The Florida Constitution expressly preempts all forms of taxation to the state except ad valorem taxation of real property and tangible personal property. The authority to levy those taxes is reserved to the various counties, municipalities, local school districts, and special districts in the state. These governmental entities rely heavily on the revenue generated through ad valorem taxation to carry out their constitutional and statutory mandates. In fact, more than $11.6 billion was raised through ad valorem taxes in fiscal year 1995-96. The Florida Constitution also establishes the parameters for valuing property subject to ad valorem taxation. Specifically, article VII, section 4 directs the Legislature to prescribe regulations "which shall secure a just valuation of all property for ad valorem taxation." Pursuant to this mandate, the Legislature has established the process by which county property appraisers are to assess all property subject to ad valorem taxation. An important component of this valuation process is the procedure that enables taxpayers to seek administrative and judicial review of the property appraiser's assessment of their property. The purpose of this review is to ensure that the property appraiser's assessment accurately reflects a "just valuation" of the taxpayer's property.
Taxpayers have argued that this ability to seek review of the assessment is meaningless because of the deference which is afforded to the property appraiser's assessment. The scope of this deference is best illustrated by the burden of proof that taxpayers must overcome when challenging the property appraiser's assessment. To prevail, the taxpayer must disprove "every reasonable hypothesis of a legal assessment." The perceived inequity of this standard led some taxpayers to call for its repeal.
Representative Bob Starks and Senator Jim Horne responded to these concerns by introducing bills in 1996 and again in 1997 that would ease the burden that taxpayers must overcome when challenging the property appraiser's assessment. During the 1997 Regular Session, the Legislature approved legislation that accomplished this goal by reducing the taxpayer's burden of proof to "preponderance of the evidence" or "clear and convincing evidence" depending upon the circumstances surrounding the property appraiser's assessment.
This Article describes the history of this legislation and discusses the potential impact of these new burdens of proof. Part II provides the backdrop for the 1997 legislation. Part III traces the history of the 1997 legislation. Part IV discusses the new standard implemented by the 1997 legislation. Finally, in Part V, the author concludes that if the new section 194.301 is implemented equitably, the statute will satisfy the constitutional mandate to assess "just valuation." At the same time, the statute will ameliorate perceived inequities in the former system.
For the most part, ad valorem taxation in Florida is carried out on the local level, and the county property appraisers play a central role in this process. In this regard, the property appraiser is "charged with determining the value of all property within the county [and] with maintaining certain records connected therewith." The primary records that the property appraiser is required to maintain are the assessment rolls. These rolls contain a list of all property in the county subject to ad valorem taxation and the taxable value of that property. A separate roll must be maintained for real property and for tangible personal property. The Department of Revenue (DOR) has adopted rules that prescribe the form of, and information to be contained in, the assessment rolls. Each roll must be submitted to DOR for review and approval.
The assessment rolls are used by each taxing authority within the property appraiser's jurisdiction in its budgeting process. The budget adopted by each taxing authority includes the amount of revenue to be raised through ad valorem taxes and the millage rate necessary to achieve that revenue level. Each taxing authority forwards its proposed millage rate to the property appraiser. The property appraiser uses that information to prepare the notice of proposed property taxes that is sent to each taxpayer. This notice, commonly referred to as the TRIM Notice, contains the market value, assessed value, and taxable value of the property, and also includes the estimated ad valorem taxes owed on the property. The mailing of the TRIM Notice triggers the taxpayer's right to seek administrative review of the property appraiser's assessment.
In preparing the assessment rolls, the property appraiser is not required to perform an individual appraisal of all of the property within the county each year. Instead, the property appraiser may rely on "mass appraisal" techniques.
"Mass appraisal" has been described as the "systematic appraisal of groups of properties as of a given date using standardized procedures and statistical testing." Stated another way, "mass appraisal" is a procedure by which appraisal-related data gathered from the entire market is utilized to determine the assessment of a particular parcel. An important component of the "mass appraisal" process is periodic reinspection, or reappraisal, of each property within the taxing jurisdiction. Reappraisal is necessary to ensure the reliability of the information in the "mass appraisal" data base. In this regard, section 193.023(2), Florida Statutes, requires the property appraiser to physically inspect each property every three years "to ensure that the tax roll meets all the requirements of law."
As a general rule, all property subject to ad valorem taxation must be assessed at "just value," or fair market value, whether that assessment is derived from a "mass appraisal" or an individual appraisal. In arriving at this "just value," the property appraiser is required to consider the following factors, which are commonly referred to as the "eight criteria":
1. The present cash value of the property . . .;It is important to note that the property appraiser is not required to utilize each of these factors in reaching the appraisal. Instead, the property appraiser must only consider each factor and give it the weight that the facts justify.
2. The highest and best use to which the property can be expected to be put in the immediate future and the present use of the property . . .;
3. The location of said property;
4. The quantity or size of said property;
5. The cost of said property and the present replacement value of any improvements thereon;
6. The condition of said property;
7. The income from said property; and
8. The net proceeds of the sale of the property . . . .
Section 193.011, Florida Statutes, reflects each of the recognized methods of appraisal-cost, income, and market. Under the "cost approach," the value of the property is measured by the cost of the materials and labor necessary to construct the property, adjusted for depreciation based upon the age of the property. Under the "income approach," the value of the property is measured by its income-producing capacity. Under the "market approach," the value of the property is derived from a comparative analysis of transactions within the same market involving properties of similar size and condition to the subject property.
For any given property, the assessed value will likely vary depending on the approach utilized. In this regard, the property appraiser must rely on his experience and expertise in determining which approach more accurately reflects a "just valuation" of a particular parcel. To assist in these determinations, DOR has adopted guidelines and standards for valuing certain property.
An exception to the general rule that all property must be assessed at fair market value is "classified use property," which is required to be assessed based upon the character of its use. The most common type of "classified use property" is that used for agricultural purposes. Additionally, some types of property are exempt from ad valorem taxation in whole or in part. The most prevalent type of exempt property is homestead property. The appraisal and assessment of homestead property is further restricted by article VII, section 4 of the Florida Constitution. That provision was adopted in 1992 as a citizen's initiative, and is known as the "Save Our Homes Amendment." In essence, the "Save Our Homes Amendment" caps the annual increase in the assessed value of homestead property at three percent. It has been estimated that this cap on assessments resulted in a loss of over $165 million in potential ad valorem tax revenue for fiscal year 1996-97.
