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City moves to cut tax refunds.

An Albany bill that would limit property tax refunds to owners who have already overpaid and are still challenging their assessments is being modified at the request of city officials and the Real Estate Board of New York. Concern over the amount of the potential refunds and a backlog of cases have prompted the measure.

While similar legislation was introduced last year by Rep. Catherine T. Nolan of Queens, and then last month by Sen. Roy Goodman of Manhattan, the city is in the process of refining the wording.

Although the original bill would have forced the use of the city's target class equalization ratios retroactively to all pending cases since December of 1981, the modified version would kick in for the 91/92 tax year.

Nevertheless, the bill would effectively deny taxpayers the ability to use the more recent state board rates as proof to get greater refunds on their overpayments of property taxes, even as the city insists the ratio should be 45 percent for all but Class 1 homes.

Edith I. Spivack, the executive assistant corporation counsel, who heads the tax review process, noted that while the Nolan/Goodman bills may be already introduced, she was writing modifications last week.

"Our bill has not yet been introduced as our legislative office still has the bills," she said. Spivak said she hoped that Rep. Goodman would sponsor the new measure, which would also require the retroactive use of city ratios.

According officials from the city's legislative office, the latest draft is being modified after comments were made by interested parties, including the Real Estate Board of New York, the Department of Finance and the SBEA. The new language ensures Nassau County will not be affected, while Spivak is also adding a definition of revaluation and clarifying other language.

Cases Backlogged

The city has about 100,000 assessment cases backlogged at both the Tax Commission and Corporation Counsel, even as this year's applications are being heard. Refund liability is estimated at well over $100 million, with some estimates ranging to several times that with accumulated interest.

The Tax Commission is charged with the administrative review of the assessments that are set by the Department of Finance, while the Corporation Counsel is the first stop on the way to court for those that do not like what Tax Commission has to offer.

Steve Spinola, president of the Real Estate Board of New York, said the city is saying the bill would make it easier for owners to get into court by stipulating to the city's 45 percent equalization ratio, currently higher than the SBEA figures that would lower the assessment.

"It limits owners' ability to bring in the SBEA numbers and takes away some options," he noted. "We're talking to the city as to whether there can be changes.

Limits Proof

The bill will make it almost impossible to turn over the city's announced policy of 45 percent, said Arnold Mazel, president of the Tax Review Bar Association and a partner with Goldberg, Weprin & Ustin. "It's a terrible thing and is going to limit the rights of co-ops and small owners to prove their case and limit petitioner's rights to admit their proof," he explained.

Additionally, Mazel noted, the city can turn around at any time and say they are really assessing at 70 percent and change their policy. "And we would be in no position to disprove that," he added. "It's like stacking the deck."

Mazel observed that in Nassau the parties stipulate to - usually - a higher rate than the state board, "And then they go try their cases." Attorneys say Nassau has been eager to clean up old cases, but they are so backlogged the parties also waive a portion of the interest repayment to get their case heard faster.

The State Board of Equalization and Assessment (SBEA) ratios were higher than those being used by the assessors in the early and mid-1980s, and while the original bill would have technically benefitted taxpayers for earlier years, the majority of those earlier cases are already settled.

Lower SBEA Ratios

In fact, a measure passed in 1978 effectively forced most property tax cases to be settled within four years. So disputed tax years are more likely to be relying on recent years of SBEA ratios which are much lower than the city's target numbers.

Additionally, most of the dollar value at stake is grouped in more recent years, since values climbed slowly through the Eighties and then dropped precipitously after 1988, although assessments did not drop as fast. The SBEA ratios tend to lag the marketplace.

Tax certiorari attorney Joel R. Marcus, a partner with Pottish, Freyberg, Marcus & Velasquez, recalled that prior to 1981, when the SBEA ratio's were around 60 percent, the city's position was 100 percent.

"All of the ratio cases before 1981 were unsuccessful," he said, "and there was a tremendous movement to allow the SBEA [ratios] to be admissible as evidence." That became part of the reform effort resulting in the 1981 legislation, S700A, the current real property tax law, passed on an override vote after Gov. Hugh Carey first vetoed the measure.

In the early 1980s, the SBEA ratio was higher and city officials demanded the use of the SBEA ratio. As that changed with the reflection of rising values, Marcus said the city kept insisting on ratios at 54 and 60 percent, even as the SBEA ratio approached 45 percent.

By the tax year 90/91, the SBEA rate for commercial buildings had gone down to 47.38 percent and then dropped sharply to 32.84 percent for 91/92 and 33.44 percent for 92/93. In the meantime, the city officially adopted 45 percent as its target equalization ratio for apartment houses and commercial properties.

Owners Get Large Refunds

In the One New York Plaza case, the first certiorari trial conducted in ten years, the parties stipulated to the SBEA ratio rounded off. Marcus obtained a refund of $41.4 million in 1992, setting off a wave of concern for liability vulnerability by the city.

