CHALLENGING TAX ASSESSMENTS, PART 1

Here are the basics: The city evaluates real property every year. This means the assessed values can, and historically do, change annually. New York State's Real Property Tax Law Section 581 requires cooperatives or condominiums be valued as if they were rentals. This means that their values aren't based upon the sale price, but on a comparison to similar rental buildings.

The Department of Finance's (DOF) property division requires annual filings of Real Property Income and Expense  (RPIE) statements from all property owners whose tax lots have a total assessed valuation of over $40,000. The RPIE filings are confidential and cannot be obtained by the general public. Consequently, the property division has an enormous amount of property rental data by neighborhood and applies this data to create income and expenses for the condominiums and cooperatives. From this income model, the net operating income can then be capitalized to create a Full Market Value (FMV) to which an  equalization rate — currently 45 percent — is applied. The result is called the  total assessed value.

Changes This Year

Starting with the 2008/2009 tax year, however, rather than using the capitalization, or income, approach, DOF began utilizing a new method. Using its income and expense statistics, the DOF create a multiplier applied to the gross income of the building. This is then used to ascertain the FMV. Then, as before, the DOF applies the 45 perent equalization rate to get the total assessed value. (Note: Despite what the DOF does, both the tax commission and the city's corporation counsel still use the old, capitalization of income method during their review of a property's assessed value.)

The tax year starts out on or about January 15th when the finance commissioner certifies the release of the tentative property tax rolls. These rolls contain the tentative assessed valuation of each and every parcel and building in the city. They are "tentative" until the city releases the so-called "final" roll on May 25.

So long you file as the appropriate applications on or before March 1, and file a petition with the court on or before October 24, a "final" assessment can be changed — even years later.

The city values both the land and the so-called improvements — i.e., buildings — that have been erected on each tax lot, and the sum becomes the total assessed value. Each residential condominium owner has a separate tax lot and receives his or her own individual assessment. The building is valued as a whole and the individual tax lots receive their assessed value based upon their share of common-area elements. This sometimes is based on the relative purchase prices of the units as set forth in the offering plan.

Sometimes, the retail space or parking garage in a condominium project will also have its own assessed value. In large, mixed-use projects, such as the Time Warner Center, the office portion and hotel portions will also have individual assessments and tax lots.

Because cooperatives are corporations, the co-op building generally receives one assessed value for the building that is totaled along with its land value. Here, too, a retail space or a parking garage may be carved out as a separate condominium lot. As most board members will know, this hybrid of cooperative and condominium is known as a "cond-op." Such parcel segregation will not have any tax effect on the co-op corporation itself.

In the case of co-ops, individual shareholders have their maintenance and property taxes divided up, typically based on the number of shares. However, the DOF property division maintains records on each apartment to keep track of such things as STAR and veteran's/ senior citizen exemptions, which would reduce that individual shareholder's property tax.

Tax Cert to the Rescue

Once the roll is released, your managing agent or board of directors/ managers often hires a tax certiorari attorney to handle the protest of the tentative assessments. In the case of condominiums, the board should create a bylaw authorizing the retention of attorneys who concentrate in real estate tax protests. This bylaw may already exist within the offering plan. The tax certiorari attorney will then prepare an application to be filed with the tax commission. The application must be filed on the appropriate form and must include an income-and-expense document, specifically designed for co-ops and condos, known as a TC203.