If a taxpayer objects to the valuation of his property contained in the TRIM Notice, he may request an "informal conference" with the property appraiser. Upon receipt of such a request, the property appraiser, or a member of his staff, is required to confer with the taxpayer regarding the correctness of the assessment. At this meeting, the taxpayer must be given an opportunity to present any facts that may support a change in the assessment by the property appraiser. If the taxpayer is not satisfied with the resolution of his complaint by the property appraiser, the taxpayer may petition the county's Value Adjustment Board (VAB) for review of the assessment.
The petition for review must be filed with the VAB within twenty-five days after the mailing of the TRIM Notice if the petition relates to valuation issues, or within thirty days after the mailing of the TRIM Notice if the petition involves the denial of an exemption, an agricultural classification, or a deferral. The petition must be accompanied by the filing fee prescribed by the VAB.
The VAB is required to meet within forty-five days after the mailing of the TRIM Notice to consider any timely-filed petitions for review. Alternatively, the VAB may appoint one or more special masters to hear the petitions and to make recommendations to the VAB. The hearings on the petitions, whether conducted by the VAB or a special master, are quasi-judicial in nature and must be conducted in accordance with the rules adopted by DOR.
The taxpayer has the right to be represented by an attorney and to present testimony or other evidence at the hearing. Upon the request of either the taxpayer or the property appraiser, witnesses can be required to testify under oath. Each party has the right to cross-examine witnesses. The VAB's written decision must be issued within twenty days of adjournment of the board and must contain findings of fact, conclusions of law, and the reasons for upholding or overturning the property appraiser's assessment.
The VAB's decision can be "appealed" to the circuit court in the county where the property is located. The taxpayer has an unconditional right to "appeal" the VAB's decision. The property appraiser may only "appeal" if the VAB's decision violates the constitution, a statute, or administrative rule, or if the VAB reduces the property appraiser's assessment by certain percentages. The circuit court proceeding is de novo and the burden of proof is on the party initiating the action.
The intricacies of this de novo appeal were discussed in Bystrom v. Equitable Life Assurance Society of the United States. In that case, the court held that the VAB's decision is not entitled to any presumption of correctness. However, where the taxpayer appeals the decision-thereby seeking a further reduction in the valuation of the property-the VAB's valuation establishes "the benchmark above which the Circuit Court cannot go." Stated another way, the proceeding in circuit court will not jeopardize the reduction in value that the taxpayer obtained at the VAB unless the property appraiser has also "appealed" the VAB's determination. To obtain a further reduction in the assessment, however, the taxpayer must demonstrate that the property appraiser's valuation was unsupported by "excluding every reasonable hypothesis of a legal assessment."
If the taxpayer "appeals" the VAB decision, or if the taxpayer challenges the assessment in circuit court without first going through the VAB process, the taxpayer is required to pay the portion of the tax that the taxpayer admits in good faith is owed. Moreover, the taxpayer may not maintain an action in circuit court unless the taxes on the property for subsequent years continue to be paid. These requirements are jurisdictional in nature, and the failure to comply with these requirements will result in dismissal of the challenge.
As noted above, critics have argued that the VAB process and the circuit court review of assessments provide no meaningful relief because of the difficult standard that taxpayers must meet in order to prevail. This standard was not adopted by the Legislature nor is it codified by statute; instead, the standard was created by the Florida Supreme Court in 1929.
The first case that defined the taxpayer's burden of proof to overcome the property appraiser's presumption of correctness appears to be Folsom v. Bank of Greenwood. In that case, the taxpayer challenged the property appraiser's assessment of its bank stock, surplus, and undivided profits. The trial court invalidated the assessment because the property appraiser failed to also assess similar property of other businesses. The Florida Supreme Court affirmed.
The court held that a taxpayer challenging the validity of the property appraiser's assessment must overcome the "prima facie correctness" of the assessment "by appropriate and sufficient allegations and proofs excluding every reasonable hypothesis of a legal assessment."0 Since Folsom, Florida courts have applied the "every reasonable hypothesis" standard in cases where an assessment is challenged, whether based upon the property appraiser's determination of value or denial of classified status.
The First District Court of Appeal applied this standard in Mastroianni v. Barnett Banks, Inc. At issue in Mastroianni was the 1992 and 1993 valuations of the Barnett Center, a high-rise office building in downtown Jacksonville. The county property appraiser assessed the property at approximately $70 million for 1992 and approximately $65 million for 1993. Barnett's appraiser assessed the property at $55 million for 1992 and $60 million for 1993. The trial court determined that the county property appraiser failed to Slegally consider" each criterion in section 193.011, Florida Statutes, and therefore his assessments did not enjoy a presumption of correctness. The trial court then determined that Barnett's assessments were a more reasonable reflection of the property's "just value" and substituted Barnett's assessments in lieu of the county property appraiser's assessments.
On appeal, the First District Court of Appeal reversed and directed the trial court to "reinstate the original assessments made by the county property appraiser." The First District Court held that the trial court erred because the record demonstrated that the county property appraiser did, in fact, consider all of the criteria in section 193.011, Florida Statutes, and that the appraiser "followed the policy and directives from the Department of Revenue in making the appraisal." Because the record demonstrated that the county property appraiser's assessments were supported by a reasonable hypothesis of legality, the court reasoned that they should not have been rejected.
One component of Barnett's challenge was that the property appraiser did not correctly apply the income method upon which his assessment was purportedly based. Specifically, Barnett argued that the property appraiser improperly applied a rate of occupancy for the Barnett Center of eighty percent even though the actual rate of occupancy of the building was only sixty-one percent. The First District specifically rejected this argument and stated that "[a]s long as available actual figures are considered, the decision whether it is reasonable to use them falls within the administrative discretion of the property appraiser."
This holding is consistent with Blake v. Xerox Corporation, where the Florida Supreme Court chided the lower courts for determining which appraisal method was "better." The court stated that "the only questions presented by the instant case are whether the appraiser considered all factors mandated by the law and whether his methods and conclusion are supported by any reasonable hypothesis of a legal assessment." Stated another way, because the property appraiser relied upon one of the available methods for valuing the property, his assessment would be upheld, even if another method more accurately reflected "just value."
