Humanity.   However, absent further legislative amendments expanding the “affirmative steps” test, there is also the possiblity that a similarly-situated exempt entity could claim to be denied equal protection of the laws if they are denied an exemption on vacant property on which they have taken affirmative steps toward constructing potentially-exempt improvements.  Charities and other exempt entities in this situation should be prepared to address these issues before acquiring new property or commencing a new construction project.

Posted in Agricultural Classifications, Property Tax Exemptions, Property Tax Legislation. Tags: , , , , , , , , , , , . 1 Comment »

Save Our Homes Pitfalls: How to Avoid Losing the 3% Homestead Cap

August 13, 2010 — Sherri Johnson

By now, most Florideans have figured out that the most valuable benefit of the homestead exemption is not the $50,000 exemption itself, but the 3% cap on the annual increases in the assessment of their homestead property.  Conversely, the worst part of losing a homestead exemption is receiving a tax bill the next year that is based on the full fair market value of your property.  Unfortunately, the law regarding when a property loses the Save Our Homes Amendment [“SOHA”] cap and must be reassessed at just value is a bit convoluted.  This article will address some of the most common reasons for losing the SOHA cap.

What constitutes a “change of ownership”?

Florida Statute 193.155(3)(a) provides that the SOHA cap is lost, and the property must be reassessed at just value as of January 1st of the year following a change of ownership.  A “change of ownership” is defined as “any sale, foreclosure, or transfer of legal title or beneficial title in equity to any person, except as provided in this subsection.”  Thus, obviously the SOHA cap is lost when a property is sold to a completely new owner.  However, because “change of ownership” is defined rather broadly, there are many other situations that could trigger a loss of the SOHA cap, even though the average person might not think of the situation as a change of ownership.

Loss of Cap on Death of Homestead Recipient

One common misconception is the belief that the SOHA tax savings are inheritable.  When a property owner passes away, the heirs may expect that the taxes on the property will continue to be based on their parents’ or grandparents’ capped value.  However, that is usually not the case.  If a property owner dies leaving a spouse or minor children, the transfer of the property to the spouse or minor children is not considered a “change of ownership.”   Likewise, the statute includes an exception for property that is transferred to someone who was legally or naturally dependent on the deceased owner and who is living on the property. However, if the property is inherited by adult children or other beneficiaries, the property will generally be reassessed at its full just value the next tax year.

Removal of Co-Owner from Title

Another situation that sometimes catches taxpayers by surprise is when they lose the SOHA cap because they removed a co-owner from the title to their property.  Many people who own property jointly with others would probably not consider the removal of a co-owner to be a change in ownership.  However, in Attorney General Opinion 2002-28, the Attorney General advised the Property Appraisers that removal of one joint owner triggers reassessment of the entire property at its just value as of January 1st of the following tax year.

Addition of Co-Owner to Title

Previously, the Attorney General had also advised that the addition of a co-owner to the title of homestead property constituted a change of ownership.  The legislature has since amended the statute to clarify that the addition of a co-owner will not necessarily be considered a change of ownership, unless that new co-owner applies for their own homestead exemption on the property.  For example, if Grandpa Joe added his granddaughter Susie to the title of his homestead property, the property would continue to be assessed based on its capped value.  However, if Susie went down to the Property Appraiser’s office and applied for her own homestead exemption on the property, Grandpa Joe would get a nasty surprise when the next year’s tax bill arrived, as the property would be reassessed at its just value.

The reason for this is, I believe, based on the basic notion that the SOHA tax savings was not intended to be inheritable.  Thus, while a taxpayer can add a relative or other person to their title for estate planning or other purposes without losing the SOHA cap, they cannot use estate planning devices to pass down the tax savings to their heirs.  In the above example, if Grandpa Joe passed away and Susie decided to live in the property, she could apply for her own homestead exemption, but the property would be reassessed at just value and the SOHA cap would apply to that new base year value.

Posted in Homestead Exemption, Save Our Homes Amendment. Tags: , , , , , , , . 5 Comments »

New Policies & Procedures for 2010 VAB Hearings

August 4, 2010 — Sherri Johnson

Just when I think I know everything there is to know about property tax appeals, they go and change the rules on me again.  VAB season should be interesting this year, given all of the new policies and procedures promulgated by the Florida Department of Revenue and its infamous (and at times puzzling) 2010 Value Adjustment Board Training materials that are required reading for all VAB Special Magistrates in Florida.  Below is a quick summary of some interesting administrative changes that are included in the new Rules and the VAB Training materials.

