Property taxes: a guide for our readers
One of the most important issues the state Legislature is considering this session is cutting property taxes.
After two weeks of debate over how to do it, lawmakers have proposed four solutions, and one more, from the Florida Senate, is expected to roll out this week.
But with every new idea, the issue gets murkier and the explanations more confusing. Even House Speaker Marco Rubio, the West Miami legislator who launched the House's controversial plan, concedes much of the confusion stems from the reality that ``it is a very difficult issue to report and explain.''
To cut through the clutter, here is a Miami Herald property tax primer, with answers to some of the most commonly asked questions. The accompanying chart compares the four proposals moving through the Legislature.
Q.What is the problem with the property tax system in Florida?
A. Supporters of overhauling the system -- Gov. Charlie Crist among them -- say that property taxes have become onerous for many Floridians. They say:
• Property taxes have risen faster than people's ability to pay. For example, property taxes rose 100 percent for the average Floridian in the past six years, while personal income rose 44 percent.
• The real-estate boom filled local government coffers with extra cash, more than they need to meet reasonable expenses.
• The Save Our Homes tax cap has created inequities that allow for neighbors with similar homes to pay vastly different tax rates.
Q.What is Save Our Homes?
A. A constitutional amendment passed by Florida voters that took effect in 1995. It basically says that local governments can assess a residence at market value when it is sold, but after that, the assessed value of the home, for tax purposes, can only rise a maximum of 3 percent each year, even if the market value of your home rises much more. Local governments are allowed to reassess at full value again when a home is sold.
Q.What's wrong with that?
A. It benefits some homeowners, but hurts others.
Let's say you bought a $100,000 home 15 years ago. Your property taxes have increased slowly since then because of the Save Our Homes cap.
But your neighbor next door bought an identical house three years ago -- and it cost him $400,000. He is paying much more in property taxes, because local government reassessed the property at market value when he bought it.
Also, Save Our Homes affects only residential properties that have homestead exemptions. It doesn't cover other real estate, such as rental property, second homes or commercial property.
Many homeowners say they are afraid to move because they will lose the tax savings they now enjoy from their current home. Many older couples say the provision has locked them into their current homes, when they would like to move to a smaller house. Younger couples say the inequities make it harder for them to buy a first home.
Q.How are property-tax rates determined?
A. There is no set rate governments must charge. Counties and cities decide the amount of money they need to collect to pay for their needs each year. Then they set the tax rate, also known as the millage rate, to bring in the money.
Q. What is millage?
A. One mill is equal to $1 for every $1,000 in assessed value. For example, if you have a home valued at $200,000 for tax purposes, and the county's millage rate is one mill, you pay $200 in property tax. If the rate is eight mills -- a little closer to reality -- then you would pay $1,600. Of course, you actually pay a little less because of your homestead exemption.
Q.What is a homestead exemption?
A. The Florida Constitution entitles every person who owns a permanent primary residence in Florida to a reduction of $25,000 off the taxable value of their home. So if your home has an assessed value of $200,000 and you have a homestead exemption, you actually pay taxes on $175,000.
Q.My house is valued at $200,000 and my millage rate is eight. But my taxes are a lot higher than $1,600. Why?
A.Because the county is not the only agency taxing you. Your municipality, school district, water and sewer district and, in some areas, special taxing districts, are also allowed to charge property taxes.
Each sets its own millage rate, and you pay according to the assessed value of your property.
Q.My county has lowered the millage rate. Why are my taxes still going up?
A. Because property values throughout much of Florida rose dramatically over the past few years, property taxes also rose even if millage rates remained stable or went down. State economists say that the median house price in Florida increased 90 percent from July 2001 to July 2006.
While most counties reduced their millage rates during those years, soaring property values allowed them to collect more tax revenue than the year before.
Q.How much money will the tax reform proposals save me?
A. It all depends on which plan ultimately passes. Homeowners would save the most under either of the House Republicans' two plans. One reduces taxes across the state $3.9 billion by eliminating all property taxes on primary homes, requiring counties to roll back their taxes based on the 2003-04 budget year, and raising sales taxes 2 ½ cents. The other does not eliminate property taxes but saves taxpayers $5.8 billion by requiring counties to roll back their taxes based on the 2000-01 budget year.
House Democrats propose giving a $3.8 billion tax break by sharply increasing tax exemptions on homeowners and businesses and making up the money lost with a one-cent increase in the sales tax.
The plan that saves homeowners the least is the governor's, which doubles the homestead exemption to $50,000.
Expect a compromise somewhere in between.
Q.Why are counties and cities opposed to the House Republican plan?
A. They don't oppose changing the property tax structure, but they say the cuts required would be too deep and would require eliminating services.
Q.How likely is it that we would do away with property taxes?
A. Hard to say. Even if the Legislature were to pass the proposal, it would take a constitutional amendment approved by voters to eliminate property taxes.
The governor is noncommittal on the idea. Early indications are that most of the Senate does not want to raise the sales tax and prefers a combination of rollbacks and changes to the tax system.
Q.Why does it take a constitutional amendment?
A. The state Constitution establishes the tax structure, so any change to it must be approved by voters. If the plan includes an increase in the sales tax, the Constitution requires that it must be approved by 66 percent of voters in order to pass.
Q.School districts rely on property taxes. What impact would the House sales tax plan have on schools?
A.Property taxes would continue to be collected from businesses and owners of second homes to pay for schools, but going forward those collections would be limited by an index based on inflation and population growth. This will put more pressure on the state to find new sources of money to improve schools.
Q.I have seen figures that show commercial property owners benefit the most under some plans. Why?
A.Individual owners of commercial property are not getting a bigger break, but there is so much commercial property in the state and its value is so high that the total amount of savings statewide would be much larger than to homeowners.
Q.What impact does the House Republican plan have on snowbirds and owners of second homes?
A.Property taxes would still be collected, but they would be scaled back, to an undetermined amount, and capped at the rate of inflation in the future.
Q.Will local governments increase other taxes and fees to make up for the lost tax revenues?
A.Probably. They could increase non-property tax revenues such as impact fees and other special assessments.
Q.What does the governor think about all this?
A. The governor said he wants property taxes to come down and proposed his own plan, but has said he is not bound by his own idea and is open to others'.
Q.Why doesn't the Senate have a plan?
A. Senate leaders are expected to come forward this week with some ideas. Among those they are considering: expanding the homestead exemption, raising the cap on the Save Our Homes assessment but allowing homeowners to carry their savings with them when they move, and changing the way property is assessed.
Q.What about the proposal to make the Save Our Homes savings portable to another home?
A.Legislators are struggling to find a way to make it possible for people to take the tax savings from Save Our Homes with them when they move. Some legal experts say allowing portability is unconstitutional and could jeopardize the constitutional footing of the current Save Our Homes cap. The only idea that appears to be likely is to allow people to keep their Save Our Homes savings when they move within a county.