The Blake and Mastroianni decisions epitomize the length to which courts are willing to go to uphold the property appraiser's determinations. In this regard, the court will not substitute its judgment for that of the property appraiser regarding which appraisal method to use or whether the methodology used was properly applied based upon the facts available to the property appraiser. From the taxpayer's standpoint, these decisions illustrated the need for change to the ad valorem tax challenge process.
The "every reasonable hypothesis" burden of proof is unique to Florida. While most other states afford the local property appraiser's assessment a presumption of correctness, the taxpayer's burden in overcoming the presumption is generally less onerous. In fact, one recent study identified eighteen states in which the taxpayer's burden of proof is "preponderance of the evidence" or lower.
Representative Starks and Senator Horne introduced bills in the 1996 Regular Session that would have legislatively overruled Mastroianni. Those bills, House Bill 557 and Senate Bill 740, received significant bi-partisan support and were placed on committee agendas early in the session. The bills proposed to add a new subsection (7) to section 194.171, Florida Statutes, to provide:
In any administrative or judicial action in which a taxpayer challenges an ad valorem tax assessment, the denial of an exemption, or the denial of classified status, the property appraiser's assessment or determination shall be presumed correct if the property appraiser has complied with the requirements of law and followed recognized professional standards of appraisal practice. The taxpayer shall have the burden of overcoming the presumption by a preponderance of the evidence, but shall not have the burden of presenting proof which excludes every reasonable hypothesis of a legal assessment.This proposed reduction in the taxpayer's burden of proof generated significant controversy. The primary opponents of House Bill 557 and Senate Bill 740 were the county property appraisers and local governments.
The opponents of the bills argued that the reduction in the burden of proof would have a significant negative fiscal impact on local governments and, therefore, would constitute an unfunded mandate. The opponents further argued that any change to the existing burden of proof would be unconstitutional. This latter argument was based upon two separate, but related, grounds. First, the opponents argued that the existing burden of proof is a logical and necessary component of the presumption of correctness to which property appraisers, as constitutional officers, are entitled. Second, the opponents argued that the Legislature's attempts to weaken this judicially created burden of proof would violate the separation of powers provision of the Florida Constitution. Neither of these arguments are overly persuasive.
The "constitutional officer" argument assumes that the "every reasonable hypothesis" standard is, in fact, inextricably linked to the presumption of correctness. While courts have discussed these issues together, a close reading of these cases suggests that the primary basis for the "every reasonable hypothesis" standard is the complex nature of the appraisal process rather than the stature of the individual conducting the appraisal. Similarly, the "separation of powers" argument is based upon the erroneous assumption that only courts may establish burdens of proof. To the contrary, burdens of proof are generally not procedural in nature and, therefore, the Legislature is free to establish burdens of proof without infringing upon the judiciary's control of the court system.
The opponents' arguments were not addressed by the first committees that heard House Bill 557 and Senate Bill 740. However, the bills were subsequently amended in an attempt to appease opponents and avoid a gubernatorial veto of the bill. In this regard, the Senate Ways and Means Committee adopted a Committee Substitute for Senate Bill 740 that limited the applicability of the "preponderance of the evidence" burden of proof contained in the bill to the 1997, 1998, and 1999 tax rolls. After 1999, the existing "every reasonable hypothesis" burden of proof would apply unless the Legislature subsequently extended the applicability of the lower burden of proof. The Committee Substitute for Senate Bill 740 also required the Office of Programs, Policy, and Governmental Accountability (OPPAGA) to "study the current procedure for challenging ad valorem assessments and determine whether changes are necessary." A similar amendment to House Bill 557 was adopted in the House Finance and Tax Committee.
On the House Floor, House Bill 557 was conformed to the Committee Substitute for Senate Bill 740 and then approved by a vote of 108 to 6. The Senate then approved House Bill 557 by a vote of 35 to 4 and sent the bill to the Governor. Notwithstanding the overwhelming legislative approval of House Bill 557, opponents of the bill continued to lobby against it and urged the Governor to veto the bill.
Governor Chiles vetoed House Bill 557. In his veto message, the Governor acknowledged that the fairness of the system for challenging ad valorem tax assessments is "a legitimate concern." However, the Governor suggested that the reduction of the burden of proof in House Bill 557 "may create as many inequities as it attempts to correct and will seriously affect local government revenues."
The Governor did support the studies provided for in House Bill 557, at least in concept. In this regard, the Governor stated:
The studies proposed by HB 557 are a good idea, but it is more rational, in my view, to identify the potential impact of this issue before it is implemented. By instituting a study first, the state can then move forward with recommended changes, without unnecessarily risking substantial damage to local government and school district finances.These comments foreshadowed the Governor's issuance of Executive Order 96-172. The Executive Order was issued the same day that the Governor vetoed House Bill 557 and created the Florida Ad Valorem Task Force. The Governor charged the Task Force with studying the following issues:
a. An evaluation of the statutory procedures for valuing property as utilized by county property appraisers for purposes of Florida's ad valorem tax.The Task Force's findings and recommendations were to be submitted to the Governor and the Legislature no later than February 15, 1997.
b. An evaluation of the role of the Florida Department of Revenue as it relates to the approval of the county ad valorem tax rolls in the State of Florida.
c. An evaluation of the process for correcting error as that process relates to the determination of values, the granting of exemptions, and the classifications of lands by county property appraisers.
d. An evaluation of the Value Adjustment Board (VAB) proceedings and appeals to the courts as prescribed in Chapter 194, Florida Statutes, to specifically include the burden of proof currently required in such appeals.
e. An evaluation of the feasibility of imposing ad valorem taxes on a partial year basis.
f. An evaluation of any fiscal ramifications to the State or local governments that may result from any proposed changes recommended by the Florida Ad Valorem Task Force.
The study contemplated by the Executive Order was significantly broader than those provided for in House Bill 557. Whereas the studies in House Bill 557 focused primarily on the procedures for challenging ad valorem tax assessments, the Executive Order required a review of the entire ad valorem tax process, including the underlying valuation process and DOR's review and approval of the ad valorem tax rolls. The burden of proof issue was to be considered by the Task Force, but it was not intended to be the focus of the Task Force's study.
