Challenging Tax Assessments on Contaminated Property in Florida

Environmental contamination can lower the value of property, but it’s often overlooked when assessing property taxes. In Florida, this is a big issue because there are many sites contaminated with petroleum and other chemicals. Even if the state offers to help clean up the sites, it’s slow and underfunded. Property owners can challenge their assessments if they don’t consider the contamination. But it’s hard to figure out how much the contamination affects the value of the property. Florida law hasn’t really dealt with this issue, so it’s helpful to look at how other states handle it. Before we get into that, let’s first understand how property taxes are assessed in Florida. In Florida, when property is being valued for tax purposes, the constitution says that the assessment cannot be higher than the fair market value. This means the price a buyer and seller would agree on if neither had to make the deal. Property appraisers use three methods to figure out the fair market value: the cost approach, market approach, and income approach. They consider all three methods but rely mostly on the one they think is most accurate for that property. This is called “reconciliation.” When appraising contaminated property, it can be difficult for an appraiser to use traditional methods because there is often little market data available for contaminated land. The cost approach may not be relevant because it focuses on buildings and structures, not soil and water. The income approach may also not be useful if the contamination hasn’t affected the use of the buildings.

Courts and property assessors have different approaches to considering the costs of cleaning up contamination and the stigma associated with it. In order to deduct the cost of cleanup, the contamination must be shown to have a legal requirement for cleanup and the costs must be established with certainty. Once a deduction is allowed, the proper valuation methodology for the devaluation also becomes a complicated and controversial issue, as traditional techniques may be insufficient to account for environmental contamination. If a property is contaminated, it doesn’t automatically mean it’s worth nothing for tax purposes. Instead, the value is usually determined by subtracting the cost to clean up the contamination from the value of the property when it’s not contaminated. This is because the cleanup cost reflects how much the property’s value is decreased. Some courts don’t automatically reduce property value by the cost of cleaning up contamination. They say contamination doesn’t affect the true value of the property. However, even if cleanup costs can’t be deducted, the property may still lose value due to stigma, which is a perceived risk associated with contamination. Stigma can last even after cleanup is completed. Stigma is usually measured as a percentage of the property’s undamaged value. Recent cases have shown that property owners have been successful in reducing their property assessments based on the cost of cleanup and the stigma of contamination. For example, in one case, the court reduced the estimated market value of a contaminated property to zero. The court ruled in two cases that properties affected by contamination can have their tax assessments reduced. In one case, the court agreed that the properties were overvalued due to the stigma of being located within a contaminated site. In another case, the court allowed for a reduction in property value to account for environmental contamination. In Florida, the Supreme Court said that evidence of contamination can affect the value of a property. The court in Finkelstein said that if a government program will pay for cleaning up a contaminated property, the cost of cleanup cannot be used to determine the property’s value in a lawsuit. But if there is no government program to pay for the cleanup, then the cost of cleanup can be used to determine the property’s value. Finkelstein is a case that dealt with the value of contaminated property in an eminent domain situation. The court recognized that contamination can lower the value of property because it makes it riskier to own. The court said that there must be evidence from the market to show that contamination has decreased the value of the property. This means that appraisers can only use evidence from actual sales of similar contaminated properties to determine the value. It’s not clear if the court meant to only use this approach, but the income approach, which also looks at market factors, could work too. In Florida, there is no clear method for assessing contaminated property for tax purposes, and there are varying views on how to measure the costs to fix contamination and the stigma it causes. There is no Florida law or court case that directly addresses this issue. One possible solution could be for the legislature to create a law or for the Department of Revenue to create guidelines. Without clear guidance, the issue remains uncertain.

Source: https://www.floridabar.org/the-florida-bar-journal/challenging-tax-assessments-on-contaminated-property-in-florida/