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.


Qualifying for a Florida Homestead Exemption

The March 1st deadline to apply for a Florida homestead exemption is rapidly approaching.  If you moved to a new home within the last year, this is a deadline you do not want to miss.  This article will explain the benefits of the Florida homestead exemption, the requirements for an exemption, how to apply for an exemption, and what to do if your application is denied.  It will also address some of the thornier issues, such as rental of homestead property and claiming multiple exemptions per family.

Benefits of a Homestead Exemption

There are numerous financial benefits to having a homestead exemption on your property.  On the most basic level, the homestead exemption itself entitles most homeowners to a deduction of $25,000 off of their property’s assessed value, which can result in several hundred dollars in tax savings.  If your home is worth at least $75,000, you will receive an additional $25,000 deduction from your assessed value, although that additional deduction will not apply to school tax levies.  Once you establish your right to a basic homestead exemption on your property, you may also qualify for additional homestead exemptions if you are over 65 years old or have a disability.  But perhaps most importantly, receipt of a homestead exemption means that, pursuant to the Save Our Homes Amendment to the Florida Constitution, the assessed value of your homestead property cannot increase more than 3% per year or the percent change in the Consumer Price Index.  Moreover, in many cases, this tax savings can  now be transferred to a new Florida residence if you move.  Thus, while the basic homestead exemption may only save you a few hundred dollars per year, the rights that come with a homestead exemption can be extremely valuable.

How to Apply for a Homestead Exemption

Homestead exemption applications must be filed with the county Property Appraiser by March 1st of the tax year for which the exemption is sought.  Thus, in order to receive a 2010 homestead exemption, you must apply by March 1, 2010.  If you acquired or moved into your new home after January 1, 2010, then you would not qualify for a 2010 homestead exemption, but you can go ahead and apply now for a 2011 homestead exemption.   If you already have a homestead exemption, you probably do not need to re-apply, as most counties use an automatic renewal process, whereby you only need to notify the Property Appraiser if you are no longer entitled to the exemption.

What property qualifies for a homestead exemption?

Pursuant to Fla. Stat. 196.031, in order to qualify for a homestead exemption, as of January 1st of the tax year in question, you must have either legal or beneficial title to the property for which you are seeking an exemption, and the property must be the permanent residence of either yourself or someone who is legally or naturally dependent on you.  Thus, the property can be owned by a trust, as long as the applicant retains beneficial title and a possessory interest in the property.  However, the homestead exemption may not be claimed by a corporation.

The property must also be you or your natural dependent’s “permanent residence,” which is defined by Fla. Stat. 196.012(18) as “that place where a person has his or her true, fixed, and permanent home and principal establishment to which, whenever absent, he or she has the intention of returning.”   In determining whether the property is your permanent residence, the Property Appraiser may consider a number of  statutory factors, including but not limited to the existence of a formal declaration of domicile, where your children are registered for school, your place of employment, residency in another state, the address where you are registered to vote, the address on your driver’s license or identification card, vehicle registration, the address on your federal income tax returns, the address on your bank statements, and proof of payment for utilities at the subject property.

Also, the homestead exemption only applies to that portion of the property that is classified and assessed as owner-occupied residential property.  Thus, mixed-use properties may only receive the homestead exemption benefits on a portion of the property.

Can a taxpayer claim more than one homestead exemption?

No.  In fact, Fla.Stat. 196.031 prohibits anyone who receives the benefit of a residency-based property tax exemption or tax credit in another state from also receiving a Florida homestead exemption.  Thus, not only can you not claim two Florida homestead exemptions, but you also cannot claim an additional residency-based exemption in another state.

Can my spouse claim a separate homestead exemption on property that they own independently?

Possibly.  The Florida Constitution only allows for one homestead exemption per family unit.  While the proper interpretation of “family unit” could, and likely will, take up an entirely separate article, most Property Appraisers interpret this provision to mean that a married couple can only receive one homestead exemption.  The Attorney General’s office and some trial courts have interpreted this provision to occasionally allow for separate homestead exemptions where the couple is separated or can prove financial independence.  However, not all Property Appraisers agree with this interpretation and this issue continues to wind its way through the courts.  Anyone who plans to try to obtain separate homestead exemptions should seek the advice of an attorney in order to avoid potentially costly penalties in the future.

Can I still receive a homestead exemption if I rent my property?

Possibly.  Fla. Stat. 196.061 provides that the rental of an entire dwelling constitutes the abandonment of that dwelling as a homestead.  However, under the Florida Constitution, the ultimate issue is whether the property was your permanent residence on January 1st of that tax year.  In recognition of that fact, the statute contains an exception, which states that abandonment of a homestead after January 1st of any year shall not affect that year’s homestead exemption as long as the property is not abandoned after January 1st for two consecutive years.  Thus, a snowbird who heads up north for the summer could conceivably rent their property every other year during the warmer months without losing their homestead exemption.

