Challenging Property Tax Assessments in Court

In prior posts, we have described the Value Adjustment Board (“VAB”) process and identified factors for taxpayers to consider in evaluating that administrative remedy. We have touched upon, but not explored in depth, another remedy that is provided for property taxpayers in Florida, namely, the judicial remedy. Unlike the situation in many other states, a taxpayer in Florida can dispense with the administrative remedy entirely and proceed directly in circuit court to challenge an assessment, or the taxpayer may first seek relief at the VAB and subsequently sue in circuit court. Either way, the court case is de novo, which means it does not depend upon any record made elsewhere, including the VAB. The facts and issues are developed anew. The cases are tried to a judge, not a jury.

Challenges to property tax assessments generally involve disputes over valuation, exemption, classification, or a combination of such issues. Issues may also arise as to whether real property improvements are “substantially complete,” whether tangible personal property has lost its status as construction work in progress, and whether the limitations on increases in assessment have been properly applied.^[1] Some of these issues require appraisal judgment, and others are more in the nature of legal issues. Disputes over all of these types of issues can be pursued in circuit court, in lieu of or in addition to petitioning the VAB. Procedural requisites for litigating an assessment in circuit court are different from those at the VAB. These are discussed below, followed by some substantive aspects that can help taxpayers succeed.

Procedure (and Lots of It)

Regardless of whether a taxpayer invokes the VAB process, the judicial remedy, or both, the procedural requirements are as important to understand as the substance of the underlying dispute. In too many cases the courts never reach the merits of the dispute because of some technical requirement of which the taxpayer was unaware, or resources must be devoted to litigating over a procedural objection raised by the property appraiser. Although the circuit court remedy is generally a positive feature of Florida’s property tax system that distinguishes it from those of many states, it embodies peculiar requirements that must be afforded attention:

