Will Voters Raise Taxes on Non-Homestead Property?
Do you or your business own any commercial or rental property, a vacation or second home, unimproved real estate or other non-homestead property? If so, there is a chance you will be seeing a significant tax increase on that property in 2019.
This will happen if the current 10 percent cap on non-homestead property assessments--scheduled to be repealed--is not reauthorized by the voters in 2018.
Florida constitutional Amendment 1, approved by the voters in 2008, made several changes to property taxation in Florida. It created a new $25,000 homestead exemption, a $25,000 exemption for tangible personal property and allowed for portability of Save Our Homes (SOH) benefits when a taxpayer moves to another homestead in Florida. These changes are permanent but a fourth provision, a 10 percent cap on the growth of non-homestead assessed value (does not apply to school property taxes), is scheduled for repeal on January 1, 2019.
However, the amendment also requires the Legislature to place a proposed amendment on the 2018 General Election ballot to extend the cap. Last week, the House Ways and Means Committee and the Senate Finance and Tax Subcommittee passed joint resolutions HJR 21 and SJR 76 to do just that.
If the amendment is not approved by at least 60 percent of those voting, the cap will go away. This does not just mean there will no longer be a cap on future assessment growth. Non-homestead property will suddenly be assessed at full market value.
There is some confusion amount how much the cap is worth. The latest Department of Revenue data show the cap is currently removing between $71-$83 billion in value from the tax rolls. At the current statewide average non-school millage rate (10.9 mills), this translates into $770 million to $900 million in tax savings. To state it another way, if millage rates are not reduced, it would be a tax increase of up to $900 million.
The joint resolution has not yet been “scored” by the Revenue Impact Estimating Conference. Conversations with legislative staff indicate that it is felt that the current cap value is overstated and that the next Ad Valorem Estimating Conference (scheduled for March 6) will reduce the estimate of the “differential” between the just value and assessed value of non-homestead property. Regardless, it is certain repeal of the cap will add tens of billions of dollars to the taxable value of non-homestead properties and result in a tax increase of several hundred million dollars.
The Save Our Homes (SOH) amendment, passed in 1992, created an inequitable property tax system in Florida. Not only can similarly situated homeowners now have very different tax bills, but SOH has also shifted billions of dollars in taxes from homestead to non-homestead property. This is because SOH does not really limit taxes, it only limits assessments on one segment of taxpayers. The 2008 amendment that created the non-homestead cap made the shift even worse, due to the provisions that further benefited homestead property. As long as property values keep rising, the tax shift will continue to grow, but the non-homestead cap helps to slow that growth.
The Legislature will likely pass the joint resolution but that is the easy part. Then comes approval by the voters, which I suspect will not be easy. With nothing in it to directly help homestead property owners, the 60 percent threshold may be too high of a bar. In 2012, a proposed constitutional amendment to extend the non-homestead cap and lower it to five percent also contained a new homestead exemption for first time homeowners and a repeal of the “recapture” provision. Despite these homeowner benefits, the amendment went down in flames, with only 43 percent voting in favor.
There is some benefit to keeping the proposed amendment simple with only one provision. But that may limit the appeal to Florida homeowners. However, adding other benefits to homestead property would dilute the value of the non-homestead cap. If the amendment fails, the Legislature should consider steps, such as millage restrictions, to avoid—or at least lessen—the resultant tax increase.
When it makes it to the ballot, Florida TaxWatch will do all we can to show Floridians the importance of the non-homestead cap.