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Taxed into submission

With state property values surging, so are taxes, often so much so that many businesses are no longer able to meet their obligations.

By TOM ZUCCO and LETITIA STEIN
Published March 12, 2006

	[Times photo: Bill Serne]
	Michael Goodwin, owner of 3rd Street Opticians in downtown St. Petersburg, has worked 60-hour weeks, but can't keep up with his rising tax bill.
	[Times photo: Lara Cerri]
	Mary Wilkerson, right, talks to Canadian visitors at 810 Gulfside, a resort she and her husband own in Indian Rocks Beach. Wilkerson could sell to developers and make a tidy profit, but she can't stand the thought of losing the cottage named after 17-year-old daughter Sarah.

Michael Goodwin never figured his dream of running a successful small business would end like this.

After years of working as an optician in Palm Harbor, he "begged and borrowed" $100,000, rented a 1,500-square-foot office amid the condos rising in downtown St. Petersburg, and in December 2003 opened 3rd Street Opticians at the new University Village shopping center.

He worked 60-hour weeks and did everything possible to keep costs down. He decorated the walls with sculptures his father made and allowed himself just one employee, who worked 20 hours a week.

But in two years, the property taxes on his office nearly doubled and 3rd Street Opticians, after making $10,000, is on the doorstep of failure.

Soaring property values - the reason he came downtown - are at the root of his problem.

"I've already got one foot in bankruptcy," Goodwin, 54, said, lamenting the latest tax increase. "It's like the Alamo here. I'm making my last stand. . . . I'm even on food stamps."

Someone like Goodwin, a small business owner who rents, can be at a distinct disadvantage. As property values climb, so do property taxes and insurance costs.

To some extent, homeowners are protected from tax increases by the Save Our Homes cap. But commercial property owners have no cap. Their choices are to absorb the tax increase or pass it along to their customers or tenants.

Across Florida, the taxable value of property has climbed 53 percent in the past four years, state analysts report. Businesses are lifting a disproportionate share of the tax burden, while longtime homeowners get the benefit of a 3 percent cap on annual increases.

Even small-business owners who own their property are feeling the squeeze.

At Gulfside Resorts in Indian Rocks Beach, Mary Wilkerson says she owes about $70,000 in property taxes this year - twice as much as five years ago. Outraged over the increase, she drove five hours to Tallahassee to protest to state lawmakers.

Her message: Surging taxes could spell the demise of small, waterfront businesses.

"You see the writing on the wall," Wilkerson said. "You will not be able to hold on to your property. You will be forced to sell to developers."

Admittedly, Wilkerson could make a fortune selling her land. Only she can't stand the thought of losing the cottage named after 17-year-old daughter Sarah.

"It would absolutely kill me to see these places squished," Wilkerson said.

More than a half-dozen proposals before the Legislature address today's property tax woes, including the plight of those essentially trapped in their homes, like empty-nesters who want to downsize but can't afford the higher taxes.

To help businesses, St. Petersburg Republican Rep. Frank Farkas proposes to extend the 3 percent residential cap to all properties - except agricultural lands and historic property, which enjoy special tax status.

He hasn't spelled out how this would work. The proposal moving through the Legislature would let lawmakers work out the specifics with counties. It would not apply to property taxes for schools.

"My ultimate goal is to get some sanity, and I guess some stability, in this market," Farkas said.

As business owners wait to see what the Legislature will do, for people like Michael Goodwin, time is running out.

At 3rd Street Opticians, Goodwin saw the real estate tax portion of his rent jump from $277 a month last year to $466 this year. He was hit with a tax adjustment bill of $2,200 in March.

Coupled with increases in utility bills, insurance rates, gas prices and other taxes and fees, simply staying in business has become a struggle.

"I want to stay," Goodwin said. "But I just don't see it happening.

"I don't know what else I can do."

Neither do property managers and owners.

"It's frustrating for everybody," said Craig Sher, president and CEO of the Sembler Co., which developed BayWalk and acts as landlord for about 1,000 small businesses, including 3rd Street Opticians.

"There is really no enemy here. There isn't anyone oppressing anybody, and nobody is profiting by this."

But an increasing number of businesses are losing, and the damage is becoming extensive.

"It's an issue that's pervasive throughout the country," said Rob Turner, Hillsborough County property appraiser. "And it's a challenge. Real estate values have increased about 20 percent here. In Manatee County, it's over 46 percent."

A cap on commercial property taxes would benefit businesses, but tax revenue has to come from somewhere, Turner said. Cities and counties would stand to lose substantial revenue if a commercial cap is passed because property taxes are local government's largest source of income.

"There are no easy answers," said Bob McKee, lobbyist for the Florida Association of Counties. "We have a table where one of the legs has been cut off. The answer may not be to cut off another leg."

Florida's counties are supporting a proposal to allow residents 62 or older to move once within the same county to a less expensive home and keep their property tax assessment. This would help empty-nesters downsize.

While Farkas' proposal remains a work in progress, the Florida League of Cities likes the idea of fair treatment for longtime homeowners, newcomers and businesses. The league supports a broad look at property taxes.

Ultimately, voters would have to approve any changes as a constitutional amendment.

Some lawmakers grumble that local governments aren't playing straight with taxpayers. Municipal coffers have grown fat during the real estate market's flareup. Although flush with cash, local governments can boast they haven't raised taxes.

But as long as taxable values are climbing steadily, they haven't needed to. The revenues pour in. Without a cap, businesses argue, they are carrying a far greater burden.

"If you are one of the hogs, and you are at the trough and someone tries to shoulder you off the trough, you are going to squeal," said Rep. Fred Brummer, R-Apopka, noting property owners should fairly share the tax burden. "The counties are going to squeal."

One obvious solution is for small business owners who rent or lease to buy a building. But many times, that's financially impossible or a move that could hurt their business.

"Some of my small business owners have considered buying a building because they realize that for the same dollars or less, they're able to make an investment in real estate," said Lynn Schmidt, a Winter Haven accountant who is a member of the Florida United Business Association, a lobbying group for small businesses in the state.

"Unfortunately for many of them, it's just not possible. Then they have two choices: just keep swallowing the increases and see what the market will bear, or close their doors.

"It's a horrible thing."

Then there's the issue of location.

"They (small business owners) usually have to move to an inferior location where rents are less expensive," said Mario Iezzoni, an analyst for the University of South Florida's Small Business Development Center. "That's crucial. If you don't get the business, it's a vicious circle you never get out of and delays the process of trying to be successful by many, many years.

"The impact of property taxes has a tremendous impact on startups. They're on this treadmill for a much longer period of time. Either they go out of business or move."

It's too late for some.

To Sam Wahba, listening to Michael Goodwin's story is like watching a bad movie he's already seen.

Wahba managed St. Petersburg's BayWalk Pharmacy on First Avenue N until it went out of business last year. Losses were estimated at about $200,000.

"Mostly it had to do with the landlord and the city of St. Petersburg," Wahba said. "The Chamber of Commerce helped support the small business owners, but the city wasn't on the same page.

"They taxed us to death with every little thing. It was difficult to operate. I tried."

Wahba said the pharmacy paid more than $7,000 a month in rent, much of it in taxes, for the 3,500-square-foot space, which is owned by the city.

He now works for a chain pharmacy where Goodwin came from: Palm Harbor.

Times researcher Carolyn Edds contributed to this report. Tom Zucco can be reached at tzucco@sptimes.com or 727 893-8247. Letitia Stein can be reached at lstein@sptimes.com or (850) 224-7263.

[Last modified March 11, 2006, 16:56:02]