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


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.

FAQs About the 10% Cap on Commercial Property Assessments


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.

Homestead Portability: Transferring Your Homestead Cap to Your New Home


In Florida, the Save Our Homes Amendment to the Florida Constitution prevents the assessed value of homestead property from increasing more than 3% per year, or the percent change in the Consumer Price Index, whichever is lower.  While the tax savings from the Save Our Homes Amendment has no doubt helped many homeowners to stay in their homes even when values were rising, it also tended to discourage homeowners from moving to a new residence, for fear of giving up all of their accumulated property tax savings.  In 2008, Florida voters attempted to change that by amending the Florida Constitution to allow for “portability” of their accumulated homestead exemption tax savings.  This article will explain the basics of how to “port” your Save Our Homes tax savings to your new residence, and will address some of the more complicated situations that can arise, particularly when more than one owner is involved.

Portability Basics

The rules regarding portability are set forth in Florida Statute 193.155(8).  Essentially, a homeowner may “port” their Save Our Homes tax benefits to their new home as long as they establish their new homestead within 2 years of abandoning their previous homestead.  More specifically, in order to qualify for portability in a given tax year, the homeowner must have received a homestead exemption on their previous homestead in one of the last two tax years.  If the new homestead is more valuable than the old homestead, the homeowner may port up to $500,000 of capped value to their new homestead.  For example, suppose your old home was worth $350,000, but was assessed at only $250,000 due to the Save Our Homes Amendment (a $100,000 cap differential).  If you were to move to a new home worth $500,000, that home would be assessed at no more than $400,000 in the first year, with subsequent increases limited to 3% per year, or the percent change in the CPI.  If you move to a less valuable home, the amount of cap differential that you may port will be limited to your old home’s assessed value divided by its just value.  For example, if your old home was worth $500,000, but was assessed at $400,000, and you move to a less valuable home, the new home will be assessed at 80% of its just value the first year, as long as the cap differential does not exceed $500,000.

In order to port Save Our Homes benefits, when filing an application for a new homestead exemption, you must also file Form DR-501T, for Transfer of Homestead Assessment Difference by March 1st of the year you intend to establish a new homestead.

Portability When Combining Households

If two people who each have their own homestead decide to acquire a new homestead together, the Property Appraiser will use whichever prior homestead would result in the highest cap differential, and thus the highest tax savings.  However, once again, the cap differential may not exceed $500,000.

Portability When Abandoning Joint Property

When joint owners abandon homestead property and acquire new, separate homestead properties, the cap differential that they are allowed to port is calculated as described above.  However, the cap differential is then divided by either the number of owners of the prior homestead or, in the case of property owned as tenants in common, by each owner’s proportionate interest in the prior homestead.  For example, if two joint owners would be allowed to port a $100,000 cap differential to the same new residence, if they move to separate new residences, they would each be permitted to port $50,000.

Challenging Portability Decisions

A taxpayer may not challenge the assessment of their prior homestead property in a prior year, as that would be contrary to the requirement in section 194.171, Fla. Stat. that all tax assessment challenges be brought within 60 days of the certification of the tax roll or the decision of the VAB.  However, pursuant to Florida Statute 194.011(6), if a taxpayer disagrees with the Property Appraiser’s determination of their entitlement to portability or the amount they are allowed to port, they can file a Form DR-486PORT petition to the Value Adjustment Board where their new home is located.  The VAB where the new residence is located will then submit a notice to the VAB of the county in which the taxpayer previously resided and that VAB will hear the petition and render a decision.  The decision of the VAB in the previous county will be submitted to the VAB in the new county, which will consider that decision in rendering its own final decision (yes, I know – I never said this was a simple process).  If a taxpayer disagrees with the decision of the VAB, they may appeal the decision to the circuit court of the county in which their new homested is located, and that proceeding shall be de novo.

Obtaining “Working Waterfront” Classification for Florida Property Tax Purposes


In 2008, Florida voters amended the Florida Constitution to allow “working waterfront” properties to be assessed based on the current use of the property, as opposed to the highest and best use of the property.  Pursuant to Amendment 6, waterfront land used for commercial fishing, public boat launches, marinas, drystacks, and water-dependent marine manufacturing and repair facilities can no longer be assessed at its fair market value, which often represents the value of the property for a more-intensive use, such as for a hotel or condominium project.  Instead, the property must be assessed based on its actual use as of January 1st of each tax year, beginning with the 2010 tax year.

