Florida: Supreme Court holds retroactive application of tax exemption repeal was constitutional
On June 2, 2016, the Florida Supreme Court decided Dan Sowell, et al. v. Panama Commons L.P. against the taxpayer, Panama Commons, reversing both the trial court and court of appeals.
Borrowing from the lower court’s opinion, the Supreme Court explained that Panama Commons is a nonprofit Florida limited partnership that constructed a 92-unit affordable housing project in Panama City. For the tax year 2012, the Bay County property appraiser granted Panama Commons a full tax exemption under Florida statute section 196.1978. The current version of the statute grants ad valorem tax exemptions for property that not-for-profit companies use to provide affordable housing to extremely low income, very low income, low income, or moderate income people. The current version does not contain the exemption for limited partnerships.
Panama Commons filed a timely application for an exemption for the 2013 tax year. After that, the legislature repealed the tax exemption for property owned by limited partnerships, retroactive for the 2013 tax year. Accordingly, on June 9, 2013, the appraiser issued a notice of disapproval for the 2013 tax exemption for which Panama Commons applied, on the grounds that the law had changed.
Panama Commons challenged this decision, arguing that retroactive application of the repeal for limited partnerships was an unconstitutional due process violation, and both the trial and appellate courts agreed. The appellate court reasoned that Panama Commons’ right to the exemption had vested on Jan. 1, 2013, before enactment of the repeal, and that “[b]y setting January 1 as the date on which the taxable or tax exempt status of real property is to be determined, the Legislature has created a constitutionally protected expectation that the substantive law in effect on that date will be used to make the determination.”
The Supreme Court’s rationale for reversing
Ultimately concluding that Panama Commons’ right to the exemption had not vested before the legislature enacted the repeal, the Supreme Court noted that its job was largely one of statutory interpretation, and that all statutes that provide for an exemption are to be “strictly construed with any ambiguity resolved against the taxpayer and against exemption.”
The court next recognized the applicable two-pronged analysis. The first prong, upon consideration of the terms and purpose of the law, asks if the relevant provision provides for retroactive application. The second inquiry is whether such application is constitutionally permissible.
The court looked to the definition of a vested right, which is one that is immediate or fixed. Additionally, the court noted that the receipt of an exemption is based on several factors, such as the meeting of certain deadlines, assessment of the value of all the properties, and the taxing authority’s adoption of its budget and millage rate, after which it imposes the ad valorem property taxes. And separately, after any changes are made to the assessed values, the property appraiser must deliver the certified assessment roll to the tax collector, which triggers the notices to taxpayers containing the amount of taxes due.
Here, the court determined that Panama Commons’ right was not immediate or fixed, but instead was a mere expectation, the upsetting of which is not unconstitutional. What is more, enactment of the repeal occurred before certification of the tax roll, before Panama Commons’ right to the exemption had vested.
Beyond this, the court recognized previous cases upholding tax changes, including in the U.S. Supreme Court, and also rejected the lower court’s reliance on what it considered to be an inapplicable statute.
For all of these reasons, the court concluded that Panama Commons’ right to the tax exemption had not vested before the legislature repealed the exemption for limited partnerships in 2013. Consequently, its loss of the exemption was not an unconstitutional violation of its right to due process.