Historical Perspective
Article VII, Section 6(a) of the Florida Constitution established a $5,000 exemption from property tax property for Florida residents home ownership. This is commonly referred to as “Homestead Exemption”. The amount of homestead exemption was increased to $25,000 in 1980. The Constitutional exemption was implemented by the legislature but one of the initial conditions of the legislation was found unconstitutional because it required a 5 year residency requirement. See: Osterndorf v. Turner, 426 So. 2d 539, 542 (Fla. 1982 ) Since that time the legislature has acted to impose other restrictions on Homestead exemption. Another errant attempt at restriction of Homestead rights was struck down this year, as Section 196.081(4) was declared an unconstitutional for depriving Homestead Exemption from a widow of a veteran based on overly restrictive criteria for exemption. See: Dep't of Revenue v. Bell, No. 2D18-3134, 2020 WL 808178 (Fla. 2nd DCA 2020)(“We have held that although the Legislature is permitted to enact laws regulating ‘the manner’ of establishing the right to the constitutional homestead tax exemption, it cannot substantively alter or materially limit the class of individuals entitled to the exemption under the plain language of the constitution.”( citing: Garcia v. Andonie, 101 So. 3d 339, 345 (Fla. 2012).
The Florida Constitution is straight forward and clear
Fla. Const. art. VII, § 6 states:
Every person who has the legal or equitable title to real estate and maintains thereon the permanent residence of the owner, or another legally or naturally dependent upon the owner, shall be exempt from taxation thereon, except assessments for special benefits, up to the assessed valuation of twenty-five thousand dollars
Homestead exemption is a Constitutional right. Exemption is based upon ownership or dependency upon an owner and permanent residence. It does not address or exclude second home ownership or out-of-state property tax credits. It does require permanent residence. Notwithstanding this fact, as the tax exemption law in this area changed, the Property Appraisers and courts have concluded that permanent residency and ownership in Florida is not enough.
The out- of- state home problem
In 2001 the legislature amended Section 196.031 to preclude homestead exemption in a manner which has the potential to adversely affect the many retirees with residency in Florida who have second homes elsewhere. Be warned that this is a real and present danger, even if the person has already been granted Homestead exemption in Florida. This is not idle speculation as an appellate court has addressed this very issue. The reasoning for this is discussed below under examination of several court decisions. However let’s look at the statute which is being enforced before getting to the court analysis. The statute eliminates the Constitutional right to Florida Homestead exemption for:
A person who is receiving or claiming the benefit of an ad valorem tax exemption or a tax credit in another state where permanent residency is required as a basis for the granting of that ad valorem tax exemption or tax credit …
Enforcement by the Property Appraiser- the "gotcha" ticking bomb
The property appraiser's office in each county administers Homestead Exemption laws in Florida. As enforced by these offices, the Section 196.031(5). provision has proven to be a painful "gotcha", and not just because of the financial hit from the loss of exemption for the current tax year. If Homestead exemption is lost, retroactive clawback authority also applies. This is a statutory mandate given to the Property Appraiser for clawback of prior years benefits. This mandate is particularly harsh. It is discussed below as it was applied in a specific appellate opinion.
However, before considering the clawback provision, its most important to understand why it is even possible for a Floridian with permanent residency already established, to fall into this " two home" problem without knowing there is a ticking financial bomb. This law eliminates the right to Florida Homestead Exemption if the Florida resident is " receiving or claiming in another state" a form of property tax exemption or even a credit. Property Appraisers and Florida courts have interpreted this language to retroactively penalize people who received an exemption or even just a tax credit in another state, regardless of whether they were aware of the existence of the benefit. Why because receiving a tax benefit or tax credit on out- of -state property can occur automatically under another state's laws and sometimes without knowledge of it as these credits can be de minimus, as exemplified in the decision in Wells v. Vallier, 773 So. 2d 1197 (Fla. 2nd DCA. 2000)
A short background of court decisions before and after the statutory change to Section 196.031 F.S.
