What are Ad Valorem Taxes?
Ad valorem is a Latin phrase that means "according to value". In the United States, ad valorem taxes generally refer to taxes imposed on property based on the assessed value of the property. The most common forms of ad valorem taxes include personal property tax and property tax. An ad valorem tax is a form of inflation indexing in that it is assessed in relation to monetary values that are subject to change. In contrast, a non-ad valorem tax is one based on quantity or capacity (e.g. levied for the purpose of garbage collection or fire protection services). Property taxes are often the largest single tax payment for consumers in the United States .
The single most important factor in determining the level of property tax is the fair market value of the property. Most counties in Florida use the standard of "just value" in assessment of property value for taxation purposes. According to Florida law, property is "classified" by its "character or use" and then "assessed" at just value. "Just value" is defined as the "occasional sale price" of property. This is generally understood to be the sale price the property would bring in an open, competitive market between willing buyers and sellers, without regard to special consideration given salability of special benefits.
Ad Valorem Taxes Defined in the Context of Florida Law
Ad Valorem taxes in Florida tend to be uniformly assessed by the County Property Appraisers from the Nature Coast down to Miami. There may be some variances in methodology amongst the different counties as well as other property tax districts like VAB’s (Value Adjustment Boards) around the state. Property taxes are determined each year based on the assessed value of the property as provided by the local Property Appraiser’s office and the applicable millage rate approved by the local county commission. The millage rate is the amount to be paid per $1,000 of taxable value and is established each year. In 2004, the Florida Legislature placed a limitation on any increase in the assessed value of residential property that was purchased during that year and further limited the subsequent increase in the assessed value for subsequent years. This limitation is known as Save Our Homes or SOH. Important to note, this does not apply to commercial properties or to residential properties that were not purchased during the year it was placed in the law. Moreover, the limitation is only on the amount of the increase, not the total assessed value. Any assessed value attributable to new construction, additions, or improvements is always assessed at full value as of January 1 of the assessment year. The Constitution of the State of Florida establishes the ad valorem property tax as being based on the Just Value of the property. Just Value is defined by the Florida Constitution as "the total estimated consideration for the real estate or tangible personal property when sold for cash with no deductions for costs of sale, and is synonymous with fair market value." The Just Value of the property is the basis for the ad valorem assessment upon which the ad valorem taxes are levied. Article VII, Section 4 of the Florida Constitution states that:
2. The Legislature shall prescribe procedures to ensure just valuation of all property and reasonable, non-discriminatory, ad valorem tax levies. 3. Laws must require just valuation by the property appraiser of all property, as defined by this section, unless the Legislature provides by general law for the alternative non-ad valorem method of assessment and equalization of just valuation of property. Such general laws may not allow the property appraiser to assess just value of property at a percentage of just value; however, the Legislature may by general law set an assessment schedule that results in an assessment difference from just valuation of 15 percent between comparable properties within the same jurisdiction.