Sounds great, right?  Well, the bad news is that, despite the approval of this amendment by the voters, the Florida legislature has yet to pass any enabling legislation to define the types of properties that qualify or, more importantly, to provide a procedure for applying for and receiving classification as a working waterfront.  Oops.  The Senate considered SB 1468, which would have required taxpayers to apply for working waterfront classification by March 1st of each year, unless the counties waived the annual application requirement, but that bill died in committee.

In July 2009, the Florida Department of Revenue issued an informational bulletin, PTO 09-24, advising the county property appraisers that, because this constitutional provision is self-executing, working waterfront properties are entitled to be assessed at their actual use beginning in the 2010 tax year, regardless of the lack of enabling legislation.  Thus, while some property appraisers may disagree with the DOR and decide not to apply the constitutional amendment until the legislature passes enabling legislation, I expect that most counties will try to begin implementing the new law this year.

So, absent any procedures or forms for taxpayers to use in applying for working waterfront classification, how should one go about seeking this classification?  Some property appraisers may choose to develop county-specific procedures for taxpayers to use in their jurisdiction, but others may not.  The important thing to remember is that the property appraisers’ systems will generally not automatically recognize which properties qualify as working waterfronts.  So, if you believe your property qualifies for this classification, you should contact your county Property Appraiser and make sure that they are aware of how your property is being used, and that they have all of the information they need about your property to assess it based on its actual use.

VAB Evidence Part 1: Assessments of Similar Properties


Florida Statute s. 194.034(5) provides that “for the purpose of review of a petition, the [VAB] may consider assessments among comparable properties within homogeneous areas or neighborhoods.”  Conversely, the Florida Supreme  Court has long held that a court may not reduce a taxpayer’s asssessment below its fair market value based on a mere showing that parcels of other taxpayers are assessed at a lesser amount.  This creates a bit of a conundrum for the taxpayer, property appraiser and the VAB in trying to determine whether and to what extent evidence of the Property Appraiser’s assessment of other properties is relevant and admissible.

In Deltona v. Bailey, the Florida Supreme Court relied on the constitutional requirement that all property be assessed at its just value in holding that taxpayers’ assessments may not be reduced below just value just because other taxpayers may be assessed at a lower amount.  The exception to this rule is when the taxpayer can plead and prove that it is being “singled out” and specifically discriminated against vis-a-vis the other taxpayers generally in the county.  Based on the Deltona case, some VABs have refused to consider evidence of the assessment of comparable properties, despite the existence of Florida Statute s. 194.034(5).  It is possible that they are correct in doing so, as any reduction based solely on the assessment of other comparable properties would likely be unconstitutional, absent evidence that the assessment of the subject property exceeded its just value. 

However, another view is that the statute allows VAB petitioners to submit evidence of assessments of comparable properties in order to help prove that the Property Appraiser’s assessment was “arbitrarily based on appraisal practices which are different from the appraisal practices generally applied by the property appraiser to comparable property within the same class and within the same county,” per Florida Statute 194.301.  Prior to 2009, if a taxpayer could meet this burden, their burden of proving that the assessment exceeded just value would be reduced from “clear and convincing evidence” to a “preponderance of the evidence.”  Beginning in 2009, if the taxpayer meets this burden, the Property Appraiser’s assessment is overturned and the VAB must either set the value or remand to the Property Appraiser for a reassessment.

Viewed this way, evidence of the assessment of comparable properties could have limited relevance if it tended to support the taxpayer’s contention that the Property Appraiser used different appraisal practices for their property that were not  used for other similar properties.  However, based on Deltona v. Bailey, the VAB would still not have the authority to reduce a taxpayer’s assessment based solely on other assessments.  To reduce the taxpayer’s value, the VAB would need to see evidence that the assessment exceeded just value.

Also, it is important to note that Fla. Stat. 194.034(5) only applies to VAB proceedings, not to actions in circuit court.  Thus, taxpayers who take their case to court should not plan to rely on this statute.

