Court Ruling Could Lead to Major Shift in NYC Property Tax System

A recent state court ruling has created a path toward a major change to New York City’s property tax system — albeit one that could have mixed consequences for co-ops and condos. In a 4-3 ruling, the New York Court of Appeals decided in favor of a lawsuit alleging that the city’s property tax system is unfair and illegal. Tax Equity Now New York (TENNY), the coalition of homeowners, real estate industry groups and civil rights organizations that filed the suit, says the property tax system benefits unit-owners and shareholders in wealthier neighborhoods at the expense of renters and unit-owners in lower-income neighborhoods. 

Arcane rules, inequitable system. Under current law, co-ops and condos are valued for tax purposes not on their market value but on what they would rent for, based on comparable rental apartments in the neighborhood. In more affluent neighborhoods, this is often low because rent regulation affects the comparable rents. TENNY says this unfairly sets far higher rates for owners in less affluent areas, who carry a larger relative property tax burden. 

The appeals court ruling means TENNY can argue before the state Supreme Court that the current taxation system violates the federal Fair Housing Act and real property tax law. “One of the fundamental things about the property tax is that it should be uniform,” says Martha E. Stark, the policy director at TENNY and a former finance commissioner under Mayor Michael Bloomberg. Stark praises the court’s decision: “It provides a possible path for higher, more accurate values on high-end co-ops and condos.”

Benjamin Williams, who heads the property tax department at the law firm Rosenberg & Estis, concurs that the ruling is a giant step toward a more equitable system. “If anything, this decision will encourage property tax assessors to be more accurate in their assessments,” he says.

In addition, the ruling could impact the current system of caps on annual property tax increases. As a result of those caps, rapidly appreciating properties have artificially low tax bills, while properties with stable values in middle- and lower-class neighborhoods pay a proportionally higher share. For example, in Manhattan and neighborhoods like Brooklyn’s Park Slope, where property values have spiked, the tax rate remains low, leaving the burden of property taxes — which provide the city with some $35 billion a year and are its largest source of revenue — to fall largely on owners in nonwhite neighborhoods where values are not increasing. 

Winners and losers. Politicians, including former Mayor Bill de Blasio, have proposed overhauls of the city’s tax system but have not been successful in getting the state Legislature to enact changes. If TENNY argues its case successfully, it could force change through the courts. If that happens, properties that have been overassessed may get some relief, Stark says.

Geoffrey Mazel, a founding partner at the law firm Hankin & Mazel, agrees. “The one- and two-family homes, especially in wealthier areas, will be significantly affected by this,” he says. As for whether co-ops and condos will see their property taxes increase, the dust has yet to settle. 

The current tax system “is rickety and crumbling,” Stark says. “This lawsuit is about putting it on a much more solid and fair foundation.”