Politics

$280M in untapped tax beckons

With budget cuts on the horizon, a neglected pot of business assessments may glimmer more brightly.

By SYDNEY P. FREEDBERG
Published July 8, 2007

As much as $280-million in local taxes go uncollected each year in Florida because many businesses duck their obligations and government looks the other way.

At issue is the tangible personal property tax, a tax on business equipment, fixtures and furniture that brought about $1.9-billion to Florida's 67 counties last year. The tax helps pay for local services such as education, public safety and parks.

While rising real estate property taxes dominate the headlines, business and government alike have let the little-known tangible tax dwindle in importance.

Many businesses underreport their assets.

Others simply don't file a return.

And a lot of county property appraisers let them get away with it - with a wink and a nod from both the Florida Legislature and the state Department of Revenue.

"It's almost a voluntary tax, " said Russ Mathis, interim property appraiser in the Panhandle's Bay County.

According to Revenue Department audits, tangible property tax avoidance could be costing counties between $60-million and $280-million a year.

In a state with a $70-billion budget, that may not sound like much.

But with local budget cuts looming, the significance of the tangible property tax could grow as county officials search for additional revenue.

What's more, the revenue losses could be much higher than the Revenue Department's audits suggest.

That's because the revenue-loss estimates are based on state audits that don't include some of Florida's biggest businesses -- telephone companies, electric utilities, railroads, oil and gas companies, mining firms and any company that is suing the state over a tangible tax issue.

The audits exclude utilities because they cross county lines and are "too complex, " mining firms because they are "too large, unmanageable or difficult to appraise, " and companies that are suing because they might not be representative of tangible property taxpayers, said Revenue Department spokeswoman Renee Watters.

Some appraisers, especially in smaller counties, are also reluctant to take on large companies. They say they lack staff and expertise to review complex tax returns or worry they will end up in court.

Those companies have "got people on the payroll working full time just to keep their taxes down, " said Okeechobee County property appraiser W.C. Sherman.

Sherman says he spent more than a decade fighting Florida Power & Light, contending the giant utility was ducking some of its tangible property taxes. The company disputed his claims and says now it pays its fair share of taxes.

It ended up paying Okeechobee about an additional $360, 000 a year, Sherman says.

With that extra revenue, the farming county can hire two more teachers, a firefighter and an emergency responder, and can "maintain the streets a little better, " Sherman said. But most property appraisers aren't "willing to go through what I did, " he added.

Opening a loophole

Over the years, the Legislature has turned down several requests to give the state Revenue Department more staff to bolster its audits and assistance to local appraisers.

But the department shoulders part of the blame for lax oversight, too.

In 2001, it stopped asking for help partly because additional resources didn't seem realistic during the cost-cutting of the Jeb Bush administration.

In all the debate about property tax relief this year, neither the Legislature nor Gov. Charlie Crist mentioned the tangible property taxes that are going uncollected.

The Legislature and Crist ordered cities and counties to cut tax rates. They also proposed a constitutional amendment that, if approved by the voters on Jan. 29, would create a bigger homestead exemption on real estate property taxes and a $25, 000 exemption on tangible property taxes.

The tangible tax proposal would eliminate smaller businesses from the tax rolls. But some property appraisers say the proposed exemption might be a headache to administer.

"The only thing we're doing is opening up a loophole and shifting the tax burden to a smaller group, " said Neil Hester, a retired Orange County property appraiser who is an expert on Florida's tangible property tax.

The state Department of Revenue is supposed to oversee county appraisers to make sure they assess property values fairly.

So each year state revenue agents do random audits of businesses and local appraisers' offices. The audits indicate whether businesses are accurately reporting the costs of their assets. The state can also use the audits to gauge how much business equipment is going untaxed.

State officials downplay estimates of revenue loss, saying their projections are guesses based on tiny samples that may not be statistically valid.

They don't have enough staff to do additional audits needed for more accurate projections, documents show.

The honor system

The audits cover more than 4, 300 tangible property taxpayers between 2001 and 2006. They reveal what a 2003 Revenue Department report called "systemic problems" with tangible property tax rolls.

Summaries of the audits were obtained by the St. Petersburg Times through a public records request. The state refused to release the audits themselves, citing taxpayer confidentiality.

Almost 2, 000 of the audited taxpayers (about 46 percent) understated their assets, meaning that they might have paid less tangible tax than they owed. About 830 others (19 percent) didn't file a return.

In Broward County, 30 of 31 tangible accounts audited in 2003 underreported assets or did not file a return. In Hillsborough, it was 27 of the 30 sampled in 2005. And in Hernando, it was 25 of the 30 in 2004.

Mike King, Hernando's director of tangible property, acknowledged that some businesses "aren't always as honest with us as we'd like them to be."

Each year, it's pretty easy for property appraisers to find and assess land and buildings on that land. But finding tangible property, such as cash registers, shelving and desks, in a building, can be tougher.

