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Florida Supreme Court Holds Affordable Housing Developer Not Exempt from Ad Valorem Taxes

By: Tracy M. Evans, Esq., Associate, Saxon Gilmore & Carraway, P.A.

TracyEvans-cOn June 2, 2016, the Florida Supreme Court issued its decision in the case of Sowell, etc. et al. v. Panama Commons, L.P., holding that the 2013 amendment to Florida Statutes § 196.1978 (the “2013 Amendment”), is applicable to the 2013 tax year because the right to the tax exemption did not vest until after the statute’s amendment.

Florida Statutes § 196.1978 exempts developers of qualifying affordable housing developments from paying ad valorem taxes. Prior to 2009, the exemption only covered developments owned by non-profit corporations, but in 2009, the legislature amended the law to provide that a development owned by a limited partnership, with a general partner who is a non-profit, could also qualify for the tax exemption (the “2009 Amendment”). In 2013, the statute was again amended, repealing the 2009 Amendment, and reverting the statute to its pre-2009 scope. Under the 2013 Amendment, only developments owned completely by non-profit corporations can claim the exemption. The 2013 Amendment was signed into law in May 2013, and took effect July 1, 2013, retroactive to January 1, 2013.

Panama Commons Apartments, L.P. (“Panama Commons”), a housing developer comprised of a non-profit general partner and a for-profit limited partner, built a 92 unit low income housing project completed in 2011. Panama Commons timely applied for and was awarded an ad valorem tax exemption in 2012 under Florida Statutes § 196.1978. The following year, Panama Commons again timely applied for the tax exemption in March 2013, but the Bay County Property Appraiser (“Property Appraiser”) issued a Notice of Disapproval in June 2013 due to the 2013 Amendment. Panama Commons brought suit, arguing that the 2013 Amendment was unconstitutionally retroactive, and could not be applied to the 2013 tax year to bar the exemption. Panama Commons prevailed in the trial court and in the subsequent appeal to the First District Court of Appeal (“First DCA”).

The Property Appraiser and the Florida Department of Revenue appealed the decision to the Florida Supreme Court. In a unanimous decision, the Florida Supreme Court determined the 2013 Amendment repealing the exemption did not violate due process because a property owner does not have a vested right to a property tax exemption until the tax roll for the year is certified. Tax roll certification occurs in late October, and because the 2013 Amendment went into effect July 1, 2013, it was binding on the Property Appraiser at the time the right would have vested.

The Florida Supreme Court noted that it has previously upheld the application of taxation changes and also pointed to decisions in other states which have almost unanimously held that changes to tax laws are not an unconstitutional denial of due process. The Florida Supreme Court also cited authority from the United States Supreme Court, which has rejected constitutional challenges to retroactive tax law legislation where the period of retroactivity is limited.

The Florida Supreme Court also determined that the First DCA’s reliance on Florida Statutes § 192.042 to hold that the exemption right vested on January 1, 2013 was misplaced. Florida Statutes § 192.042 only provides that a property will be assessed according to its just value on January 1 of each year. The Florida Supreme Court held that this statute had no application because there was no dispute regarding the property’s just value.

Under the 2013 Amendment and pursuant to the Florida Supreme Court’s decision in Sowell, developers of low income housing projects structured as limited partnerships because of tax credit financing, need to budget for the payment of ad valorem taxes. The negative impact the 2013 Amendment has on the limited cash flow in affordable housing projects calls for a legislative change back to the 2009 Amendment.


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