Governor Chiles' appointments to the Task Force represented a broad range of interests and experience. The Task Force's seventeen members included county property appraisers, local government officials, the Executive Director of DOR, the Governor's Chief of Staff, as well as individuals representing business interests. Senator Horne, Representative Starks, and two other legislators-Representative Lori Edwards and Senator William Turner-were also appointed to the Task Force. Steve Pajcic, an attorney from Jacksonville and a former Democratic candidate for Governor, was appointed chairman of the Task Force.
The organizational meeting of the Task Force was held in Tallahassee on July 25, 1996. At that meeting, the Task Force reviewed its charge from the Governor and attempted to formulate a strategy for addressing each of the issues set forth in the Executive Order. It was clear, however, that the primary focus of Senator Horne and many of the other Task Force members was on the "burden of proof" issue. In this regard, the Task Force members requested the DOR staff to compile data regarding the taxpayer's success rate under the current tax appeal process and several representative cases in which the "every reasonable hypothesis" standard played a role in the outcome. These requests set the stage for the next several Task Force meetings.
The Task Force received historical and background information on the ad valorem tax process during its August meeting. The staff of the Advisory Council on Intergovernmental Relations (ACIR) presented a report to the Task Force regarding millage rates, and DOR staff presented the Task Force with ad valorem tax data collected by DOR for the 1994 and 1995 tax years. The purpose of these presentations was to provide the Task Force with an understanding of the relative importance of ad valorem tax revenue to local governments, and to provide a statistical gauge of the existing ad valorem tax challenge process.
The Task Force's discussion regarding millage rates focused primarily on the caps contained in article VII, section 9(b) of the Florida Constitution. That provision limits ad valorem taxes for county purposes, municipal purposes, and school purposes to ten mils each. The millage cap for water management purposes was between .05 mils and one mil for all water management districts. The ACIR report noted that fourteen counties levied ad valorem taxes at the ten mil cap. Seven other counties levied between nine and ten mils. Only one municipality, Greenville, was at its ten mil cap. Forty-seven of the sixty-seven local school districts had tax rates in excess of nine mils.
It was suggested that any change to the current ad valorem tax challenge process that made it easier to overturn the property appraiser's assessment would have a direct adverse impact on these local governments at or near their cap. These entities could not increase millage rates to off-set any reductions in aggregate taxable value resulting from successful challenges to the property appraiser's assessment. This impact would be primarily borne by "small counties" because nineteen of the twenty-one counties at or near the ten mil cap have populations less than 75,000. Therefore, the local government representatives on the Task Force urged the Task Force to proceed cautiously in its review of the burden of proof issue.
The Task Force spent much of the August meeting discussing the meaning and significance of the ad valorem tax data gathered by DOR for the 1994 and 1995 tax years. This data provided a percentage breakdown of the taxable value of each class of property subject to ad valorem taxation. In this regard, real property accounted for almost 87.4% of the taxable value of all property subject to ad valorem taxation in 1995. Tangible personal property accounted for 12.5%, and centrally assessed property accounted for the remaining .1%. These percentages were consistent with the 1994 data, and reflected the reliance on real property for the ad valorem tax base.
The DOR data also contained a breakdown of the number and "success rate" of petitions filed with the VABs contesting the property appraiser's determination of value. In 1995, taxpayers filed over 30,000 such petitions and prevailed in 29.7% of those cases. In 1994, over 64,000 petitions were filed, and the taxpayer prevailed in 39.1% of those cases. The estimated fiscal impact of the cases in which taxpayers prevailed and their assessments were reduced was over $59 million in 1994 and $19 million in 1995, excluding Dade County. All but seven counties had at least one valuation petition filed with their VABs in 1995, and all but six counties had one valuation petition filed in 1994. In this regard, one speaker suggested that the Task Force should be concerned with those counties where few petitions were filed because it may indicate a county-wide undervaluation of the property subject to ad valorem taxation.
Local government representatives on the Task Force suggested that these percentages demonstrated that it is not impossible, as suggested by proponents of House Bill 557, for taxpayers to satisfy the "every reasonable hypothesis standard" in existing law. Other Task Force members, including Representative Starks, suggested that the 29.7% and 39.1% "success rates" in valuation challenges would be higher but for the existing burden of proof. In sum, the Task Force members seemed to agree that the DOR data is inconclusive, at best, in determining whether the existing burden of proof should be changed.
The Task Force also heard presentations from several local government officials regarding the operation of the VAB process within their jurisdictions. One official noted that the most important element of the VAB process was consistency. He noted that the process generally worked well where the membership of the VAB, and thus its decisions, remained consistent from year to year. Without this consistency, he noted, the public would lose faith in the VAB process. On this issue, Task Force member Representative Lori Edwards suggested that the Task Force consider changes to the composition of the VAB to include a taxpayer representative. Local government representatives on the Task Force suggested that such a change was not necessary because most counties utilized independent special masters to hear taxpayers' petitions and make recommendations to the VAB. Interestingly, Task Force member Jimmy Alvarez indicated that he would support a mandatory use of special masters. Neither of these issues ever received any serious consideration by the Task Force.
The Task Force continued to focus on the VAB process at its September meeting, and also discussed the development of the "every reasonable hypothesis" standard in the courts. In this regard, the Task Force received information from the staff of the Legislative Committee on Intergovernmental Relations (LCIR) regarding the ad valorem tax challenge process in other states. Additionally, DOR staff reported on the use of special masters in the VAB process. This report indicated that twenty-seven counties utilized special masters, and that the costs of the special masters ranged from $40 to $150 per hour. The report also indicated that the number of petitions filed with the VAB was relatively small in light of the number of properties subject to ad valorem taxation. The average number of petitions filed as a percentage of the total number of taxable properties within each county was .83% state-wide. Only six counties exceeded 1%. Stated another way, less than nine taxpayers in every 1000 file petitions with the VAB challenging the property appraiser's assessment of their real or tangible personal property.
These statistics suggested that the burden of proof issue affected very few taxpayers statewide. The Task Force members disagreed, however, with whether a reduction of the burden of proof would result in an increase in the number of petitions filed with the VAB. It was clear that these issues would continue to shape the direction of the Task Force's debate.
