Condo Saves Big Bucks Challenging Commercial Space Tax Bill

Take a large Manhattan condominium complex, for example. Its board suspected that something was awry in the tax bill for its commercial space (seven of its eight retail units are in just one building, which also houses a private, 100-car garage for which unit-owners who use it are charged a monthly fee). The board president, who spoke on condition of anonymity, explained that the problem the three-building complex was facing was that “the quarterly tax report we all get from the DOF was saying that the one building had 107 commercial spaces" – even though 100 of them were not commercial spaces but “common-element” spaces, which are not taxed the same way.
 
The board paid an attorney $5,000 to write the DOF a letter noting the apparent error. The city, says the president, "immediately recognized their mistake. They didn't try to fight it." The board was told there was a transcription error – that someone at the DOF read the condominium declaration and wrote in the department's records that the garage spaces were "commercial" rather than "common elements."

However, when officials at the DOF reexamined the declaration, the president says, they realized they were wrong and made a correction. That resulted in the building's 250-plus unit-owners getting refunds covering the last two tax years that went as high as $4,600.
 
But – there always seems to be a “but” when dealing with the city – it wasn’t quite that simple, notes Timothy Sheares, the DOF's deputy commissioner for property. "It's not that we were valuing the garage spaces as retail," he says. "They may have thought that because we used to have only one classification for commercial condominium space” – Building Code R5: Condo; Miscellaneous Commercial. "There were different suffixes and internal definitions,” Sheares says. “Retail space in a condominium had a suffix number and was valued differently from office space in a condominium. We knew that internally, but the public didn’t because we had only one commercial classification."
 
That changed about two years ago, Sheares says, when the DOF "created more definitive categories to define retail condominium space: garage condominium space, hotel condominium space" and others, including office and storage space (though not laundry rooms or community rooms). "We don't have codes for every situation,” Sheares says, “so we still have the generic R5 for some of the outliers."
 
What triggered the refunds, he says, is that the DOF was attributing the value of the seven retail spaces and 100 garage spaces solely to that one building, rather than to the whole three-building complex, where the three high rises benefit equally from the commercial income.
 
"The owners in that building were receiving higher property tax [bills]," Sheares explains. And this went on for many years until the board finally questioned the DOF as to why. The property-tax valuation will now "be more evenly distributed," the deputy commissioner says.

According to the board president, the lesson is clear: "Just look at the bills. A lot of this is not rocket science." Rather, it’s about developing a mindset where you don't assume that things are always correct simply because they come from official sources. Final lesson: don’t assume the DOF will be adversarial. "We try to do what's in the best interest of the property owners," says Sheares. "We can help. We can advise."