Calculating Florida Ad Valorem Taxes
When it comes to calculating ad valorem taxes in Florida, there are three variables to take into account: While complicated at first glance, the formula is surprisingly simple once you break it down. In Florida, a "mill" is equal to $1 for every 1,000 ones and is used to express an interest rate or amount paid in taxes per $1,000 of value. Since Florida law requires tax rates in millage form, it is this rate per $1000 that will be used in the following equation. Millage Rate = Dollars levied divided by the Taxable Value of the taxable property. Therefore, once the millage rate has been established, the amount owed can be calculated by applying this rate to the total taxable value of the property in question. THIS IS THE FORMULA: Taxes = (Total Taxable Value/1,000)*Millage Rate. For instance, let’s say you have a $200,000 property in Orlando where the current taxable value is $150,000, so for the sake of argument we’ll assume the home is homesteaded (here’s a good primer on what homesteaded means for tax purposes) and so only receives a partial exemption. Let’s also assume that the local millage rate for your neighborhood is set at 20. So to calculate the total amount of ad valorem tax due, we will apply the millage rate to the total taxable value using the formula above, which will look like this: Taxes = ($150,000/1,000)*20. Which equals: Taxes = ($150/1,000)*20. Which comes out to a total tax due of $3,000. Not bad for a home that is worth $200,000, but for a home owner without exemption, the tax bill might be considerably worse, especially with the slow recovery post-Great Recession and the lack of true appreciation in home values. In fact, Florida Statutes Set forth the following as the per-10th-mill of taxes due for 2019. Which means that it would actually take about 4 ½ 2019 to add up to one 2006. What does all this mean? Well, if it takes almost 5 years of truly appreciating values to equal the taxable value of 2006, then it stands to reason that even a minor increase over that period may be required to offset operating expenses and capital spending of governmental units. This should tell you that there is no such thing as a "maxed-out" millage rate -almost every taxing authority should require additional funds in the future. Keep in mind that there are also many adjustments and exemptions to property values that can affect the assessed value and the taxable value. There is a difference between the "assessed value", which is compared to the previous year to determine the annual percentage increase, and the "taxable value", which is the value develop once all of the exemptions and caps have been applied. The County Property Appraisers take every factor into account when reassessing property values and can make exceptions to the general rule.
Exemptions and Reductions Available for Florida Ad Valorem Taxes
For many Florida residents, a large portion of their tax burden is attributable to ad valorem taxes. The following is a comprehensive overview of the various exemptions and reductions available:
Homestead Exemption: Homestead status applies to all bona fide primary residences in Florida. The tax exemption for homestead property includes an exemption equal to $25,000 of the just value for all ad valorem tax purposes. Additionally, in 2008, Florida voters amended Florida’s Constitution to increase the homestead exemption to $50,000. Importantly, this increase is optional and only applies with respect to the first $25,000 of property value now subject to ad valorem taxes. Accordingly, even if voters approve the additional $25,000 exemption, only those properties not already receiving a $25,000 homestead exemption will benefit.
Additional Homestead Exemptions: In addition to the base standard homestead exemption, the following tax exemptions are also available:
• Qualified veterans with service-connected disabilities may qualify for an additional exemption based on the percentage of their disability (Section 4, Article VII, State Constitution).
• The total amount of any ad valorem tax levied by a county or municipality on homestead property, along with the taxes on other tangible personal property, assessed at less than the just value of $25,000, shall be suspended when a household has an income of less than $20,000 for the three preceding calendar years adjusted annually in accordance with Florida Law. The exemption may not exceed $250,000 of assessed value (Section 6, Article VII, State Constitution).
Agricultural Land: Agricultural land may also be eligible for an exemption from an ad valorem tax because it is considered "land used primarily for bona fide agricultural purpose" (Section 4, Article VII, State Constitution). The law further defines the term "bona fide agricultural purpose" as the "good faith commercial agricultural use of land." More importantly, the "use must have been established for at least five (5) consecutive years."
Historic Property: The state also offers ad valorem tax exemptions to certain types of historic property. Specifically, the following types of property qualify for an exemption:
• Property designated as historic by the United States Secretary of the Interior; (Section 7,Article XIII of the State Constitution).
• County and Municipal Carnivals and Fairs (Sections 2 and 3, Article IX, State Constitution).
• Property owned by a non-profit performing arts organization, such as a museum, is also eligible for an exemption (Section 4, Article V, State Constitution).
• Prizes or awards for livestock showing at expositions and fairs (Section 2, Article IX, State Constitution).
The following taxes, however, are exempt from the ad valorem tax:
• Tangible personal property.
• Bank stock.
• Money held and invested by banks (except for intangible tax).
• State Lands.
Similarly, certain property of the State of Florida is exempt from ad valorem taxation. The Florida Constitution provides that the tax exemption extends to:
• Lands owned, held in trust or domain of the state; and.
• Bonds, notes, mortgages, securities, obligations and other evidences of debt owned, held in trust or under the control of the state (Sections 1 and 2, Article IX, State Constitution).
Finally, §196.031 (3)(a), Florida Statutes, provides a list of exempt property that is not covered by the Constitution, which includes:
• Publicly owned lands and buildings.
