Florida Ad Valorem Taxation Update: First District Court of Appeal Broadly Interprets Charitable Use Exemption to Ad Valorem Taxation

Aug 02, 2019   

In May, the First District Court of Appeal, which covers parts of North Florida and the Panhandle, issued an opinion broadly construing the charitable purpose exemption in Florida’s ad valorem taxation regime.  The opinion, Crapo v. Gainesville Area Chamber of Commerce2019 WL 1941241 (Fla. 1st DCA 2019) (hereinafter Gainesville Area), is a victory for taxpayers and provides an additional tool for taxpayers seeking to achieve exempt status for their properties.

At issue in the case was the ad valorem taxation for the 2014 tax year of real property owned by the Gainesville Area Chamber of Commerce (“Chamber”) in Alachua County, Florida.  The Chamber received exemption from federal income taxation under IRC § 501(c)(6), which applies to business leagues, trade advocacy groups, and similar organizations.  However, after initially receiving an exemption from ad valorem taxation (that is, taxation of property based on its value and typically used to finance local services such as schools), the Alachua County Property Appraiser revoked the Chamber’s property’s exempt status in 2014.  After an unsuccessful challenge of the revocation before the Alachua County Valuation Adjustment Board, the Chamber brought an action in circuit court.  The circuit court permitted the exemption, and the Property Appraiser appealed.

The sole issue on appeal before the First DCA was whether the Chamber’s property fell within the exemption granted under Florida law to property used for “charitable purposes.”  For context, all real property in Florida is subject to ad valorem taxation, unless is it expressly exempted from the tax.  One category of exemptions includes property used exclusively or predominantly for educational, literary, scientific, religious or charitable purposes.  Notably, under the Florida constitution, such property may be exempted from ad valorem taxation—it is up to the legislature to actually implement the exemption.

Under this authority, the legislature has enacted statutory regime which governs the exemption of property used for literary, scientific, religious or charitable purposes.  Included therein is a provision specifically defining the term “charitable purposes” as:

[A] function or service which is of such a community service that its discontinuance could legally result in the allocation of public funds for the continuance of the function or service. It is not necessary that public funds be allocated for such function or service but only that any such allocation would be legal.

Fla. Stat. § 196.012(7).  The First DCA affirmed the circuit court and held that the Chamber’s property was used for charitable purposes, as defined above, and thus exempt.  The crucial aspect of the First DCA’s decision is the approach it took to interpreting the definition of “charitable purposes.”  The First DCA determined that this statute is clear and unambiguous in its meaning, and thus does not warrant any statutory construction or deeper analysis of its meaning.  Under the Court’s analysis, if the property at issue is used in a function or service to which public funds could legally be allocated, then the property is used for a charitable purpose.  No further analysis is necessary.

The First DCA then looked at the Chamber’s activities—economic development and related functions and services designed to grow the tax base, create jobs, and generally raise the level of prosperity in the local community.  The First DCA equated the Chamber’s activities to those of the Florida Department of Economic Opportunity, a State agency with the statutory mandate of creating, expanding, and retaining business in Florida and facilitating other job-creating efforts in the State.  See Fla. Stat. § 20.60.  Thus, because the Chamber’s activities mirrored those of a publicly-funded State agency, the Chamber’s activities could be supported by public funds and its property was used in furtherance of “charitable purposes.”

The First DCA’s decision was split 2-1.  To the dissent, the term “charitable” had historically referred to relief for the needy, not broad-based economic development, and constituted something much narrower than any activity to which public funds may legally be allocated.  The dissent also argued vociferously that the decision’s interpretation of § 196.012(7) inappropriately equated a “charitable purpose” with a “public” purpose and applied a definition of “charitable” that exceeded the bounds of the Florida constitution and years of case law.  The exemption for municipal purposes, the dissent argued, is dealt with separately in the Florida constitution, which in fact mandates an exemption for property used for municipal purposes, as opposed to authorizing the legislature to implement exemptions for property used for literary, scientific, religious or charitable purposes.  Thus, to the dissent, the majority’s interpretation of § 196.012(7) was contrary to the Florida constitution and contrary to the Court’s obligation to either interpret a statute consistently with the Florida constitution or invalidate the statute as unconstitutional.  The dissent felt it was the Court’s obligation to interpret § 196.012(7) in such a way to ensure its adherence to the established understanding of the term “charitable purposes,” specifically relief for the needy and not the equivalent of public purposes.

