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IN THE SUPREME COURT OF FLORIDA
WAL-MART STORES, INC., aFlorida corporation, d/b/a Wal MartSuper Center,
Petitioner,
v. CASE NO.:SC01-1130
JIM TODORA, as Property Appraiserof Sarasota County, Florida; BARBARAFORD-COATES, as Tax Collector ofSarasota County, Florida; and LARRYFUCHS, as Executive Director of theFlorida Department of Revenue,
Respondents.__________________________________
________________________________________________
ON APPEAL FROM THE DISTRICT COURT OFAPPEAL FOR THE SECOND DISTRICT OF FLORIDA
_________________________________________________
AMENDED ANSWER BRIEF OF RESPONDENT JIM TODORA
Sherri L. JohnsonJohn C. Dent, Jr.DENT & COOK330 S. Orange Avenue
Sarasota, Florida 34236Attorneys for Jim Todora
TABLE OF CONTENTSPAGE
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
TABLE OF AUTHORITIES ii
STATEMENT OF THE CASE AND FACTS 1
SUMMARY OF THE ARGUMENT 5
STANDARD OF REVIEW 7
ARGUMENT 8
I. THE LOWER COURTS APPLIED THE APPROPRIATE STANDARD OF REVIEW . . . . . . . . . . . . . 8
II. THE PROPERTY APPRAISER PROPERLYINCLUDED THE TOTAL COST PAID BYWAL-MART, INCLUDING SALES TAX,SHIPPING AND INSTALLATION, IN ITSCALCULATION OF THE ORIGINAL COSTOF WAL-MART'S PROPERTY UNDERTHE COST APPROACH TO VALUE . . . . . . . . . . . . . . . . . . 10
CERTIFICATE OF TYPE, SIZE AND STYLE . . . . . . . . . . . . . . . . . . . . 24
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
TABLE OF AUTHORITIES
CASES PAGE
Blake v. Xerox Corp.,447 So. 2d 1348 (Fla. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Board of County Commissioners v. McGraw Fertilizer Service., Inc.,933 P.2d 698 (Ka. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Bunn v. Bunn,311 So. 2d 387 (Fla. 1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Bystrom v. Equitable Life Assur. Soc.,416 So. 2d 1133 (Fla. 3d DCA 1982) . . . . . . . . . . . . . . . . . . . . . . . 18
Conway v. Sears, Roebuck & Co.,85 So. 2d 697 (Fla. 1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Dade Cty. v. Atlantic Liquor Co.,245 So. 2d 229 (Fla. 1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 14
21
Daniel v. Canterbury Towers, Inc.,462 So. 2d 497 (Fla. 2d DCA 1985) . . . . . . . . . . . . . . . . . . . . . . . . 11
District Sch. Bd. of Lee County v. Askew,278 So. 2d 272 (Fla. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Havill v. Lake Port Properties Etc., Inc.,729 So. 2d 467 (Fla. 5th DCA 1999) . . . . . . . . . . . . . . . . . . . . . . . . 11
Oyster Pointe Resort Condo. Ass'n v. Nolte,524 So. 2d 415 (Fla. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21, 22
Powell v. Kelley,223 So. 2d 305 (Fla. 1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Rutledge v. Chandler,445 So. 2d 1007 (Fla. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 21
PAGE
Ryder Truck Rental, Inc. v. Bryant,170 So. 2d 822 (Fla. 1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 22
State Dep't of Assessments and Taxation v. Metrovision of PrinceGeorge's County, 607 A.2d 110 (Md. Ct. Spec. App. 1992) . . . . . . 15, 16
Szabo Food Servs., Inc. v. Dickinson,286 So. 2d 259 (Fla. 1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Turner v. Tokai Financial Services, Inc.,767 So. 2d 494 (Fla. 2d DCA 2000) . . . . . . . . . . . . . . . . . . . . . . . . 12, 13
18, 20
22
Wal-Mart Stores, Inc. v. Crapo,Case Number 97-CA-4728 (Final Judgment 8th Jud. Cir. Ct.February 26, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Wal-Mart Stores, Inc. v. Mazourek,778 So. 2d 346 (Fla. 5th DCA 2000) . . . . . . . . . . . . . . . . . . . . . . . . 4, 8
17, 19
22
Wal-Mart Stores, Inc. v. Todora,26 Fla. L. Weekly D1035 (Fla. 2d DCA Apr. 18, 2001) . . . . . . . . . . 4, 8
Walter v. Schuler,176 So. 2d 81 (Fla. 1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Xerox Corp. v. County of Orange,136 Cal. Rptr. 583 (Cal. Ct. App. 1977) . . . . . . . . . . . . . . . . . . . . . 15, 16
PAGE
STATUTES AND OTHER AUTHORITIES
Section 193.011(1) and (8), Fla. Stat. (1997). . . . . . . . . . . . . . . . . . . . . . . . 4, 57, 811-131517-20
Section 194.301, Fla. Stat. (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 810, 11
Section 212.02, Fla. Stat. (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 212.06, Fla. Stat. (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECONDARY AUTHORITY
INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS,PROPERTY ASSESSMENT VALUATION 360 (2nd ed. 1996) . . . . . . . . . 16
