Most federal taxpayers believe that the income tax code is unfair.
We feel that way because of the complexity of the code itself. Taxpayers feel it is rigged in someone else’s favor. That is not an unwarranted assertion in some instances. Over the years, Congress has taken what should be based on rather simple premises and added complexity to encourage certain social and economic outcomes. The payment of taxes was supposed to fund government and not function as a vehicle for social manipulation.
Florida does not have an income tax. It uses property and sales taxes to fund local and state government. Both sales and property taxes are considered regressive. That means the lower economic classes pay a higher percentage of their income for those taxes.
MCTA applauds the state for constitutionally prohibiting income taxes. Tallahassee, in its zeal to help those that have low income but highly valued appraised property, has complicated the system. The first place the legislature started these complications was by introducing the concept of exemptions.
The simple homestead exemption allows permanent Florida residents the ability to exempt the first $25,000 in appraised value and then another $25,000. There is now a panoply of exemptions that the legislature (and in some instances by constitutional amendment) has introduced over the years that now number an additional 12 exemptions for residential homeowners.
Property taxes are also known as Ad Valorem taxes. The tax was meant to be levied not on individuals but on the value of the property owned. It was a simple means of the government appraising the value of the property and then collecting the tax at the tax rate levied. The government allowed free markets to determine who would buy which properties and for how much.
Florida has seriously eroded the concept of the real estate markets and fairness by the introduction of not only exemptions but two other programs. In 1992, the voters passed the “Save our Homes” constitutional amendment that went into effect in 1995. This limited homestead exempted homes from increasing in value by not more than 3% per year or the CPI whichever is less.
When the property was sold, the exemptions and value were then reset to full market. The result was a larger perversion of the over all real estate market. For example, take two identical homes built at the same time, in the same physical condition that are next to each other. In one house, the homesteaded occupant has lived there since 1995. In the other home, the homesteaded occupant has lived there since 2019. The newer occupant can pay significantly more in property taxes.
Is this fair? The newer occupant has an overall annual income of $75,000. The occupant since 1995 has an annual income of $350,000. If it were an income tax, the roles would be reversed. This amendment has no provisions for wealth.
Tallahassee, in their continued efforts to pander to the voters, further instituted what was known as portability. That is the ability of someone who has been a Florida homestead resident to take his exemptions and home adjusted value with him to a new property. If you buy a new residence with an increased value (up to $500,000) over the old one, then you will pay no more than you did at the last residence.
You can see how this artificial market value for assessing property taxes affected counties and cities. Rates were increasing to pay for government since the natural rise in property values did not apply to so many of the taxpayers. This has an adverse result on commercial properties (which are not included in any of these exemptions), non-homesteaded owners, and residential tenants.
The legislature then decided that politically they also needed to control tax rates. A series of bills have passed which limit local government’s ability to raise its tax rates. The system has become so convoluted that a local government, to collect the same amount of revenue as last year, can inadvertently raise the amount of tax people pay.
In a fair and simple Ad Valorem system, the taxing authority should be able to set rates based on needs. If property values increase and the rate being levied results in more money than the government requires for that year, then it should be quite easy to institute a “Rolled Back Rate” to accomplish the task of only collecting the same amount of revenue as the previous year.
Because of the gimmicks some of which are outlined above, the legislature has introduced, a Rolled Back Rate can increase the amount of tax that property owners will pay. This seems to us to prove that the Florida tax system is broken and unfair to those that are newer to owning homes. Just like the federal income tax code has been subverted from a tax system to collect revenue to pay for government, the same can be said for Florida’s real estate tax system.