Some appraisers simply take the tax return filer's word without verifying it.

It's "basically the honor system, " said Tim Wilmath, director of valuation for the Hillsborough property appraiser's office. "What you report, we assess. However, some people don't report at all. For those, we make our best guesstimate."

Wilmath said much of the underreporting of assets is accidental, not intentional.

The state audits also uncovered cases where businesses overstated their assets. For example, Saddlebrook Resort in Pasco County reported $14, 162, 166 in assets in 2004. That was $856, 019 more than appraisers calculated. The county says it caught the mistake before Saddlebrook paid its tax.

Although a state audit found Pasco in "substantial compliance" in 2002, 14 taxpayers underreported assets and three taxpayers with $56, 000 in combined costs did not file returns.

Pasco property appraiser Mike Wells notes that it's the bigger companies like Wal-Mart that often spend years suing Florida counties to try to get their tangible property taxes lowered.

"(They) think by appealing values and suing they have a step up on the property appraiser's office and expect a settlement to be forthcoming, " Wells said.

To help identify untaxed tangible property, some counties hire consultants. They visit out-of-state corporate headquarters, search accounting records for property and report their findings to county officials.

Pinellas property appraiser Jim Smith persuaded the County Commission to employ an audit firm in 2001. At the time, officials estimated the company would find $10-million in underreported property and yield up to $400, 000 a year in tax revenues.

Pinellas is now negotiating with Cardinal Health over what the county consultant says is about $93-million in under-reported assets for 2003-06.

Cardinal, one of the nation's largest providers of health care products, has sued, contending Pinellas is trying to tax some of its assets twice.

If the county prevails, it could mean as much as $1.8-million in extra revenue, enough to pay the entire teaching staff at certain elementary schools.

According to the state audit of the 2005 tax rolls, five of 30 taxpayers surveyed in Pinellas did not file a return and six underreported assets.

The system is not airtight, said Ron Anderson, the county's deputy for property appraisals.

For several years, for example, Anderson says the county has allowed several companies, including the Times, to file tangible tax returns that he now calls incomplete. That makes it hard for the county to determine whether those businesses are reporting their assets accurately, he says, but Pinellas has no plans to audit them.

Anderson's comments were news to the Times. The appraiser's office "never told us the filings were wrong or incomplete, " said Phillip Horne, the paper's accounting manager.

The Times' tangible property in Pinellas was assessed at about $39-million last year, meaning the paper paid about $818, 000 in tangible tax. It also paid about $45, 000 in tangible tax in six other counties.

Times computer-assisted reporting specialist Connie Humburg and researcher Carolyn Edds contributed to this report.

Fast Facts:

Florida's two property taxes

The real estate property tax is levied on land, houses and other buildings - assets that cannot be moved - and last year generated about $28.5-billion, or 94 percent of the property tax revenue in the state. The lesser-known tangible property tax is levied on assets that can be moved, including furniture and fixtures such as computers and machinery. Last year it generated about $1.9-billion, or 6 percent of the state's property tax revenue.

Dwindling importance of the tangible property tax

Over the past decade, the tangible property taxes collected by most of Florida's 67 counties have grown. But because real estate values have skyrocketed, real estate taxes have far outpaced tangible taxes as a source of revenue for local counties.

Sources: Department of Revenue; county property appraisers *2006 estimate, **2007 estimate

Q&A / Tangible personal property tax  

Tracking nuts and bolts 

What is it?

A tax on equipment used to support business operations. That includes computers, machinery and furniture, appliances and furnishings in rental units that are owned by the landlord, billboards and attachments to some mobile homes such as awnings, carports or porches.

Who pays it?

Businesses that have either a proprietorship, partnership or corporation, or self-employed agents or contractors. Some mobile home owners and landlords who lease property also must file. There were almost 1.3-million tangible tax accounts last year, with a statewide taxable value of about $103.7-billion.

Who fights it?

In recent years, many large firms have challenged tangible tax values. Among them: Wal-Mart, Time Warner, Florida Power & Light, Tropicana Products, Verizon Wireless, CSX Transportation and Norfolk Southern.

Who administers it?

Officials in Florida's 67 counties are responsible for appraising all tangible property. The state Revenue Department is charged with overseeing the counties to make sure taxpayers are treated fairly and property values are assessed accurately.

How much is it worth?

In 2006, the statewide taxable value of tangible property was about $103.7-billion, or 6 percent of all property on county tax rolls. The tax yielded about $1.9-billion in revenue.

How would the proposed constitutional amendment change it?

It would grant a $25, 000 exemption to each tangible account, eliminating almost 1-million tangible accounts from the tax rolls, or more than three-quarters of the total. It would mean an estimated loss of $220-million in tax revenue (about 12 percent of the total tangible tax revenue collected in 2006).

[Last modified July 8, 2007, 01:34:31]