Marion R. Johnson, CAE, Should Sales Tax, Freight and InstallationCharges Be Assessable for Ad Valorem Tax Purposes?,ASSESSMENT JOURNAL (March/April 1998) . . . . . . . . . . . . . . . . . . . . 15
STATEMENT OF THE CASE AND FACTS
The Respondent partially agrees with the Statement of the Case and Facts as
set forth in the Petitioner's Initial Brief. However, pursuant to Florida Rule of
Appellate Procedure 9.210(c), the Respondent would supplement Wal-
Mart's Statement of the Case and Facts with the following:
In calculating his assessment of Wal-Mart's tangible personal property in1997, the Property Appraiser, through Deputy Appraiser Stretton Gramlich,accepted the amount reported as original cost by Wal-Mart on its 1997tangible personal property tax return. (T.284). Wal-Mart did not separatelyreport the sales tax it paid on the items of personal property, but supposedlylumped the sales tax in with the other costs paid to acquire the property. (R.337). On its tax return, Wal-Mart also included sales tax in its ownestimate of the fair market value of the subject property, since it used thesame original cost that it reported to the Property Appraiser in calculating itsestimate of fair market value. (T.719). Likewise, Wal-Mart represented tothe 1997 Sarasota County Value Adjustment Board that the value of itsproperty was $1,923,441, and Wal-Mart apparently included sales tax in thatvalue as well. (T.697; R.601-10).Early in the case, Wal-Mart moved for partial summary judgment based on
its contention that sales tax should not have been included in the original cost
of the property when the Property Appraiser performed his cost approach to
value. (R.35). In support of its motion, Wal-Mart filed the Affidavit of Willa
7
Lovett, Wal-Mart's Property Tax Manager, who claimed that payment of
sales tax did not enhance the value of the tangible personal property on
which it was paid. (R.34). In response, the Property Appraiser presented
portions of Ms. Lovett's deposition, in which she admitted that she had no
knowledge as to whether payment of sales tax enhanced the value of the
tangible personal property on which it was paid. (R.146-47). In addition,
Ms. Lovett acknowledged that Wal-Mart capitalizes the total purchase price
paid for its tangible personal property, including any sales tax paid. See
Lovett Depo pp. 54-55, 59-60 (in Appendix). Wal-Mart also depreciated the
entire purchase price paid for the property, including sales tax, for federal
income tax purposes. See Lovett Depo p. 61.
On the other hand, Stretton Gramlich of the Property Appraiser's office
testified in his deposition that, in calculating a value by the cost approach, an
appraiser must include all costs necessary to make the tangible personal
property operational. (R.1763). Mr. Gramlich explained that the payment of
sales tax influences the ultimate value of the property, because the buyer will
try to recoup costs paid, such as sales tax, when he sells the property.
(R.1765). Jim Ashburn, the Commercial Department Head of the Sarasota
County Property Appraiser's Office, also stated in his Affidavit that, in
8
assessing real estate by the cost approach, the Property Appraiser includes
all costs paid for construction materials, including sales tax, in the original
cost of the improvements. (R.142-43). The trial court denied Wal-Mart's
Motion for Partial Summary Judgment. (R.225).
At the actual trial of the case, Wal-Mart did not present any evidence that
sales tax is a "cost of purchase" or "cost of sale." To the contrary, Wal-
Mart's own expert witness, Les Miles, testified that he generally had not
found any costs of sale in the sales of tangible personal property that he had
reviewed. (T.584, 586). Wal-Mart also failed to present any evidence that
sales tax is not taken into consideration by buyers of store fixtures in
determining the purchase price that the buyers are willing to pay for the
property. In Wal-Mart's closing argument and Post-Trial Memorandum,
Wal-Mart did not make any attempt to argue that the Property Appraiser had
erred by including sales tax in his calculation of value. (T.900-28; 951-56).
(R.1623).
Significantly, the Property Appraiser's final assessment in 1997 was less than
2% greater than Wal-Mart's own estimate of the fair market value of its
property, as reported on its tax return. In considering whether Wal-Mart had
met its burden of proving that the Property Appraiser's assessment excluded
9
just value, the trial court noted that Wal-Mart's own estimate of value, as
stated on its tax return, supported the Property Appraiser's assessment.