• Limited time to sue. Taxpayers are allowed only a brief period for filing suit to contest an assessment. This time frame is by statute treated as “jurisdictional,” which means that failure to comply with it is fatal to the taxpayer’s case. The harshness of this consequence is compounded by the fact that the suit period starts at varying times in different counties and in different years, and depends upon whether the taxpayer has proceeded first at the VAB. Taxpayers who have not timely petitioned the VAB (or have withdrawn their petitions prior to decision) must sue within 60 days following the “certification” of the tax roll to the tax collector. This generally occurs in October, and the specific certification date must be made available to taxpayers in various ways, including by publication on the property appraiser’s website and in response to written requests. Taxpayers who have proceeded through the VAB process must sue within 60 days after the VAB decision is “rendered,” that is, the date of adoption by the members of the VAB (not the date of a special magistrate’s recommended decision). Property appraisers often take the position that the VAB decision is “rendered” on the day of decision, not the date of mailing to the taxpayer. Therefore, it is prudent to monitor the VAB process to identify the actual decision date.
• Good faith payment. A second requirement for a judicial proceeding challenging an assessment is that the taxpayer must pay at least the amount he admits in good faith to be due and owing prior to filing suit. The receipt for this payment must be attached to the complaint. This in contrast to the requirements for a VAB petition. Petitioners before the VAB with valuation claims must pay at least 75 percent of the taxes levied on the contested assessment but are not required to do so until the delinquency date of April 1st of the following year, long after they filed their petitions. For taxpayers who have proceeded with valuation claims at the VAB and lost and whose payment of 75% exceeds the amount they believe in good faith is actually due, no further payment is required to bring suit after the VAB decision. In the unlikely event that a taxpayer’s good faith amount exceeds the 75% previously paid, the difference must be paid prior to suit.
  • Further, regarding the good faith payment, the taxpayer must be prepared for the possibility that his good faith will be challenged. Although that is rare, the taxpayer should be able to demonstrate an objectively reasonable basis for the good faith calculation. Otherwise, there is the potential for: (1) the property appraiser to argue that this jurisdictional requirement has not been satisfied and the case should be dismissed; and/or (2) the statutory imposition of a penalty of 10% per year, in addition to the unpaid taxes and interest. Consider the implications of a property appraiser seeking dismissal based on the claim that the tax payment was not in good faith. In a valuation case, the tax amount billed is based on the assessment, and the taxpayer is placed in the position, often well in advance of having an appraisal, of taking a “good faith” position as to value. The taxpayer may have very little information on which to base such a position, a circumstance the property appraiser may try to exploit. This could lead to a “mini-trial” on value as related to the taxpayer’s good faith. The better view of the law is that this is not appropriate, that the amount of a good faith payment is not jurisdictional, and that the consequence of bad faith in making this payment is addressed by the penalty provisions.
  • A taxpayer with a good faith claim of an immunity or exemption from taxation need not pay any tax amount as a condition to suit in circuit court, because the entire tax is disputed in good faith.
  • The good faith payment requirement does not prevent the taxpayer from choosing to pay more than he considers due, and many taxpayers pay the entire amount billed. Neither payment of a good faith amount or the entire tax bill binds the taxpayer to any value or precludes the taxpayer from obtaining refund of taxes paid that are in excess of the amount ultimately due (although a written reservation of such rights is good practice). The economics of this choice are that interest accrues at 12% per annum on amounts in excess of the good faith payment that are ultimately determined to be due, while no interest accrues on the taxes paid that are later refunded (different interest rules apply to the payment requirement associated with VAB petitions). Still further, the discount for early payment (4% in November, 3% in December, etc.) does not apply to any taxes ultimately due that were not paid during the discount period.
  • The good faith payment requirement extends beyond the year in litigation. The taxpayer must pay all taxes in good faith admitted to be due in subsequent years before the delinquency date, even if those years are not in litigation. In other words, if the taxes in Year 1 are in dispute, the taxpayer must not only pay the amount admitted in good faith to be due for Year 1 prior to filing suit for Year 1, but must also pay the amount admitted in good faith to be due for Year 2 before the delinquency date for Year 2.
• Jurisdictional requirements. All the requirements described above are considered “jurisdictional,” meaning that failure to comply with any of them is fatal to the taxpayer’s case, regardless of how egregious the assessment is, how financially strapped the taxpayer is, or how genuine the hardship is that explains the noncompliance. Although tax professionals can assist taxpayers in complying with the requirements, overcoming noncompliance is rare. The best strategy is to take these requirements seriously and not get into a position where there is even arguable noncompliance.
• Suit against the taxpayer. A taxpayer who has prevailed at the VAB may still find himself in court. This is because the property appraiser has the authority to sue to overturn a VAB decision under statutory conditions that are not difficult to satisfy. This is a reason, among others, that taxpayers often skip the VAB.
• Parties. The law describes who should be parties in a property tax suit. The case is ordinarily brought by the “taxpayer,” a defined term that generally means the owner of the property. The law also allows others, such as lessees who have consent of the owner, to sue if they are responsible for the taxes. In a suit contesting a property appraiser’s assessment, the property appraiser is a party defendant. The tax collector and executive director of the Department of Revenue are also often joined. Property appraisers on occasion attack a taxpayer’s lawsuit for not having joined the right parties, so it is prudent to err on the side of caution.
• Property appraiser information requests. Florida cases have restricted taxpayers’ rights to introduce evidence that was previously requested by the property appraiser and denied to him. This has engendered a practice among property appraisers of sending annual information requests and relying on a taxpayer’s failure to respond when the taxpayer later files suit (or a VAB petition). Although these requests often consist of boilerplate that calls for information having no relevance to the valuation of the property, taxpayers should keep in mind the possible consequences of not providing requested information that is relevant.
• General litigation procedure. The court rules governing other cases also apply to property tax litigation. There are pleadings, motion practice, and discovery. Both sides are entitled to discover from the other party information relevant to the dispute. Therefore, discovery is generally a critical element of a property tax case. Mediation is often required. Value cases generally require (1) a good strategy; (2) the taxpayer’s active support of the litigation and responsiveness to the information needs of his lawyer; and (3) an appraiser who is technically strong and capable of explaining his conclusions clearly and withstanding aggressive cross-examination.
• Confidential information. One advantage of litigation over the VAB is that in court there is a mechanism for protecting confidential information from public disclosure, which has no counterpart for this at the VAB. This protection is not available for everything the taxpayer may wish to keep private, but it does apply to categories that are generally recognized as worthy of keeping out of the public domain. Examples include personal confidential information, intellectual property and other trade secrets, tax returns, and information related to the security of facilities. The taxpayer must formally request confidential treatment and obtain approval of the judge.
• Settlements. Property tax cases often settle before trial. However, most property appraisers will resist changing an assessment if no timely suit (or VAB petition) is pending.
• Remedies available in court. Like the VAB, the judge in a valuation case has options available upon being convinced an assessment is erroneous. The court can determine the value of the property if there is sufficient evidence in the record to do so, or the court can remand the matter to the property appraiser with directions to reassess the property. The property appraiser is required to comply with those directions.

