Florida residents have been accused of improperly receiving homestead tax exemptions because they have similar tax breaks on properties in other states, but many say they did not seek the other tax breaks and were not aware of them.
After three and a half years of trying to fight the government, Florida resident David Fitts gave up recently and wrote a check for more than $11,000 to pay off back taxes, penalties and fees stemming from an accusation that he improperly claimed permanent residency – and property tax breaks – in both Florida and Ohio.
Fitts still maintains he did nothing wrong, and even Florida judges who have ruled against him say they’re sympathetic to his argument that he had no knowledge of the Ohio tax break, which was granted because of a title company’s error. But he still technically broke the law, according to a recent appeals court ruling that prompted Fitts to pay up.
Now a pair of state lawmakers are trying to rewrite Florida’s homestead tax exemption rules so the law does not penalize homeowners who find themselves in similar situations going forward.
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Fitts’s case and others like – including cases where the back taxes and penalties have reached $45,000, $80,000 and even $800,000 - are being held up as evidence that Florida’s rules surrounding homestead exemptions are overly rigid, with critics saying the system penalizes people who had no intention to break the law and may have received tax benefits in multiple states without their knowledge.
The debate has broad implications.
Florida has a large number of property owners who own homes in other states. Many are snowbirds who live in Florida during the winter months and go north in the summer. Others have vacation properties.
Florida provides big property tax breaks to permanent residents. They pay no taxes on the first $25,000 of home value. The state also exempts residents from paying taxes – other than school taxes - on property values between $50,000 and $75,000.
And the Save our Homes provision in state law caps how much property taxes can increase annually for permanent residents at 3%.
The tax breaks can add up to big savings for property owners, but also a lot of lost revenue for municipal governments looking to finance important local services. So county property appraisers look to ensure that the tax exemption is not being abused.
A property appraiser audit led to Fitts getting a letter in 2016 demanding payment of back taxes and penalties for claiming permanent residency in two states.
Fitts, 71, first bought a condo in Florida in 2002.
After retiring from his sales job at IBM in Cincinnati in 2005, Fitts and his wife decided to sell their home in Ohio. They moved into their Venice condo full-time in 2008.
But in 2010 the couple decided to buy a condo in Cincinnati to stay in during the summer. The condo purchase is what led to their tax problems in Florida.
Even though Fitts made it clear in his loan application, closing statement and other documents that the Cincinnati property was not his primary residence, during the closing a title company employee in Ohio checked a box indicating that the property would be occupied as primary residence.
By checking the box, Fitts received 2.5% off his Ohio property taxes, a savings of $560 over five years.
Fitts sold the Cincinnati condo in 2015, but the audit commissioned by the Sarasota County Property Appraiser still turned up details about the dual tax breaks in Ohio and Florida, which Fitts had received between 2010 and 2015.
That led the property appraiser’s office to send Fitts a letter in May of 2016 arguing that he had no right to seek a homestead tax exemption in Florida during that five-year period, and seeking $4,888.25 in back taxes. The appraiser also sought a 50% penalty on the tax bill and other fees, resulting in a tax lien against his Venice property of $8,832.81.
Additionally, Fitts was required to pay 15% interest on the tax bill until he paid up, driving the overall bill up to $11,000 by the time he paid it. And Fitts lost his Save our Homes tax cap, which means he is paying roughly $1,800 more in property taxes annually going forward.
Before paying the bill, Fitts fought hard in court to have it thrown out. Judges who heard the case expressed sympathy.
A circuit court judge wrote that “I may not necessarily agree with the imposition of taxes on innocent people who make innocent mistakes or have their agents make innocent mistakes.”
An appeals court ruling also said that “we, like the circuit court, are sympathetic to the Fittses.”
But both courts said that Florida’s homestead tax exemption statute is clear, and that Fitts was in violation.
– Florida law states that “Any person who is receiving or claiming the benefit of an ad valorem tax exemption or a tax credit in another state where permanent residency is required as a basis for the granting of that ad valorem tax exemption or tax credit is not entitled to the homestead exemption provided by this section.”
The law has ensnared other Florida property owners who claim they were unaware of the tax breaks afforded them on properties outside the state.
Sarasota Attorney Morgan Bentley has represented a number of them. Bentley sent a letter to lawmakers detailing some of the other cases. They include:
-A Sarasota resident who moved to the area in 1959, and whose children attended Sarasota schools. She was hit with a bill for $45,000 in taxes and penalties for having homestead tax exemptions in both Florida and Ohio (Ohio calls it an owner occupancy credit). Bentley’s letter says an Ohio property appraiser applied the occupancy credit without the homeowner’s “knowledge or consent.”
- A 40-year resident of Venice whose children attended Venice schools. He had a homestead exemption on his Venice property for 20 years. Bentley’s letter says he received an $800,000 bill for back taxes and penalties because a property appraiser in another state “automatically applied a ‘residency-based’ tax credit on his property even though he otherwise paid non-resident taxes on his income.”
A Florida resident who had a homestead tax exemption in the state for 26 years. Bentley’s letter says a Wisconsin property appraiser “applied a $100 annual ‘Lottery and Gaming Credit’ on his tax bill without his permission.” The man owes $80,000 in back taxes and penalties in Florida.
The appeals court that heard Fitts’s case wrote that “we encourage the Legislature to amend the statutes if it does not intend the lien and penalties... to apply in cases like the Fittses.”
State Sen. Joe Gruters, R-Sarasota, filed a bill aimed at helping property owners who find themselves in similar circumstances going forward.
“As more and more individuals are moving to our great state they should not be penalized for someone else’s error,” Gruters said Tuesday before the bill passed the Senate Community Affairs Committee.
The bill is supported by Sarasota County Property Appraiser Bill Furst, who said there needs to be more flexibility in the homestead law, and by the Florida Property Appraisers Association.
“My hands were 100 percent tied,” Furst said while speaking about some of the examples he dealt with of property owners who had tax exemptions in multiple states.
The legislation allows a property owner who has a homestead tax exemption in Florida and a residency-based property tax break in another state to retain the Florida exemption if a Florida property appraiser determines the owner did not apply for the tax break that was granted by another state, and the owner has relinquished the other tax break.
The bill will not benefit Fitts, but he hopes his case helps bring attention to the issue.
“The hope would be that out of this comes some better legislation, a better statute that doesn’t sweep up people like myself,” Fitts said. “I call it collateral damage. I was sort of collateral damage to a well-intended statute.”