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Florida Court Case Explores External Obsolescence


A recent decision by Florida’s Fifth District Court of Appeals points out systematic problems in calculating depreciation caused by external obsolescence. The ruling sets a precedent that may help businesses receive tax savings when their tangible personal property (TPP) is over assessed.




Darden Restaurants, Inc. and GMRI, Inc., collectively known as Darden, built a new corporate headquarters in Orange County, Florida in 2009. The three-story 469,000 square foot facility employed over one thousand people, who provide support for Darden’s restaurants nationwide.


The headquarters contain a large amount of TPP including test kitchen equipment, computers, office furniture, fitness center equipment, solar panels, signage, an alarm system and a music system. The value of the TPP for 2013 and 2014 is the subject of the recent ruling.


In 2013, Darden filed a TPP tax return estimating the current fair market value of its TPP to be $20,503,172. However, the Property Appraiser valued the property at $29,033,332 - $8,530,160 more than Darden’s estimate. The following year, Darden filed a TPP return estimating the current fair market value of its TPP to be $18,217,701, while the Property Appraiser valued it at $27,424,505 or $9,206,804 more than Darden’s return. Darden filed petitions with the Value Adjustment Board (VAB) challenging the valuations for both years. In each case, the VAB sided with Darden and reduced the Property Appraiser’s assessment.


The Property Appraiser challenged the VAB decisions by filing complaints in circuit court. During the trial, the court rejected Darden’s argument that the Property Appraiser was required to show that its appraisal methodology complied with professionally accepted appraisal practices. The court’s final judgment reinstated the Property Appraiser’s original assessments for both years. After the denial of Darden’s motion for rehearing, the case went before the Fifth District Court of Appeals. The Property Appraiser presented sufficient evidence that its determination of the replacement cost of the TPP and the extent which its value had been reduced by deterioration was consistent with Department of Revenue Guidelines. Therefore, the focus of the District Court was the calculation of the reduction of value resulting from obsolescence.


Burden of Proof Not Met


The Property Appraiser, as the party challenging the VAB assessment, had the burden of proving by a preponderance of evidence that the VAB’s assessed value did not represent the just value of Darden’s TPP. The District Court agreed that there was substantial evidence to support the determination that the VAB’s valuations of Darden’s TPP for 2013 and 2014 were incorrect and less than fair market value.


However, the Property Appraiser failed to present evidence that it calculated obsolescence in accordance with professionally accepted appraisal practices. Therefore, the District 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. Justices reversed the circuit court decision and ruled in favor of Darden.


Depreciation Tables Deficient


“The court ruling is important because it acknowledges that the Department of Revenue Guideline Depreciation Tables used by almost all Florida counties do not account for obsolescence. Most TPP suffers from external obsolescence caused by supply and demand imbalances, in addition to physical deterioration,” explained Rob Kelley, Shareholder and Practice Co-Chair for the Real Property Litigation Group at Hill, Ward, Henderson.


“Moreover, the decision requires the Property Appraiser to establish that depreciation obsolescence is accounted for in a manner that comports with professionally accepted appraisal practice. The DOR Guidelines have no specifics for this,” Kelley said.