A Taxing Situation
Assessments, Appeals and Information
The city has been buzzing in recent months over Mayor Bloomberg's historic 18.5 percent property tax hike and what it will mean for property owners throughout the five boroughs. The tax hike comes hard on the heels of serious increases in insurance premiums, rising fuel prices, and a lingering economic slump.
So as prices soar and various public services are cut back, it helps to be as informed as possible about some important upcoming March deadlines, as well as the twin engines of the taxation process in the city - The Department of Finance and the Tax Commission - and how they regulate one of the many government processes for spiriting away your money: the annual property tax assessment.
Mark Your Calendar
Before your tax bill is mailed, the New York City Department of Finance (DOF) draws up what are called "tentative" assessments of your property. Tentative assessments are annual preliminary evaluations of a given property with any adjustments made. According to DOF spokesperson Rob Roman, the DOF assesses every real property in the city annually - more than 900,000 of them - and adjusts the tax assessment according to a number of factors, including the property's value, overall condition, and the ownership of the property as of January 5 before the commencement of the city tax year.
"We're the revenue-collecting agency for the city. We prepare the tentative assessment roll, and once everyone has filed their contentions, the final roll is produced on May 25 to be used by the City Council and Mayor's office to determine a budget to establish the tax levy," says Roman. "The tentative assessment's role is to prepare the upcoming tax bills for the new fiscal year."
Tentative assessments can increase or decrease during limited periods beginning January 15. Before mid-February, the DOF sends out Notices of Assessment comparing a property's new assessment to the one made for the current year.
While you'll always receive notification if your assessment is adjusted upward, the DOF isn't required to give you the heads-up if you're being adjusted the other way; so pay attention to the bottom line on notifications. The DOF bases June tax bills on assessments that appear on the final assessment roll that appears on May 25. If there are any other adjustments that need to be made in the way of remission or imposition of taxes, the DOF sends a "Notice of Revised Property Tax Assessment" to the taxpayer or his/her agent.
Generally, forms must be in the Tax Commission office by March 1, with the exception of Class 1 property assessment forms, which can be turned in until March 15. Punctuality is of the utmost importance; there are no extensions on filing deadlines for these forms. This year is a bit different, however, says Myrna Hall, Director of Operations for the New York City Tax Commission.
"The Department of Finance publishes the tentative roll on January 15, which is the assessment that is applied from July 1 of that year through June 30 of the following year, which is the city's fiscal year," says Hall. She adds that the usual appeal date for all but Class 1 properties is March 1. This year, however, the deadline is March 3 because the first falls on Saturday. Class 1 properties have two extra weeks - this year, they can appeal through March 17, according to Hall.
Both the DOF and the Tax Commission examine applications for correction once they're turned in. After examining the application, the Tax Commission may (or may not) recommend a course of action to the DOF for the coming year's assessment roll.
Death and Taxes"¦
But let's back up for a moment. While you're waiting to get your tax attorney on the phone, it might help to glance over a tax assessment primer of sorts. An annual property tax assessment determines the tax due from each unit of real property - whole buildings and individual units alike. The DOF is the city agency in charge of assessing and taxing property - among other things - and according to them, an assessment "includes a determination of the parcel's tax class and market value, and an assessed value set at a uniform percentage of the market value." An assessment also determines whether the property in question is fully or partially exempt from taxation, and the dollar value of any exemptions. And, says DOF, "the assessment includes a calculation of the taxable value, which reflects exemptions and limits on increases."
According to Paul J. Korngold, a partner with Manhattan tax certiorari firm of Tuch Katz Schwartz Gelles Korngold and Weiss LLP, the matter of applying these terms and processes to co-ops is a bit more complicated than most people think.
"The job of the DOF is to set the assessments, and under the law, Section 581 of the Real Property Law, the assessment of a co-op is based not on what the building is worth as a co-op, but as a rental. That's the most important thing to know," says Korngold.
"The law specifically provides that you can't just add up the sales prices of the co-op units and come to the value of the building. If you had a 100-family building and added up the sales prices of four of those apartments, the combined value would probably be higher than the assessed value of the whole building. Add in the underlying mortgage of the building, and you really get a crazy number."
