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Goldman estate wins tax case.

Goldman estate wins tax case

When Sol Goldman bought several buildings on the Upper East Side for $18.75 million in 1984 and 1985, he may have had in mind to eventually develop the properties, which are not all contiguous, as one assemblage. Neither the development, nor the assemblage, was ever completed.

In a decision regarding a tax certiorari case brought by his estate, New York City Supreme Court Justice Stanley Parness sent a strong signal to the city that the thought of development does not make one for real estate tax purposes. The judge also agreed with the plaintiff's appraiser's recomputation of the assessments that was based on the income capitalization method and not the sale prices.

Israel Schechter, the Podell Rothman Schechter & Banfield, partner who argued the case, said he was very pleased with the decision. "I think the judge was eminently correct," he said. "The decision speaks for itself as to where assessments should be." The decision he said, is "perfectly consistent" with state law.

This portion of the two-part case merely set the value of the properties and the issue of ratio still must be decided. Schechter said under the worst case scenerio, which would be the stipulation by the city to the ratio set by the state Board of Equalization and Assessment, his client is entitled to a reduction of approximately $32 million. This could result in a $3 million refund.

The city cannot appeal at this time because there is no final order, Schechter noted, and would have to wait until after the ratio is determined.

Schechter expects the city to stipulate to the State board ratio and does not expect the city would want to try the issue of ratio because once it is decided, the city would be "collaterally estopped" from trying that issue for another property. Trying the ratio for each year would effectively set the ratio for each tax class under scrutiny, and would be applicable to any property of that class which had not yet settled the year. In the Goldman case, two tax lots were residential and Schechter submitted evidence to ratio using three different methods for both Class II and for the commercial Class IV, as well.

Schechter said the city's assessments were "clearly" excessive. Not only did the city rely on the purchase price for the properties grouped around Lexington Avenue and between 85 and 86 Streets, but the assessments were calculated on a basis much higher than the purchase prices. During the mid-80's the city had a policy of reassessment on sale, Schechter said. "When our client bought the properties the assessment was automatically increased to 45 percent of the purchase price - in fact it was higher on these properties," he said. "Economically, the properties couldn't support it."

He explained that the city used a condemnation theory and that their position was based on "somebody knocking down the buildings. "While this is used when the city takes a building, it is not a theory taken by courts when deciding taxing issues, he explained. "The city is attempting to defend an assessment method that doesn't exist in taxing real estate, he said. "The court decisions are clear."

Justice Parness wrote in his decision: "The law is clear that assessment value must reflect the existing use of the property. Thus, potential development of the property to a higher and better use may not serve as the basis for assessing."

The judge noted that other adjacent properties did not have their assessments raised, including a key parcel necessary to complete any assemblage, while the subject properties' assessments increased from 134 percent to 187 percent, depending upon the purchase price and sale date of the lots.

Calling the high real estate taxes more of a recurring sales tax on investment capital and invidious and counterproductive," as applied to these properties, Judge Parness noted that in the end, the taxes were paid by the tenants in the form of passed along escalations.

Schechter said many of the commercial tenants could not afford the escalations and in fact went bankrupt. "The unfair competitive advantage has almost been disaterous," he added. "The only way the purchase price would make sense was if the owner could tear down the buildings and erect a high rise."

Since the properties contained both residential and commercial tenants with long leases, Schecter said, the price that was paid reflected something other than current value, and Goldman paid a premium for some of the later lots.

Unfortunately, Schechter noted, the sales prices of many other properties that were sold in the mid-80's also reflected some future increase in potential value and the city is now seeing foreclosures on those properties. He contends that his client's properties would also have been foreclosed if not purchased by Sol Goldman, who could afford to bear the loss for the long time period.

Schechter blames the city's hard line in defending certain values for the equally hard stance Judge Parness has taken in deciding recent certiorari cases, including One New York Plaza, which was upheld unanimously by the Appellate Division last month.

"It seems the city's real estate appraiser will go to any length to defend the assessment and not come up with a fair assessment," he added.

Over the past 10 years, during which no trials have taken place, the city has basically had a settlement policy with regard to problem cases, Schechter said, and most attorneys have settled cases. "But with certain cases you run into a firm wall and some policy reason-especially for those which have sold," he said.

Glaring overassessment cases, together with owners ready to stand behind the expense of trials which group several tax years, have recently erupted upon a court ready and willing to act.

"The problem in this field is that there weren't any trials for 10 years," Shechter said, "and when you don't have trials its tough to realize why you're avoiding settling." The city, he said, might now remember.
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Title Annotation:Sol Goldman estate
Author:Weiss, Lois
Publication:Real Estate Weekly
Article Type:Biography
Date:Feb 5, 1992
Words:997
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