Benderson Development caught using tax loophole, sues Florida auditors
Written by WSLR News on Thursday, August 24, 2023
The most active commercial developer in the region has benefited from a tax loophole to the tune of hundreds of thousands of dollars. Now state auditors want to close it, but Benderson is suing Florida to keep the loophole open.
By Sophia Brown
Original Air Date: August 23, 2023
Johannes Werner: Benderson Development, probably the most active commercial developer in the region, has benefited from a tax loophole to the tune of hundreds of thousands of dollars. Now state auditors want to close it, but Benderson is suing Florida to keep the loophole open. WSLR’s Sophia Brown got her hands on the legal filings and talk to Benderson’s lawyers.
Host: If you live in Sarasota, you may have heard of Benderson Development, a high-profile local developer looking to build shopping malls and high-density mixed-use developments. Maybe you’ve attended one of their public workshops over the past month and seen how many Sarasota residents are skeptical of the developer’s often vague plans for the land it wants to be resolved.
But now, Benderson Development is in the hot seat for something else: for using a loophole in Florida’s corporate tax code to avoid paying $275,000 plus interest from its income tax bill over two years. And the kicker? Executives of Benderson Development have turned around and sued the Florida Department of Revenue in Tallahassee court for attempting to get these lost taxes back.
Jason Garcia, a reporter with the Orlando Sentinel, originally covered this story on his Substack blog earlier this month. He writes that, technically, the plaintiff is actually 9395 CH LLC, a real estate rental company owned by Benderson executives.
So, what is this loophole that the subsidiary has been using? It has to do with depreciation, an annual tax deduction that lets a company write off a capital expense slowly and in pieces over time. For example, if a company were to spend $10 million on something expected to generate income for five years, then it can subtract $2 million once a year for five years until the company has, in theory, saved as much money as it initially spent and everything evens out.
But there’s also something offered at the federal level called a “bonus depreciation” that can allow a company to write off a big expense all at once. Our hypothetical company could subtract all $10 million in one year, meaning that it will show a much smaller profit on its tax return and get to pay less in corporate taxes. And, a company reporting a lower profit on its federal tax return can lead to it also reporting a lower profit on its state tax return, meaning less taxes that company needs to pay overall.
Many states, including Florida, don’t like participating in bonus depreciation. But opting out of it entirely is a complicated process. So Florida does something a little different. H. French Brown IV, a Florida tax lawyer and the lead attorney representing Benderson’s subsidiary in this case, explained to WSLR News.
H. French Brown: Historically, the way that Florida has dealt with it is, Florida decided instead of providing a full 100% benefit of bonus federal depreciation to a corporate taxpayer, well, Florida was going to do instead was they were going to make you take that benefit over seven years. So what Florida has is a provision that says, “Whatever you take at the federal level, you need to add all that back in to your Florida taxable income in the first year. And then you subtract one-seventh in the current year and the six remaining years to essentially get your whole benefit over seven years.”
It’s really just a timing issue, is all it is for the state of Florida. They just don’t want to be out all the money immediately. They wanted to take it over time, the federal benefit.
Host: This is where the loophole comes in. LLCs, like the Benderson subsidiary, have the option to be exempt from paying corporate taxes in Florida. The subsidiary voluntarily chose to start paying corporate taxes in 2019. Before that, it was claiming bonus depreciation at the federal level for many years—it didn’t have to file a state tax return, and it didn’t have to add the funds it was subtracting from federal taxes back into state taxes.
But, while reviewing the company’s 2019 and 2020 tax returns, state auditors discovered that 9395 CH LLC was claiming the one-seventh subtraction on a bonus depreciation that was never added. Remember, in Florida, these bonus depreciation are supposed to balance out. What you subtract at the federal level gets added back to the state. The problem is that the subsidiary is claiming back funds that it never paid forward in the first place. Or at least, this is what the Florida Department of Revenue is claiming.
The Florida Department of Revenue sent a letter in February to Benderson Development’s Executive Tax Director stating that they owed a total of a total of $318,872 from the 2019 to 2020 period, which includes an interest rate of $67.95 per month for six months that the payment continued to be delayed. The Department of Revenue writes in this letter that Benderson Development and the subsidiary are double-dipping, so to speak. “Allowing such subtractions absent of an addition results in the taxpayer benefiting from the deduction twice: once when the amount was eligible to be deducted on its federal return, and again, when it subtracts the amount of its Florida returns over seven years.”
Attorney French Brown declined to comment on any details related to the ongoing case, but when asked to comment on this double-dipping allegation, he responded this way.
HFB: Generally, the way that depreciation has always worked for every corporate taxpayer is that there is a double dip, because Florida piggybacks on that federal system. Right? So, Florida allows the same benefit. It’s always been a federal benefit and a Florida benefit, Florida just decided to take it over seven years instead of in the one year.
Host: In the most recent amended complaint filed by the subsidiary this month, the company argues that it can do this because Florida law doesn’t explicitly say that the company has to make a bonus depreciation addition before it can take the offsetting subtractions. The subsidiary denies that it lawfully owes the department the $318,827 it’s asking for, and claims that the department has created an “arbitrary and non-uniform distinction between otherwise similarly situated taxpayers by denying Plaintiff the benefits of the depreciation deduction.”
As this case develops, the Florida Department of Revenue has been dwindling in auditors over the past few years, quietly in the background. Last year, the agency completed 338 corporate income tax audits versus the 707 audits it conducted in 2019.
Jason Garcia writes that if big business taxpayers think they are less likely to get caught by auditors, the more likely they are to engage in tax avoidance or evasion. This shifts the burden onto local small businesses and everyday people who have to make up the difference through higher taxes and worse public services. He adds that, “In Florida, a drop of just half a percentage point in voluntary tax payments would mean a loss of $311 million.”
This has been Sophia Brown reporting for WSLR News.