DOR staff presented an overview of the cases in which the courts developed and discussed the "every reasonable hypothesis" standard. In particular, the Task Force discussed Blake v. Xerox Corporation,3 Camp Phosphate Co. v. Allen,4 Walter v. Schuler,5 Walker v. Trump,6 Mastroianni v. Barnett Banks, Inc.,7 and Scripps Howard Cable Co. v. Havill. The purpose of this presentation was to acquaint the Task Force with the various aspects of the burden of proof issue. These aspects included the trial and appellate courts' roles in establishing value and the factors that may, and the factors that must, be used by property appraisers when establishing assessments.
The Task Force engaged in very little debate during its September meeting. However, the Task Force requested additional information from DOR regarding these cases that proceeded beyond the VAB stage. DOR agreed to compile this information for the October Task Force meeting. At the conclusion of the meeting, Chairman Pajcic reminded the Task Force members that the Governor directed the Task Force to consider several issues in addition to the burden of proof issue. In particular, Chairman Pajcic referred to the partial-year taxation issue and the ad valorem taxation of computer software. Notwithstanding the chairman's reminder, the Task Force did not consider the partial-year taxation issue until its November meeting.
The Task Force continued to focus on the burden of proof issue at its October meeting. Several Dade County employees expressed their opposition to any changes to the existing burden of proof. In this regard, the Assistant County Manager suggested that, to the extent a reduction in the burden of proof would enable more taxpayers to successfully challenge the property appraiser's assessment, the effect of such a reduction would merely be a reallocation of taxes. Another county employee suggested that the "problem" in the area of ad valorem tax litigation is not the burden of proof itself but that the VAB members do not always properly understand or apply the burden of proof. The Task Force also heard testimony from individuals who represented taxpayers before the VABs or the courts. These individuals uniformly supported a reduction in the existing burden of proof.
DOR staff provided the Task Force with the requested data regarding the outcome of cases "appealed" to circuit court during the 1994 and 1995 tax years. Although a significant number of cases were still pending, the data demonstrated that a settlement is reached between the property appraiser and the taxpayer in most cases that proceed beyond the VAB stage. For the 1994 tax year, when a settlement was not reached, the taxpayer prevailed in only two of the twelve cases (16.7%) in which a final judgment had been entered. Although it is unclear whether or how the "every reasonable hypothesis" standard impacted this "success rate," this data added fuel to the argument that taxpayers rarely prevailed in ad valorem tax challenge cases in circuit court.
Task Force member Thomas Logue offered the first formal written proposal to the Task Force regarding the burden of proof issue. Under this proposal, the property appraiser's assessment would be entitled to a presumption of correctness if it were within a "range of reasonableness." This approach recognized that the various appraisal methodologies often produced several different values and any one of these values could reflect the true market value of the property. Under the Logue Proposal, so long as the value chosen by the property appraiser was one of these values, it would fall within the "range of reasonableness" and would be presumed correct.
The Logue Proposal would have authorized the VAB or the court to establish the value in the event the taxpayer overcame the property appraiser's presumption of correctness. In support of this aspect of the proposal, it was noted that:
Some cases have held that a court can set the assessment at either the Property Appraiser's value or the taxpayer's value. If neither number is acceptable, the court must remand for a new assessment. This can be a cumbersome and time-consuming process that would be subject to a new round of appeals. When the Value Adjustment Board or court has sufficient information to establish an assessment based upon the eight criteria [in section 193.011, Florida Statutes (1996)], it should have the authority to do so.The Logue Proposal contained several other components, including a requirement that the VABs use special masters, further limitations on the property appraiser's right to appeal the VAB's decision, and additional disclosure requirements for taxpayers.
The Logue Proposal was not discussed in any detail at the October meeting. As described below, however, the Task Force debated the "range of reasonableness" concept at its December meeting.
The Task Force focused on the partial-year taxation issue for the first time at its November meeting. In this regard, the Task Force heard a presentation from a representative of the Property Appraisers Association of Florida (PAAF) regarding the history of the "substantially complete" language in section 192.042, Florida Statutes, and its relationship to the partial-year taxation concept. Additionally, LCIR staff outlined some of the legal issues implicated by partial-year taxation.
In a nutshell, partial-year taxation is an effort to more fairly apportion ad valorem taxes on improvements to taxable property that are completed during the tax-year. Currently, property is assessed for ad valorem tax purposes only on January 1 of each year. Improvements to taxable property that are not "substantially complete" on January 1, but that are completed during the tax-year, are not subject to ad valorem taxes until the following year. Critics argue that the current system results in a significant loss of potential ad valorem tax revenue each year. To this end, partial-year taxation is seen by many as a source of much-needed local government revenue. The issue had been subject to considerable legislative debate during the past several sessions, but the Legislature failed to approve any legislation on the subject.
If partial-year taxation were implemented, ad valorem taxes would be collected on improvements to taxable property on a pro rata basis based upon the number of months during the tax year that the improvement was complete. An assessment must be done at the time the improvement is completed and separate "interim" assessment rolls must be maintained. Because of the administrative burdens involved with partial-year taxation, county property appraisers have traditionally opposed its implementation.
An example is helpful in understanding the operation of partial-year taxation. Assume that the construction of a single-family residential home commenced on October 1, 1996, and was completed on July 1, 1997. Further, assume that on January 1, 1997, the home was only thirty percent complete and thus uninhabitable. Finally, assume that upon completion the home would have a taxable value of $100,000 (excluding the value of the land), and the combined millage rate applicable to the property is twenty mils.
Under the current system, because the home was not substantially complete on January 1, 1997, the taxpayer would not owe any ad valorem taxes on the home. The home would be assessed for the first time on the 1998 tax rolls. If partial-year taxation was implemented, the taxpayer would be assessed a pro rata share of the 1997 ad valorem taxes. Because the home was complete for six months during 1997-July 1 through December 31-the taxpayer would owe six-twelfths of the ad valorem taxes that would have been owed had the property been assessed on January 1, 1997. In this regard, the taxpayer would owe $1000 in ad valorem taxes on the property. These taxes would be imposed at the time the improvements were completed on July 1, 1997.
There are several constitutional concerns implicated by the partial-year taxation concept. Specifically, the Florida Supreme Court has interpreted article VII, section 4 of the Florida Constitution to prohibit different treatment of real and tangible personal property. Therefore, to the extent that partial-year taxation proposals considered by the Legislature in recent years would have applied only to improvements to real property, these proposals may have been unconstitutional. Moreover, in light of the Save Our Homes Amendment, it is uncertain whether improvements to homestead property could be assessed on any date other than January 1.
