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 »

Responding to Requests for Financial Data from the Property Appraiser

May 10, 2010 — Sherri Johnson

If you own commercial property, especially hotels/motels, apartment buildings, self-storage facilities, or other property that is commonly rented, you have probably received a request from the county Property Appraiser for your property’s income and expense data.  This post will explain why the Property Appraiser seeks this data, how it is used, whether you are required to respond, and the consequences for failure to respond.

Why does the Property Appraiser need my financial information?

Commercial property is commonly assessed by what is referred to as the “income approach.”  In a nutshell, the value of the property is determined by capitalizing the property’s net operating income from the prior year.  In order to determine a reasonable amount of revenue and expenses for each commercial property, the Property Appraiser’s office requests that the property owners provide that data, which is then analyzed and used county-wide.

Will my financial information be treated as confidential?

Yes, for the most part.  Fla. Stat. 195.027 authorizes the Property Appraisers to seek taxpayers’ financial records, but states that the financial information is confidential in the hands of the Property Appraiser, except upon court order or order of an administrative body having quasi-judicial powers in ad valorem tax matters.  Thus, in most cases, your information will be kept confidential.

However, if another owner of income-producing property were to take the Property Appraiser to court over their assessment, they could conceivably ask the court to order the Property Appraiser to produce any income data that they used to assess the property, including data received from other taxpayers.  Of course, in my experience, if a judge is going to order the Property Appraiser to produce confidential taxpayer data, they will usually allow the Property Appraiser to redact any identifying information.

Also, if you challenge the Property Appraiser’s assessment of your own property in court or before the Value Adjustment Board, the Property Appraiser will in all likelihood want to use any previously-provided data in their defense.  There has been some disagreement as to whether the Property Appraisers can do so without a court order, but in such a situation the court would in all likelihood allow the Property Appraiser to use your data in court.

What happens if I refuse to respond?

If a taxpayer does not voluntarily provide their financial records to the Property Appraiser, the Property Appraiser has the authority under Fla. Stat. 195.027 and Florida Administrative Code Rule 12D-1.005 to file an action in circuit court requesting a subpoena duces tecum directing the taxpayer to produce the records.  However, this procedure is used very rarely.  Usually, if a taxpayer does not respond, the Property Appraiser will just assess their property using the best available information, such as information provided by owners of similar property in the area or data from national publications.

The most serious consequence of failing to respond is that you essentially forfeit your ability to use that data to challenge your property tax assessment, even if your own income and expenses would result in a lower value.  Years ago, the Supreme Court of Florida in Palm Corporation v. Homer held that a taxpayer who refused to provide their income data to the Property Appraiser could not use it in a later lawsuit to challenge the Property Appraiser’s assessment.

Can I wait until I receive my Trim notice to decide whether to respond?

In Higgs v. Good, the taxpayer did just that and the appellate court held that he could not use his income data in a court action to challenge the Property Appraiser’s assessment.   Basically, the Property Appraiser needs this information in the spring in order to use it in the assessment process, since the tax roll must be completed by July 1st.  The courts have thus found that it is unreasonable to withhold financial data until after the assessments are completed and then submit it only if it suits the taxpayer (i.e. if it would indicate a lower value).

That said, the Florida Department of Revenue has recently raised quite a ruckus by stating in its proposed 2010 VAB Training Materials that, in the Value Adjustment Board process, as long as the taxpayer submits their evidence to the Property Appraiser 15 days before the hearing, it should be considered timely, regardless of when the data was requested.  This proposal has no doubt received a lot of negative commentary from the Property Appraisers, as it appears to ignore the court ruling in Higgs v. Good.  But unless this is changed, it is possible that, beginning in 2010, taxpayers may have the option of withholding their income data until they receive their TRIM notice.  Although they would not be able to use that data in court, the DOR’s materials may allow them to use that data in a VAB hearing.

Posted in Commercial Property. Tags: , , , , , . 1 Comment »

How Does the Property Appraiser Determine the Value of Your Property?

August 18, 2009 — Sherri Johnson

  The Florida Constitution requires the county Property Appraisers to assess all property at its just value, which has been defined as “fair market value.”  The purpose of this post is to explain, in a nutshell, how the Property Appraisers determine the just value of residential, commercial and tangible personal property in their jurisdictions.

First, it is important to note that the Property Appraiser must consider eight statutory factors, such as the present cash value, the highest and best use and current use of the property, location, quantity or size, the cost of the property and improvements, the condition of the property, the income from the property, if any, and the net proceeds from the sale of the property.

Residential Property.  In most counties, residential property is assessed by a computer-assisted mass appraisal [“CAMA”] system.  The Property Appraisers’ staff gathers market data and inputs it into the CAMA system, which produces values based on recent sales and construction costs.  The values for each neighborhood may be reviewed by the staff and compared to recent sales to verify the accuracy of the assessments.

Commercial Property.  Values for commercial property may be calculated in a variety of ways.  Income-producing property, such as hotels, apartment complexes and office buildings, may be assessed by the income approach, which utilizes rental and sales data from similar properties.  The sales comparison approach may also be used for commercial properties that are of a type that is commonly bought and sold.  Unusual or special-purpose properties may be assessed by the cost approach, which adds the depreciated cost of the improvements to the land value to produce an total assessed value.

Tangible Personal Property.  Tangible personal property is self-reporting, and thus the Property Appraisers rely heavily on taxpayers to accurately report the quantity, age and condition of their personal property.  If deemed accurate, costs reported by the taxpayer are usually depreciated according to economic life tables and depreciation schedules published by the Florida Department of Revenue, or developed by the local Property Appraiser based on local market data.

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