Burden of Proof-Persuasion: FL Ad Valorem Tax

Understanding the Burden of Proof and Burden of Persuasion

Part II: Ad Valorem Tax

Our firm previously published a perspective entitled: "Understanding the Burden of Proof and Burden of Persuasion" in Florida taxation. The prior article focused on taxes authorized for assessment and direct administration through the Florida Department of Revenue. Florida's tax burden is not limited to excise taxes, intangible taxes and income taxation. Beyond these often reaped fields, lies taxes imposed on real property known as "Ad Valorem" taxation. An ad valorem tax is a tax assessed upon the value of property. See Collier County v. State, 733 So.2d 1012, 1014 n. 2 (Fla.1999) The Florida Constitution requires a "just valuation of all property for ad valorem taxation." Art. VII, § 4, Fla. Const. Accordingly, the general rule is that all property subject to ad valorem taxation in Florida must be assessed based upon "just value".[1] To arrive at what is known as "just value," the property appraiser is required to consider various statutorily designated factors found in Section 193.011, Florida Statutes. These factors are the following eight ( "eight criteria") criteria:

1. The present cash value of the property ...;
2. The highest and best use to which the property can be expected to be put in the immediate future and the present use of the property ...;
3. The location of said property;
4. The quantity or size of said property;
5. The cost of said property and the present replacement value of any improvements thereon;
6. The condition of said property;
7. The income from said property; and
8. The net proceeds of the sale of the property, as received by the seller …(remainder of definition criteria omitted here)

In a relatively early decision, the Florida Supreme Court has commented on the implementation of these guidelines by suggesting this analysis is an art rather than a science saying:

The appraisal of real estate is an art, not a science. There are various methods of approach in determining the market value of real estate, each approach involving the use of various guidelines. Although the use of such guidelines may be mandatory in appraisal work, their application to various situations calls upon the exercise of judgment. ……The standard measure of value would direct the tax assessor to use a certain approach, but would not necessarily bind or determine the 'just value' or 'market value' of the property. The standard measure of value when properly determined may be 'science", but the ultimate determination of just value is 'art.' Powell v. Kelly, 223 So. 2d 305, 309 (Fla. 1969)

The court reiterated in opinions as late as 1991 the very difficult burden of proof which applied to taxpayer contests of ad valorem assessments. For example, in Schultz v. TM Florida-Ohio Realty Ltd. P'ship, 577 So. 2d 573, 575 (Fla. 1991) the court opinion included this statement:

The taxpayer in this case has failed to meet its burden to show that the challenged valuation was not arrived at lawfully and is not supported by any reasonable hypothesis of legality. See Oyster Pointe, 524 So.2d at 417. As noted above, the trial court specifically found that the methodology by which the property was appraised was not "erroneous or improper." This finding is supported by the record.(e.s)

The approach approved by the courts has been characterized as a "clear and convincing" burden of proof. See: Mazourek v. Wal-Mart Stores, Inc., 831 So. 2d 85, 92 (Fla. 2002)( "the taxpayer shall have the burden of proving by clear and convincing evidence that the appraiser's assessment is in excess of just value") Essentially, this burden came very close to a requirement to prove a negative, eg. the taxpayer must show that valuation used " is not supported by any reasonable hypothesis of legality………." This "clear and convincing " burden of proof, as reflected in Mazourek and Schultz , supra., ultimately lead to a legislative override of this line of jurisprudence by a statutory re-shaping of the burden of proof and presumptions in ad valorem tax challenges.

In 1997, the Florida Legislature enacted Section 194.301 Florida Statutes, specifying the taxpayer's burden of proof required to overcome the presumption of correctness applicable to the property appraiser's tax assessment under Florida jurisprudence. See ch. 97–85, § 1, at 504, Laws of Fla. Section 194.301 also specified the taxpayer's burden of proof in challenging not only the "just value" , but also the amount of an assessment. Section 194.301 Florida Statutes also addresses burden of proof in administrative law challenges to "just value" as determined by the property appraiser. See: s. 194.301(2) F.S.