Perhaps the decision in Wells v. Vallier, Id. most clearly exemplifies the direction and view of Florida appellate courts prior to the statutory amendment in 2001 of Section 196.031 F.S. The Vallier decision supported Florida Homestead exemption even though Vallier had an out-of-state home. The opinion established as findings of fact that the homeowners were permanent state residents, and thus were entitled to homestead property tax exemption, even though they received $100 per year residency-based property tax credit in another state for a summer home. As recited in the opinion the facts were undisputed that the homeowners were present in state for seven to eight months each year for previous 16 years, maintained driver's licenses, vehicle registrations, and voter registration in state. However, despite this reasonable and happy outcome in Vallier, things changed after the narrowing of the Homestead Exemption 196.031 F.S.
A harsh judgement by Florida's courts reflecting the change in law
The fairly recent appellate opinion crafted in 2016 by the Fourth District, well after the narrowing of the Homestead exemption statute, is Endsley v. Broward Cty., 189 So. 3d 938, 939 (Fla.4th DCA 2016). The opinion indicated that as husband and wife the Endsley's jointly owned two properties, located in Florida and Indiana, until 1986. In 1986 they transferred their interest so that each person owned one of the properties. The court in Endsley then applied Section 196.031 saying:
[T]he statute prevents “a person who is receiving or claiming the benefit of an ad valorem tax exemption or a tax credit in another state where permanent residency is required as a basis for the granting of that ad valorem tax exemption” from also claiming a Florida homestead exemption. § 196.031(5).
Although the wife owned the Florida residence and was receiving Homestead exemption in Florida, the court decided that:
Appellant [wife] still “received ... the benefit” of this [ Indiana] exemption by virtue of the commingling of funds with her husband. The reduction in the overall tax liability owed by the couple in the State of Indiana directly provided Appellant with an economic benefit, bringing her within the purview of section 196.031(5).
Under the reasoning of this decision, it was a violation of Florida Homestead exemption to indirectly benefit ( as de minimis as that was) from a spouse’s out-of-state Homestead exemption. Both the Vallier decision and the Endsley decision came under the very same Constitution. That does not seem quite right. Plainly, there is nothing in the Florida Constitution which addresses or limits Homestead in such a manner as applied in Endsley. Indeed, while the language of the § 196.031(5) may be interpreted to go this far, based on the statutory term "receiving", such an indirect application of the term "receiving" reaches beyond direct benefit to the person who owns the property and is a permanent resident. This decision indulges in a legal inference that because people are married, they are sharing in each other economic interests to be "receiving" the out-of-state" benefit.
Clawback in action-10 years of reach back and penalty based on § 196.161 F.S.
The legislature not only narrowed the tax exemption allowable for Homestead Exemption through the language of the § 196.031(5) but has imposed a clawback in Section 196.161F.S. for recovering the taxes savings (plus interest and a penalty) received by a property owner.
This statute states:
b) In addition, upon determination by the property appraiser that for any year or years within the prior 10 years a person who was not entitled to a homestead exemption was granted a homestead exemption from ad valorem taxes, it shall be the duty of the property appraiser making such determination to serve upon the owner a notice of intent to record in the public records of the county a notice of tax lien against any property owned by that person in the county, ............, plus a penalty of 50 percent of the unpaid taxes for each year and 15 percent interest per annum.
This statute was reluctantly applied by the Second DCA in Fitts v. Furst, 283 So. 3d 833, 840 (Fla. 2nd DCA 2019) (" Based on a plain language analysis, relevant case law, and to the extent necessary, canons of statutory construction and legislative history, we believe the circuit court correctly determined that section 196.161(1)(b) is applicable to the Fittses' property, though harsh as it may be".) Id.
Conclusion
Need more be said. How harsh, yet it is the law. Beware taxpayers, beware!
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).