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Tax plan is open to legal fight
The benefits are not divided evenly, and the state's expert is unsure about portability.
By ALEX LEARY, Times Staff Writer
Published October 31, 2007
Gov. Charlie Crist laughs with Senate President Ken Pruitt, left, and Sen. Majority Leader Daniel Webster following the legislature's passage of the property tax bill, Monday. Florida voters will have a leaner, simpler property tax relief plan when they go to the polls Jan. 29 after the House reluctantly passed a take-it-or-leave-it compromise that the Senate offered Monday.
TALLAHASSEE - The Legislature's tax cut plan would deepen inequalities in Florida's tax system and could lead to a lawsuit by those who own nonhomestead property.
If that suit succeeded, the state might have two choices: give refunds to owners of businesses and second homes, or tell people who benefited under Save Our Homes that they have to pay that money back.
The state's own expert thinks the new plan is ripe for challenge.
"I would think that's something a lawyer would find attractive," said Walter Hellerstein. He is an authority on tax law and was hired by the state to study what has become known as "portability," the politically popular plan to let owners of homestead property take their Save Our Homes tax break with them when they move.
The Legislature was well aware of the problem when it went into special session this month. So it tried to add provisions to the tax cut package to minimize potential legal problems.
The Senate called for a break for first-time home buyers who do not yet enjoy the Save Our Homes' 3 percent annual assessment cap. The House proposed a different break, that would benefit both new buyers and those who purchased homes in recent years.
But the proposal the Legislature passed Monday includes neither of those provisions.
"They've perpetuated a flawed system," said Kurt Wenner, senior analyst for Florida TaxWatch, an advocacy group. "It's a mistake and bad for Florida."
Gov. Charlie Crist dismissed those arguments, saying the state could successfully defend portability. "But we're on offense here, we're not on defense," the governor said Tuesday as he began a statewide tour to promote the tax plan.
Just four months ago, the Legislature was headed in the opposite direction. It approved a tax cut plan that would have slowly killed off Save Our Homes in favor of a "super" homestead exemption for everyone.
"It is a failed experiment," Sen. Dan Webster, R-Winter Garden, said at the time of Save Our Homes, uttering what few other politicians dared to say. "It has hurt our economy, and it's going to hurt our future."
But a judge threw the plan off the Jan. 29 ballot, saying it was misleading. Even before the judge ruled, polls showed weak public support, in part because people did not want to give up Save Our Homes.
"If you can't beat 'em, join 'em," Webster said Monday night as Crist celebrated passage of the plan, which also includes doubling the homestead exemption and a Save Our Homes-like cap for businesses and nonhomestead property, but at 10 percent annually, not 3 percent.
Despite surrendering to political reality, Webster explained that dropping a benefit for new home buyers was a political calculation. A statewide poll last week showed it was not very popular. And from the beginning, the Senate has focused on the popular, knowing that any plan requires approval from 60 percent of voters.
Enacted in 1995, Save Our Homes has worked exactly as designed. It has protected homeowners from tax spikes caused by the red-hot real estate market of recent years.
In 2006, Save Our Homes excluded $404-billion from the tax rolls. The average savings per property was $1,700.
But it has also led to gross inequities. Over the years, Save Our Homes pushed more of the tax burden on nonhomestead property. Each owner of a business or second home now pays about 25 percent more in property taxes than they would if there were no Save Our Homes.
Two near-identical homes on the same street can have wildly different tax bills because one owner has lived there longer. Owners complain that Save Our Homes has trapped them in their home because moving would result in a bigger tax bill.
Portability has been kicked around for several years but the outstanding legal questions have kept it in the shadows of serious tax talks until now. The reticence stems from a legal analysis from Hellerstein, the University of Georgia expert hired by the state.
Hellerstein said portability could violate the U.S. Constitution because it would give in-state home buyers an advantage over new arrivals.
Hellerstein told the St. Petersburg Times recently that one way around that was to give a discount to new home buyers, as the Legislature originally wanted to do.
A House analysis of Save Our Homes noted it shifts more tax burden to nonhomestead property and "therefore some argue that Florida's tax policy unconstitutionally discriminates against interstate commerce, such as those businesses that might wish to locate in Florida or those who intend to invest in nonhomestead residential property."
The analysis concluded, "This argument seems to have legal merit."
It then noted an even greater threat to Save Our Homes portability. The U.S. Supreme Court, it noted, recognizes the "right of a citizen of one state to enter and leave another state ... and for those travelers who elect to become permanent residents, the right to be treated like other citizens of the state."
This, the House analysis says, "presents the most likely successful challenge to Save Our Homes."
Hellerstein argues Save Our Homes itself can withstand legal challenges - and it has - because it treats every new home buyer the same. But allowing people to move with their benefit gives a unique advantage over an out of state home buyer just arriving in Florida.