An Unusual Property Tax Dispute Structure

Property tax disputes in Florida typically follow a familiar path. Taxpayers and property appraisers present valuation disagreements to Value Adjustment Boards (VABs), while the Florida Department of Revenue (DOR) serves in an oversight capacity.

Occasionally, however, disputes reveal tension within that structure. Rather than focusing solely on valuation, the controversy centers on the administrative process itself and the role of the governmental entities involved.

That was the backdrop in Mercado v. Florida Department of Revenue, Case No. 1D2024-0680 (Fla. 1st DCA June 10, 2026). Although the case arose from a disagreement over property valuation methodology, the First District Court of Appeal ultimately focused on a different question: what role does DOR play when a property appraiser alleges that a VAB has engaged in a continuous violation of law?

The court’s answer may have significant implications for future VAB litigation throughout Florida.

The Underlying Dispute: Cost-of-Sale Adjustments in VAB Determinations

The dispute arose from a series of Orange County VAB determinations involving the 2022 tax year.

The Orange County Property Appraiser challenged decisions in which the VAB applied a standardized 15 percent cost-of-sale deduction when determining just value. According to the Property Appraiser, this methodology systematically reduced assessed values below constitutionally required just value.

The argument relied heavily on Walter v. Schuler and related precedent equating just value with fair market value. Under that framework, reducing fair market value by hypothetical transaction costs may result in taxable values that fall below constitutional requirements.

DOR took a different view.

The agency emphasized that section 193.011, Florida Statutes, requires consideration of multiple valuation factors, including the “net proceeds of the sale.” DOR also argued that cost-of-sale considerations have long been recognized within accepted appraisal methodology.

The Department further noted that similar concepts appear elsewhere in Florida’s property tax administration, including reporting processes associated with Form DR-493.

Despite extensive briefing on the valuation issue, the First DCA ultimately declined to decide whether the VAB’s methodology was lawful.

The Procedural Mechanism: Section 194.036(1)(c)

At the center of the case was section 194.036(1)(c), Florida Statutes.

The statute allows a property appraiser to assert that a VAB has engaged in a “consistent and continuous violation of the intent of the law or administrative rules.” When such an assertion is made, DOR must investigate and issue a determination.

The provision is not frequently litigated. As a result, there is relatively little appellate guidance regarding how the process should operate.

The Orange County Property Appraiser invoked section 194.036(1)(c), arguing that the repeated use of cost-of-sale deductions constituted a systemic violation of Florida law.

In response, DOR conducted what it described as a “probable cause review” and concluded that the statutory threshold had not been met.

The Property Appraiser appealed that determination, placing DOR’s role under section 194.036(1)(c) squarely before the First DCA.

The First DCA Rejects the Probable Cause Framework

The First DCA began with the text of the statute.

The court observed that section 194.036(1)(c) contains no reference to probable cause. By contrast, Florida statutes frequently use probable cause standards when the Legislature intends that type of review.

Because the Legislature did not use that language here, the court declined to read a probable cause requirement into the statute.

Accordingly, the court held that DOR is not authorized to perform a probable cause screening when evaluating assertions under section 194.036(1)(c).

Having rejected the probable cause framework, the court next addressed what standard applies.

Because the statute does not specify a burden of proof, the court applied the ordinary civil standard of preponderance of the evidence.

As a result, DOR must make an actual determination regarding whether a consistent and continuous violation occurred.

This is a meaningful shift in how the agency’s role is understood. Rather than functioning as a gatekeeper that determines whether allegations are sufficiently supported, DOR must evaluate the merits and decide whether a violation more likely than not occurred.

Treatment of Prior Case Law

The court devoted substantial attention to prior decisions that had described DOR’s role in probable cause terms.

Among the cases discussed were Property Appraisal Adjustment Board of Sarasota County v. Florida Department of Revenue, Mikos v. Property Appraisal Adjustment Board of Sarasota County, and Higgs v. Property Appraisal Adjustment Board of Monroe County.

The First DCA concluded that these decisions did not undertake a text-based analysis of section 194.036(1)(c). Instead, the probable cause characterization had become a form of judicial shorthand that gradually developed over time.

The court also addressed Sowell v. Department of Revenue, which involved a similar dispute concerning cost-of-sale adjustments.

According to the First DCA, Sowell assumed the existence of a probable cause framework but did not actually analyze whether the statute required one. As a result, the court concluded that Sowell did not control the statutory interpretation issue presented in Mercado.

Judge Winokur’s concurrence added another layer to the discussion. While agreeing with the result, he questioned aspects of Sowell’s treatment of final agency action under chapter 120, Florida Statutes.

Certification of Conflict

Recognizing the significance of its holding, the First DCA certified conflict with Sarasota County, Mikos, and Higgs.

Certification of conflict does not guarantee Florida Supreme Court review. However, it reflects the court’s conclusion that its interpretation differs from earlier appellate decisions.

For practitioners, the certification signals that further appellate developments may follow.

What the Court Did Not Decide

Importantly, Mercado did not resolve the underlying valuation controversy.

The First DCA did not determine whether a standardized 15 percent cost-of-sale deduction is permissible under Florida law.

The court also declined to address the broader debate regarding the relationship between fair market value, just value, Walter v. Schuler, and the statutory valuation factors contained in section 193.011.

Those issues remain unresolved and continue to generate discussion among property tax practitioners.

Why This Case Matters: Beyond Valuation Doctrine

The most significant aspect of Mercado is procedural rather than substantive.

The decision clarifies the role DOR must play when reviewing allegations brought under section 194.036(1)(c). Instead of conducting a threshold review, the Department must make a substantive determination based on the evidence presented.

The case also highlights a rarely examined feature of Florida’s property tax system. While most disputes involve taxpayers and valuation issues, Mercado involved an institutional disagreement between governmental actors concerning the operation of the system itself.

As a result, the decision provides important guidance regarding administrative authority, statutory interpretation, and the relationship between DOR and local VABs.

A Procedural Ruling with Statewide Implications

Mercado v. Florida Department of Revenue does not settle the debate over cost-of-sale adjustments or the meaning of just value under Florida law.

Its significance lies elsewhere.

The First DCA held that DOR’s responsibility under section 194.036(1)(c) is not limited to determining whether probable cause exists. Instead, the agency must make a substantive determination, applying a preponderance-of-the-evidence standard, regarding whether a continuous and systemic violation of law has occurred.

By clarifying that role, the court brought new attention to a rarely litigated statutory provision and reshaped the framework governing future VAB disputes throughout Florida.