(R.1699). The court further found that the Property Appraiser "was entitled
to, and did in fact, rely upon the taxpayer's estimate of value on the tax
return." (R.1699). On appeal, the Second District Court of Appeal also
noted that Wal-Mart's estimate of the value of the property was close to the
Property Appraiser's assessment. See Wal-Mart Stores, Inc. v. Todora, 26
Fla. L. Weekly D1035 (Fla. 2d DCA Apr. 18, 2001).
While Wal-Mart raised several issues in its appeal, the 2nd DCA found that
the only issues that merited discussion were whether sales tax paid on
tangible personal property is a cost of sale, and whether it must be deducted
in determining just value. See id. The appellate court tracked the
requirements of §194.301 in concluding that the Property Appraiser had
properly considered the factors of §193.011, Fla. Stat. and that Wal-Mart
had failed to prove by clear and convincing evidence that the Property
Appraiser's assessment exceeded just value. The court found that, in the
appraisal community, the original cost of an item of property, for purposes
of performing the cost approach to value, is generally recognized to include
freight, installation, taxes and fees. See id. Likewise, the court noted that
10
property owners generally consider all costs of acquisition and installation,
including sales tax, in determining whether to replace an item of tangible
personal property. See id. The court thus affirmed the trial court's Final
Judgment in favor of the Property Appraiser, citing conflict with the Fifth
District Court of Appeal's decision in Wal-Mart Stores, Inc. v. Mazourek, 26
Fla. L. Weekly D154 (Fla. 5th DCA December 29, 2000).
11
SUMMARY OF THE ARGUMENT
The lower courts properly found that the Property Appraiser had properly
considered the factors of section 193.011, Fla. Stat. Florida law does not
require the Property Appraiser to apply each of the factors, as long as he
properly considers them. In the instant case, the Property Appraiser
correctly determined, based on generally-accepted appraisal practices, that a
deduction for sales tax from the original cost of the property would result in
an assessment at less than just value, contrary to the Florida Constitution.
Thus, he was not required to apply subsections (1) and (8) of § 193.011 in
the manner suggested by the Petitioner.
The Property Appraiser’s decision was supported by authoritative appraisal
texts and court decisions that have indicated that excise taxes, such as sales
tax, are components of original cost that should be included in an
assessment under the cost approach. His decision was also supported by
the evidence in the court below, which indicated that sales tax is a
component of the purchase price, and not a “cost of sale” or “cost of
purchase.” Finally, his decision was supported by case law and legislative
history that indicates that subsections (1) and (8) are generally not applicable
12
to tangible personal property, especially when the Property Appraiser uses
the cost approach to value.
Finally, the court’s reference to the “reasonable hypothesis” standard had no
bearing on its ultimate decision, which was based on a finding that the
Petition had failed both prongs of the test set forth in section 194.301, Fla.
Stat. Therefore, this Court should affirm the decision of the courts below in
all respects.
13
STANDARD OF REVIEW
While the question raised in Point I of the Petitioner's Initial Brief should be
reviewed under a de novo standard of review, the issue raised in Point II
should not. Rather, the lower courts' findings that the Property Appraiser
properly considered the factors of §193.011, Fla. Stat. should be upheld as
long as these findings are supported by competent, substantial evidence in
the record. See Blake v. Xerox, 447 So. 2d 1348, 1350 (Fla. 1984).
14
ARGUMENT
The decision of the Second District Court of Appeal was based on a sound
understanding of accepted appraisal practices. The court correctly
understood the need for property appraisers to use the total cost paid by
Wal-Mart for the property in order to properly perform the cost approach to
value, and arrive at the just value of the property as required by the Florida
Constitution. In the complete absence of any evidence to suggest that sales
tax is a cost of purchase or sale, the court correctly found that sales tax need
not be deducted from the original cost of the property under the cost
approach to value. Likewise, the court was correct in rejecting the reasoning
of the Fifth District Court of Appeal in Wal-Mart Stores, Inc. v. Mazourek,
778 So. 2d 346, 350 (Fla. 5th DCA 2000), which based its decision on the
use of "sales price" as the starting point for a cost approach computation,
rather than "original cost," which is the commonly-accepted basis for a
proper cost approach calculation.
I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THELOWER COURTS APPLIED THE APPROPRIATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .STANDARD OF REVIEW.
