Florida Tax Attorney Blog

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 can and there has been no transfer of ownership or control that would trigger loss of that protection, you can and should appeal the assessment.

It is well-established that the Due Process and Commerce Clauses of the U.S. Constitution impose limits on the taxing powers of the several States. E.g., Bellas Hess v. Illinois, 386 U.S. 753 (1967); Quill Corp. v. North Dakota, 504 U.S. 298 (1992). Under the Due Process Clause, there must be some minimum connection between a state and a corporation before such state may tax that corporation. E.g., Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954). Under the Commerce Clause, the corporation must have a "substantial nexus" with the taxing state. See Quill Corp. v. North Dakota, supra (citing Complete Auto v. Brady, 430 U.S. 274 (1977). In addition, the tax must be fairly apportioned, non-discriminatory, and fairly related to the services provided to the corporation by the taxing state. Id.

Of course, a corporation will typically know where its property and employees are located. Thus, to the extent a corporation has property or employees in a given state, it can be said to be on notice of its potential exposure to tax in that state, and the requirements of the Due Process Clause are, therefore, satisfied. In addition, the substantial nexus requirement of the Commerce Clause will likely be satisfied assuming that the tax is fairly apportioned, non-discriminatory, and fairly related to the state services provided to the corporation.

But what about corporations engaged in the leasing business (e.g., rental car businesses, equipment leasing businesses)? Can nexus be established with a state solely by virtue of a lessee's transportation of the leased property into that state?

The current trend suggests that the answer is yes.

Continue reading "STATES MAY BE DEPRIVING LEASING COMPANIES OF DUE PROCESS" »