Closely related to the issue of partial-year taxation is section 192.042, Florida Statutes. This statute contains the restriction on assessing property that is not "substantially complete." The predecessor of this statute was adopted by the Legislature in 1961 at the request of the home-building industry. A related provision was added in 1980 at the request of the electric utility industry to benefit incomplete tangible personal property.
The PAAF representative suggested to the Task Force that the repeal of the "substantially complete" language would address many of the concerns raised by the proponents of the partial-year taxation without the administrative burdens of implementing partial-year taxation. Moreover, the constitutional issues implicated by partial-year taxation would not be affected by the repeal of the "substantially complete" language. In this regard, the property appraiser would assess all improvements to property on January 1, even if such improvements were still "under construction" on that date.
Chairman Pajcic polled the members to determine whether the Task Force's recommendations to the Governor should advocate a repeal of the "substantially complete" language. Although a number of the Task Force members seemed to support the repeal of the "substantially complete" language, the consensus of the Task Force was to request additional information on the issue from DOR staff prior to taking any formal action.
The Task Force also discussed the burden of proof issue at its November meeting. In this regard, the Task Force focused on an outline prepared by Task Force member Vicki Weber that contained several "principles to be used in guiding any revisions of the assessment challenge process." The Task Force also reviewed a proposal from Task Force member Linda Loomis Shelley regarding possible revisions to House Bill 557.
Each of these proposals acknowledged that the property appraiser was entitled to a presumption of correctness, especially as to matters "within [the] appraiser's professional judgment." The proposals also contained reference to a "range of reasonableness" concept raised by Task Force member Thomas Logue at the October meeting. However, the proposals differed as to the degree of proof necessary to overcome the appraiser's presumption of correctness. Weber's "principles" referred to a preponderance of the evidence standard while the Shelley proposal would use a clear and convincing evidence standard. Neither proposal directly addressed the issue of the ability of the VAB or the court to establish the assessment without remanding the case to the property appraiser. It was clear, however, that these proposals would play a key role in shaping the Task Force's ultimate recommendation on the burden of proof issue.
At its December meeting in Jacksonville, the Task Force again focused primarily on partial-year taxation and the repeal of the "substantially complete" standard. The Task Force also briefly discussed another alternative concept, the "proprietary fee." To this end, DOR staff presented a report to the Task Force regarding the relative costs and benefits of each of these alternatives.
In sum, this report indicated that the most "equitable" of these alternatives was partial-year taxation. Partial-year taxation would require the highest start-up costs, but low annual administrative costs. Conversely, the repeal of the "substantially complete" doctrine would require low start-up costs, but higher annual administrative costs than partial-year taxation. Interestingly, the DOR report referred to the equity of the repeal of "substantially complete" as "poor." Notwithstanding this comparison, the Task Force continued to favor the repeal of "substantially complete" over partial-year taxation. Accordingly, the Task Force turned its attention to issues associated with implementation of the repeal of "substantially complete." Specifically, the Task Force considered the appropriate method for valuing the improvements.
One alternative discussed was the valuation of the improvement based upon its value as an incomplete structure. This approach would likely focus on the value of the materials and labor that had been put into the improvements to date. Because of the obvious difficulties in arriving at such a valuation, the Task Force moved away from this alternative. Instead, the Task Force focused on valuation of improvements based upon their "percentage of completion" on January 1. Under this approach, the taxable value of the incomplete improvement would reflect a percentage of the estimated value of the completed improvement. In this regard, the taxpayer in the above example would owe $600 in ad valorem taxes on his incomplete home for the 1997 tax year.
Task Force member Leveda Brown suggested that the Task Force recommend a repeal of "substantially complete" as a compromise to the partial-year taxation concept. The Task Force never formally voted on her suggestion, and Chairman Pajcic directed the Task Force staff to prepare a formal proposal on the issue for the Task Force's consideration at its next meeting. Ultimately, the Task Force was unable to reach a consensus on the repeal of "substantially complete" or the partial-year taxation issues. Instead, the Task Force recommended to the Governor and the Legislature that the issue should be referred to the Local Government Finance Study Commission II for further study.
The Task Force also briefly discussed the "burden of proof" issue at its December meeting. This discussion continued to focus on the "range of reasonableness" concept raised at prior meetings; however, the Task Force was never able to quantify this range. As a result, many Task Force members, including Senator Horne and Representative Starks, were skeptical about the benefits of the "range of reasonableness" approach. Moreover, to the extent that the "range of reasonableness" was considered a statutory codification of the existing "every reasonable hypothesis standard," it would not address the fundamental concerns that resulted in the passage of House Bill 557 in 1996. In this regard, it was clear that if the Task Force's recommendations were to be embraced by Senator Horne and Representative Starks, they would need to incorporate a change-that is, a reduction-in the current burden of proof. A majority of members of the Task Force appeared to support such a reduction; however, the extent of this reduction-preponderance of the evidence or clear and convincing evidence-had not yet been determined.
The Task Force met twice in February in an effort to finalize its recommendations. An ad hoc "drafting committee" of the Task Force met on February 20 to consider several proposals offered by Task Force members.
One of these proposals, submitted by Task Force member Thomas Logue, included the "range of reasonableness" concept. Under this proposal, the property appraiser's presumption of correctness would not be lost unless the taxpayer demonstrated, by clear and convincing evidence, that the property appraiser's assessment was outside of the "range." To this end, the presumption of correctness was linked to the value reached by the property appraiser. Another proposal, offered by Task Force member Vicki Weber, essentially linked the property appraiser's presumption of correctness to the methodology used by the appraiser in reaching the assessment. Both of these proposals would have required the use of special masters by the VAB, and would have authorized the VAB or the court to establish the assessment in the event the property appraiser's assessment is overturned and there was sufficient evidence in the record to support another assessment.
The full Task Force debated these proposals at length at its final meeting on February 21. Ultimately, the Task Force settled on a fine-tuned version of the Weber proposal, except for the suggestion to require the use of special masters by the VAB. The Task Force also considered but rejected a suggestion that the recommended standard apply to pending actions in which a final judgment had not been entered. Instead, the Task Force recommended that the new standard apply prospectively only.