15
Both the trial court and the Second District Court of Appeal properly applied
the provisions of §194.301, Fla. Stat. The courts both found that the
Property Appraiser had properly considered each of the factors of §193.011,
Fla. Stat. (R.1698). See Wal-Mart v. Todora, 26 Fla. L. Weekly (Fla. 2d
DCA Apr. 18, 2001). Furthermore, both of the courts found that Wal-Mart
had failed to prove, by clear and convincing evidence, that the Property
Appraiser's assessment exceeded just value. (R.698-99). See id. The
courts also noted that, regardless of how the assessment was calculated, the
assessment was clearly supported by Wal-Mart's own estimate of the fair
market value of the property. (R.1699).
While the Second District Court of Appeal referred to the "no reasonable
hypothesis" standard in dicta, the court's statement had no bearing on its
decision, as the court's ultimate decision was based on it finding that Wal-
Mart had failed to prove, by clear and convincing evidence, that the
assessment was in excess of just value. See id; see also Conway v. Sears,
Roebuck & Co., 85 So. 2d 697, 699 (Fla. 1966) (holding that statements of
court that are not necessary to the determination of the case are obiter
dictum and held for naught); Bunn v. Bunn, 311 So. 2d 387, 389 (Fla. 4th
DCA 1975) (holding that purely gratuitous observations and remarks that are
16
not essential to determination of case are obiter dictum). Therefore, because
the Second District Court of Appeal did not apply the "no reasonable
hypothesis" standard, but merely referred to it in dicta, this statement does
not provide a basis for reversal of the court's ultimate decision.
In any event, the 2nd DCA's use of the "no reasonable hypothesis standard"
in no way undermines the validity of its decision. This Court established the
rule that the Property Appraiser's assessment may not be overturned unless it
is not supported by any reasonable hypothesis of legality as a way of
ensuring that the Property Appraiser has the discretion necessary to ensure a
just valuation of all property, as required by the Florida Constitution. See
District Sch. Bd. of Lee Cty. v. Askew, 278 So. 2d 272, 276 (Fla. 1973)
(stating that "this is the test which the status of tax assessor as a
constitutional officer requires"). By attempting to eliminate this standard and
change the presumption of correctness, the Florida Legislature engaged in
rulemaking, which is within the sole province of this Court. See id. at 277
(holding that Legislature has power to regulate method of assessments, but
not to interfere with the assessor's discretion). As this Court has never
adopted §194.301, the statute does not necessarily have any binding effect
17
on the courts of this State. Hence, the 2nd DCA would have been eminently
justified in disregarding §194.301, Fla. Stat.
II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THEPROPERTY APPRAISER PROPERLY INCLUDED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THETOTAL COST PAID BY WAL-MART, INCLUDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SALES TAX, SHIPPING AND INSTALLATION, IN ITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .CALCULATION OF THE ORIGINAL COST OF WAL- . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .MART'S PROPERTY UNDER THE COST APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOVALUE.
A. The Property Appraiser is not required to deduct costsof sale or purchase from original cost when calculatingthe just value of tangible personal property by the cost approach to value.
Article VII, Section 4 of the Florida Constitution requires that all property be
assessed at its just value for ad valorem taxation. This Court has previously held
that just value is synonymous with fair market value and that just value may be
established by the classic formula that is "the amount a purchaser willing but not
obliged to buy, would pay to one willing but not obliged to sell." See Walter v.
Schuler, 176 So. 2d 81, 85-86 (Fla. 1965). Because there are various methods of
18
determining the fair market value of property, the Property Appraiser must exercise
judgment in applying the different methods to different property. See Powell v.
Kelley, 223 So. 2d 305, 309 (Fla. 1969) (stating that "the appraisal of real estate is
an art, not a science").
By law, in arriving at a calculation of the just value of property, the Property
Appraiser is required to properly consider each of the factors of §193.011, Fla.
Stat. in order to retain the strong presumption of correctness set forth in §194.301,
Fla. Stat. However, the Property Appraiser, after giving appropriate consideration
to each of the eight factors, may assign to each factor such weight as he deems
proper and may in fact reject some of the factors if they are inappropriate under the
circumstances. See Daniel v. Canterbury Towers, Inc., 462 So. 2d 497, 501-02
(Fla. 2d DCA 1985). This is because, in order to arrive at just valuation, the
Property Appraiser must exercise his or her judgment and apply proper appraisal
principals in the assessment of the property. See Havill v. Lake Port Properties
Etc., Inc., 729 So. 2d 467, 471 (Fla. 5th DCA 1999).
In order to arrive at the just value of an item of tangible personal property by the
cost approach, the Property Appraiser should include sales tax as part of the
original cost of the tangible personal property, just as he would include any other
19
component of original cost, such as raw materials or labor costs. (R.142-43,
1763). This is because, when a taxpayer determines whether to acquire an item of
tangible personal property and the cost to acquire it, the taxpayer will take into
consideration everything it has to invest in the property, including any sales tax and
installation cost, that it paid to acquire the property. (R.1765). See Wal-Mart
Stores, Inc. v. Crapo, Case Number 97-CA-4728 (Final Judgment 8th Jud. Cir. Ct.