Winning on Substance

Although the nature of the proof required for success varies for exemption, classification and valuation issues, they share a common thread. As with most litigation, the important question is not how strongly the taxpayer feels about the righteousness of his cause, but whether he has on his side admissible facts that will enable him to persuade a judge. Therefore, the starting point is a clear-eyed examination of the strengths and weaknesses of the taxpayer’s position. The prospects for success are then measured against the likely costs. Property tax litigation can be uneconomical unless the amount in dispute is significant and the taxpayer has a strong case.

For exemption and classification issues, the relevant law must be examined to identify the requirements. The taxpayer would generally analyze his own fact pattern in light of those requirements, and make an effort to understand why the property appraiser views the situation differently.

In a typical valuation case, the question is whether the property appraiser’s market value determination is excessive. In an ideal world, before deciding to initiate litigation contesting a property appraiser’s valuation, a taxpayer would engage the services of an appraiser. And not just any appraiser, but one with experience in controversy work, preferably in property tax. Because appraisal is not an exact science, appraisers who are not accustomed to having their work product placed under a microscope and challenged in virtually every particular are not good candidates for a property tax case. However, the short window for filing suit often makes it difficult to locate and engage the right appraiser before the case must be filed. Additional substantive aspects are:

• Valuation standard. The general valuation standard is “just value,” which courts have equated with market value (also called “fair market value”). This is the familiar “willing buyer/willing seller” paradigm. However, despite the ease of expressing the market value concept, the parties to a property tax suit often disagree about what it actually requires. Market value is different than value in use, investment value, business value, and other value concepts. Disputes over whether the property appraiser applied the correct value standard are not unusual. For some property, a standard other than market value applies. Examples include agricultural property and pollution control devices. Most real property is subject to limitations on annual increases in assessed value, until an event occurs which triggers a “reset” to just value.
• Assessments are as of January 1. Assessments are based on conditions in existence as of January 1 of the tax year. This is why a large increase over the prior year’s assessment does not alone render a current assessment excessive. The courts generally allow the property appraiser to defend such increases by arguing that each year stands alone and that the property was previously undervalued. But if the increase is a result of the property appraiser having changed methods, or adopting a new perspective about what facts are considered relevant, or if he appears to have a political agenda, this should raise flags for the taxpayer. The property appraiser’s practices and assessments for one or more prior years can then become relevant.
• Computer-assisted mass appraisal. Assessments are generally derived through the use of a Computer Assisted Mass Appraisal (“CAMA”) system. Property appraisers use these systems because of the sheer volume of property they must value each year. However, the results of using a CAMA system are only as good as the underlying data inputs and judgments employed in using them. The more complex the property, the less suitable is the use of an automated system to generate a valuation for it. Critiquing the way in which the assessment was derived (including those in which CAMA was not used) is often the subject of a second appraisal witness engaged by the taxpayer.
• Determining just value. Market value is an appraisal concept. However, the Legislature has identified eight “factors” which must be “considered” in arriving at just value. Although court cases have held just value to be legally synonymous with market value, two of the factors are arguably applied in ways that cause assessments to be lower than market value (property appraisers may deny this in litigation). Still further, the law requires that property tax values be determined in accordance with “professionally accepted appraisal practices.” The result is that litigants in valuation cases are often arguing over both matters of law and appraisal technique, and the line between law and appraisal is blurred.
• Discriminatory assessments. The Florida and federal constitutions contain provisions which provide some protection against discrimination in property taxation. However, invoking these protections can be difficult and expensive. A related requirement in Florida statutes prohibits the property appraiser from arbitrarily basing the assessment of a taxpayer’s property on appraisal practices that are different than those applied in valuing comparable property in the same county. This is likely to be more manageable than mounting a constitutional discrimination challenge.
• Burden of proof. An additional layer of complexity is presented by the statutes which prescribe the burden of proof for property appraisers and taxpayers in valuation cases. In particular, a property appraiser may enjoy a “presumption of correctness” if he can prove that his assessment was derived in accordance with governing statutes (including consideration of the eight factors previously mentioned) and professionally accepted appraisal practices. But with or without a presumption of correctness, an assessment can be defeated if the taxpayer proves by a preponderance of the evidence that the assessment is excessive.
• Valuation techniques. The most reliable techniques for valuing a particular property depend upon its nature and upon the market, and discussion of those techniques is beyond the scope of this article. Suffice it to say that the choice of technique is often the primary valuation issue. The law entitles a taxpayer to a determination of whether the method used by the property appraiser was appropriate.