The relatively recent 2013 decision by the Second District Court of Appeal in VS EGL Fruitville Sarasota Fl, LLC v. Todora, 124 So. 3d 289, 291-92 (Fla. 2d DCA 2013) provides a useful summary of the "new" statutory burden of proof in ad valorem tax challenges as well as historical perspective. As part of the decision, the opinion explained an unusual enactment in 2009, after the change in the burden of proof in 2007. This 2009 enactment emphasized the 1997 law, which had been overlooked in trial court decisions ( such as the trial courtVS EGL Fruitville Sarasota, supra.) by those not familiar with Florida tax laws. The opinion is stated in part:

"In 2009, the Florida Legislature enacted 194.3015, Fla. Stat. (2009), to redress the courts' continued application of the "any-reasonable-hypothesis" standard in reviewing challenges to the property appraiser's *292 assessments. See ch. 09–121, § 2, at 1528, Laws of Fla. Section 194.3015 provides as follows:

(1) It is the express intent of the Legislature that a taxpayer shall never have the burden of proving that the property appraiser's assessment is not supported by any reasonable hypothesis of a legal assessment. All cases establishing the every-reasonable-hypothesis standard were expressly rejected by the Legislature on the adoption of chapter 97–85, Laws of Florida. It is the further intent of the Legislature that any cases published since 1997 citing the every-reasonable-hypothesis standard are expressly rejected to the extent that they are interpretative of legislative intent.

(2) This section is intended to clarify existing law and apply retroactively."

The legislature took the very unusual step of not only applying the legislation retroactively in a taxation statue, but it also legislatively overruled any published decisions which had applied the wrong standard after the 1997 enactment! Thus with the 2009 enactment of Section 194.3015, the legislature plainly and without equivocation, refuted imposition of a burden of proof requiring a demonstration that "… the property appraiser's assessment is not supported by any reasonable hypothesis of a legal assessment." Beyond the reference to the legislation expressly rejecting the prior legal standard, thisVS EGL Fruitville, supra decision is also useful because it explains the importance of Section 194.301 F.S. in terms of challenging the amount of an ad valorem assessment stating:

In 1997, the Florida Legislature enacted section 194.301, specifying the taxpayer's burden of proof in order to overcome the presumption of correctness applicable to the property appraiser's tax assessment. See ch. 97–85, § 1, at 504, Laws of Fla. Section 194.301 also specified the taxpayer's burden of proof in challenging the amount of the assessments, depending upon whether the property appraiser retained or lost the presumption of correctness. As with the 2005 statute applicable to this case, the 1997 statute provided that if the presumption of correctness were lost, the taxpayer had the burden to prove by a preponderance of the evidence that the challenged assessment was in excess of just value. If the property appraiser retained the presumption of correctness, then the taxpayer had the burden to prove by clear and convincing evidence that the challenged assessment was in excess of just value. CVS EGL Fruitville Sarasota Fl, LLC, supra.

This decision therefore clearly establishes that the property appraiser, as a constitutional officer, retains a rebuttable presumption of correctness when an Ad Valorem assessment is challenged, but established a new lower standard of proof required to overcome that presumption, e.g. a preponderance of the evidence. The basis for overcoming or rebutting the initial presumption of correctness, as stated in the opinion, is the following:

The presumption is lost if the taxpayer proves by a preponderance of the evidence that the appraiser either (1) did not "consider properly" the criteria set forth in section 193.011, Florida Statutes (2005), or (2) arbitrarily used appraisal practices that are not generally appliedCVS EGL Fruitville Sarasota Fl, LLC, supra. (footnote omitted)

So, the opinion underscores the importance of the eight criteria stated in s. 193.011, Florida Statutes and the evaluation of whether these criteria are "considered properly" or, alternatively demonstrate that the appraisal used practices not generally applied. Finally, consideration of the exact language of Section 194.301(1) and 194.301(2) is advisable to obtain an understanding of the current burden of proof. These provisions state:

(1) In any administrative or judicial action in which a taxpayer challenges an ad valorem tax assessment of value, the property appraiser's assessment is presumed correct if the appraiser proves by a preponderance of the evidence that the assessment was arrived at by complying with s. 193.011, any other applicable statutory requirements relating to classified use values or assessment caps, and professionally accepted appraisal practices, including mass appraisal standards, if appropriate. However, a taxpayer who challenges an assessment is entitled to a determination by the value adjustment board or court of the appropriateness of the appraisal methodology used in making the assessment. The value of property must be determined by an appraisal methodology that complies with the criteria of s. 193.011 and professionally accepted appraisal practices. The provisions of this subsection preempt any prior case law that is inconsistent with this subsection.

