Property Appraisers Will Face Difficult Times Appraising Medical Marijuana Treatment Center Property for Ad Valorem Tax Purposes
The cannabis industry laws are extremely volatile. This is mainly a result of cannabusiness being a new industry, with a trial and error type of lawmaking process. In 2014, the Compassionate Medical Cannabis Act passed, creating section 381.986, F.S. Under this law the Department of Health (“DOH”) was required to grant 5 nurseries licenses to dispense medical marijuana, one for each region in the state. This new area of Florida law, coupled with county property appraiser's broad authority, creates an even more unstable environment for Medical Marijuana Treatment Centers (“MMTC”). County property appraisers are granted broad authority under the Florida Constitution and statutes, each property appraiser typically marches to the beat of their own drum in determining grey areas of property valuation and taxation. As a result, Medical Marijuana Treatment Center (MMTC) applicants as well as current licensees should take several factors into consideration to try to minimize property tax exposure and also be aware that they have the ability to appeal unjust property tax valuations and assessments.
As a general proposition, there are several factors that can be considered in arriving at the taxable value of a property. Section 193.011, F.S., lists eight factors which can be considered by appraisers in deriving value. These factors break down into three main approaches that appraisers can use to determine the property’s market value: (1) Cost Approach: which considers how much it would cost to replace a structure; (2) Sales Comparison Approach: which considers the sales of similar properties that occurred in the year prior to the assessment; (3) Income Approach: this is the ICV formula generally relied on by buyers and sellers of commercial property. Income approach considers the property's annual income after expenses and compares that to the cap rate, which is the rates of return for comparable investments. Income x Cap rate = Value. Once the fair market value, or just value, is determined, this is adjusted to account for any applicable exemptions to arrive at assessed value. County taxes are calculated on the assessed value, while school board taxes are calculated using the just value as a basis.
The exemption for MMTC property comes from Section 193.461, F.S., which is colloquially referred to as The Greenbelt Law. This section provides for exemptions from tax for agricultural land. Specifically, this section provides that “only lands that are used primarily for bona fide agricultural purposes shall be classified agricultural.”[1] The term “bona fide agricultural purposes” means “good faith commercial agricultural use of the land.” The Greenbelt Law defines “agricultural purposes” as including but “not limited to; horticulture; floriculture; viticulture; forestry; dairy; livestock; poultry; bee; pisciculture, when the land is used principally for the production of tropical fish; aquaculture; sod farming; and all forms of farm products and farm production.” This is broad, and inclusive, and leaves authority to the appraiser to determine whether marijuana cultivation is a “bona fide agricultural purpose.” Assuming the land is deemed to be used for “bona fide agricultural purpose”, the property appraisers then have a list of factors to consider in determining the value of agricultural property.[2] The agricultural exemption already has and will continue to be an issue for both property appraisers and MMTCs.
In 2008, the Legislature passed an amendment to the Florida Constitution, Article VII, Section 4(g), (h), that provided that the assessed value of commercial property shall be capped at a 10% increase from the prior year. Similar to homestead on residential real property, the cap on commercial property limits increases in taxes, and helps property owners manage expenses. However, also similar to homestead, a change in ownership of a property would trigger a property to be re-assessed, and the benefit of the cap would be lost. Pursuant to Section 193.1554, F.S., change in ownership or control is defined as a sale of more than 50% of the ownership of the legal entity that owned the property when it was most recently assessed at just value. This is a consideration for an applicant or current MMTC seeking to purchase property, or transfer ownership of a property. MMTC’s who currently own property but want to separate the operating entity and the land-owning entity, while still keeping them under the same umbrella, have options. Specifically, the provisions of the cap allow for lease of the property between entities. This would allow land owning MMTC’s to transfer the beneficial use of the land and reap the benefit of both the capped increase to assessed value, and the agricultural exemption based on the use of the land by the lessor.
Once the land is deemed agricultural, and the exemption is in place, the value of buildings and improvements to the land must be determined. Buildings, such as production facilities for growing and cultivation of plants, are improvements to real property, taxed at just value. Improvements made to existing land can also be assessed at just value. Section 193.155, F.S., provides that a qualifying improvement is any improvement to the property, completed on January 1, which increases the value of the property by at least 25%. While the original parcel will not lose the 10% cap, the addition will be assessed, and then subject to a 10% cap on that value on a go-forward basis.
As there is only so much landowners can do to plan ahead to reduce property taxes, it is important that landowners also understand that there is an opportunity to challenge appraisers assessments of the land and the applicable taxes. Contact us for a free consultation and a good understanding of your options for planning as well as appeal for property assessment purposes.
About the Author: Paula Savchenko is an associate attorney at the Law Offices of Moffa,
Sutton, & Donnini, P.A, based in Fort Lauderdale, Florida. Ms. Savchenko
joined the firm in 2013 and practices primarily in the areas of Taxation
and Administrative Law matters, as she counsels and represents businesses
and individuals in their dealings with government agencies. More specifically,
most of her work involves tax and regulatory matters, with an emphasis
on state and local taxation.
About the Author: Amanda Levine is an associate attorney at The Law Offices of Moffa, Sutton,
& Donnini, P.A. Ms. Levine joined the firm in 2013, and focuses her
practice on state and local taxation issues including property taxation,
and criminal proceedings.