Newsletter October '10 - Cap on Increases in taxes on commercial property

I heard there was a cap on increases in taxes on commercial property. Is this true?

As of last year, there is now a ten percent (10%) cap on the amount of increase which can be assessed on non-homestead real estate (accomplished by a voter-approved Constitutional amendment in 2008). As such, owners of non-homestead Florida real estate will have a similar benefit of Florida residents with respect to their homestead real property. There are however, two primary differences between these caps.

First, for homestead property, the amount of increase in assessed value allowed from year to year relative to the resident's homestead cannot exceed the lesser of three percent (3%) or the increase in the consumer price index (CPI).

Second, there was a change in the law that requires individuals and entities owning non-homestead real estate to report any change in ownership or control of such property if such change equates to a cumulative change of more than 50%.  If a property owner fails to notify the property appraiser, the property owner is subject to having to pay the taxes avoided as a result of such failure, as well as fifteen percent (15%) interest per annum on the unpaid taxes as well as a fifty percent (50%) penalty of the taxes avoided. The property appraiser can collect those sums for any taxes avoided for the ten (10) year period preceding such determination.  Or, the property appraiser may record a note of its tax lien on a property of a property owner claiming the limitation cap due to the fact that the property became disqualified by a change of ownership or control that was not promptly reported to the property appraiser.

Certain transfers, however, are allowed, which are: (1) a transfer which is correcting an error; (2) a transfer which is between legal and equitable title; and (3) a transfer between spouses, including a transfer to a surviving spouse or in connection with a dissolution of a marriage.

If a deed is recorded which documents the change of ownership (generally in a transaction in which there has been a direct change in ownership), then no additional reporting need be made. However, with respect to transactions in which the change of ownership is indirect, such as when the owner of an entity (corporation, limited liability company, partnership, land trust, etc.) transfers an interest in the entity to somebody other than such owner's spouse, the Florida Department of Revenue requires the property owner to promptly notify the applicable Property Appraiser's Office. This notice is accomplished by filing a new form, Form DR-430 (Change of Ownership or Control Non-Homestead Property).

So how could this affect me, you ask?  One example is when an individual sells or transfers fifty-one percent (51%) interest in a limited liability company which owned a rental home to anyone other than her spouse or to a revocable trust (if she is the grantor and current beneficiary of the trust).  Another example is the case where a parent decides to gift outright to his children or grandchildren (or to a trust for their benefit), interests in a company that owns a commercial building or a rental unit in Florida.  In these cases, Form DR-430 is required to be filed with the Property Appraiser's Office in the county in which the real estate owned by the LLC is located.

Given these changes, property owners, lawyers, accountants, and financial advisors need to be aware of these new laws and filing requirements, as well as the impact that a more than fifty percent (50%) change of ownership or control will have relative to the ad valorem taxes imposed on the Florida non-homestead real property.

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