February 26, 2001). Thus, the payment of sales tax to acquire an item of tangible
personal property affects the market value of the property.
The Second District Court of Appeal previously held that the Property Appraiser is
not required to make any deductions for costs of sale pursuant to §193.011(8),
Fla. Stat. See Turner v. Tokai Financial Services, Inc., 767 So. 2d 494, 497 (Fla.
2d DCA 2000). In Tokai, the taxpayer's expert testified that the assessment of
Tokai's equipment should have been reduced to reflect certain costs of sale. See
id. at 496. She did not claim that Tokai had actually incurred those costs, but
merely testified that those were the expected costs of sale in the market. See id.
The Second DCA held that §193.011(8) does not require the Property Appraiser to
make a deduction for costs of sale. See id. at 497. Rather, the court held that the
Property Appraiser is only required to deduct those costs of sale which are
appropriately deducted in order to arrive at the fair market value of the property
20
using the market approach. See id. at 498. In so holding, the court reasoned that
the purpose of §193.011, Fla. Stat. is to assist Property Appraisers in discharging
their constitutional obligation to assess property based on its just value, not to
mandate a particular methodology. See id.
Thus, as in the Tokai case, the Property Appraiser in the instant case was not
required to make a deduction for costs of sale in order to satisfy his obligations
under §193.011, Fla. Stat. Rather, because the hallmark of property taxation is just
value, the Property Appraiser was only required to consider the factors of
§193.011, Fla. Stat. and determine, based on his best judgment and generally
accepted appraisal principles, the weight to give those factors in order to arrive at a
just valuation of the subject property. In the instant case, because the Property
Appraiser correctly chose to use the cost approach to value the subject tangible
personal property, a deduction for costs of sale would have been improper, as it
would have resulted in a value that was less than the just value of the property.
In fact, this Court has previously held that the payment of excise taxes on an item
of property increases the value of that property. See Dade Cty. v. Atlantic Liquor
Co., 245 So. 2d 229, 231 (Fla. 1970). In the Atlantic Liquor case, the Supreme
Court of Florida was asked to consider whether Dade County taxing authorities
could properly include the value of state and federal beverage tax stamps in their
1 This is also true with real estate where delivery charges and sales tax for materialsare included in the replacement cost new of completed improvements. (R.143).
21
assessment of the taxpayer's personal property. See id. at 230. In finding that the
taxing authorities acted properly, the Court first noted that the beverage tax was an
excise tax imposed upon the manufacturer and distributor. See id. at 231. The
Court then concluded that payment of the beverage taxes added value to the
stamped beverages. See id. at 232. The Court further explained:
These taxes are incidents of preparation essential tocreation of a saleable product, and as such their valueadheres to the value of the merchandise to which theexcise stamps are affixed.
The increased costs of the merchandise resulting fromthe stamps being affixed is naturally reflected in anincrease in cost to the purchaser, but this is a secondaryeffect similar in nature to increases resulting from increased labor costs, increased material costs or even increased social security costs.
Id.
Like the beverage tax in Atlantic Liquor, the sales tax on Wal-Mart's tangible
personal property necessarily increases the value of the property on which it was
paid. As with labor and material costs, the cost of sales tax may not be separated
from the purchase price of the item in determining the item's value.1 Also, as with
labor and material costs, the seller of the property recoups as much of the sales tax
2 The one case that the Respondent is aware of in which sales tax was excludedfrom the cost of commercial and industrial machinery and equipment is Board ofCounty Commissioners v. McGraw Fertilizer Service, Inc., 933 P.2d 698 (Ka.1997). However, in this case, the Kansas Constitution required all personalproperty to be assessed at its "retail cost when new." See id. at 703. The courtacknowledged that the term "retail cost when new" dictated a different result fromjurisdictions that used the term "fair market value." See id. at 709. In addition,Kansas law differed from Florida law in that, in Kansas, sales tax is considered adebt of the consumer, rather than a debt of the seller. See id. at 705-06; see also§212.06, Fla. Stat. (2000). Thus, the McGraw Fertilizer case is distinguishablefrom the instant case. See generally Marion R. Johnson, CAE, Should Sales Tax,Freight and Installation Charges be Assessable for Ad Valorem Tax Purposes?,ASSESSMENT JOURNAL, March/April 1998, at 42.
