Florida Tax Attorney Blog

In a recent case, the Florida Supreme Court held a residence requirement set forth in Florida's homestead exemption statute to be invalid and unenforceable because the residence requirement was not required by the provision of the Florida Constitution which authorizes the homestead exemption. Garcia v. Andonie, Florida Supreme Court, No. SC11-554, October 4, 2012. Specifically, the statute required the taxpayer seeking the exemption to be a permanent resident in order to qualify for the exemption. However, the Court held that the Florida Constitution does not require a taxpayer to be a permanent resident to claim the exemption. Significantly, the Court emphasized that the constitutional requirement is an either/or proposition. In other words, a taxpayer either has to use the property as their permanent residence or the property has to be used as a permanent residence by individuals who are legally or naturally dependent on the taxpayer. A brief synopsis of the case is included below.

Facts: The taxpayers were citizens of Honduras who lived with their children at the property in question. The taxpayers were allowed to the stay in the United States pursuant to a temporary visa. The taxpayers' children were born in the United States and accordingly were citizens of the United States and the State of Florida.

Holding: Although the taxpayers could not claim permanent residence due to their temporary visas, they were nevertheless entitled to the homestead exemption because their children could claim the property as their permanent residence.

Following the writing of last week's article discussing the effect of an employee's in-state presence on the state tax nexus determination, I received the following question from a reader:

I am moving to Florida from New Jersey and want to telecommute and continue working for my job in New Jersey. Do Florida laws put my employer at risk?

The state tax nexus determination is a facts and circumstances analysis. Therefore, each case will vary depending on the unique facts and circumstances of that particular case, so it is not possible to definitively conclude one way or the other. Nevertheless, a review of the case law from various states suggests that a single employee's presence in a state will most likely put an employer at risk.

In my opinion, this is the wrong result. As I have previously discussed, United States Supreme Court case law indicates that an employee's mere presence in a taxing state is insufficient to support a finding of nexus by itself. Instead, the nexus determination must be made by reference to the nature and extent of the employee's activities in the taxing states. Eventually, the right case will come along, and the state of the law on this point will be clarified. Until then, however, most state courts will continue to assume that employee presence equals nexus. This is especially true in the current market conditions where states are looking for revenue sources wherever they can find them.

With that being said, it pays to be conservative right now. Although I believe the current trend of equating mere employee presence with automatic taxing nexus to be legally incorrect, I would still not advise any client that they can put a telecommuting employee in a state without becoming subject to the taxing jurisdiction of that state. The reality is that there is a very real possibility that a state would try to assert taxing jurisdiction over the employer as a result of the presence of a telecommuting employee.

In closing, consider a recent case out of New Jersey. In Telebright v. Director, Division of Taxation, the New Jersey Division of Taxation effectively used a single employee's act of telecommuting as the jurisdictional hook to tax the income of a Delaware corporation. Significantly, the corporation maintained no offices in the State of New Jersey. The corporation's only contact with New Kersey came in the form of this one employee who telecommuted to work in Delaware from her home in New Jersey. Based on this indirect contact, the Delaware corporation was held to be "doing business" in New Jersey. As a result, its income was subject to taxation in New Jersey.

Bottom Line: Employers must be mindful of their telecommuting policies in this modern age of technology. Your employer may already be aware of this and may have already considered this if it is willing to allow you to telecommute. There is also the possibility that your employer already has contacts with the State of Florida so that your telecommuting will not create any additional exposure to taxation.

It's that time of year again. Florida commercial property owners can expect to receive their property tax assessments in the next few weeks.

The Bad News

Your commercial property may be overvalued for property tax purposes. In Florida, real property is assessed through a mass appraisal process. In this respect, property appraisers use computer models and sometimes even aerial photographs to determine square footage and other material aspects of the property. After gathering this information about the property, property assessors use comparable sales and other general market indicators to value the property for assessment purposes.

This type of mass appraisal is necessary as a practical matter given the number of properties that must be valued. However, mass valuation techniques often fail to account for meaningful details, resulting in assessments that inaccurately value the property. Moreover, property tax assessments are performed a year in arrears. This means that your 2012 assessment is based on 2011 market indicators.

The Good News

You can fight back! As a Florida property owner, you have the right to appeal the County's assessment of your commercial property. If you believe that your assessment does not fairly reflect the value of your property, you may want to consider appealing the assessment. But the window for appeal is small, so you have to act fast!