The Task Force recommended that the following language be added as subsection (7) of section 194.171, Florida Statutes:
In any administrative or judicial action in which a taxpayer challenges an ad valorem tax assessment of value, the property appraiser's assessment shall be presumed correct. This presumption of correctness is lost if the taxpayer shows by a preponderance of the evidence that either the property appraiser has failed to consider properly the criteria in s. 193.011 or if the property appraiser's assessment is 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. If the presumption of correctness is lost, the taxpayer shall have the burden of proving by a preponderance of the evidence that the appraiser's assessment is in excess of just value. If the presumption of correctness is retained, the taxpayer shall have the burden of proving by clear and convincing evidence that the appraiser's assessment is in excess of just value. In no case shall the taxpayer have the burden of proving that the property appraiser's assessment is not supported by any reasonable hypothesis of a legal assessment. If the property appraiser's assessment is determined to be erroneous, the Value Adjustment Board or the Court can establish the assessment if there exists competent, substantial evidence in the record, which cumulatively meets the requirements of s. 193.011. If the record lacks competent, substantial evidence meeting the just value criteria of s. 193.011, the matter shall be remanded to the property appraiser with appropriate directions from the Value Adjustment Board or the Court.The Task Force's recommendation contained four interrelated components. First, it reaffirmed the long-standing proposition that the property appraiser's assessment is generally entitled to a presumption of correctness. Second, it recognized that this presumption of correctness may be lost in certain limited circumstances. Third, it affirmatively rejected the "every reasonable hypothesis" standard. Finally, it clarified that the VAB or the court has the authority to establish the assessment where the property appraiser's assessment is overturned and the record contains sufficient evidence to establish the assessment.
Representative Starks and Senator Horne each filed bills in the 1997 Regular Session on the burden of proof issue. House Bill 445 and Senate Bill 134, were prefiled prior to the completion of the Task Force's work, and were identical to the initial versions of the 1996 legislation; however, it was expected that they were to be used as vehicles for implementing the Task Force's final recommendations.
Both bills were placed on committee agendas early in the session. The House Community Affairs Committee unanimously approved House Bill 445 with one amendment on the second day of session, and the House Finance and Tax Committee unanimously approved it on the following day. The Senate Judiciary committee unanimously approved Senate Bill 134 as a committee substitute on the third day of the session. Committee Substitute for Senate Bill 134 and House Bill 445, as amended, replaced the language in the original bills with the Task Force's "compromise" language.
House Bill 445 was placed on a "fast-track" in the House. It was withdrawn from the General Government Appropriations Committee, its last committee of reference, ranked by the Governmental Responsibility Council and sent to the House Floor for a vote. On April 2, the House approved House Bill 445 by a vote of 114 to 0 and sent it to the Senate. House Bill 445 languished in the Senate while the Committee Substitute for Senate Bill 134 awaited a hearing by the Senate Ways and Means Committee, its final committee of reference.
On April 23, the Senate Ways and Means Committee unanimously approved the Committee Substitute for Senate Bill 134, which was then sent to the Senate Floor for a vote. The Senate substituted House Bill 445 for the Committee Substitute for Senate Bill 134, and unanimously approved it.
House Bill 445 was presented to Governor Chiles on May 8, 1997. The Governor signed the bill on May 23, and it became effective on that date. The analysis of House Bill 445 prepared by the Governor's Office stated that "[t]he Governor supports this measure as a good compromise between fair and equitable taxation and taxpayers' rights."
As noted above, new section 194.301, Florida Statutes, contained four interrelated parts. Together, these parts reflected a clear shift in policy regarding the disposition of ad valorem tax challenge cases in Florida.
Section 194.301, Florida Statutes, reaffirmed the long-standing proposition that the property appraiser's assessment is presumed to be correct. To this end, the Legislature has reaffirmed the holdings of Folsom and its progeny to the extent that they recognized this presumption of correctness.
The presumption of correctness is rebuttable. In this regard, two types of rebuttable presumptions are recognized in Florida: "bubble bursting" presumptions and "burden shifting" presumptions. A presumption established to implement public policy is a "burden shifting" presumption. The presumption of correctness afforded to the property appraiser's assessment is based upon policy considerations and, therefore, is a "burden shifting" presumption. Accordingly, the taxpayer has the burden to produce evidence to demonstrate the non-existence of the fact presumed-that is, that the property appraiser's assessment is not correct.7 The amount of evidence that the taxpayer must produce to rebut and overcome this presumption is discussed below.
It is important to note that this presumption of correctness applies only to the property appraiser's determination of value. Unlike House Bill 557 in 1996, section 194.301, Florida Statutes, does not statutorily recognize a presumption of correctness in the context of "the denial of an exemption or the denial of classified status." This distinction appears to be based upon a recognition by the Task Force that valuation determinations are matters within the "appraiser's professional judgment" while the other determinations are more appropriately characterized as legal determinations. In this regard, cases involving exemptions or classified status typically require a more objective analysis than cases in which the county property appraiser's subjective valuation of the property is being challenged.
In September 1997, DOR proposed an amendment to the rules governing the VAB process to delete the reference to the "every reasonable hypothesis" standard and to incorporate the new burdens of proof from section 194.301. DOR proposed to amend rule 12D-10.003(3), Florida Administrative Code, as follows:
A county property appraiser's determination is entitled to a presumption of correctness. The petitioning taxpayer has the burden to prove that the property appraiser's determination was incorrect. The presumption of correctness can be properly rebutted as described in section 194.301, Florida Statutes only by evidence which excludes every reasonable hypothesis of a legal assesment. Homer v. Dadeland Shopping Center, Inc., 229 So.2d 834 (Fla. 1969).This proposed rule amendment is inconsistent with section 194.301 because it does not limit the property appraiser's presumption of correctness to determinations of value. This inconsistency was brought to DOR's attention, and DOR subsequently withdrew the proposed rule amendment.
The presumption of correctness is lost if the taxpayer demonstrates that:
the property appraiser has failed to consider properly the criteria in s. 193.011 or if the property appraiser's assessment is arbitrarily based upon 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.These grounds for abrogating the property appraiser's presumption of correctness are similar to, but slightly more expansive than, current law.
The first basis for abrogating the presumption of correctness was derived from Mastroianni and cases cited therein, which describe the property appraiser's obligation to consider, but not necessarily use, each criterion in section 193.011, Florida Statutes. Interestingly, the language proposed by the Task Force and approved by the Legislature in section 194.301, Florida Statutes, qualified this obligation with the adverb "properly."