In Newfield Realty v Tax Commission, a case regarding 39 Broadway decided at the end of 1993, Justice Stanley Parness listened as the owner and the city used the SBEA rate for some years, particularly the earlier ones, while the city wanted its higher rate for more recent years. He therefore said he felt free to use either figure. He used the SBEA rate to expense taxes into the capitalization figures to find full market value, and then flipped back to the city's 45 percent to obtain the assessment during another aspect of the trial.

In simplistic terms and ignoring the capitalization issues, a property that a building owner might realistically value at $1 million would be assessed at $450,000 by the city using its targeted 45 percent ratio, but assessed at $350,000 if using a generic 35 percent SBEA figure. With approximately a 10 percent tax rate, the owner could save $10,000 on taxes by arguing for the SBEA ratio during the review process.

In situations where owners have already paid these taxes and are waiting for a number of tax years to be settled with the city's Corporation Counsel, under the bill's scenario, the amount refunded could be substantially less, and even nothing depending on the individual case, should this change become law. While a property could be overassessed, for instance, using the 35 percent ratio, it could be properly or even underassessed at 45 percent.

In 1992, the final Class 2 SBEA ratio was 37.53 percent, while for Class 4 it was 33.44 percent. The city is appealing those ratios in a lawsuit, as well as those for 1991. Still under contention at the SBEA level are the final ratios for 1993, estimated at 38 percent for Class 2 and 38.30 percent for Class IV.

City Overwhelmed

The city's refund liability has been a source of ongoing concern by those who deal with the assessment challenges. Cancellations of property tax charges, resulting in refunds to taxpayers, increased from $59 million in 1985 to $209 million in 1993. That number is expected to go up by $100 million for 1994, according to the mayor's budget documents. The number, however, is a documents. The number, however, is a catchall for things like corrections, J-51 refunds, Senior Citizen Rent Increase Exemptions, remissions, and settlements of litigations, explained Tax Commission counsel Glenn Borin.

According to the Tax Commission report for 1993, fewer than 85,000 parcels produce more than 80 percent of the revenue from property taxes, not including single family homes and individual condo parcels. About half of these parcels - including most of the high--value parcels - have owners that protest their assessments every year.

Borin said the Tax Commission had about 99,024 cases pending as of December of 1993, with most of them grouped from tax years 1988 on. This year, the Tax Commission received approximately 55,790 applications for tentative assessment review and have about 36,000 left to hear. about 36,000 left to hear.

Many of these cases involve the same parcels, with numerous tax years still under review. Due to the five-year phase in known as transition assessments, each assessment is usually contingent upon the prior years' assessments.

Meanwhile, those same 99,024 cases have petitions filed in court so the city's corporation counsel attorneys also may review them, trying to settle a number of years at a time, as does the Tax Commission.

There are fewer Corporation Counsel attorneys that review assessment cases than Tax Commission hearing officers. More documentation is often requested as well, since those cases that seemingly cannot be settled steam on to court, gathering audit reports and appraisal reports on the way. The Corporation Counsel is currently trying to streamline the process for those parcels with assessments of $1 million and under.

The bills that Senator Roy Goodman and Assemblywoman Catherine T. Nolan have introduced, and what the Corporation Counsel is pushing, would retroactively remove the SBEA ratio from use as one of the proofs of overassessment. The memorandum in support of the Senate bill states that taxpayers may still use the selected parcels method of proof, but certiorari attorneys say that proof of a rate by this method is expensive and time consuming, and not an option.

A day after being apprised his bill would effectively cut off an inexpensive method of proof for small taxpayers, co-ops and condominiums, a spokesperson for the Senator was quick to note that his original bill was subject to modification.

Wishful Thinking

William D. Siegel, the co-chair of the New York State Bar Association Committee on Taxation and a partner with Siegel Fenchel & Peddy on Long Island, said the proposal reminded him of an Abraham Lincoln anecdote. At one time, he recounted, Lincoln said something like, "Even if the legislature says a dog's tail is a leg, the dog still only has four legs."

Siegel said this city program bill is really saying, black is white. "I truly think they are denying taxpayers an effective remedy and not giving them a chance to prove ratio," he said. "Instead of using a proven ratio by an independent state agency, they are using a wish upon a star number."

Marcus observed that people forget the refunds are not from the City of New York but really the taxpayer's own money, erroneously collected. "The city ought to be held to an estoppel standard where they are precluded from claiming a ratio that is better for them than what they've announced," he said. "I don't think a taxpayer ought to be prohibited from proving the correct ratio."

Deja Vu

Municipalities have already managed to limit methods of proof for taxpayers by going to the legislature in last ditch efforts to save money. Marcus recalled he spent several years in connection with the Shorham Nuclear Power Plant tax challenge against the Town of Brookhaven preparing a sales study to prove ratio.

A few weeks before introducing the evidence in court, Brookhaven and the Town of Greenburgh - facing a challenge in the Technicon case - convinced the state legislature to change the real property tax law to retroactively restrict sales studies to prove ratio. "They argued the state rate was more accurate," sighed Marcus. "They passed the bill and it applied to all cases not settled."
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Title Annotation:New York, New York; property taxes
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jun 15, 1994
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