(2) In an administrative or judicial action in which an ad valorem tax assessment is challenged, the burden of proof is on the party initiating the challenge.

Given the statute and its interpretation, the last and current appellate decision being the CVS EGL Fruitville Sarasota case, it is plain that the taxpayer still does not start on a level playing field when challenging valuation or assessment. An uphill battle exists because of the retention of the "clear and convincing" burden of proof under the statute if the property appraiser retains the presumption of correctness. While it is true the property appraiser must present evidence to demonstrate the assessment was arrived at by "complying with s. 193.011, any other applicable statutory requirements relating to classified use values or assessment caps, and professionally accepted appraisal practices…"CVS EGL Fruitville Sarasota,supra., once such evidence is presented, and if satisfactory under the eight criteria enumerated in s. 193.011, then, borrowing the words of the 2^nd DCA, clear and convincing evidence is necessary to win. The opinion states:

"If the property appraiser retained the presumption of correctness, then the taxpayer had the burden to prove by clear and convincing evidence that the challenged assessment was in excess of just value.

A Take Away and Caveat

In sum, taxpayers who believe their property appraisal is incorrect and wish to challenge it or the amount of an assessment, the best approach is to demonstrate by a preponderance of the evidence that the appraiser either did not "consider properly" the criteria set forth in section 193.011, Florida Statutes or arbitrarily used appraisal practices that are not generally applied, thereby departing from the requirements in section 193.011, Florida Statutes. As a caveat, this discussion did not focus on the decision of the courts on the criteria set forth in Section 193.011, Florida Statutes.

About the Firm: Formed in 1991, the Law Offices of Moffa, Sutton, & Donnini, P.A. is a law firm with a primary practice area of Florida tax controversy and a heavy emphasis on Florida sales and use tax. With offices in Fort Lauderdale, Tampa, and Tallahassee, the firm defends business owners against the Florida Department of Revenue from the initial audit notice through administrative protest and litigation as well as collections, revocations, and criminal investigations.

About the Author: James (Jim) F. McAuley is an experienced attorney, joining the firm in 2015 after an exemplary career with the state of Florida. Holding the Florida Bar board certification as a specialist in State and Federal Administrative Law, Mr. McAuley represented the State of Florida for more than 20 years in the area of state and local taxation and administrative law with an emphasis on litigation. Mr. McAuley is Board Certified by the Florida Bar in the area of State and Federal Government Administrative Practice. Mr. McAuley holds the highest rating given to lawyers by Martindale Hubbell (Av) and has maintained that rating for more than 15 years. He is also a published legal author in both State taxation and Administrative law. He is an alumni & author of the Nova Law Review (Fall 2007).

AUTHORITY

Art. VII, § 4, Fla. Const.

Section 193.011, Florida Statutes.

Section 194.301 Florida Statutes

Collier County v. State, 733 So.2d 1012, 1014 n. 2 (Fla.1999)

Powell v. Kelly, 223 So. 2d 305, 309 (Fla. 1969)

Schultz v. TM Florida-Ohio Realty Ltd. P'ship, 577 So. 2d 573, 575 (Fla. 1991)

Mazourek v. Wal-Mart Stores, Inc., 831 So. 2d 85, 92 (Fla. 2002)

VS EGL Fruitville Sarasota Fl, LLC v. Todora, 124 So. 3d 289, 291-92 (Fla. 2d DCA 2013)

ADDITIONAL RESOURCES

UNDERSTANDING THE BURDEN OF PROOF AND THE BURDEN OF PERSUATION IN TAX AND ADMINISTRATIVE CASES, published May 31, 2015, by James McAuley, Esq.

FL 1ST DCA: VERIZON APPEALS PROPOSED ASSESSMENT NOT FINAL, published May 25, 2015, by James Sutton, CPA, Esq.

WHEN SALES TAX AUDITORS MAY NOT PICK AND CHOOSE RECORDS TO USE, published April 19, 2015, by Joseph C Moffa, CPA, Esq.

FLORIDA DBPR ABT LOSES BLUNT WRAPS TAXABILITY CASE, published March 15, 2015, by Jerry Donnini, Esq.

2015 – FLORIDA BAR / DEPARTMENT OF REVENUE LIAISON MEETING, published January 17, 2015, by James Sutton, CPA, Esq.