A Florida appellate court has delivered a huge win for taxpayers who contest property tax assessments. The decision was issued in Darden Restaurants Inc. v. Singh, Case No. 5D16-4049 (Fla. 5th DCA March 1, 2019). “The ruling ensures that taxpayers will now have a fighting chance” in those cases, said Dean Mead’s Robert S. Goldman, a veteran state and local tax attorney in the firm’s Tallahassee office. Goldman wrote an amicus curiae brief for the Florida Chamber of Commerce supporting Darden, the national restaurant chain at the center of the controversy.
In a long-running case followed closely by business groups, the Fifth District Court of Appeal underscored the Florida Legislature’s intent that tax appraisers (called “Property Appraisers” in Florida) must derive their valuations using professionally accepted appraisal practices. And in the event of a dispute, they must prove they have complied with this requirement. Taxpayers might take it for granted that the law would give them a meaningful remedy for overassessment, but Goldman said that the courts have allowed property appraisers enormous discretion over the years. The result was that even with a very good case, the taxpayer typically lost at the Value Adjustment Board (VAB) or in court. If a property appraiser testified that in deriving an assessment, he or she “considered” eight statutory factors, the assessment was virtually immune from attack. But “consideration” of information does not assure that it is used in a way that leads to an accurate market value determination, Goldman explained. That is a question of valuation methodology, yet the court cases viewed methodology as unimportant.
The 2009 rebalancing legislation
The Legislature stepped in to remedy this imbalance in 2009 when it amended Florida property tax statutes to require that assessments be derived using professionally accepted appraisal practices. That is, the methodology applied to the information “considered” must be accepted within the appraisal profession. Beyond this, the law expressly repudiated all the prior court decisions that had established a virtually insurmountable burden of proof for taxpayers and replaced it with a “preponderance” standard that is applied in most other types of cases. But old habits die hard, and some property appraisers continued operations as before, defending their actions by relying on the pre-2009 state of the law. The Darden case is the first appellate decision to address this, and it comes down squarely on the side of requiring the new law to be applied in accordance with its plain language. The result is to level the playing field for all taxpayers, including individuals and businesses, who challenge property tax assessments.
Darden owns restaurants that include Olive Garden, Bahama Breeze, Longhorn Steakhouse and others. The Orlando-based company maintains a 469,000-square-foot Restaurant Support Center on its campus where it employs over 1,000 people and has test kitchens and training facilities.
The dispute began with the county’s 2013 valuation of the support center’s tangible personal property, which included everything from the alarm system to commercial-grade kitchen equipment, plus the usual desks and computers found in office environments. The company submitted a value estimate of $20.5 million. Orange County Property Appraiser Rick Singh’s office disagreed and assessed the property at $29 million. The dispute continued in 2014 with the Property Appraiser and the company still far apart in their valuations.
Darden appealed to the Orange County VAB, an optional remedy for taxpayers. Darden presented an expert witness whose appraisals supported the values Darden had submitted, and the VAB sided with the company for both years. The primary difference between the methods used by the Property Appraiser and Darden’s experts was that the Property Appraiser’s values were based on computerized tables that purport to show the depreciated value of assets by class, while Darden’s expert relied on the used market for similar tangible personal property. A difficulty with the computer tables is that they fail to account for a form of depreciation known as obsolescence, which is distinct from physical wear and tear. Darden’s win at the VAB was remarkable, given that those proceedings seldom result in victories for taxpayers. Over two years, Singh’s office won 99 percent of the 5,223 cases that went before the VAB, according to a January 17, 2019, article in the Orlando Business Journal.
Singh then sued Darden in Circuit Court to reinstate his original assessments. The trial lasted several days, and Singh claimed that he had “looked to the market” to determine if there was obsolescence in Darden’s tangible personal property. However, this “look” consisted of conducting internal meetings, reviewing other taxpayers’ returns, and other activity that was not tied to the specific types of tangible personal property at issue in the case. At no point did Singh offer testimony that his method complied with professionally accepted appraisal practices as required by the 2009 law change. Nevertheless, the judge ruled in Singh’s favor and reinstated the original assessments. Without even citing the 2009 law, the Circuit Court relied on prior cases that emphasized the “administrative discretion” afforded to the property appraisers. For the trial court, nothing had occurred to diminish the enormous power that the earlier decisions had conferred on these assessing officers. The trial court buttressed its decision with a withering critique of the appraisals performed by Darden’s expert. Darden appealed to the Fifth District Court of Appeal.
The Darden case in the Fifth District
With a trial court decision essentially nullifying the effect of the 2009 law, the stakes on appeal for Florida property taxpayers could not have been higher. The issue for the community of taxpayers as a whole was not whether Darden’s expert reached the right value conclusions or even whether his methodology was sound. The issue was whether a law commanding property appraisers to adhere to the approved practices of their discipline is to be given effect. The Fifth District’s answer is an unequivocal “yes,” signaling to other courts that there is no ambiguity in the 2009 revision of the statute.
Singh’s argument on appeal, as in the trial court, was that he followed Department of Revenue valuation guidelines and that to the extent the guidelines did not provide a direct answer, he is entitled to exercise discretion without court interference under the case law. According to Goldman, this was little more than an argument for returning to the “imperial” status property appraisers enjoyed in the past. The appeals court rejected the Property Appraiser’s thesis, stressing that his discretion is now circumscribed by the requirement of adherence to professionally accepted appraisal practices. As the Court put it, his failure to introduce evidence of such adherence was a “critical” omission that was fatal to the trial court’s decision reinstating the original assessments.
The ruling does not mean that Darden’s expert’s valuations have been accepted. The appellate court did not disturb the trial court’s criticism of the Darden expert appraisals. Rather, the value issue will be “remanded” for reassessments, with directions from the trial judge to the Property Appraiser requiring the use of professionally accepted appraisal practices. This is a good illustration of the bifurcated nature of the typical property tax case: part of the case is about the assessment and whether it complies with the law; and the other part of the case is about the actual value of the property in dispute. A taxpayer may convince a court that an assessment is flawed and nevertheless fail to persuade the court that the taxpayer’s own value is correct. That is what occurred in the Darden case.
Despite the remand, however, the appellate ruling is important because of its pronouncement that the law requires property appraisers to use practices approved by their profession. It removes a substantial inequity from the system by assuring all taxpayers the right to have their assessments based on actual appraisals rather than mechanically generated valuations that do not reflect the market. Methodology cannot be ignored any longer. As Goldman put it, one cannot determine if a valuation is correct by looking up the answer in the “back of the book.” The only way to test the validity of a valuation is by examining the methodology used to arrive at it. The 2009 law and the Fifth District’s decision applying it reflect this reality for the first time in a Florida property tax case.