Constitutional Amendment May End Property Tax Reform in Florida

Published April 1, 2008

Tax reform advocates warn that Amendment 1, a property tax reform proposal passed by Florida voters and now a part of the state’s constitution, may actually inhibit future reform efforts.

Though the measure received more than 64 percent of the vote on January 29, few people, including the measure’s most ardent supporters, believe it really fixes the state’s property tax system. Proponents painted it as a “first step,” but others believe its passage could spell the end of true reform.

“Amendment 1 does not really address the core problems with Florida’s property tax system. It will likely cut taxes for those whose taxes have not really increased and increase taxes for those who have suffered the most,” said Dominic M. Calabro, president and CEO of Florida TaxWatch, a nonprofit, nonpartisan government watchdog that opposed Amendment 1.

“While the amendment will make it harder to construct another amendment that would garner enough support to pass, everyone knows this should not be the end of property tax reform in Florida,” Calabro added.

‘Message Loud and Clear’

State Rep. Paige Kreegel (R-Punta) agreed, telling the Sun-Herald newspaper, “I think the message was loud and clear. I think most of them [voters] would have said, ‘This is a good start. We want more.'”

The new constitutional provision includes:

  • portability, up to $500,000, for the Save Our Homes property tax cap;
  • an increase in the homestead exemption, from $25,000 to $50,000. The new $25,000 exemption does not apply to school taxes, which constitute approximately 40 percent of property taxes;
  • a tangible personal property exemption of $25,000 for businesses;
  • a 10 percent cap on assessments for non-homestead property, excluding school taxes.

Savings Asserted

Amendment 1 proponents claimed the provisions would save taxpayers $9.3 billion over five years. The average homeowner is expected to save $240 a year from the homestead exemption, with greater savings for people who take advantage of the Save Our Homes portability provision.

Businesses could save up to $450 a year if they can take the full tangible personal property exemption.

Big Tax Shift

Save Our Homes is a Florida constitutional provision, passed by referendum more than a decade ago, that caps the increase in annual property tax assessments at 3 percent for homesteaded property. Because it applies only to primary residences, the result has been a multibillion-dollar tax shift from these properties to everyone else–businesses, rental property, part-time residents, etc.

The cap also has created inequities among homesteaded properties, particularly for new homeowners and people who move, because newly purchased homes are assessed at full value. Many people have blamed a sagging housing market in Florida on the huge tax increases that often result when buying a property.

Amendment 1 will make a homeowner’s total savings from the Save Our Homes cap portable, meaning the savings produced by the cap each year the citizen owned the homesteaded property are transferable to another homesteaded property in Florida.

The Save Our Homes savings is the difference between the fair market value of the property and the assessment amount allowed under the Save Our Homes provision. The savings can be transferred to another property within one year of leaving the original homesteaded property.

Bigger Exemption

In addition to benefiting from Save Our Homes, the first $25,000 of all homesteaded property in Florida is exempt from ad valorem taxation. This provision, known as the homestead exemption, makes the first $25,000 completely free of all property tax liability, including school taxes.

Amendment 1 expands this constitutional provision, exempting another $25,000 from some ad valorem taxation. School district taxes, which make up about 40 percent of all ad valorem tax, are not affected and will be assessed on the new $25,000 in homestead exemption.

Amendment 1 is expected to cut property taxes for homesteaders and increase taxes over time for everyone else.

Even these two outcomes are not clear, however. There is nothing in the provision or statutes to restrict local governments from raising tax rates to offset reductions. Local governments around the state have already begun discussing increasing fees (such as license and permitting fees) and charges for services (such as garbage collection and transportation) to reclaim the lost ad valorem revenue.

Legal Questions

In addition to the uncertain implications for Florida’s residents and local governments, the legality of the portability provision remains a question. During the discussion and debate leading up to the passage of Amendment 1, a challenge to the portability provision under the U.S. Constitution was often raised.

Legal experts and politicians disagree about the provision’s chances of being upheld as constitutional. It will almost certainly be challenged in federal court.

Although questions about Amendment 1 remain, the message received by Florida government was clear. Floridians are unhappy about their property taxes. It is unlikely the amendment will change that. Proponents admit the amendment is not enough, and critics contend it will make matters worse.

Kurt R. Wenner ([email protected]) is director of tax research and Robert Weissert ([email protected]) is a research analyst at the Florida TaxWatch Research Institute.