Has Your Horse Paid Its Taxes?

F
lorida is known for its sunshine, theme parks, and oranges.  But did you know that Florida is also home to the “Horse Capital of the World” (Ocala, Florida)?

Equine enthusiasts flock to Florida for its pleasant weather and access to the some of the best Olympic-level trainers and to participate in some of the world’s biggest equine competitions.

As many are aware, equines, like other animals are considered chattel (or personal property, like a car or boat) under the law. While some may enjoy their equine solely for personal use, many utilize their equine in some form of income producing activity such as entering their equine in races or competitions, or simply using their equine for commercial training purposes.

Therefore, one must take careful consideration when deciding how to take title in their equine.  Many choose to hold their equine in limited liability companies in order to mitigate the potential liability which may be caused by the equine (i.e. an injury to another).

However, Florida equine holders should be aware that the Florida statutes give the counties the power to tax the tangible personal property of a business according to the value of the property. We call this ad valorum taxation of personal property.

For purposes of property taxation, personal property is divided into these categories:

1- Tangible Personal Property:
  All goods, chattels, and other articles of value capable of manual possession whose chief value is intrinsic to the article itself. “Inventory” and “Household Goods” are expressly excluded from this definition.

2-Household Goods
Apparel, furniture, appliances, computers, chairs and other items usually found in the home and used for the comfort of the owner and family. Household goods are exempt from property taxation.

3-Inventory
Inventory generally means goods, wares, and merchandise held by a business for sale. Items of inventory are exempt from property taxation.

Some additional items of personal property are exempt from property taxation such as:

1-Licensed motor vehicles

2-Boats

3-Airplanes

4-Trailers

5-Trailer coaches

6-Certain mobile homes as defined by law

Taxable items are assessed at just value based on an annual Tangible Personal Property Tax form return that must be filed by April 1^st. Returns filed after the due date will be assessed a penalty on total taxes levied at a rate of 5% for each month after April 1st to a maximum of 25%. For example:

1-Returns filed (or postmarked) after due date through April 30 will receive a 5% penalty

2-Returns filed (or postmarked) May 1 through May 31 will receive a 10% penalty

3-Returns filed (or postmarked) June 1 through June 30 will receive a 15% penalty

4-Returns filed (or postmarked) July 1 through July 31 will receive a 20% penalty

5-Returns filed (or postmarked) August 1 and after will receive a 25% penalty[1]

[1] http://www.miamidade.gov/pa/property_tangible.asp

This begs the question, if I establish a Florida limited liability company to hold my equine which is primarily for my personal use, but which may occasionally be used in competition and generate income through prize money, do I need to pay tangible personal property tax based on the value of my equine?

The short answer is, “no”.

Our office recently spoke with both the Miami-Dade County and Palm Beach County tax collector and confirmed that equines whose primary purpose is for personal use  which are titled in the name of a limited liability company, are not subject to tangible personal property tax, even if the equine on occasion generates prize money.

The key to this analysis is to determine what is the primary purpose of the equine: personal use or business use.  If an equine is held by a business primarily for personal use, it likely will not be subject to tangible personal property tax.

The decision as to how you title your equine is a fact intensive determination which would depend on a variety of factors such as liability, income and estate tax considerations, etc. If you are thinking of purchasing an equine or transferring your equine to an alternative structure, please contact one of our attorneys to assist you.