In Florida, taxpayers only have 25 days to appeal the assessment. With assessments delivered in early August, the deadline for appeal typically falls around September 10. If you think the County has overvalued your commercial property, contact me today.

The Emily Vernon Foundation for Homeless and Abused Animals whose property tax exemption is under challenge by the Palm Beach County property appraiser paid its entire tax bill this week.

Jennifer Sorentrue of the Palm Beach Post summarizes the procedural history of this case well in her May 9 and May 16 articles. The non-profit animal rescue group owns a 5,900-square-foot luxury home, stables and kennels on 7.3 acres in Wellington. The group applied for a charitable property tax exemption last year, but the Palm Beach County property appraiser denied the request on the ground that the house was being used as a residence for the foundation trustee's family

The rescue group appealed the property appraiser's decision to the Palm Beach County Value Adjustment Board, which oversees property tax exemptions. The special magistrate assigned to the case ruled in favor of the animal rescue group, ultimately agreeing that the vast majority of the estate qualified under the charitable exemption requirements. The Value Adjustment Board unanimously approved the magistrate's decision at its April 17 meeting.

The Palm Beach County property appraiser, Gary Nikolits, subsequently filed suit against the Value Adjustment Board alleging that the Board exceeded its authority when it granted the exemption. According to Nikolits, the Board did not have authority to approve the magistrate's decision because Florida law requires a property owner to make a "good faith" payment during the pendency of a petition challenging a property tax assessment, and the animal rescue group had not paid its property tax bill. This is what prompted payment of the tax bill.

The animal rescue group plans to seek a refund if the Value Adjustment Board's decision is upheld in court. Approximately $86,000 (plus penalties and interest) is at stake. That's $86,000 that could be better spent on rescuing and caring for abused and abandoned animals.

In my opinion, the property appraiser's initial denial of the exemption and subsequent challenge illustrates a blatant and impermissible entanglement of government and religion. Here's why: the property appraiser's primary reason for denying the exemption is that the house is also being used as a residence by the foundation's principals. Yet, home-based churches and clergy housing receive property tax exemptions on religious grounds throughout Palm Beach County.

Let me be clear: I'm not saying that these religious exemptions should be denied. I recognize the importance of religion in society and believe that its presence should be facilitated and accommodated. Significantly, however, "[t]he First Amendment has erected a wall between church and state . . . and [t]hat wall must be kept high and impregnable." Everson v. Board of Education, 330 U.S. 1 (1947). This means that the government must be neutral with respect to religion. This means that government may neither favor nor burden religion. Palm Beach County's allowance of property tax exemptions for home-based religious organizations and denial of charitable property tax exemptions for this home-based animal rescue group effects a symbolic endorsement and preference for religious charities over non-religious charities. Government cannot constitutionally convey a message that religion is preferred over non-religion. County of Allegheny v. ACLU, 492 U.S. 573 (1989).

A recent article published by Soundings Trade Only Today, a news source for marine industry professionals, touted the success of Florida's $18,000 sales and use tax cap on boats purchased or brought into Florida. According to the article, Florida generated some $13.4 million in direct sales tax revenue from sales of tax-capped boats during 2011.

According to a joint study conducted by the Florida Yacht Brokers Association (FYBA) and the Marine Industries Association of South Florida, the marine sales tax cap, which was enacted in 2010, has impacted the maritime industry in two significant respects. First, the average sale price for post- sales tax cap transactions was about $907,000. This figure represents nearly twice the average pre- sales tax cap. Second, out-of-state closings (presumptively to avoid sales tax) dropped from 21.5 percent to 12.8 percent.

In light of the success of the marine sales tax cap, a spokesman for FYBA stated that "setting a reasonable tax basis for high dollar purchases provides an incentive for more boats to be purchased, provisioned and kept plying the waters of Florida." Of course, this is a basic principle of tax policy in general. Unfortunately, however, this fundamental principle seems to have been forgotten in this new "occupy Wall Street" era of proposed "millionaire's taxes."
Aside from the inherently unresolvable policy issues associated with a millionaire's tax (e.g., class warfare, enhancing the social gap while only minimally closing the economic gap between the rich and the poor), raising taxes leads to decreased spending. While this may be less true with respect to inelastic items such as food, housing, and transportation, it cannot be debated with respect to more elastic luxury items . By contrast, reducing taxes stimulates the economy by boosting spending.

