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.