Therefore, a question arises as to the meaning of the phrase "fail to consider properly the criteria in s. 193.011." The word "properly" has been defined as "completely" or "in a thorough manner." Accordingly, the presumption of correctness will be lost if the appraiser fails to "completely" or "thoroughly" consider each of the eight criteria in section 193.011, Florida Statutes. In this regard, the property appraiser must be prepared to demonstrate the extent to which he considered each criterion; otherwise, the presumption of correctness afforded to his assessment may be lost.
The second basis for abrogating the presumption of correctness is when the appraiser utilizes a methodology different from that used to appraise similar property within the county. In essence, this basis requires the taxpayer to demonstrate that the appraiser has treated him differently in some manner. Interestingly, the taxpayer is not required to demonstrate that this different treatment resulted in an improper valuation of his property to overcome the property appraiser's presumption of correctness. However, the taxpayer would be required to demonstrate that the appraisal is in excess of "just value" to prevail in the challenge under section 194.301, Florida Statutes.
In this regard, this basis for abrogating the property appraiser's presumption of correctness was loosely based upon the "relative equality and uniformity" theory announced in Camp Phosphate Co. v. Allen. Under that theory, a taxpayer could successfully challenge his assessment by demonstrating that the appraiser used an arbitrary method of valuing his property as compared to that used for other properties, even if the taxpayer's assessment was not in excess of fair market value. This theory sought to ensure that all similarly situated property was assessed through the same appraisal methods. Section 194.301, Florida Statutes, has that same goal. However, because the taxpayer is still required to demonstrate that the property appraiser's assessment is "in excess of just value," section 194.301, Florida Statutes, revived the "spirit," but not the "body" of Camp Phosphate. Stated another way, section 194.301, Florida Statutes, incorporated the "relative equality and uniformity" concept from Camp Phosphate into the modern "over assessment" challenge.
Section 194.301, Florida Statutes, specifically rejected the "every reasonable hypothesis" standard from Folsom and its progeny. In this regard, taxpayers will no longer be required to disprove "every reasonable hypothesis of a legal assessment" to overturn the property appraiser's assessment. Instead, the taxpayer must only demonstrate that the assessment is in excess of "just value."
The amount of evidence that the taxpayer must produce to convince the fact-finder that its appraisal should be adopted in lieu of the property appraiser's depends upon the circumstances surrounding the appraisal. The taxpayer's burden of proof is "clear and convincing evidence" unless the property appraiser's presumption of correctness was lost. Then, the taxpayer's burden of proof is a "preponderance of the evidence."
As a general rule, the "preponderance of the evidence" standard is satisfied where evidence is presented that makes the truth of the fact sought to be proved more probable than not. The "clear and convincing evidence" standard is a more difficult standard of proof and is satisfied where evidence is presented that results in reasonable certainty of the truth of the fact sought to be proved. Therefore, to prevail in a challenge to the property appraiser's assessment where the presumption of correctness has not been lost, the taxpayer must demonstrate that there is a "reasonable certainty" that his assessment is more reasonable-that is, more accurately reflects a "just valuation" of the property-than that arrived at by the property appraiser.
It is uncertain whether the burdens of proof in section 194.301, Florida Statutes, were intended to apply in non-valuation cases-cases where the taxpayer challenges the property appraiser's denial of the taxpayer's entitlement to an exemption or denial of classified status. As noted above, section 194.301, Florida Statutes, limits the presumption of correctness to the property appraiser's valuation determinations. Because that section defines the appropriate burden of proof based upon whether the presumption of correctness is retained or lost, it is logical to assume that the Legislature did not intend the new burdens of proof to apply in non-valuation cases. Accordingly, the existing standards applied in non-valuation cases should continue to apply subject to the caveat in section 194.301, Florida Statutes, which provides "[i]n no case shall the taxpayer have the burden of proving that the property appraiser's assessment is not supported by any reasonable hypothesis of a legal assessment."
The last two sentences in section 194.301, Florida Statutes, established the procedure the VAB or the court is to follow if the property appraiser's assessment is "determined to be erroneous." If there is competent substantial evidence that "cumulatively meets the requirements of s. 193.011," the VAB or the court may establish the assessment. Otherwise, the VAB or the court must remand the matter to the property appraiser to establish the assessment.
The circuit court's authority to establish the assessment has been presumed to exist by courts and commentators. DOR's rules specifically recognize the VAB's authority to establish the assessment. Thus, it could be argued that these two sentences merely intended to clarify and codify the court's authority under existing law. It may be argued, however, that allowing the court to establish the assessment infringes upon the legislative powers delegated to county property appraisers. Viewed in this manner, the last two sentences in section 194.301, Florida Statutes, may be unconstitutional. Alternatively, this language may simply be viewed as direction to the court to enjoin the collection of that portion of the assessment that exceeds the "just value." To determine the amount to be enjoined, however, the court necessarily must determine the "just value" of the property. In this regard, the last two sentences in section 194.301, Florida Statutes, prescribed the circumstances in which the court may do so.34 If this language is viewed as an extension of existing law, this latter interpretation is more consistent with the legislative history of section 194.301, Florida Statutes, and is supported by public policy considerations. Therefore, whether this component of section 194.301, Florida Statutes, is viewed as a codification or an extension of existing law, it should be constitutional.
Clearly, the Committee Substitute for House Bill 445 reflected a fundamental change in policy with respect to challenging ad valorem tax assessments. It was not the intent of the new section 194.301, Florida Statutes, to infringe upon the property appraiser's role in assessing property for ad valorem tax purposes. Nor was its intent to encourage ad valorem tax litigation. Instead, it was intended to further the constitutional mandate that property subject to taxation be assessed at no more than "just value."
More importantly, however, the new burdens of proof codified in section 194.301, Florida Statutes, were intended to address the perceived inequities in the current ad valorem tax challenge process that were brought to the forefront during the 1996 and 1997 Regular Sessions. Whether this provision will, in fact, restore taxpayers' confidence in the process depends upon how it is interpreted and applied by the VABs and the courts. If they fail to implement the new standards in an equitable manner, the legislative intent of section 194.301, Florida Statutes, will be frustrated, and the two years of work and study that went into the provision will have been for naught.