Good Cause for Late VAB Petitions

The DOR has now included a definition of “good cause.”  According to Rule 12D-9.015(11)(a), “good cause” means the verifiable showing of extraordinary circumstances.  Examples given by the DOR include a personal, family or business crisis, or a physical or mental illness, infirmity or disability that would reasonably affect the petitioner’s ability to timely file, as well as miscommunications with the Board Clerk, Property Appraiser or their staff regarding the filing time.

Agents for Taxpayers

Rule 12D-9.018(3) clarifies that a taxpayer may be represented by anyone, including a family member, and that the agent need not be a licensed individual.  However, a petition filed by an unlicensed agent must be signed by the taxpayer or be accompanied by a written authorization from the taxpayer.

Rescheduling Hearings

Florida Statute 194.032(2) allows a petitioner to reschedule a hearing one time without good cause.  In my experience last year, some Value Adjustment Board Clerks interpreted this section as only allowing the petitioner to request one rescheduling, regardless of whether they had a conflict or other good cause.  Rule 12D-9.019 clarifies that a rescheduling for good cause shall not be treated as the one time rescheduling to which a petitioner has a right upon timely request under Fla. Stat. 194.032(2).  This Rule also clarifies that if a hearing is rescheduled, the deadlines for the exchange of evidence shall be computed from the new hearing date, if time permits.

Effect of Failure to Provide Income Data/Higgs v. Good

Higgs v. Good is, of course, the case that held that where a taxpayer refused to provide his income data to the Property Appraiser when the Property Appraiser was trying to prepare the tax roll, the taxpayer could not later use that data in an administrative or judicial challenge to their property tax assessment (yes, the case did expressly say “administrative or judicial”).  Thus, the DOR has created quite a stir by stating in its 2010 VAB Training materials that “the case of Higgs v. Good does not apply to proceedings of the value adjustment board.”

Note, however, that Fla. Stat.  194.034 still prohibits the VAB from accepting evidence if the Property Appraiser requested it from the petitioner in connection with the VAB proceeding and the petitioner had knowledge of it, but declined to provide it to the Property Appraiser.  If such a request is made by the Property Appraiser (and it always is), Rule 12D-9.020(8) deems the petitioner’s evidence timely if it is submitted at least 15 days before the hearing.  If submitted less than 15 days before the hearing, it is still considered timely if the VAB finds that it was provided a reasonable time before the hearing.

Order of Presentation of Evidence

Rule 12D-9.024(7) clarifies that the Property Appraiser should present their evidence first in a hearing involving a value dispute.  Presumably, the taxpayer would still present their evidence first in exemption and classification hearings.  However, if the parties agree, the Special Magistrates generally prefer for the Property Appraiser to state their reasons for denial of an exemption before the taxpayer presents their case.

Applicability of Rules of Evidence

Rule 12D-9.025(2)(a) provides that VAB proceedings are not to be controlled by strict rules of evidence and procedure.  However, while formal rules of evidence do not apply, fundamental due process shall be observed and shall govern the proceedings.  The VAB Training materials further state that the VABs must not apply strict standards of relevance or materiality in deciding whether to admit evidence into the record, and that any decisions to exclude evidence must not be arbitrary or unreasonable.

In practice, what this likely means is that the VABs should give the parties a bit of leeway when their evidence is challenged on relevance or materiality grounds.  However, parties should still be wary about relying on hearsay to prove their case (such as affidavits or appraisals by persons not present at the hearing).  The Rules specifically allow petitioners to notify the VAB on their petition that they do not intend to appear, but that they would like their evidence considered anyway. In such situations, Rule 9.024(11) states that the VAB must take into consideration the inability of the opposing party to cross-examine the non-appearing party in determining the sufficiency of the evidence.

