With much uncertainty for taxpayers in the field of retroactive application of tax laws, and many courts siding with the tax administrators, one taxpayer in Florida recently scored a victory in the retroactivity realm (Stanburg v. Panama Commons LP, No. 1D14-1671 (Fla. Dist. Ct. App. April 8, 2015).
Because the U.S. Supreme Court’s decision in U.S. v. Carlton, 512 U.S. 26 (1994) set an extremely deferential legislative-purpose standard, under which states can justify retroactivity on such vague rationales as “preserving revenue,” the taxpayer’s win here is noteworthy, especially because of the very short retroactivity period of less than one year.
Panama Commons LP, a developer of low-income housing, received an exemption in 2012 for its affordable housing project, and filed a timely renewal application for the 2013 tax year. However, after the application was filed but before the exemption was approved, the Legislature repealed the exemption provision, specifying that the law change would apply retroactively to the 2013 tax roll.
For comparison, other noteworthy retroactivity cases that state tax practitioners have been following recently, such as In re Estate of Hambleton, No. 89419-1 (Wash. 2014), have dealt with much longer retroactivity periods. The court in Hambleton, for example, found that an eight-year retroactivity period did not violate either the federal or state due process clauses.
One reason the Florida court may have sided with the taxpayer here is that they viewed the retroactive change as altering a substantive right rather than simply clarifying the original law. For example, the court found that the taxpayer’s right to the exemption vested at the time it filed its renewal application. The dissent argued that an exemption applicant has no vested right in an exemption until it is actually granted, but the majority countered that the taxpayer’s right to an exemption should not depend on how promptly the assessor acts on its application.
Because the court found that the taxpayer’s right to the exemption had vested, it then held that the Legislature’s action violated the state constitution’s due process clause, which requires retroactive legislation to be either procedural or remedial in nature. Because the law change retroactively eliminated the right to a tax exemption, the court said that the law change was essentially imposing a completely new tax obligation, and therefore was substantive, not simply procedural or remedial.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Do you agree that the taxpayer had a vested right in the exemption upon application, or should the right only vest once the exemption is actually granted?
Sign up for a free trial of the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state property taxes.
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