22
as it can in negotiating the purchase price of the item. Therefore, because payment
of sales tax affects the value of tangible personal property, it should be included in
the Property Appraiser's calculation of original cost under the cost approach to
value, and the Property Appraiser properly exercised his judgment in considering,
but deciding not to apply, §193.011(1) and (8) in the instant case.
Other jurisdictions that have considered this issue have generally agreed that
sales tax should be included in the cost of an item of tangible personal property, at
least where the taxing authority was required to assess the property at its full
cash value.2 See State Dep't of Assessments and Taxation v. Metrovision of Prince
George's County, Inc., 607 A.2d 110, 118 (Md. Ct. Spec. App. 1992); Xerox
Corp. v. County of Orange, 136 Cal. Rptr. 583, 591 (Cal. Ct. App. 1977). In
23
Metrovision, the Maryland appellate court held that, in applying the cost approach
to tangible personal property, the taxing authority must include all costs necessary
to get an asset operational, including freight, sales tax and installation. See
Metrovision, 607 A.2d at 118. Likewise, in Xerox, the California appellate court
rejected Xerox's contention that sales tax and freight are not a part of the cost of
tangible personal property under the cost method of valuation. See Xerox, 136 Cal.
Rptr. at 591. Instead, the court held that "sales tax is an element of value." See id.
at 590. The court reasoned that:
The addition of taxes and freight charges to the list price of such equipment is consistent with an appraisal approach that gives consideration tothe consumer's costs in arriving at market value.It is in accord with general accounting principals.The cost of an asset includes purchase price, brokerage commission, duties, transportation and allcosts of placing the asset in a condition for use.
Id. at 591.
Of course, the inclusion of sales tax in original cost is also supported by
various authoritative appraisal texts, as recognized by the Second District Court of
Appeal in the instant case. In particular, the International Association of Assessing
Officers acknowledges that original cost includes freight, installation, taxes and
fees. See INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS, PROPERTY
24
ASSESSMENT VALUATION 360 (2nd ed. 1996). Thus, in light of the fact that the
Florida Constitution requires all property to be assessed at its just value, which is
equivalent to fair market value, the Second District Court of Appeal was justified in
relying on authoritative appraisal texts which explain the proper method of arriving
at the fair market value of property under the cost approach. The Petitioner
suggests that the methods described by the International Association of Assessing
Officers do not necessarily comply with Section 193.011, Fla. Stat.. However,
these appraisal texts explain generally accepted appraisal methods for arriving at fair
market value and, to the extent that the application of §193.011(1) and (8) would
result in an assessment at other than fair market value, the Property Appraiser is not
required to apply these factors.
The sole Florida appellate case that has found to the contrary is the case of
Wal-Mart Stores, Inc. v. Mazourek, 778 So. 2d 346 (Fla. 5th DCA 2001).
However, in Mazourek, the court erroneously focused on the term "sales price,"
and found that sales tax must be excluded from the cost approach because it is not
a part of the "sales price." See id. at 350. However, a properly performed cost
approach does not begin with the "sales price." Rather, a properly performed cost
approach begins with the original cost of the property. The Fifth District Court of
Appeal's use of the term "sales price" indicates that it did not fully understand how
3 As an initial matter, it is important to note that the Tokai court did not hold that§193.011(8) requires sales tax to be deducted under the market approach to value. Rather, the Property Appraiser in that case conceded that point and the issue wasthus not before the court. See id. at 499 n.2. The Respondent does not agree thatsales tax must always be deducted when doing a market approach.
25
the cost approach is used to arrive at fair market value. Regardless of whether
sales tax is part of the "sales price" of an item, as defined by §212.02(16), Fla.
Stat., sales tax should legally be included in the original cost when the cost
approach is used.
The Petitioner also relies on the case of Turner v. Tokai Financial Services,
767 So. 2d 494 (Fla. 2d DCA 2000), which held that the Property Appraiser was
not required to deduct certain costs of sale from the value of the taxpayer's
equipment under the market approach to value, where there was no evidence that
the costs of sale were external costs rather than internal expenditures.3 However,
the Tokai court limited its analysis to §193.011(8), which applies to the market
approach to value. In doing a cost approach, the Property Appraiser considers the
sale of the property from the perspective of the purchaser, and therefore
§193.011(8) is not applicable to a cost approach, since §193.011(8) only considers
the sale from the perspective of the seller. See id. at 498.
26
At least one other appellate court has also indicated that subsection (8) only
applies when the Property Appraiser is performing a market or comparable sales
approach to value. See Bystrom v. Equitable Life Assur. Soc., 416 So. 2d 1133,
1144 (Fla. 3d DCA 1982). In Equitable Life, the Third District Court of Appeal
held that a cost of sale deduction under §193.011(8) was not appropriate when the
value had been determined by the income approach to value. See id. The court
then stated that §193.011(8) may only properly be applied when there has been an
actual sale. See id. Therefore, §193.011(8) only applies when a market approach is
used, and should not be applied to the cost approach to value.