On the surface, one might be unsympathetic to the plight of the white-collar tax payer who is required to reduce his or her discretionary spending on luxury items such as boats, traveling, dining out, etc. But in the end, it all comes back to the middle-class because it is the middle class who will inevitably bear the incidence of a millionaire's tax. It is the middle-class who work in the shipyards where the boats are manufactured and the boat dealerships and brokerage houses where the boats are sold. It is the middle class who work and operate the upscale restaurants in which the wealthy dine. It is the middle class who repair and sell the Bentleys, Mercedes, and Porsches which the wealthy drive. The list goes on and on.

Moral of the Story: Love them or hate them, the spending habits of the wealthy keep many Americans employed. So don't kill the goose that lays the golden egg.

The Florida maritime sales tax cap is compelling evidence of the longstanding and well-established principle that reasonable levels of taxation stimulate economic growth. With that being said, other areas of government - both local and federal - would be well-advised to follow the Florida maritime industry's lead.

Effective 2008, Florida residents voted to amend the Florida Constitution to protect commercial property owners against substantial increases in annual property assessment values. Specifically, the constitutional amendment operates to preclude increases in the assessed value in excess of ten percent from one year to the next.

All Commercial Properties Are Not Created Equal

While the protection of the ten percent cap extends to most types of commercial property, certain types of properties are unprotected. Among these unprotected properties are agricultural and conservation properties. The theory is that these types of properties already receive favorable tax treatment under Florida law and do not require additional protection in the form of the ten percent cap.

10% Cap Is Not Absolute

The protection against increases in assessed value in excess of ten percent is forfeited by a change in ownership or control. This means that sale or other disposition of the property will result in loss of the protection. To be clear, the new owner of the property is entitled to the protection going forward. However, the assessed value for the new owner's first year of ownership may be more than ten percent of the prior owner's assessment for the year preceding the property transfer.

Key Takeaway

If your Florida commercial property assessment has increased by more than ten percent this year, your commercial property may be overassessed for Florida property tax purposes. If your property is of a type entitled to protection under the ten percent cap, and there has been no transfer of ownership or control that would trigger loss of that protection, you can and should appeal the assessment.

The new year is upon us, and so is tax season. And as tax season quickly approaches, it is important for Florida business owners to be aware of their tax obligations. Here's the 411 on when and how to file and pay:

FEDERAL:

Income Tax

Corporations

Due: March 15 if the corporation operates on a calendar year. Otherwise due on the 15th day of 3rd month following the end of tax year.

• C-corporations - Form 1120

• LLC Taxed as a Corporation - Form 1120

• S-corporation - Form 1120S (Note: an S-corp itself is generally not liable for any tax

Partnerships

Due: April 15 if the partnership operates on a calendar year. Otherwise due on the 15th day of 4th month following the end of tax year.

• Partnership - Form 1065

• LLC Taxed as a Partnership - Form 1065

LLCs

• Most LLCs with more than one member file a partnership return (Form 1065).

Due: April 15 if the LLC operates on a calendar year. Otherwise due on the 15th day of the 4th month following the end of the LLC's tax year.

• To be taxed as a corporation, a Form 8832 must be filed. LLCs taxed as corporations file a corporate return (Form 1120).

Due:March 15 if the LLC operates on a calendar year. Otherwise due on the 15th day of the 3rd month following the end of the LLC's tax year..

Single-Member LLCs

• Sole Member = Individual - Form 1040.

If you would prefer to have the LLC file as a corporation, you must file Form 8832. LLCs taxed as corporations file a corporate return (Form 1120).

• Sole Member = Corporation - Form 1120 (for C-corps) or Form 1120S (for S-corps)

Employment Tax
Businesses with employees must withhold federal income, Medicare and Social Security taxes from wages. When and how these taxes are paid to the government depends on a business's aggregate annual employment tax liability.

• Small Businesses With Annual Employment Tax Liability of Less Than $1,000: Payments may be made annually on January 31 by filing Form 944, Employer's Annual Federal Tax Return.

• Businesses With Annual Employment Tax Liability in Excess of $1,000: Payments are generally made on a monthly or semi-weekly basis. For businesses with total annual deposits in excess of $200,000, the Electronic Federal Tax Payment System is required. Businesses with total annual deposits of less than $200,000 may use Form 8109-B to make these payments. The tax should be reported on Form 941, Employer's Quarterly Federal Tax Return

Unemployment Tax

Due: Jan. 31, April 30, July 31, Oct. 31

• Must be paid for employees who were paid $1,500 in wages within a calendar quarter or who were employed for any portion of a day in 20 different weeks during the year.

• Due at the end of the month that follows the last day of each quarter.