But isn’t it okay to rent homestead property, as long as you don’t rent it for more than 6 months?

No.  The confusion on this issue came about because, pursuant to Florida Statutes 196.081, 196.091 and 196.101, certain disabled veterans and other totally and permanently disabled persons are entitled to a complete exemption from all property taxes for their “real estate that is used and owned as a homestead.”  Florida Statute 196.012(13) then defines this phrase “real estate used and owned as a homestead” as the person’s homestead property, less any portion thereof used for commercial purposes.  The statute then states that “property rented for more than 6 months is presumed to be used for commercial purposes.”

In effect, if a permanently disabled veteran used a portion of their homestead property for commercial purposes, such as by renting a room or using a portion of the property for a home office, they would not receive a complete tax exemption on that portion of the property, although they would arguably still be entitled to the homestead exemption on the entire property.  In the author’s opinion, this definitional statute applies only to the total exemption for certain disabled persons, and not to the basic homestead exemption.  However, some Property Appraisers apply the 6 month rental limitation in their homestead exemption determinations, and a recent appellate decision may add fuel to that argument.

Conversely, just because the property is presumed to be used for commercial purposes if rented for more than 6 months does not mean that you can safely rent your property for less than 6 months without losing your homestead exemption.  As discussed above, your right to a homestead exemption is determined as of January 1st.  Thus, rental of homestead property on January 1st of any tax year, even for a few months, is a risky move.

Appealing a Denial of Your Homestead Exemption Application

The Property Appraisers are required to notify taxpayers by July 1st if they plan to deny their application for a homestead exemption for that tax year.   Fla. Stat. 194.011 then gives the taxpayer 30 days to file a petition to the county Value Adjustment Board.  Please note that if the Value Adjustment Board denies your petition, you have only 15 days in which to file an appeal to the circuit court.  See Fla. Stat. 196.151.  If you do not want to file a petition to the VAB, you can file an action directly in the circuit court, but such a lawsuit must be filed within 60 days of certification of the tax roll.

VAB Evidence Part 2: Use of Sales That Close After the January 1st Assessment Date

One of the more confusing issues that seems to arise during Value Adjustment Board hearings is the question of whether and to what extent the Property Appraiser and the taxpayer can use sales that close after the January 1st assessment date to support their respective opinions of value.  The short answer is that there is no legal prohibition against using post-assessment date sales as evidence.  Ultimately, the issue is the just value of the property as of January 1st, and any evidence that tends to indicate the value of the property on that date may be admissible.

The confusion about this issue arose, in part, because of Florida Department of Revenue Bulletin PTA 06-08, wherein the Department of Revenue advised Florida county property appraisers that the use of sales that occur after January 1st to prepare their tax rolls would be inconsistent with the requirements of Florida law.  This bulletin raised some eyebrows among the appraisal community, as many appraisers and attorneys felt that, particularly when the market was in a state of transition on January 1st, post-assessment date sales could be indicative of a market trend that affected the value of the property on January 1st.  The bulletin also appeared to conflict with the case of Bystrom v. Equitable Life Assurance Society, wherein the appellate court held that evidence (in that case, income data) that comes to light after the assessment date may be relevant to the value as of January 1st.

Thereafter, the Department of Revenue issued Bulletin PTO 08-02, which replaced Bulletin PTA 06-08.  In this new bulletin, the Department reviewed the case law in more detail and came to the conclusion that post-assessment date sales may be considered if they are probative of the just value on the assessment date.  Specifically, the Department advised county property appraisers that post-assessment date sales may only be considered in preparing the tax roll when the following four conditions are met:

1.  When post-assessment date sales are probative of just value for the subject property as of January 1st;

2.  When post-assessment date sales are not used as a substitute for pre-assessment date sales;

3.  When post-assessment date sales are considered only in conjunction with pre-assessment date sales;  and

4.  When the consideration of post-assessment date sales is otherwise consistent with law.

In short, the Department indicated that, in preparing their tax rolls, county property appraisers may consider post-assessment date sales, as long as they are considered in conjunction with pre-assessment date sales and the sales are indicative of the January 1st value.

Of course, as a practical matter, because the property appraisers must submit their tax rolls by July 1st, they are simply unable to use sales that occur late in the year.  Thus, sales that occur later in the year will likely not be admissible to prove that the Property Appraiser failed to properly consider those sales, since it would have been impossible to consider a sale that had not yet occurred.  And even when there is a sale of the actual property in question, the court in Haines v. Holley held that a sale that occurs in June should not necessarily be relied on to assess the property as of January 1st.  However, based on the current state of the law and the Department’s most recent bulletin, it appears that both the Property Appraiser and the taxpayer could conceivably use post-assessment date sales to defend their respective opinions of value, as long as they can tie the sales to the January 1st assessment date.