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Assessment appeal method targeted for repeal by city.

A fast and cheap method to prove an unequal property tax assessment is under attack by New York City officials. The method, which involves a simple sales study, was part of the Taxpayers Bill of Rights that also created the School Tax Assessment Relief program.

City officials have been lobbying since last fall to have the item repealed, telling business leaders it could cost the city a billion dollars in property tax revenue each year.

If so, it is an admission that a pattern of unequal assessment has existed and will continue to exist, despite state law requiring all properties in New York City to be reassessed each year, and the city is worried the simple sales studies will help taxpayers prove their open year cases in court.

Richard Schwartz, tax counsel and director of government and fiscal affairs for the Business Council of New York State, said "A taxpayer should have the fundamental right of challenging overassessment and inequality, and you cannot do that without the ability to do a sales ratio. I don't know any taxpayer that would want to support repeal."

Experts say that even in today's fast-rising market, with sales figures that are so obviously out of whack with assessments, such a sales study will prove inequality.

"The values have gone up so rapidly over the last few years that the assessments have not kept up with the values, so the city is creating a new inequality because they are refusing to admit the assessments are below 45 percent," explained Paul Korngold, a tax certiorari attorney with Tuchman Katz Schwartz Gellis & Korngold.

Currently, the parties end up stipulated to the city's stated 45 percent assessment ratio. The city has protested and fought the state Bureau of Real Property Services in court when the rate has not come out in its favor.

"The owner settles at 45 percent and the only affirmative statement that the ratio is 35 percent is coming from the state, and that ratio is litigated by the city, and held in abeyance, so you are left with the city's statement it's 45 percent," explained William K. Block, an attorney and former Deputy Commissioner of Finance who is now is private practice.

Under the law, another method of proving inequality is by the selected parcels method, which Korngold says is "exceptionally expensive and too difficult," so that it is never used.

The sales study has been allowed in the past and was removed by legislation in 1986 for larger properties. Small Claims Assessment Review proceedings for small homeowners always permit the use of a state residential ratio and comparable sales.

Some experts believe the real overall equalization ratio for New York City could be proven as being closer to 25 or 30 percent using such a sales study.

If, at a settlement discussion, the city's income and capitalization guidelines were combined with a 45 percent equalization rate, that might give the owner an assessment of $1.2 million. But if the real equalization rate is 25 percent, the owner might be entitled to an assessment reduction down to $800,000.

Block used as an example a property the city has assessed at $100,000, and sells for $300,000, which becomes a ratio of 33 percent and not 45 percent. Going back two or three years, the property might have sold for $200,000 and was also assessed for $100,000, so that ratio was equal to 50 percent.

"The rising market actually serves to lower the ratio," Block explained.

If the values start going up and an owner has to protest his assessment, and the city is using a 45 percent rate combined with the city guidelines, the owner will not receive the appropriate reduction that would be forthcoming if the real equalization rate was used.

A memo obtained by REW from Corporation Counsel staff to Robert Harding, the Director of the Mayor's Office of Legislative Affairs, requests the repeal, claiming among other things that the sales that occur each year are not a "valid statistical sample." It compares the Chrysler Building sale to that of a warehouse property, and explains that sales prices for the properties that do sell should be adjusted to reflect unusual factors motivating sales. It goes on to state, "unadjusted prices alone... are not an accurate measure of value,"

But later, the memo notes that in a rising market, "every owner of income-producing property may be able to prove their assessment is unequal using a sales-based ratio." And in a falling market, it says in a footnote, the owners would be expected to ignore high sales ratios in favor of lower State rates.

"If the taxpayers knew the true rate, everyone would come running in and ask for a reduction," explained Korngold. "They are essentially trying to prevent taxpayers from proving their case because they are saying evidence of sales is not good evidence."

Steven Spinola, president of the Real Estate Board of New York (REBNY), says he is not convinced allowing the city to eliminate the sales study is so bad. REBNY was to be meeting with city officials to discuss the issue further.

Other sources say REBNY is so concerned over any delay in reducing the commercial rent and occupancy tax and the unincorporated business taxes that they could be willing to trade off on those issues.

Block says the city has "decimated" its assessment staff and needs to add personnel, including audit staffers where reviews of protests are backed up at the Corporation Counsel for more than two years.

"We could ask for a better effort on the part of the Law Department to resolve cases in a timely manner," he suggested. Block also offered a compromise that any audit requirement be deemed to be satisfied as a matter of law after 18 months, for instance.

"They wouldn't like that, but they are the ones without an audit staff, and are the ones that have used audit staff as a dilatory tactic. But someone has to speak in a comprehensive way as to what's fair for the taxpayers and the city.

Another suggestion is to begin interest running on settlements where a case is pending more than X years, although the tradition between the bar and the city has been to agree to let that interest slide, except where a case is adjudicated by the courts.

The Business Council met with city officials earlier this year and strongly rejected the appeal that the sales study method just be lifted for New York City.

"Without that you have no practical remedy with which to fight an unequal assessment, and I think the city knows that," said Schwartz, adding "We represent businesses throughout New York State, and that includes New York City."

William Banfield, president of the Real Estate Tax Review Bar Association and a partner with Podell Schwartz Schechter & Banfield, said "The restoration of sales is important to taxpayers in general and to the commercial taxpayer in particular because in a rising market, where the assessments have not tracked the sales prices, it would suggest the real ratio is less than the city proposes. If sales are eliminated, the only two ways of proving ratio are the selected parcels and the state board. The state board has been sued by the city but cannot be sued by individual taxpayers, and they have indicated they are looking at using sales themselves. The use of sales by taxpayers is not bizarre."

Banfield also noted that if a property owner has paid a high sale price and the assessment does not rise, "the owner may believe he is being fairly assessed and it may not be true, because the real ratio is less."
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Title Annotation:property tax assessment in New York, New York
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:May 6, 1998
Words:1284
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