Wednesday, March 14, 2007

Florida’s Property Tax Fiasco!!

I obviously haven’t written in a couple of months. It is not that I had not wanted, but did not wish to write about the same topic that has been so prevalent, the local market. I was firstly concerned about the negativity that some may derive from this, even though we are in a quite healthy market in Central Florida. I also needed some more inspiration to write.

A client of mine had suggested that I write about the property tax issue that we are experiencing. My first thought & reply was ‘no’. I did not want to write about such a controversial topic. Now, many of you who know me, would be surprised by this response. And you would be rightly so. So, here goes.

I am not aware of what is happening in other parts of the country, but here in Florida we are in the midst of a property tax system that is quite flawed. My concerns are varied, but one major concern is that the politicians will try to do a quick fix & tell us what a wonderful job that they’ve done in saving us money, only to cost us more in the long run down the road.

There is history behind this, which I’ve previously written about. We have in Florida SOH (Save Our Homes), which was passed in 1992. This limited the Taxable Value of your home to a 3% increase, if such is your primary residence. The purpose of this tax measure was to help the elderly from being taxed out of their homes. Unfortunately, even though this may have helped accomplish that task, it more benefited the well to do with expensive mansions, etc. They received a larger benefit.

Now, many proposals are being pandered about to supposedly fix our flawed property tax system. But to fix a flawed system with an equally flawed system is ludicrous.

One of the main proposals is to eliminate our property tax (on your primary residence) and have this replaced with a higher State Sales Tax. While some may feel that this is fair, it really isn’t. Again, the people that will benefit the most as those that have. The people with the mansions (big expensive homes or whatever you wish to call them) will benefit the most. The people that don’t have, those in the lower income brackets, will end up paying more via a higher sales tax and if will affect their pocketbook more.

Not only that, but this is just as inequitable to the renters. They too will be paying a higher sales tax and they are not even property owners. Some may jump the gun and say well everyone should have a larger share in paying for governmental services. But you have to remember that the owner of that apartment complex is already paying property taxes, they would not be exempt if there were a repeal of the property tax laws for primary residences.

It’s also been talked about that a Florida resident should be able to take their current SOH with them when they move; and, generally to a more expensive home. This would only worsen an already flawed system.

And doubling the homestead exemption is not really the answer also. The property appraisers are already shoring up their books and the tax rolls for a change. It generally used to be that the ‘Just Market Value’ on the property appraiser’s tax rolls was approximately 80% of the fair market value on the open market. With the increase in home values that we’ve seen over the past several years, this number became a much lower percentage. But if you check out the property ‘Just Market Values’ now (Orange County, in particular), you will see that many are at approximately 89%. So, you can see that the property appraisers are already trying to shore up values depending on what happens in the legislature.

Let me put this in another perspective. I have a friend whose home is on the market. They purchased the home 10 years ago and their property tax for 2006 with the SOH & Homestead Exemption came to $844. A prospective purchaser asked me what their taxes would be & when I figured it out I was totally astonished. Now, let me preface this first in that this is a lovely home, albeit under 1300sf in a middle class neighborhood. For the new buyer, their first year taxes would be almost $3200 and this is with the Homestead Exemption still in place.

You also need to be wary, because according to the property appraiser’s website, the Assessed Value of this home with the SOH went up 15%. What happened to the 3%? Most people wouldn’t even know. They don’t check their tax bills. It is generally escrowed in with your mortgage payments.

Let’s take a couple of steps back for a moment. Let’s say that the property tax on our primary residence is eliminated. What do you think will happen a few years down the road when they realize that there is not enough revenue coming in from the sales tax? I can tell you what I think - lo and behold, we will find ourselves with another property tax. What do you think will stop the legislature in doing that? By that time, we should have another administration in office and the blame will be put on them. Think about it!!

Additionally, there is another aspect to consider. With the elimination of a property tax, there would be a loss of jobs in that there would be less need for the local property appraisers and tax collectors. Now the monies would be going directly to the state and then funneled down to the local counties & municipalities. Granted, I’m sure there is a lot of ‘fat’ at the lower levels of government as there are at the upper levels. Maybe, this might be good in that they would have to trim a lot of that since the monies would now be coming from elsewhere. And maybe there would have to be more accountability. Only time will tell on this issue.

So, this is not an easy fix. But it also cannot be a quick fix. In doing so you will only be replacing one flawed system with another. What purpose does that serve, except for someone in power saying that they did something? Well, whoop de doo! If doing so leaves us in a similar or worse situation down the road, have you really helped anyone? Or are you really only helping your cronies? Beware, there are many lobbyists & PR people out there that will try to sell us a bill of goods. Just be wary! Be very, very wary as Elmer Fudd might say.

Until next time – Marc It Sold!

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