Florida Property Tax: State rejects proposed compromise on SOHA Constitutional Challenge – Is Florida missing an opportunity for renewal?

There are currently several lawsuits challenging the constitutionality of Florida’s discriminatory real estate taxation laws.  At the heart of the cases is the fact that owners of properties with similar market value are charged vastly different taxes based on the owners’ citizenship state and/or the purchase date of their Florida property.  These suits are in various stages of court processes within Florida and could eventually be heard out-of-state by the U.S. Supreme Court.

In a July article “Appeals court upholds ‘Save Our Homes’ amendment” The Jacksonville Observer reported that “A Florida appellate court on Wednesday upheld the popular “Save Our Homes” property tax provision in the constitution that protects full time Florida homeowners from dramatic increases in property values.” This ruling was regarding the so called “Lanning” case of out-of-staters (Alabamans) challenging the constitutionality of SOHA.

I called this week William Owen, one of the key attorneys on the Constitutional challenge, to get an update.

Appeals in two related cases will be heard in October, both specifically focusing on Amendment 1 extension of Save Our Homes Amendment. One case (DeLuccio) is similar to the Lanning case where the plaintiffs are out-of-staters and a second (Bruner) challenge is by Florida homesteaders who are more recent arrivals and are paying significantly higher taxes than their longtime resident neighbors. Should the appeals fail, the plaintiffs are determined to pursue the matter next in Florida’s and if necessary then the U.S. Supreme Courts.

The plaintiffs, in several of the cases, recently proposed a compromise to the state which would establish a fairer future taxation system for all concerned.  As part of the compromise, the plaintiffs have offered to drop their claims for refunds of taxes they overpaid in the past.  The amount involved is estimated in the billions of dollars.

The plaintiffs also proposed a level playing field for all Florida property owners by using 1999 market values as the base and then a maximum of 4% annual taxable value increase for both homesteaded and non-homesteaded property owners.

To date, the state has rejected the path of compromise.  Apparently, it believes that its unfair tax system will be upheld by the courts.  This position is perhaps justified because Florida’s lower courts have, so far, rejected these and earlier plaintiffs’ challenges.  However, there is a risk that Florida will not fare so well in the U.S. Supreme Court and perhaps be ordered to pay enormous refunds at a time when the state, counties, municipalities, school boards and the like are running large fiscal deficits.

In 2007 several seasonal property owners mounted a campaign to publicize Florida’s unfair tax system to Northeasterners contemplating retirement or vacation homes in Florida.  Their stories were published by news media in Canada, New Jersey, Connecticut and Massachusetts.  In addition, national newspapers such as the Wall Street Journalran articles revealing the truth about Florida’s unseemly tax mess.

This month, Tim Padgett of Time in  “Florida exodus: Rising taxes drive out residents”reports that “The region — Miami-Dade, Broward and Palm Beach counties — lost 27,400 residents between 2008 and 2009, while Florida as a whole lost 58,000. That’s not exactly a mass exodus for a state of 18 million; but it’s the first net outflow in 63 years for a state that considers itself the new California.”

Florida’s real estate market is a disaster area; arguably one of the worst if not the worst in the U.S.; the economy is not far behind. Property values are down 50%. Non-homesteaders were looking for corresponding reductions in their taxes, however due to a combination of increasing the homestead exemption from $25,000 to $50,000 and the addition of “portability” to SOHA the net effect was not just to continue the unfair treatment of the non-homesteaded but to rob non-homesteaded of expected full extent of the relief. After two years of falling non-homestead property taxes (still often many times higher than paid by homesteaders) this year with increasing tax rates, many non-homesteaders’ taxes again increased, despite significant drop in the property values.

Is this a sustainable path, considering Florida’s real estate disaster and accompanying economic downturn? One would expect that Florida might try to be more welcoming to out-of-state real estate buyers by equalizing the discriminatory taxation of newcomers and seasonal resident homeowners.

Is it not time to do the right thing before another wave of adverse publicity appears in Northeast papers decrying the unfair property tax treatment? Does it make sense that newcomers to Florida and seasonal residents who use services only 2-4 months a year should often be paying significantly more (at times several time more) than their longtime homesteaded neighbors? An announcement that Florida welcomes newcomers and seasonal resident as “tax equals” would go a long way toward reviving the state’s allure and start much needed recovery.