• Property owned and used for a charitable purpose (churches, hospitals, etc.).
• Property used for educational purposes.
• Property owned and used for literary, scientific and charitable purposes by a society incorporated under the laws of the state.
• Places of religious worship.
• Travel trailers, mobile homes, etc., used by the owner only during certain periods of time when the owner is temporarily absent from his or her residence.
• Homeowners’ association property granted ad valorem exemptions.
• Household goods, furniture and personal effects.
• Boats and vessels.
• Farm equipment, livestock, etc.
• Aircraft.
• Supplies and equipment.
• Certain parking lots.
Pay Your Florida Ad Valorem Taxes
In order to avoid the penalties associated with nonpayment of ad valorem taxes, payment should be made prior to the delinquency date. In Florida, the delinquency date is generally April 1 after the January 1 statutory assessment date for real and personal property taxes and not later than June 2 following tangible personal property returns. Ad valorem taxes become delinquent after the delinquency date. However, once the taxes become delinquent , the amount of tax plus interest and other costs attached to the tax becomes a lien against the property for which the tax is owed, and the penalty for nonpayment will often times exceed the interest associated with the delinquent amount due. It is always best to pay the tax in a timely manner to avoid these fees. The County Tax Collector provides taxpayers multiple ways through which they can pay ad valorem taxes in Florida. Payments can be made in person at a local government office, by mail or over the internet or via telephone.
How Ad Valorem Taxes Affect Florida Residents
Florida is one of the few states that allow for ad valorem tax discounts for payment in full before March 31 of the year following the date of publication of the assessment roll (normally, mid November of the prior year). Interest accrues at 1.5% per month or portion thereof until paid. As such, a resident who has a valued abode at $400,000 could expect to pay property taxes of around $4,000 per year. While this amount may seem low to outsiders or those who have yet to make their way to the Sun State, for a true Floridian the aforementioned amount could be between 25% and 50% of his/her disposable income. This is because income is often very low in Florida. Residents are also subject to a lack of a state income tax, which can be a blessing or a curse, depending on the total taxable income. Though the lack of a state income tax is a financial selling point, there are several drawbacks to being taxed ad valorem or based on value. Sure, the taxes are partially transferred to renters of residential property for most single family dwellings, but that means they are paid to landlords and still have to be accounted for when budgeting and moving forward with a planned purchase.
Due to the relatively low taxes from the state, statutory taxes or dependency of local municipalities are often paid at a higher rate. No property owner appreciates an increased tax rate. Because other states do not employ the ad valorem tax method any increase of tax rates is not affected by the method used in Florida. A fair percentage of real estate agents and attorney’s are not Florida natives having been drawn to the state for its beautiful weather. Simple math dictates that increasing tax rates, combined with Florida’s relative lack of a wide-ranging public services program (high taxes lead to higher wages for good public servants), taxes will inevitably increase on real property throughout the state. With a total of 67 counties, each one governed by its own set of rules, taxes and fees can be widely different. Though that is a topic discussed in another section, it should be noted that even in the same county, taxes can vary by neighborhood.
Clearly, under a system of strictly ad valorem taxes, a number of additional taxes would need to be imposed in order to cover government services. This also depends on a number of other factors such as the marketability and desirability of the county/city/property. Availability of transportation, access to schools and hospitals, restaurants, entertainment and safety are just some of the many components of desirability. Consideration is also given to market saturation, size of the home, condition of the home, size of the development, amenities of the development and a number of other factors. Simply put, low taxes in one area does not equate to low taxes in another area. With so many access points and methods of comparing properties and taxes, it is easy to see why many people find themselves disagreeing with the homestead appraisal value chosen by the county property appraiser.