In summary, the property tax judicial remedy has much to commend it and should be considered as an alternative to the Value Adjustment Board or an additional option in the event a VAB proceeding does not produce acceptable results. It is advisable to consider this option as early as possible and to understand the procedural and substantive aspects of invoking the judicial remedy. Although the foregoing is not an exhaustive treatment of the topic, it is intended to provide a useful starting point for taxpayers concerned about their assessments.

For assistance with this and other state and local tax matters, please contact a member of our State and Local Tax Team.

^[1] Florida allows a variety of exemptions, including exemptions for homesteads, for charitable, municipal, religious, educational, scientific uses, for solar energy devices, and for economic development. An example of a classification issue is whether property is eligible for assessment based on its agricultural use. Aircraft, boats, and motor vehicles are constitutionally excluded from ad valorem taxation. Intangible personal property is taxable only at the state level, at a much lower rate than locally assessed property.

About the Authors:
H. French Brown, IV focuses on state and local taxation, governmental relations and lobbying, and administrative law. Prior to joining Dean Mead, Mr. Brown was in private practice at another Tallahassee law firm. He began his legal career at the Florida Department of Revenue, where he quickly rose to the position of Deputy Director of Technical Assistance and Dispute Resolution. Mr. Brown also assists businesses with Florida tax planning and controversies. He may be reached at fbrown@www.deanmead.com.

Robert S. Goldman offers clients over 40 years of experience practicing in state and local taxation. He represents clients in audits, protests, litigation, rulemaking, tax planning, and legislation. His experience includes all the major state and local taxes (sales taxes, property taxes, corporate income taxes, communications service taxes, gross receipts taxes, insurance premium taxes, documentary stamp taxes). Mr. Goldman’s range of experience spans diverse industries including retail, manufacturing, energy, leasing, hospitality, telecommunications, government contracting, health care, transportation, and the service sector. He may be reached at rgoldman@www.deanmead.com.

Mark E. Holcomb has 33 years of experience practicing in state and local taxation. He represents clients before the Florida Department of Revenue and local taxing authorities, and in litigation at the trial and appellate levels. Mr. Holcomb advises clients on a broad range of state and local taxes, including corporate income and franchise tax, sales and use tax, documentary stamp tax, communication services tax, insurance premium tax, ad valorem tax and motor fuels tax, in tax controversy work and in planning opportunities. He may be reached at mholcomb@www.deanmead.com.