Applicability of USPAP

Florida Statute 194.301 now requires the Property Appraiser to comply with “professionally accepted appraisal practices.”  Some (including me) had speculated that these “practices” could be construed to include the Uniform Standards of Professional Appraisal Practice [“USPAP”].  Not so, however, as the DOR’s 2010 VAB Training materials have instructed the VABs and Special Magistrates that they are not authorized to determine whether a party is required to comply with USPAP or whether their evidence complies with USPAP.

The Eighth Factor (Costs of Sale)

Another issue that has many people scratching their heads is the DOR’s discussion of “the eighth criterion” in the VAB Training materials.  The materials seem to suggest that where the Property Appraiser has reported to the DOR on Form DR-493 a certain percentage adjustment for the eighth criterion of Fla. Stat. 193.011, but has not made such an adjustment to the petitioned property, the VAB should go ahead and make that adjustment.  Thus, it would seem that the DOR is advising the VABs to ensure that the same adjustment is made to all properties, regardless of the approach used to calculate the assessment and regardless of whether it would result in an assessment at less than fair market value.  I expect that the DOR will be receiving questions from many people about this, and hopefully further clarification will be forthcoming.

Working Waterfront Properties

The VAB Training materials clarify that, despite the legislature’s failure to pass implementing legislation, the constitutional provisions relating to working waterfront properties do apply in 2010, and the DOR anticipates issuing rules later in the summer of 2010.

Electronic Hearings

Finally, the new Rules allow for electronic hearings if the VAB approves of their use and the special magistrate agrees.  Procedures for the use of electronic hearings are set forth in Rule 12D-9.026.

Posted in Property Tax Legislation, Value Adjustment Board. Tags: , , , , , , , , , . 1 Comment »

Effect of Gulf Oil Spill on Property Tax Assessments

July 21, 2010 — Sherri Johnson

As Floridians are bombarded by headlines portending 10-30% losses in property values due to the BP oil spill, many property owners are probably wondering how this will affect their property tax bills.  This article will explain how and when the oil spill could affect property tax assessments, current litigation regarding these issues, and Governor Crist’s latest Executive Order authorizing interim assessments for affected properties.

How will the oil spill affect my 2010 property tax assessment?

Unfortunately, your 2010 taxes will be based on the value of your property as of January 1, 2010, prior to the explosion on the Deepwater Horizon and the subsequent oil spill.  Thus, it is unlikely that Floridians will see any reduction of their 2010 assessments as a result of the oil spill until at least 2011.  Some eager class action lawyers have jumped the gun a bit by filing a class action lawsuit against the Property Appraisers of all affected counties, seeking an order requiring them to consider the effects of the oil spill in calculating the 2011 assessments.  However, since the Property Appraisers are already required by state law to consider any pretty much any conditions that affect the fair market value of a property, that lawsuit would appear to be a bit premature, to put it nicely.

What if my property value is negatively affected by the oil spill?

The Property Appraisers are required to consider such factors as the condition of the property, the present cash value of the property, and, for income-producing properties, the income from the property.  Thus, if sale prices of properties along the Gulf coast decline as a result of the oil spill, or if hotels see greater vacancies, those factors will influence the 2011 assessments.  The primary case regarding contaminated property in Florida is Gulf Coast Recycling Inc. v. Turner, in which the court affirmed the value adjustment board’s reduction of the value of an apartment complex to $100 where the evidence showed that the costs associated with the cleanup of the contaminated property exceeded the price that would be paid for the property.

Of course, in the case of an oil spill, the property may not actually be contaminated as of the assessment date, but may suffer a loss in value due to its proximity to the contaminated waters.  This is commonly referred to as a “stigma.”  While Florida has not directly addressed this issue, other state courts have acknowledged that a stigma factor can affect property even if the contaminants are removed, and that stigma may be considered in determining the property’s value for tax purposes.

Are the Property Appraisers required to make a reduction to properties affected by the oil spill?

While the Property Appraisers are required to assess all property at its fair market value as of January 1st, there is currently no specific requirement that they make a specified percentage reduction to assessments of property affected by the oil spill.  That said, last year the legislature passed a statute providing for special tax treatment for property affected by defective drywall.  Thus, it is always possible that we will see similar legislation for properties affected by the oil spill.

Didn’t the Governor issue an Executive Order regarding assessment of properties affected by the oil spill?

