Smoke & Mirrors – April, 2011

Did anyone notice that in November 2010 they received a real estate tax bill that showed that they were being assessed for less but being taxed for more?  What’s up with that?

Example 1 – Using North Bay Village Actual Millage Rates
2009 Market Value $500,000 x Millage Rate .0209155 = Taxes $10,458
2010 Market Value $475,000 x Millage Rate .0231724 = Taxes $11,007

What’s up; is that your tax bill conveniently excludes the real problem THE COUNTY BUDGET.  What happened in this case is while your property values have decreased by $25,000 the county’s budget did not, or at least did not decrease by the same amount.  So in order to collect the taxes needed to pay for the government, some of us were greeted with a MILLAGE RATE (TAX RATE) increase greater than our property value decrease.  A problem which is only further exasperated by Florida’s overcomplicated and misguided real estate policies. [Link to Law]

Example 2 – Property with Homestead Exemption Benefit – Using North Bay Village Actual Millage Rates
2009 Market Value    $500,000
2009 Assessed Value $330,000 x Millage Rate .0209155 = Taxes $6,902
2010 Assessed Value $339,900 x Millage Rate .0231724 = Taxes $7,786

Policies proposed and supported by people who seem to forget that every real estate transaction includes both a buyer and seller.  And these policies only marginally encourage buyers but heavily discourage sellers.  Some relief for this unequal reward/punishment system for homeowners was achieved with enacting of the homestead portability laws [Link to Law]  But what did this ultimately achieve?

We now have a system that requires an enormous database (880,000+ individual folios in Miami-Dade County alone) for each county that not only needs to properly assess each property (Market Value), but in addition it must track and calculate each properties Assessable Values, as well as the $25,000 Homestead Exemption for the School Board portion and $50,000 exemption for the City/County/Region portions of the tax bill and now must track the amount that must be transferred upon the sale of the property and how much needs to be applied to the new property.  (Good luck figuring out the formula used to calculate this amount.)  But evidentily did nothing to spur real estate sales or price recovery, so now in 2011 they have a new plan.

With the equalization effect of the portability laws, the incentive of buying has been neutralized, our wonderful politicians have proposed new laws to once again encourage buying and discourage selling.  [Link to Law)  (Did we not learn anything the last go around?)  This new law will on one side lower the assessment increases of ALL properties residential and commercial regardless of ownership to a maximum of 3%, thus creating the exact same disparity that caused the uproar and subsequent creation of the above portability law, but this time every piece of property will be affected instead of just homesteaded homes.  In addition it will give buyers who have had no had a homestead exemption in the last 3 years a 50% reduction in their property assessment (up to $200,000) that decreases by 20% each year until it disappears in 5 years.  After which they will still retain the 3% increase cap and $25k/$50k homestead exemption.  So go ahead and add those new elements to the data that needs to be properly tracked for each property in the State of Florida to the database described above, that will likely need to be completely recreated to handle the calculations.  And in case you aren’t aware a database this complex is not cheap to create or maintain.  And the cost will be passed directly on to the tax base through high millage rates and or fee’s that won’t be based on value.

On the surface these changes may sound good, but again what will they actually achieve?  Will potentially lower taxes for 5 years truly inspire people to start buying like crazy again?  Or is it the extremely high un-employment, still declining home prices, or near impossible borrowing standards that are discouraging home buyers.  Take your pick, all though for some reason I think the property taxes are a bit low on the list of reasons NOT to buy a home right now.

I say potentially above because this new law says absolute ZERO about reigning in County Budgets or Millage Rates!  So regardless of how much of a discount you think you might get from these assessment discounts, the county will still need to collect the same amount of money (or more) and will just raise the Millage Rate in order to collect it.  Furthermore we will have created a system that no longer taxes owners based on the values of their properties on a yearly basis, so why not just simplify the system instead of making it more complex and just dissolve the Property Appraiser’s office and base all Real Estate Taxes on the price paid at purchase and standard yearly increase for the CPI.

Maybe in our political climate this is impossibly straight forward, but it sure makes things a lot simpler for all involved and would be a starting point for a taxation system that would be predictable, manageable and easy to understand.

If you have the opportunity to alter this new law to actually address the real problem of endlessly millage rates and county budgets, and not the assessed values, please take these into consideration.

For more help navigating the murky world of Florida’s Real Estate tax system, call us.  Or maybe not, this s..t is really confusing and makes my brain hurt.
Andrew Dixon

*My apologies to those in the PA’s office that would lose their jobs, but in fairness so would we.