Plan Exacerbates Tax Shift

A Florida TaxWatch report says “Amendment 1 is not true property-tax reform and is likely to do more harm than good.”

The nonprofit research institute, which concentrates on statewide taxing and spending issues, said the plan "does not target relief to those who need it most, perpetuates an inequitable system and exacerbates the tax shift to those taxpayers who have suffered the most."

Authors caution that with the passage of Amendment 1, future attempts to reform non-homestead property taxes will be extremely difficult.

Homeowners Get Bigger Exemption & Portability

Amendment 1 gives tax breaks to longtime homeowners, who are already shielded by the Save Our Homes 3% assessment cap. It increases the homestead exemption from $25,000 to $50,000. The exemption does not apply to school taxes.

The part of the amendment that could have the biggest impact is portability, which allows residents to keep their accrued tax savings when they move within the state. Critics contend that portability will widen the existing gap between homesteaders and other property owners. A lawsuit challenging the portability provision on constitutional equity grounds has already been filed.

Businesses Get PP Exemption and Tax Cap

Amendment 1 gives businesses a $25,000 exemption on equipment and other tangible personal property. In addition, all non-homestead property will get a 10 percent annual assessment cap that takes effect in 2009. But, in order to get the 10% tax cap commercial owners must file an application each year with the county by March 1 or they won't receive the cap -- 2008 will be the base year to start just value.

The cap is unlikely to have much effect because few properties increase in value that much every year, particularly in today's declining real estate market. The average annual growth in the total value of non-homestead property, both historically and forecasted for the next five years, is about 5%. This growth includes new construction, so the average growth per property would be even less. And since school taxes are not covered under the cap, it only applies to approximately 60% of the average tax bill.

The cap could help some properties with extraordinary spikes in value, but the help could be short-lived. If a covered property’s just value does not rise as much as the cap, the assessment can still increase 10% as long as it does not exceed just value.

For example, if a property’s value increased 15% one year, its assessment for 60% of its tax levies would only go up 10%. But if that property’s just value increased only 5% the next year, it would be assessed at full value, and the prior savings would be lost.

The tax cap also creates serious inequities among commercial properties within the market. When non-homestead properties sell, the cap is lifted for a year to adjust to market value. So if two identical properties with a similar tax base are competing for the same tenants, the new owner of a property that recently sold is faced with much higher taxes than the one that did not sell. This creates an unfair advantage for properties that do not change hands, especially shopping centers and office buildings where taxes are a pass thru to tenants.

The Amendment 1 tax cap is in place for 10 years and then must be reinstated by voters. During this time, properties that are sold will ultimately pay much higher taxes than those that are not.

What’s Next?

The Florida Taxation and Budget Reform Commission, which meets every 20 years as mandated by the constitution, is currently considering 34 different property-tax relief proposals. Among them is a plan to replace school property taxes with a broader sales tax on services and goods. The commission has until May 4 to decide what it wants to put on the November ballot.

Stay Tuned -- We'll Keep You Informed…

POER will continue to follow developments and keep you updated on this proposed legislation, which if approved could drastically impact all Florida taxpayers.