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

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.


How to Appeal the Denial of an Agricultural Classification

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.