A recent decision in the state of Florida within the Fifth District Court of Appeals brings forth the issue of determining depreciation as a result of external obsolescence. This precedent-setting Florida personal property case will help shape the property tax landscape going forward on business personal property tax.
Darden Restaurants, Inc. (Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s) had just finished completion of a brand new corporate headquarters in Orange County, Florida back in 2009. This brand new facility house over 1,000 employees in a 400,000 square foot office. There were numerous amenities within the compound including “including computers, office furniture, fitness center equipment, test kitchen equipment, solar panels, signage, an alarm system, and a music system.”
The Business Personal Property Returns In Question
In 2013, Darden Restaurants filed a Business Personal Property tax return estimating the fair market value of the assets to be $20,503,172. In that same year, however, the local assessor valued the same Personal Property at $29,033,332, or a valuation of $8,530,160 higher than the company.
ln 2014, Darden filed a Business Personal Property tax return estimating the fair market value of the same assets to be $18,217,701. That same year, the local assessor valued it at $27,424,505 or $9,206,804 more than Darden’s
internal estimate. Darden appealed the valuations for both years by
filing petitions with the VAB. ln each case, the VAB sided with Darden and reduced the valuation.
There are three recognized approaches to property valuations: cost, income, and market or sales-comparison. ln the instant case, Darden and the Property Appraiser agreed that the income approach would not be appropriate for valuing Darden’s Personal Property. Darden’s expert witness utilized the market or sales-comparison approach in arriving at the valuation. In contrast, the Property Appraiser utilized a cost approach. ln rebuttal of this methodology, Darden presented expert testimony that the Property Appraiser’s methodology was not consistent with professionally accepted general appraisal practices. Darden’s expert witness suggested that the Property Appraiser had failed to sufficiently examine comparable sales or “comps” when looking to the market.
Burden of Proof Not Met
The Property Appraiser, as the party challenging the VAB assessment, had the burden of needing to prove by a preponderance of the evidence that
the VAB’s assessed value did not represent the correct value of Darden’s Personal Property. However, because the Property Appraiser failed to present evidence that it calculated obsolescence in accordance with professionally accepted appraisal practices, the court concluded that the Property Appraiser failed to meet its additional burden of showing that there was competent, substantial evidence in the record to support the trial court’s valuation of Darden’s TPP for 2013 and 2014.
What Does it Mean For Property Taxes?
This ruling is extremely important as the state acknowledges that the Depreciation tables typically utilized in the valuation of Business Personal Property in the state do not account for obsolescence. At trial, the Property Appraiser presented evidence that it made continuous efforts to “look to the market” for changing values in TPP from obsolescence and also by utilizing its own Life Assignment Guide and Present Worth Table. Critically, the Property Appraiser did not present testimony that the methodology it utilized in calculating obsolescence complied with professionally accepted appraisal practices. This ruling will now establish that obsolescence needs to be accounted for in a way that conforms to the professionally accepted appraisal practice guidelines.