Suit Targets NYC Property Tax Inequities

As we reported earlier this week, the state's highest court has allowed a lawsuit challenging New York City's property tax system to move forward. In its ruling, the state Court of Appeals declared that the city's method of levying property taxes "imposes substantially unequal tax bills on similarly valued properties that bear little relationship to the properties' fair market value." The result, the court added, is "staggering inequities and a regressive tax system that hurts those who can least afford to pay heavy taxes."

If these inequities are eliminated — which is the goal of the group that brought the lawsuit, Tax Equity Now New York (TENNY) — there will be winners and losers. Who will be the losers?

The law firm Moritt Hock & Hamroff provides an unsettling answer. In a recent newsletter the firm writes: "For condominium and cooperative apartment buildings, the TENNY litigation is of significant concern because, as a group, they are the beneficiaries of the allegedly 'staggeringly inequitable' current system."

Why? Because under the current system of setting assessments, a prime factor in the equation used to compute property tax bills, there is a severe disconnect. Co-ops and condos are valued for tax purposes not on their fair market value but instead on the rents in comparable rental apartments in the area, including artificially low-rent rent-regulated apartments. In addition, the current system puts caps on annual increases in tax bills — which means co-ops and condos in rapidly appreciating neighborhoods such as Park Slope wind up paying proportionately less than residents of neighborhoods where values are comparatively flat.

The newsletter concludes: "Any effort to reform this valuation system, therefore, would in all likelihood result in significantly higher property tax bills for many co-ops and condos."

That's the bad news for co-op shareholders and condo unit-owners who have enjoyed a rise in their property values that far outpaced the rise in their property taxes. Here, according to the law firm, is the good news: "First, the Court of Appeals’ decision did not find that any of TENNY’s claims actually had merit – there is no court order directing the city and state to raise property taxes on co-ops and condos."

The newsletter concludes: "The bottom line is that there is unquestionably new momentum to reform the existing New York City property tax system, but given the slow pace of litigation and the difficulties of assembling a political coalition capable of actually changing it, the current tax system is unlikely to significantly change in the near future."

In other words, it's OK to be afraid, but there's no need to rush into it.