In June 2007 the Florida Legislature concluded a Special Session in which it passed a property tax reform package. The tax reform legislation is comprised of two bills: (1) HB 1-B (Chapter 2007-321, Laws of Florida 2007), the “Property Tax Reduction and Reform” bill; and (2) SJR 4-B, the proposed “Property Tax Reform” amendment to the Florida Constitution. HB 1-B took effect immediately, which means it will affect budgets prepared for fiscal year 2007-2008, beginning October 1, 2007. SJR 4-B will only take effect if approved by a referendum, the statewide vote on which is scheduled for January 29, 2008.
The “Roll Back”/Statutory Tax Cut
The immediate impact of HB 1-B is: (1) it requires all cities, counties and special districts to “roll back” next year's property tax rates so that they collect the same revenue in fiscal year 2007-2008 that they collected in fiscal year 2006-2007; and (2) it requires a 3%-9% tax cut from those fiscal year 2006-2007 figures. The size of the tax cut for a particular property, within the 3%-9% range, will depend upon individual county, municipality, or special district tax increases on that property since 2001-2002.
After 2009, property tax rate growth cannot exceed growth of new construction and per capita personal income. This "cap" will not apply to: school districts, financially distressed jurisdictions, jurisdictions that have assessed property taxes for fewer than five years, and special districts that provide emergency fire and medical services. A jurisdiction's governing board can "override" (exceed) the cap by up to 10% following a 2/3-majority board vote. In addition, the board can exceed the cap at higher levels following a unanimous vote. Or, it can be exceeded by referendum.
Each county has a Property Appraiser whose office is responsible for assessing property values for each local government entity in his or her respective county. Most Property Appraisers are elected officials, and all Property Appraisers have commonly assessed property values below actual market value. The Florida Legislature has attempted to correct this inequity in HB 1-B, setting forth a uniform standard for assessment that is intended to result in property assessments that reflect actual market values.
In addition to the statutory changes to the property tax rate structure and the property assessment methodology, HB 1-B sets forth the enabling language for the proposed amendment to the Florida Constitution, described below. If the amendment passes on January 29, 2008, it will take effect in Fiscal year 2008-2009. The following section describes this amendment in more detail.
The Proposed Constitutional Amendment
The most significant property tax reform measures are found in SJR 4-B. These reforms are predicated on passage of a new constitutional amendment, which will be placed on the ballot for the January 29, 2008 presidential preference primary.1 The immediate impact of the proposed constitutional amendment, if passed, would be to modify the state's existing tax structure to allow homeowners to, in effect, permanently exchange the existing 3% or CPI cap on annual property tax increases for a "super homestead exemption."
Currently, Florida’s homestead exemption is $25,000. This exemption works in conjunction with a (lesser of) 3% or CPI cap (hereinafter “the cap”) on increases under what is referred to as the “Save Our Homes” Constitutional Amendment. Fla. Const. Art. VII, §4. The "Save Our Homes" program is not portable, so homeowners relocating to other property in Florida are taxed at the newly assessed value of the property following the sale, less the $25,000 exemption.
If passed, SJR 4-B would be retroactive to January 1, 2008. Importantly, properties that are homesteaded on or before that date would have a one-time, irrevocable opportunity to choose either the existing homestead exemption ($25,000 exemption plus the cap) or the new "super exemption." If a homesteaded homeowner elects to keep the existing homestead exemption, the new "super homestead exemption" would then take effect upon change of ownership of that home. Thus, the proposed reforms gradually phase out the "Save Our Homes" program.
The new "super homestead exemption" provides that 75 percent of the first $200,000 of assessed value, and 15 percent of the next $300,000 of assessed value, would be exempt from taxes. Regardless of assessed value, all homesteads would receive at least a $50,000 exemption. In addition, qualified low-income seniors would receive a minimum $100,000 exemption. Depending on a property’s assessed value, the "super exemption" can be as high as $195,000. These figures would be adjusted annually to reflect per capita income growth. This annual adjustment method is intended to permit the exemption to grow in conjunction with property values.
The below examples illustrate the differing impacts of the proposed reforms depending upon a taxpayer's individual situation.
A taxpayer in Palm Beach has owned a home for 15 years with a current fair market value of $1,500,000. The home has been the taxpayer’s homestead since the purchase and is currently assessed at $525,000 (because its annual assessment increases have been limited by the cap). After deducting $25,000 under the current homestead exemption, the taxpayer’s tax bill is approximately $10,000 ($500,000 x .02). If SJR 4-B passes, and the taxpayer elects to be assessed under the new super homestead exemption, the taxpayer’s tax bill will increase to approximately $26,100 ($1,500,000 fair market value less the maximum $195,000 super exemption = $1,305,000 x .02 = $26,100).
A taxpayer in West Palm Beach recently purchased a condominium and qualifies for homestead status. The condominium has a fair market value of $400,000 and an assessed tax valuation of $375,000 (after deducting the $25,000 current homestead exemption). Under “Save Our Homes” the taxpayer’s bill will be approximately $7,500 ($375,000 x .02). If SJR 4-B passes, and the taxpayer chooses to be assessed under the new super homestead exemption, the taxpayer’s tax bill will be approximately $4,400 ($400,000 fair market value less a $180,000 exemption [75% of the first $200,000 plus 15% of the next $300,000 in value] = $220,000 x .02 = $4,400).
Just as in the existing tax structure, there is no portability feature in the amendment proposed in SJR 4-B. Also, as opposed to the existing “Save Our Homes” program, there is not a set percentage cap on annual property tax increases. Rather, the amendment utilizes the per capita income growth limitations contained in HB 1-B in lieu of a set percentage cap on increases.
SJR 4-B also includes provisions relating to rent restricted affordable housing and working waterfront properties such as marinas or commercial fishing facilities. The bill provides that “general law,” rather than the proposed constitutional amendment, would govern taxation of such facilities. These provisions leave open the possibility of tax breaks or incentives for such facilities.
Also included in the reform package is HB 5-B (Chapter 2007 – 322, Laws of Florida 2007). This bill, also subject to approval of a proposed constitutional amendment, provides a $25,000 businesses tax exemption for tangible personal property (which currently includes computers, phones, and other office equipment).
Florida’s electorate, and all public and quasi-public entities that derive revenue from the ad valorem tax process, have closely watched the passage of the legislature’s proposed reforms and the issues continue to be very controversial. To date at least one municipality has filed suit challenging the constitutionality of the proposed tax reforms. Also, a number of grassroots tax watch groups oppose the SJR 4-B proposed constitutional amendment. We anticipate further controversy between now and January 29, 2008. As a result, we foresee future developments potentially including competing constitutional amendments or referendum delays.
Edwards Angell Palmer & Dodge LLP appreciates that the impact of HB1-B and the potential impact of SJR 4-B could vary widely depending upon the character of one’s property interests or the nature of one’s business. We acknowledge that our clients include homesteaded, non-homesteaded, and commercial property owners as well as entities that derive income from ad valorem taxation. Regardless of your orientation in this regard, your advisors at Edwards Angell Palmer & Dodge LLP invite you to contact us for a customized assessment of the impact of Florida’s recent property tax reforms on your property or business.