Today, Governor Crist issued Executive Order 10-169, which authorizes (but does not require) Property Appraisers in the 26 counties in which he has declared a state of emergency to provide “interim assessments” of any properties that may have suffered a loss in value due to the oil spill.  These interim assessments will not affect the property owners’ tax bills.  Rather, the purpose of the interim assessments would be to assist property owners with documenting the loss in value to their property so as to help substantiate their claims submitted to BP.

I am sure that the Property Appraisers are going to be a bit surprised by this Order, as it is generally not their constitutional duty to serve as expert witnesses in their constituents’ private lawsuits.  Also, as the Order is not mandatory, many property appraisers may choose not to provide this extra valuation service.  Thus, rather than relying on the county Property Appraisers to assist them with their claims, property owners would be wise to compile their own evidence of any diminution of value, especially if it can be attributed specifically to the oil spill.

Posted in Gulf Oil Spill. Tags: , , , , , , . 1 Comment »

How to Appeal the Denial of an Agricultural Classification

July 7, 2010 — Sherri Johnson

July 1st is the Property Appraisers’ deadline to notify land owners that they are denying their application for an agricultural classification.  Thus, this post will discuss common reasons for denial of an agricultural classification (sometimes referred to as a “greenbelt exemption” or “greenbelt classification”) and the procedures for appealing such a denial.

Why was my agricultural classification denied?

Probably the most common reason for an agricultural classification to be denied is the owner’s failure to file an application by the statutory deadline.  Pursuant to Fla. Stat. 193.461(3), an application for agricultural classification must be filed with the Property Appraiser by March 1st of the tax year for which the classification is sought.  Failure to file an application by March 1st constitutes a waiver of the classification privilege for that year.  If an application is filed after March 1st and the taxpayer demonstrates particular extenuating circumstances for the late filing, the Property Appraiser may go ahead and grant the classification.  However, if the Property Appraiser denies the classification, the taxpayer would need to file an appeal to the Value Adjustment Board.

Other than tardy applications, the most common reasons for denial of an agricultural classification are probably the size of the property and the failure of the owner or lessee to care for the land using accepted commercial agricultural practices.  To qualify for an agricultural classification, the property must be used primarily for bona fide agricultural purposes, which has been defined as “good faith commercial agricultural use of the land.”  This does not mean that the operation must be profitable, but it does mean that a parcel that is too small to be commercially viable or that is overgown with weeds will probably not qualify.

Qualifying for an agricultural classification also requires good communication between the owner and any lessees.  It is fairly common for an owner/developer to lease their land to a cattleman or farmer for a nominal amount in the hopes that the property will qualify for an agricultural classification while the owner waits to develop or re-sell the property.  However, if questions arise about the use of the property, the owner must ensure that the lessee promptly responds to any questions or document requests from the Property Appraiser’s office or the owner may be faced with a denial letter.

Appealing to the Value Adjustment Board

The most common way to appeal the denial of an agricultural classification is by filing a petition to the county Value Adjustment Board.  The petition, which can be found by clicking here, must be filed with the Clerk of the Value Adjustment Board (in the Clerk of Court’s office) no later than 30 days after the Property Appraiser mailed the notice of denial.  In small counties, the petition will be heard before the full Value Adjustment Board, which consists of two members of the county commission, one school board member, and two citizen members.  In larger counties, the petition will be heard by an attorney Special Magistrate, whose recommendations will be either approved or rejected by the full VAB.  Taxpayers who do not prevail before the VAB may take a further appeal to the local circuit court, but that appeal must be filed within 60 days of the VAB decision.

Appealing Directly to the Circuit Court

Taxpayers also have the option of taking their dispute directly to circuit court, without going before the VAB.  A circuit court action to challenge the denial of an agricultural classification must be filed within 60 days of the certification of the tax roll by the Property Appraiser.  Also, in order to file a circuit court action, the taxpayer must pay the taxes in full, or at least pay the amount they admit in good faith to be owning (the amount they would owe if they were granted the agricultural classification).  Failure to pay the property taxes for the year in dispute and any subsequent years will likely result in dismissal of the case for lack of jurisdiction pursuant to Fla. Stat. 194.171.

Posted in Agricultural Classifications, Appeals to Circuit Court, Value Adjustment Board. Tags: , , , , , . 1 Comment »
« Older posts