There is also some debate as to whether subsections (1) and (8) of §193.011
were ever intended to apply to tangible personal property. It may be possible to
find, under some circumstances, that the original cost of tangible personal property
may include some costs of sale. However, at this time, no Florida courts, other
than the Mazourek court, have found and applied any costs of sale, as provided in
§193.011(1) and (8), to tangible personal property. This is because §§193.011(1)
and (8), unlike the other factors in §193.011, are generally inapplicable to tangible
personal property, as sales of tangible personal property do not usually involve the
additional costs traditionally associated with sales of real property.
27
In enacting §193.011(8), the legislature expressly stated that it was "providing
an additional factor for the just valuation of real property." See Ch. 67-167, Laws
of Fla. (title) (emphasis added). Likewise, in amending §193.011(1) to exclude
costs of sale, the legislature indicated that the amendment was necessary because
"increased demand for real property have [sic] resulted in speculative purchasing
and the payment of gross sales prices in excess of actual cash value." See Ch. 77-
363, Laws of Fl. (preamble). Thus, it appears that the Legislature did not intend for
§193.011(1) and (8) to apply to tangible personal property.
While recognizing that the legislative history tends to support this argument,
the Tokai court found that subsections (1) and (8) applied to tangible personal
property, based on the lack of limiting language in the statute. See Tokai, 767 at
500. However, regardless of the actual language of the statute, the legislative
history indicates that subsections (1) and (8) were intended to apply only to real
property and this Court may take the legislatire history into consideration in forming
its decision.
For the foregoing reasons, the lower courts correctly found that the Property
Appraiser had properly considered subsections(1) and (8) of §193.011, Fla. Stat.,
even though the Property Appraiser ultimately chose not to make a deduction for
sales tax in the instant case.
28
B. Sales tax is not a "cost of sale" or "cost ofpurchase."
In any event, sales tax is not a "cost of purchase" or "cost of sale." Rather,
unlike documentary stamp taxes and other "costs of sale," the sales tax, like other
excise taxes, is an embedded cost of production and distribution that is part of the
original cost of the property. See Rutledge v. Chandler, 445 So. 2d 1007, 1009
(Fla. 1983). The tax is not levied against the consumer, but upon the businessman
who is engaged in the business or occupation. See Ryder Truck Rental, Inc. v.
Bryant, 170 So. 2d 822, 825 (Fla. 1964). The seller then passes the cost of the
sales tax on to the purchaser by adjusting the selling price accordingly. See id.; see
also Szabo Food Services, Inc. v. Dickinson, 286 So. 2d 529, 532 (Fla. 1973).
Thus, the sales tax ultimately affects the purchase price of an item of tangible
personal property.
The Supreme Court of Florida has classified taxes as follows:
All taxes, other than polls, are either direct or indirectproperty taxes. A direct tax is one that is imposed directly upon property, according to its value. It isgenerally spoken of as a property tax or an ad valoremtax. An indirect tax is a tax upon some right or privilege,or corporate franchise, and is most often called an exciseor occupational tax.
29
Rutledge, 445 So. 2d at 1008. As the sales tax is a tax upon the privilege of
engaging in a particular business in the state of Florida, it is properly classified as
an excise tax. See id. For legal purposes, the levying of an excise tax occurs
somewhere in the chain of manufacture and distribution. See id. at 1009.
Therefore, the sales tax is a cost of distribution, payment of which increases the
value of the product so taxed. See Dade County v. Atlantic Liquor Co., 245 So.
2d 229, 231 (Fla. 1970). This Court held in Atlantic Liquor that costs of
production and distribution, such as beverage tax stamps, are properly included in
the cost of the property for ad valorem tax purposes. See id. at 232.
The case of Oyster Pointe Resort Condo. Ass'n v. Nolte, 524 So. 2d 415,
418 (Fla. 1988) and the other cases cited by the Petitioner do not stand for the
proposition that sales tax is a "cost of sale." Rather, these cases merely
acknowledge that an assessment may be invalid if costs of sale are not considered.
See id. In fact, rather than expand the definition of costs of sale to include items
such as sales tax, the Oyster Pointe case expressly limited the term "costs of sale"
to include "only those fees and costs typically associated with the closing of the
sale of real property such as reasonable attorney's fees, broker's commissions,
appraisal fees, documentary stamp costs, survey costs and title insurance costs."
Id. (emphasis added).