The majority brushed these concerns aside.  When the legislature is clear in the meaning of a statute, it is not only unnecessary, but also inappropriate, to engage in statutory construction to discern an alternative interpretation or meaning (“Creating an ambiguity where one did not previously exist would exceed our authority.”).  Moreover, the dissent’s concern regarding the historical meaning of the word “charitable” in the Florida constitution, and the amalgamation of public purposes and traditionally understood “charitable” purposes, was merely the result of choices plainly made by the legislature which should be left undisturbed.  As the Court noted, the Florida constitution grants the legislature the power to implement exemptions for property used for charitable purposes does not itself define the word “charitable.”  Thus the only reference to determine that word’s plain meaning in this context is § 196.012(7)—a statute enacted pursuant to the constitution’s grant of legislative power on this specific issue.  Interpretation of the word “charitable” by reference to the Florida constitution and related case law is consequently unnecessary and inappropriate.

Thus, the rule (in Counties covered by the First DCA, at least) is that any activity may give rise to a charitable use exemption from ad valorem taxation so long as that activity is one to which public funds may legally be allocated, regardless of its connection, or lack of connection, to the traditional understanding of the word “charitable.”  However, the First DCA noted that the Property Appraiser had not challenged the constitutionality of § 196.012(7), and as a result it is possible that a direct challenge to the constitutionality of the statute may be viewed differently by the First DCA.

Impact of the Decision

While Gainesville Area is a new case, and the full extent of its impact in the area of ad valorem taxation has not yet been determined, two aspects of it seem particularly relevant to future ad valorem taxation disputes.

First, taken to its logical extreme, Gainesville Area potentially opens up numerous activities to exempt status and may tip the balance in favor of a property owner achieving exempt status for his or her property.  It is not hard to find examples of public funding for countless everyday services—education, transportation, healthcare, legal services, economic development, athletics, recreation, cultural programs, scientific research, and many others.  A number of these categories fall under separate exemption categories and thus may not need to rely on the charitable use exemption to achieve exempt status.  However, when applying for exempt status, any such organization would be well-served by also claiming exemption under the charitable use exemption.  Nothing precludes property from being exempt under more than one exemption category, i.e. religious and educational.  Assuming the other prerequisites to exempt status (i.e. the owner of the property is exempt and the property does not benefit certain disqualifying groups or individuals) are met, Gainesville Area provides a powerful tool in favor of exemption under the charitable purpose category notwithstanding the property’s qualification, or inability to qualify, under a separate (potentially more specific) exemption category.

Second, this case represents clear guidance that the plain language of an ad valorem exemption statute is controlling—to the exclusion of other interpretations based on the rules statutory construction or constitutional jurisprudence.  Adherence to that approach may call into question previously held assumptions in this area of law.  For instance, the First DCA has held that in order for property to be exempt from ad valorem taxation, the property must be owned by an exempt entity and used for exempt purposes by the same entity.  Under this interpretation, a property is not entitled to exemption from ad valorem taxation even if it is owned by one exempt entity and used by another for clearly exempt purposes.  See e.g. Genesis Ministries, Inc. v. Brown, 2018 WL 3551967 (Fla. 1st DCA 2018) at * 3.  However, the operative statute, Fla. Stat. § 196.192 merely states that “All property owned by an exempt entity and used exclusively for exempt purposes shall be totally exempt from ad valorem taxation.”  Nothing in this clear and unambiguous statute requires the same entity to both own the property and engage in the exempt activity, yet that is how it has been interpreted by the First DCA.  The First DCA’s interpretation relates back to an older First DCA case, Ocean Highway and Port Authority v. Page, 609 So. 2d 84 (Fla. 1st. DCA 1992), which itself relies on the legislative history of the statute.

Strict reliance on the plain language of the statute, as mandated by the First DCA in Gainesville Area, however, would not preclude the exemption of property owned by an exempt entity and used by a separate entity for exempt purposes (i.e. under a lease agreement).  Note, however, that there may be instances where a statutory interpretation beyond a statute’s plain meaning has benefitted property owner’s seeking exemption from ad valorem tax.  Thus, it cannot be said that Gainesville Area is uniformly pro-taxpayer.

The tax and tax litigation attorneys at Fuerst Ittleman David & Joseph have extensive experience handling ad valorem taxation matters for clients, both in and out of court.  They will continue to monitor developments in this area of the law. If you have any questions, an attorney can be reached by emailing us at contact@fidjlaw.com or by calling 305.350.5690.