Latest Changes to Ad Valorem Taxes and Relevant Legislation
One of the significant developments in both Florida Statutes and Florida case law has been the advent of the Sadowski v. Sarasota-Manatee Airport Authority case, which provides a clear procedural roadmap for pre-SRS challenge procedures outside of the context of an administrative proceeding. Case law now mandates that taxpayers must comply with the jurisdictional requirements of section 194.171, Florida Statutes (which provides a statutory pre-suit condition precedent to the payment of taxes or receipt of a refund), before proceeding to court. This decision further clarifies the various statutory provisions that taxpayers must comply with and provides additional specificity about the order in which they must act administratively and in court; however, it is important to note that this case did not touch on any substantive law issues. Sadowski v. Sarasota-Manatee Airport Authority, 217 So.3d 1099, 1110-1111 (Fla. 2017).
Another case to note is Mind of a Child, LLC v. Palm Beach County Property Appraiser, Case No. 4D16-3524 (Fla. 4th DCA, August 16, 2017). Mind of a Child concerned the denial of a tax-exempt classification for one parcel of land based upon the intended use of the property for fish farming. The Court ruled that this denial did not violate the Equal Protection clause because the petitioner failed to raise a true issue of material fact.
Additionally, in Lake Maggiore Boat Club & Marina, Inc., v. Disney Vacations Dev. Co., Inc., 42 Fla. L. Weekly D2153 (Fla. 2nd DCA, September 20, 2017), the Court held that the subject property was misclassified on the tax rolls as "commercial/industrial." The Court determined that the subject property use was "resale," which was exempt from ad valorem taxation pursuant to section 192.042(5), Florida Statutes. Florida Statutes section 192.042(5) provides for ad valorem tax exemptions for property "acquired for resale purposes, site improvement, new construction and for improvements to, and changes of, such property, until the property is sold, leased for profit, rented or otherwise put to a beneficial or economic use."
Common Disputes and Challenges Involving Florida Ad Valorem Taxes
Ad valorem taxes in Florida can be a source of confusion and complexity. Two of the most common challenges and disputes arise with the property assessments and the appeals process.
The Florida Constitution has certain requirements that a property tax assessment be "fairly and equitably assessed." Article VII, section 4(d) provides that:
"[E]ach county shall be divided into three classes: (1) metropolitan statistical areas having a population density of over five hundred persons per square mile; (2) urban areas having a population density of more than two hundred but less than five hundred persons per square mile; and (3) areas having a population density of two hundred or less per square mile. All real property in the first class shall be assessed at just value as defined herein. All real property in the second class shall initially be assessed at 15 percent less than just value and annually shall be adjusted as provided by law. All real property in the third class shall initially be assessed at 30 percent less than just value and annually shall be adjusted as provided by law."
There are three exemptions available to reduce a property tax assessment, The Homestead Exemption, The Senior Exemption, and The Blind Trust Exemption. These exemptions are applied to reduce the assessment based on the fair market value of the property to a lower assessed value. If you feel that your assessment (without exemption) is not within the range of "fair market value , " the assessor should be contacted immediately by an informal appeal request. There is a specific form for this process (see formal Informal Assessment Review Application). Note that this is not the same as an official tax assessment appeal. If you still disagree with the informal assessment review, the next step is to submit a petition to the Value Adjustment Board (VAB).
Petitioning to a VAB requires the petitioner to submit the petition, copies of the petitioner’s evidence, and pay a nonrefundable fee of $15.00. This petition must be filed with the clerk of the board on or before the 25th day after the mailing of the notice of proposed property taxes and budget. For 2023, these notices were mailed on August 1st. Therefore, the filing deadlines will be August 27th and September 18th for two county based assessment appeal deadlines.
Notably, the petitioner and the property appraiser must meet informally to discuss the dispute no later than fifteen (15) days before the VAB hearing. If the dispute is not resolved prior to the hearing, then the hearing will be held and is typically conducted as follows:
The parties may have an administrative law judge conduct the hearing, or the VAB members may conduct the hearing directly.
The fact-finder evaluates the evidence and renders a written decision, which is presented to the VAB. Before the VAB makes its decision to determine the valuation, the petitioner has the right to inspect the property, and the law states:
It is important to keep in mind that pursuing an assessment appeal is about fairness, and sometimes stakeholders just need the time and opportunity to talk about the issue.