30
Contrary to the Fifth District Court of Appeal's finding in Mazourek, sales
tax is not equivalent to the documentary stamp tax imposed on the transfer of real
estate. Whereas a documentary stamp tax is levied every time there is a transfer of
real estate, and can therefore be considered a "cost of sale," the sales tax is levied
only once, even though there may be multiple transactions. Likewise, while the
documentary stamp tax is a tax on the transaction, sales tax is a tax on the privilege
of doing business within the state, and is thus more akin to an embedded cost of
production and distribution. See Ryder, 170 So. 2d at 825.
In Tokai, the court distinguished between external costs and internal costs of
doing business. See Tokai, 767 So. 2d 499. The court indicated that embedded
costs that the seller considers in establishing the net amount of its selling price
should not be deducted as "costs of sale." See id. Thus, since sales tax is a tax
on the seller's right to do business in the state, and Wal-Mart presented no evidence
that sales tax is not factored into decisions as to the price buyers are willing to pay
for tangible personal property, it cannot be said that sales tax is an external cost of
sale or purchase.
C. Sales tax is not intangible property.
Finally, sales tax is not a form of intangible property and thus its inclusion in
the original cost of tangible personal property does not result in the improper
4 Debts owed by the taxpayer are not intangible property. If a seller uses part ofthe proceeds from a land sale to pay off a mortgage note, that amount is notdeducted from the sale price as an intangible. Such a result would be ridiculous.
31
taxation of intangible property. Section 192.011(11)(b), Fla. Stat. defines intangible
personal property as:
money, all evidences of debt owed to the taxpayer,all evidences of ownership in a corporation or other business organization having multipleowners and all other forms of property wherevalue is based upon that which the propertyrepresents rather than its own intrinsic value(emphasis added).
The Petitioner characterizes the state sales tax as a "debt owed by the consumer to
the state," and therefore concludes that the nature of sales tax as a debt renders it
intangible personal property. However, the statutory definition of intangible
personal property clearly does not include debts owed to the state. In fact, the
statute does not deem any "debts" to be intangible property.4 Rather, it only
includes evidences of debts owed to the taxpayer. See id. Sales tax is not a debt
owed to the taxpayer. Therefore, it is not intangible personal property.
CONCLUSION
WHEREFORE, Respondent Jim Todora, as Property Appraiser of Sarasota
County, Florida, respectfully requests that this Court affirm the decision of the
Second District Court of Appeal in all respects.
32
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been
served by U.S. Mail this 13th day of September, 2001, on Robert E.V. Kelley, Jr.,
Esq., Joseph J. Weisman, Esq., and Stacy D. Blank, Esq., Holland & Knight,
L.L.P., P.O. Box 1288, Tampa, Florida 33601-1288; Joseph A. Mellichamp, III,
Senior Assistant Attorney General, Room LL-04, The Capitol, Tallahassee, Florida
32301; Alan Roddy, Esq. and Jorge L. Fernandez, Esq., Assistant County
Attorney, 1660 Ringling Blvd., Second Floor, Sarasota, Florida 34236; Thomas B.
Drage, Jr., Esq., and Kenneth P. Hazouri, Esq., Drage, de Beabien, Knight,
Simmons, Mantzaris & Neal, LLP, P.O. Box 87, Orlando, Florida 32802-0087; J.
Ben Harrill, Esq., Figurski & Harrill, The Holiday Tower, 2435 U.S. Highway 19,
Suite 350, Holiday, Florida 34691; Loren E. Levy, Esq. and Larry E. Levy, Esq.,
The Levy Law Firm, 1828 Riggins Road, Tallahassee, Florida 32308; and Gaylord
A. Wood, Jr., Esq. and B. Jordan Stuart, Esq., Wood & Stuart, P.A., 206 Flagler
Avenue, New Smyrna Beach, Florida 32169-2637.
_____________________________SHERRI L. JOHNSONFlorida Bar No. 0134775JOHN C. DENT, JR.Florida Bar No. 0099242DENT & COOK
33
330 S. Orange AvenueSarasota, Florida 34236Phone: 941-952-1070Attorneys for Respondent Jim Todora
CERTIFICATE OF COMPLIANCE
Counsel for Respondent, Jim Todora, as Property Appraiser of Sarasota
County, Florida, certifies that this Answer Brief is typed in 14 point
(proportionately spaced) Times New Roman.
______________________________
SHERRI L. JOHNSONFlorida Bar No. 0134775JOHN C. DENT, JR.Florida Bar No. 0099242DENT & COOK330 S. Orange AvenueSarasota, Florida 34236Phone: 941-952-1070Attorneys for Respondent Jim Todora
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