• Electronic Payment or Form 8109-B.

• Paid on a quarterly basis, but reported on an annual basis (Form 940).

FLORIDA:

Florida Corporate Income Tax

Due: April 1 if the corporation operates on a calendar year. Otherwise due on the 1st day of 4th month following the end of tax year.

• Corporations that do business in Florida are subject to a 5.5% state corporate income tax.

• C-corporations generally pay tax on Form F-1120. However corporations with a tax liability that is less than $2,500 may file a short form, F-1120A.

Estimated Tax Payments: Corporations that owe more than $2,500 in Florida corporate income tax for the year must make estimated tax payments on Form F-1120ES on or before the last day of the fourth, sixth and ninth months of the taxable year and on the last day of the tax year.

Limited Liability Companies:

• LLCs which are classified as corporations for federal tax purposes are required to file a Florida corporate income tax return.

• LLCs which are classified as partnerships for federal tax purposes are required to file a Florida Partnership Information Return (Form F-1065) if they are doing business in Florida and one or more of their owners are corporations.

• A corporate owner of an LLC that is classified as a partnership for Florida and federal income tax purposes must file a Florida corporate income tax return.

S-Corporations: An S-corporation is not required to file a Florida corporate income tax return (except in cases where the S-corp has federal taxable income).Florida Unemployment Tax

Due:Jan. 31, April 30, July 31, Oct. 31:

A Florida business is required to report wages and pay taxes to the Unemployment Compensation program if:

• It paid $1,500 in wages within a calendar quarter;

• Employed one person for any portion of a day in 20 different weeks during the calendar year; or

• is liable for federal unemployment tax.

Generally paid on a quarterly basis by submitting Form UCT-6 to the Florida Department of Revenue.

Florida Sales and Use Tax

Due: First day of the month

• Businesses with taxable transactions must register with the Florida Department of Revenue by filing Form DR-1 or e-filing via the Florida Department of Revenue's website.

• Businesses that collect more than $20,000 annually in sales and use tax must pay through electronically.

• Businesses that collect less than $20,000 annually may use Form DR-15.

• Returns and payments are generally due on the first day of the month following the month in which the tax was collected. However, businesses that do not collect substantial amounts of sales and use taxes may file and pay on a less frequent basis. Specifically, businesses that collect less than $1,000 per year may file on a quarterly basis; businesses that collect $500 or less per year may file on a semiannual basis; and businesses that collect $100 or less per year may file on an annual basis.

Florida Discretionary Surtax

Due: First day of the month

• Some counties impose an additional surtax on transactions that are subject to the state sales and use tax.

• In such counties, this surtax is reported on Form DR-15 with sales and use tax.

Use Tax on Out-of-State Purchases

Due:First day of the month following the quarter in which purchase was made

• When out-of-state sellers fail to collect Florida sales tax, buyers must make the payment on their own.

• Applies to merchandise purchased from the Internet, shopping networks, mail order catalogs, etc.

• Applies to merchandise purchased while traveling out of state and shipped to Florida.

• Paid on Form DR-15MO

Florida Tangible Personal Property Tax

Due: April 1

• Florida businesses that own tangible personal property (e.g., computers, furniture, equipment) must this tax annually.

• Inventory is not subject to tax.

• Paid to county property appraiser on Form DR-405.

As the South Florida real estate market continues to decline, home prices throughout the State continue to drop, and property taxes are increasing for many Florida homeowners.

If this seems counter-intuitive it's because it is. Logically, a homeowner's property tax burden should increase or decrease in direct proportion to increases and decreases in the fair market value of the home. This is especially true in Florida where property is assessed at "just," or market, value and reassessed on an annualized basis (as compared to other states where property is reassessed on a biennial or triennial basis). Still, county assessments typically trail market changes by a year or more in Florida. This is because Florida law mandates that assessments be performed a year in arrears, with January 1 designated as the statutory date for assessment.

This means that your current assessment is based on comparable sales and other market indicators for January 2- December 31 of LAST year. Thus, your 2011 property tax assessment is based on 2010 market data, and changes in the market value of your home that occur after January 1 are not reflected in your 2011 property tax bill. While this may be desirable in a rising market, it deprives homeowners of a tax benefit to which they are legally entitled in a falling market.

Moreover, although every piece of real estate is unique, county tax appraisers use a mass method of appraisal to assess home values.

Continue reading "YOUR HOME MAY BE OVERVALUED FOR FLORIDA PROPERTY TAX PURPOSES" »