How Do We Challenge Our Tax Assessment?

Are you being put to task by real estate taxes? Money can sometimes be found in tax challenges – if you look in a timely manner. Real estate taxes are one of the most significant expenses for any property owner. Roughly 30 percent of all such owners in New York City who protest their real estate tax assessment receive a settlement offer from the city, which results in lower taxes. No matter what the size of your building, as a board member, you should be aware of the way in which the city assesses your building for real estate tax purposes and the procedure for challenging the assessment. In addition, board members should be mindful of certain dates by which actions must be taken, as the city’s deadlines cannot be extended.

Real property taxes are typically paid twice a year – on January 1 and on July 1. The New York City Department of Finance (DOF) publishes its tentative assessment roll on January 15 of each year. It is important that the board look for the new assessment as soon after January 15 as possible. The time within which to challenge the assessment expires on March 1. If an application (with supporting documentation) is not filed with the New York City Tax Commission by March 1, the right to challenge the assessment for that particular tax year is lost.

In order to determine the value of a property, the DOF generally relies on the “income capitalization” method. This means that the department looks at the rental income and expenses for a building to determine the net operating income. It then applies a capitalization rate to the net operating income to arrive at the value. The Department of Finance is required, by statute, to evaluate cooperatives and condominiums as if they were rental apartment buildings. Because there is no rental income for a cooperative or condominium, the department first estimates the rent that could be charged for each residential unit as if it were a rental. This gives the department the estimated income. Then, the department reviews the expense reports (depreciation and mortgage interest are not included) and determines the building’s reasonable and appropriate expenses. Income minus expenses constitutes the net operating income for assessment purposes.

Disagreements Over Value

When cooperatives or condominiums challenge assessments, the main areas of disagreement concern the rental value for the units and whether the building’s operating expenses are reasonable and appropriate. If, after filing an application, the matter is not resolved at the tax commission level, the building must begin an action in the supreme court against the city. This action must be filed by October 24 (should that date fall on a weekend, the time is not extended to the next business day and the action must be started on the Friday before). If an action is not filed in a timely fashion, the right to challenge the assessment for that year will be lost.

For example, in a recent challenge to the tax assessments levied against the Trump Parc Condominium, a property consisting of 340 residential units located at 106 Central Park South in Manhattan, my law firm worked with an appraiser who served as an expert witness to demonstrate that the DOF had overvalued the anticipated gross income for the residential units. Challenges to the valuations had been made every year. After trial, the court held that the proper income valuation was far less than that determined by the city.

This resulted in a decision directing that the DOF reduce the assessed valuation by roughly $60 million for tax years 1994-95 through 2006-07, which was estimated to produce an actual tax savings of roughly $9 million. Warning: even though a co-op.condo may have challenged the assessment, while the case is pending the taxpayer must still pay the assessment. The reason is simple – if the request for a reduction is denied, the city will charge interest on any unpaid amounts at 18 percent per annum.

Boards can prepare the filings to challenge the assessment without the assistance of a lawyer, but this is not recommended. Nor is it necessary to save legal fees because most matters are handled by counsel on a contingency fee basis, and the cooperative or condominium does not pay attorneys’ fees unless there is a reduction in the tax due (although out-of-pocket disbursements will often have to be paid, especially for annual filing fees).

As a board member, it is important to periodically view the DOF website so that you will be able to determine whether refunds or overcharges are credited properly; and, if there are tax escrows, whether the mortgagee (in a cooperative) made timely real estate-tax payments. The information can be found at http://www.nyc.gov/html/dof/html/property/property.shtml, “View Property Records.” You can insert the address of the property and learn all you can about the city’s tax and assessment records for your building.