Korngold continues, "Based upon those numbers, the DOF looks at income and expense records, and they value the building - theoretically the way a buyer would look at it. So when the DOF comes to a co-op, instead of using the real numbers, they make up numbers - not out of thin air, of course - but they say, theoretically, this building in Forest Hills is a rental building, and across the street is a co-op building, and we know what the rental building makes, so we assume that if the co-op was a rental, it would make the same amount of money. The DOF appraises a building based upon that type of economic analysis."
The DOF sets values annually, but occasionally the department's estimates can reflect more than one year's change in value. For a private, "Class 1" home, the estimate is generally based on the prices of comparable properties. According to Roman, "The tax assessors go out and assess a property - for Class 1 properties, they use the sales numbers of similar homes in the neighborhood. Co-ops and condos are considered Class 2 properties. They're assessed in a similar way as a rental residential building."
Understanding Your Assessment
"Everyone and anyone who owns property," says Hall, "and is responsible for paying the tax can appeal their assessment. Cooperative buildings have one block and lot, and condos are split into units - that's the difference [between co-ops and condos, or single-family homes]."
For other kinds of holdings, she says, the estimate is usually based on an analysis of actual or projected rental income and normal overhead expenses, or on the "estimated reproduction cost of the improvements."
According to Roman, "The top five factors used [by the DOF] to assess a co-op or condo building are; how much does the property produce in income? The operation expenses are taken into account as well as the capitalization amount. Then of course, the neighborhood's locality, and the age and structural soundness of the property. Those are the top things an assessor will take into account to predetermine an assessment of the market value, and then a formulation will derive the assessment value."
Contrary to what one might think - and, given the current economic climate - your tax assessment can actually increase, even when the market is feeling anemic. If your property has 10 or fewer units, the assessed value may be several years behind market growth because of limits on increases. Values can also be impacted by fluctuating partial exemptions and long-term phase-ins of past assessments.
Exemptions and Abatements
A number of legal exemptions exist that may save you and your building money, if you do some research and take advantage of them. For example, if you own your primary residence, you may be eligible for the so-called "Basic STAR" exemption. There are no age or income requirements to claim the benefit, though for owners over the age of 65 who live on less than $60,000 per year, there is the "Enhanced STAR" program.
For elderly or disabled owners living on no more than $28,900 annually, there are the Senior Citizen Homeowner and Disabled Homeowner exemptions, respectively. For veterans, their surviving spouses, or Gold Star parents, there is the Veteran's Exemption.
Remember though that there are limitations on claiming abatements and exemptions, however. If you live in a Mitchell-Lama co-op, for example, or a housing project overseen by the city's Department of Housing Preservation and Development (HPD), you're only eligible for senior discounts if your family income is over $20,000 per year. If you're already receiving a Disabled Homeowners Exemption, you're barred from claiming a Senior Citizen Homeowner Exemption, and vice versa.
Having Tax Appeal
If you feel that your property has been assessed inaccurately, there are a number of avenues of recourse available. First, your tax attorney can file an Application for Correction with the Tax Commission. The Tax Commission is a review body independent from Finance, which can adjust the assessed value, tax class, or exemptions.
"Any property owner can contest their assessment through the Tax Commission," says Roman. "Once a tentative assessment has been established, we go and notify every single property owner of the assessment of their property. Once they've received that, they can turn around and file the appropriate applications to contest the assessment, or also, people have to file for any exemptions they may not have filed for. Some properties or property owners are eligible for exemptions, and they should file those immediately, because once the final assessment is released in May, it should include any kind of exemptions or abatements that the property owner is entitled to," Roman says.
Making Your Case
"There are three main arguments you can make before the Tax Commission," adds Korngold. "One is an economic argument based upon the so-called "bottom-line.' Say that this building is located on the corner of Queens Boulevard and 72nd in Forest Hills; the attorney might say he's got information from five buildings within a mile of the property, and knows what their income is, and the average income per apartment per month is not $1,500, but only $1,200. He'll then use that projected income with projected expenses, capitalize it, and make an argument that the number the DOF has come up with is too high. You don't attack how the DOF did it, because you really don't know how they did it - the DOF doesn't really tell you; you just see a number," says Korngold.
"Even if you come up with a comparable number, another argument has to do with the capitalization rate. In order to make a case, an attorney might also say a different capitalization rate is more appropriate - say, if the building was built in 1921, not 1962, for example. Older buildings need more repairs, more maintenance, and therefore you should be applying a higher capitalization rate.
