Realty Blog

This Legislative Session, Floridians have been anxiously awaiting property tax reform. After a great deal of compromise and a special session, a property tax relief package was passed by the House and Senate in late June.  These measures represent the first step in the right direction of comprehensive tax reform.

The best way to digest the tax reform is to examine it in two phases:

Phase One: Statutory millage rollback and local government revenue cap.

Most property owners should see savings in the coming year, or at a minimum, the bills will be similar to last year. Every taxing authority, except school boards, are required to set rates based upon taxes levied last year, adjusted upward for new construction, then adjusted downward a certain percentage based on past performance.  For many cities and counties this will mean an additional 9% total revenue reduction from 2006-07. 

It is important to note that instead of an assessment cap (such as Save Our Homes), there is an overall revenue cap limiting what governments can collect from property taxes. This should protect everyone, including commercial and rental housing, from big property tax increases from year-to-year.

For the upcoming 2007-08 fiscal year that begins October 1, all local governments (except school boards) will have to reduce total property tax revenues by a specified percentage (0-9%) based on their 5-year history of levies.  Independent special taxing districts that levy ad valorem taxes are also subject to a 3 percent cut.

So what does that mean in Palm Beach County?

• The County must rollback their revenues to 2006-07 and then cut an additional 9% off that figure
• Each City must rollback also their revenues to 2006-07 and then cut 3%, 5%, 7% or 9% off that figure
• All 122 Special Taxing districts must cut their individual revenues 3%

All of which will result in tax relief for homestead, non homestead and commercial properties.

Beginning fiscal year 2008-09 and every year thereafter, the bill requires all ad valorem taxing authorities, except school boards, to set millage rates in accordance with the rolled-back rate, plus the annual growth of Florida personal income (typically 4% a year). 

Local governments do have the option to break this cap and Realtors will have to work hard to hold their local officials accountable for possible tax increases and cap busting votes.  If they vote to raise taxes, local governments must be required to defend their decisions.

Phase Two: Proposed constitutional amendment to implement a Super Homestead Exemption.

On January 29, 2008, Florida voters will have the opportunity to change the scope of homestead exemptions. Voters will be able to choose from continuing their Save Our Homes protection if they have homesteaded property or select a new super-homestead exemption.

If passed, homesteaded property owners will be able to select a new super-homestead exemption that removes 75% of the first $200,000 of a home’s value and 15% of the next $300,000, from taxation.  Every homestead will receive at least a $50,000 exemption and the maximum homestead exemption would be $195,000. 

The amendment also seeks voter approval for:

• changes that will further protect low-income seniors,
• express authorization of the legislator to limit the authority of local governments to increase property taxes
• create a new tangible personal property tax exemption of $25,000 for businesses, and authorizes the Legislature to help working waterfronts and affordable housing with assessment changes.

 
As the legislature moves forward, additional work will take place on commercial assessment methodologies, important sectors of housing and working waterfronts.  FAR has received assurances that assessment methods for commercial and other property types will also be addressed in the next regular session.

FAR supports the property tax reform for the following reasons:

• The new super-homestead exemption system will offer immediate savings for first-time homebuyers and most current homesteaders in Florida.  For those who wouldn’t see more savings in their current homestead, they have the choice to remain in their current system and are held harmless. Approximately 73% of homestead properties would immediately save more money under the super homestead than under the current Save Our Homes system.   
• The amendment will begin the “unwinding” of the Save Our Homes system, which FAR has opposed, because of inequities caused among similarly-situated property owners, the lock-in effect, and the shift of the tax burden to commercial, rental, and second-home properties. The new tangible personal property tax exemption will keep most Realtors from even having to file this onerous tax, much less paying it.
• The amendment allows the Legislature to make changes to the assessment methods for affordable housing and working waterfronts, allowing for lower tax bills in the coming year for these properties
• Opponents will argue that portability was not addressed in the amendment.  Several points render this meaningless, however.  The Legislature was not considering FAR’s position on portability (in-county only, limited by time and/or amount), portability would very likely be federally unconstitutional due to the “right to travel” clause, and with the eventual phase out of Save Our Homes, portability becomes obsolete.  Instead, home purchasers will be allowed a much bigger homestead exemption that is fair to first-time homebuyers (who have no exemption to port) and level the playing field for all Florida property owners when they move.
• Opponents will argue that the amendment also takes $7 billion in funding for schools over the next 5 years.  The homestead exemption currently applies to the amount that school boards levy from property, and because this portion makes up at least a third of all property tax bills, the new homestead exemption should apply to schools as well.  The amendment is not an education cut, but it will simply force the Legislature (who sets the minimum rate for school boards to charge) to reprioritize their budget next year. 
• As Floridians, we have been given a choice whether to keep our current tax system, which is broken, or take first steps to fix the inequities in taxation caused primarily by Save Our Homes.

InTouch August 2007 - The Official Publication of the Realtors Association of the Palm Beaches