Requesting an Informal Conference with Your County Property Appraiser


Florida law allows taxpayers to request an informal conference with their county property appraiser to discuss the assessed value of their property.  At first blush, it would seem that resolving a dispute informally, without the time, expense and stress of a VAB hearing or court proceeding would be a no-brainer.  Yet, in my experience, there are a number of reasons why taxpayers choose to go straight to VAB without meeting with the Property Appraiser first.

One common reason is the short time available for filing a VAB petition.  Often, by the time a taxpayer receives their TRIM notice, digests it and does a little research about their assessment, the deadline to file a petition is right around the corner.  So they file a petition and then think that the decision is up to the VAB.  What many people don’t realize is that, even after you file a VAB petition and, for that matter, even up to the VAB hearing itself, you can still communicate directly with the Property Appraiser’s office in an effort to reach an agreement. 

Another reason for failing to communicate with the Property Appraiser is the belief that the Property Appaiser’s office is not interested in resolving disputes.  That is generally not the case.  The staff in most Property Appraisers’ offices are not eager for a showdown at VAB.  While they are naturally going to want to defend their work, if you have a credible argument, they would much rather discuss your assessment now rather than later before the Special Magistrate.

A third reason is the taxpayer’s fear of “showing their hand.”  Many tax professionals caution their clients against meeting with the property appraiser because they are concerned that the property appraiser’s office will take advantage of the opportunity to discover the taxpayer’s case so they can be better prepared to defend their assessment at the VAB hearing.  While that is always a risk, by taking some steps, the taxpayer can improve their chances of having a productive meeting with the Property Appraiser’s office.  Here are some do’s and don’ts for meeting with the Property Appraiser’s staff:

Do . . .

  • Request a copy of your property record card and any sales comparison or other worksheets that the Property Appraiser has prepared.  Preferably, you would want to review these documents prior to the meeting, so that you can be prepared to discuss them and ask questions.
  • Make sure that you still file a VAB petition, if the deadline for filing is prior to your informal conference.  If you reach an agreement, you can always withdraw your petition.
  • Be courteous and respectful to the staff.  Remember, they are just doing their jobs;  they don’t get a bonus if the county collects more taxes.  And it can’t hurt to establish a positive rapport in the event you have issues in future years.

Don’t . . .

  • Spend your money on an appraisal from someone that the local Property Appraiser’s office views as a “hack” or a “hired gun.”  The Property Appraiser’s staff know which appraisers have integrity, and which do not.  And for that matter, so do the Special Magistrates and the judges.  As much as it may be tempting to hire the person who will give you the lowest value, just remember that credibility is everything.
  • Rely solely on assessments of other properties.  The Property Appraiser’s office wants to see sales that support your claim, not hear “my neighbor’s assessment is lower.”
  • Argue for a reduction based on your good qualities as a human being.  Property taxes aren’t based on personal merit, so your community service, charitable activities, military service, and strong work ethic aren’t going to get you anywhere.  Focus on the real issue – the value of your property.
  • Talk in terms of the amount of taxes you think you should be paying.  Remember, the property appraiser is only concerned with the value of your property, not the amount of taxes that you ultimately pay.  They are not going to be prepared to negotiate the amount of taxes that are due – only the assessed value.

Above all, remember that you are dealing with a government office that does not have a vested interest in producing a high tax roll.  The Property Appraiser sets the value;  the County Commission, School Board and  other taxing authorities set the millage rate that determines the amount of taxes you owe.  The Property Appraiser’s office is interested in determining the value of your property under the constraints of Florida law and the limited information that comes before them.  Provide them with quality information and conduct yourself with a professional attitude, and you are much more likely to be successful.

Deadline Approaching to Submit Evidence of Chinese Drywall


The Lee County Property Appraiser has announced that the deadline to submit evidence that your home is affected by toxic Chinese drywall is September 18, 2009.  Click here for more information.  Upon submitting such evidence, you may be able to obtain a reduction of 50% off the just value of your home, according to a memo released last week.

I will be looking into other counties’ policies and hopefully posting some more information on this issue, so stay tuned.  If you have information about the requirements of any other counties that are making adjustments for Chinese drywall-related issues, please feel free to post a comment.