"The last way to make an argument - one that's not accepted in court, but only before the Tax Commission - is one of comparability," continues Korngold. "Say five other co-ops were all built in 1958, all on the same block by the same builder, and they're all assessed at $21 per square foot, but your building has been assessed at $23 per square foot. Why is that? If you're a good advocate for your client, you have to try to find an argument that can best put forth your client and the reason they should get an assessment reduction."
Not everyone can expect to reap great rewards for contesting their assessment, Korngold says. "If you have a building worth a million dollars, and you call up a tax attorney and want to protest the taxes you feel are too high, and the attorney looks up the assessment, and sees it's assessed at $120,000, it's a waste of both your time to file a protest; the Commission's not going to give you a reduction. You paid a million dollars for it, it's assessed at $100,000, the city claims they're assessing at 45 percent, so you should be at $450,000 - even if it was at the real value, the real percentage, which is 25 percent, or $250,000, you're only at a hundred - go away! I have this conversation with people every day. A lot of people just file as a matter of course."
Once the assessment and appeal process is hammered out, says Hall, "As far as how people then pay [their bill], the Department of Finance - not the Tax Commission - has to do with money. We don't bill it, we don't get it, and we don't put liens on property."
Your Personal Tax Saga
Your first and best resource for reviewing the assessment history of your property is to look over the assessment roll - which lists the assessment of every property - with your tax attorney. Tentative rolls for the upcoming tax year are made available for public examination on January 15. The final, set-in-stone roll is published May 25 on the DOF Web site (www.nyc.gov/finance), and can be easily searched and viewed on a home computer. If you don't have Internet access, your property's records can be seen at your borough assessment office or a public library. If you don't have (or want) your own tax attorney, or have trouble obtaining or deciphering your assessment, you may request a personal, face-to-face meeting with an assessor to look over your files.
When to Go Pro
While you may feel like a legal eagle above the need for professional assistance in understanding and perhaps contesting your tax assessment, but trying to represent yourself does not generally go well, no matter how on top of it you fancy yourself.
"There is virtually no co-op in the entire city that files without the aid of an attorney," says Korngold. "It would be pure folly not to, and that's why no co-op does it themselves. Most attorneys in this field have access to databases and a lot of information on comparable buildings. That's another reason why co-op buildings shouldn't try to do this themselves."
If you own a condo, your board can submit the application on behalf of the entire building. According to Hall, "In the case of both co-ops and condos, usually the board of directors hires an attorney who's experienced in doing appeals to handle their case." But, she adds, you need not necessarily retain legal counsel to file an application, and you don't have to make time for a personal hearing unless you specifically ask for one. All you have to do is forward the appropriate Tax Commission forms to the Commission office, or personally drop them off at your borough assessment office.
Hall notes that shareholders and owners wishing to appeal their assessments must first file an application, provide proof, and everything else required before they can request a personal hearing. Applicants can also file for a "Review as Submitted' hearing, she says, which means they can supply all the evidence but they do not need to be present.
"They can also represent themselves, or hire a tax reviewer - a lot of times it's an attorney - to present their case to us. The final roll closes in the middle of May."
Just Doing Their Job
New Yorkers may recall the indictments handed down last year to a number of tax assessors for receiving kickbacks for deliberately undervaluing properties in the city. The loopholes and weak spots that enabled the indicted parties to direct money into their own pockets have been closed and shored up, according to the DOF. "[The indictment] prompted us to adopt new measures so something like that would never happen again," says Roman. "We'll be announcing those new measures within the next month or so that were used for this latest assessment."
Past wrongs aside, with the sharp increase in property taxes, what was formerly expensive and complicated is now really expensive and complicated. Both the Department of Finance and the Tax Commission, however, are doing their best to get their jobs done and process property owners through the system with minimal difficulty.
For the Tax Commission's part, Hall says, "The appeals process isn't changing. How we do business is how we've always done business. I would imagine that we'll have a higher volume [of appeals] this year; we've had approximately 45,000 appeals annually in the last few years - maybe we'll have more this year. It's impossible to tell. But all major properties protest - or almost all. They do year after year."
Hannah Fons is The Cooperator's Associate Editor.