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Hi
Must a coop board allocate and distribute all proceeds from property tax abatement to unit owners who qualify or can they be allocated to all residents equally. We have a number of residents who don’t qualify and therefore are charged an assessment while qualifying residents receive the credit. Their rationale is that by not distributing the proceeds equally to all, the board is not meeting its fiduciary duty to treat all residents equally and that non-qualifying residents are shouldering the financial burden to pay to qualifying residents. Has anyone seen a different approach to allocation/distribution of the abatement?
Excellent explanation, Steven. We also get the same questions year after year in our coop.
Just one point to add: the tax abatement is "vapor money." It's not that the coop receives a big pile of cash to hand around to those who were eligible. Instead, the building's property tax bill is reduced by the total amount of the abatement. The coop never actually sees the money, except in the form of lower tax payments.
So there's not any received money to distribute. Instead, most buildings - including ours - follow exactly the process you describe: impose a one-time per-share assessment that (roughly) flattens the abatement for those who receive it, and requires real-money payments from those not eligible for the abatement.
1. New Shareholder purchases from an individual owner prior to February 1:
a) will that Shareholder be eligible for NYC DOF Tax Abatement forwarded via a credit to maintenance charges in June or July of that year?
b) is that Shareholder responsible for any Assessment intended to re-capture the Abatement?
2. New Shareholder purchases prior to February 1 from a Sponsor or Owner ineligible for the Tax Abatement :
a) when does the New Shareholder become eligible for the Tax Abatement?
b) is the New Shareholder responsible for any Assessment until eligible?
Steve and Carl, thanks for the responses. Very helpful and good to know it is not only us receiving this type of question. I am not sure if math has been done to compare the value of the abatement vs the cost to the non-qualifying shareholders but I have to expect they would ultimately be paying more in fees without the reduction in taxes. - Ed
I’m getting to this issue late (proving why it comes up annually. Haha). I’m a retired Lawyer/CPA and a coop shareholder since 2021. I’m struggled to understand the underlying accounting logic (and entries) for why this way and not some other way that perhaps could provide a real cash benefit to qualifying shareholders without an equivalent cash cost to nonresident shareholders, while also leaving the Coop and NY both “whole” (ie, a “wash” in terms of taxes payable to NY after the tax abatement and taxes collected from shareholders in an equal amount).
I sense I may be missing something, but this current treatment seems to leave the Coop in a net cash benefit position (equal to the additional revenue collected from the nonresident shareholders) rather than leaving the Coop in a neutral position that corresponds to what I understood to be a wash from Carl’s comment in that what the Coop pays NY under its quarterly tax bill (annualized) equals the post-abatement receivable due from shareholders (also annualized).
What am I missing in the Coop’s accounting entries that shows that it neither receives a cash benefit from NY’s tax abatement or from nonresident shareholders equal thereto?
Thanks, Todd
Hi Todd - It took me a few years to finally wrap my head around all the different factors in play. I've created an example that may help to explain it.
* 10-unit (apartment) coop. Units are numbered 1 to 10. Each unit owns the number of shares corresponding to its apartment number (i.e. Unit 1 owns 1 share, Unit 5 owns 5 shares, Unit 10 owns 10 shares). The total number of shares in the coop is 55 (1+2+3+4+5+6+7+8+9+10).
* Units 2 and 7 are not primary residences. The rest are.
* Each unit receives an abatement from the Dept of Finance except those not primary residences. The DoF practices the Darks Arts and I think some magic pixie dust factors into their calculations. In other words, there's no logic I can find that mathematically explains the abatement amount assigned to each unit.
* The total amount of the DoF tax abatement for the entire coop is $10,000.
* To calculate the amount of the corresponding assessment the board imposes on the shareholders, it divides the total amount of the abatement by the total number of coop shares. $10,000 / 55 is $181.818182 per share.
* Unit 1 has 1 share so its assessment is $181.82
Unit 2 has 2 shares so its assessment is $363.64 even though it receives no corresponding beneficial abatement
Unit 3 has 3 shares so its assessment is $545.45
Etc.
Coop laws and regulations require all shares in a coop be treated equally. Even though 2 and 7 are assessed because they own shares, they do not receive any abatement benefits because they are not primary residences. It's essentially a zero-sum game because the $10k the coop is required to "distribute" to eligible shareholders is recouped by the income from the shareholder assessment.
I hope this helps. If not let me know and I'll send you my phone number so we can chat.
--- Steve
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The first requirement is that the abatements be distributed according to the list you received from the Dept of Finance. How the DoF calculates how much each *eligible* unit (apartment) will receive is a mystery of the universe.
The second requirement is that all co-op assessments be made equally on a *per-share* basis.
The board is fulfilling its fiduciary responsibility by treating each *share* equally and not each *unit*. This cannot be changed, not even by amending the Proprietary Lease.
Non-qualifying shareholders (usually those whose unit is not their primary residence) are out of luck and there is no recourse. The City has chosen to give primary residents a perk in the form of a tax abatement *per unit* and the board is required to base and collect any assessment on a *per share* basis.
This abatement/assessment wash *never* works out for any unit, and the assessment is equal to the abatement. Some shareholders have a net gain and some have a net loss.
I've been a treasurer for 15 years and I've received this identical question each of those 15 years. I try to preempt it by including a basic description of the different ways the abatement and assessment are determined in the email I send to all shareholders. I still get a couple of calls each year
I hope this helps,
--- Steve
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