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Tax Assessment & Condemnation Report

Fourth Amendment precludes Inspection of Private Property even in Assessment Review Litigation

Posted in Assessments, Assessors, Valuation

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Recently there has been increasing debate regarding if and when assessing jurisdictions, or its agents, can invade the privacy of New York residents. Even New York’s governor has been impacted by this issue. Last week, the Appellate Division, Second Department weighed in on the very issue of privacy and taxation.

Specifically, the issue in Jacobowitz v. Board of Assessors of Cornwall was whether a homeowner who commenced a property tax assessment review proceeding under Article 7 of the Real Property Tax Law, could preclude the Town from inspecting the interior of a private residence for the purpose of preparing an appraisal to defend the assessed value. The Second Department held that the property owner had a right under the Fourth Amendment of the United States Constitution to be free from unreasonable searches; and although such a search might be warranted in these types of cases, the burden fell on the Town to demonstrate that the inspection was reasonable and that there was probable cause to issue a warrant for the inspection. The Town utterly failed to satisfy its burden in this case.

In reaching its conclusion, the Court balanced the government’s interests against the property owner’s right to privacy. The Court noted that the property owner placed the property at issue by initiating the Article 7 proceeding and that the government had a strong interest in ensuring that each property owner contributes equitably to the public fisc. However, the Court ultimately held that the privacy concerns outweighed the governmental interests presented in the case. According to the Court, less intrusive means were available to estimate value, including an assessment of “the improvements found in similar homes.”

Thus, following the Second Department’s decision, this issue remains controversial, leaving New Yorkers conflicted between their right to privacy and their expectation of fairness in the real property tax system. Guidance from New York’s Court of Appeals would be helpful in resolving this controversy. We will continue to monitor developments in this area.

High Court Will Hear Religious Exemption Case

Posted in Assessments, Assessors, Exemptions

As reported in an earlier post, entitled New York Pagan Phryganium Wins Real Property Tax Assessment Appeal,  the Third Department recently held that the Town of Catskill improperly denied a pagan religious group a real property tax exemption under 420-a.  See Maetreum of Cybele, Magna Mater, Inc. v. McCoy 975 N.Y.S.2d 251.

 In our previous post, we noted that the time for appeal had passed.  However, we have learned that the New York Court of Appeals granted the Town’s motion for leave to appeal.  Appellants raised three issues on appeal, namely:  (1) was it an abuse of discretion to reverse the trial courts “specific, fact-based findings as to the lack of credibility of witness and the lack of religious activity at the subject residence;” (2) was it an abuse of discretion to reverse the trial court’s holding that the “primary use” of the property was residential, rather than religious; and (3) is there is an “identifiable quantum of religious activity” that would entitle the property to satisfy the requirement under Real Property Tax Law § 420-a that a property be “used exclusively” for carrying out the religious purpose of a religious corporation.

We will continue to follow this case and will provide updates.

 

Nassau County’s Tax Assessment Dilemma: The High Court Invalidates Local Law

Posted in Real Property Tax Refund

In Matter of Baldwin Union Free School District v. Nassau County, the New York Court of Appeals recently struck down a Nassau County (the “County”) law adopted to shift the obligation to pay real property tax refunds onto individual taxing jurisdictions (i.e. schools, towns, etc.).  This decision was a great relief to local school districts, but will have a continued impact on the County’s deteriorating fiscal condition.

This legal battle involved almost a century of real property tax legislation.  In the 1930s, the County adopted a system of tax assessment where the County would maintain the tax rolls and pay all refunds resulting from assessment errors.  In 1948, at the County’s request, its obligation to pay refunds was codified by amending the County Administrative Code and State law (the “County Guaranty”).

In 1958, the New York State Legislature enacted Real Property Tax Law § 726, which authorized counties to charge refunds back to individual taxing jurisdictions.  Virtually every county has been charging refunds back to individual taxing jurisdictions for decades.  However, the County Guaranty prohibited Nassau County from charging back refunds.

Although there has always been some opposition to the County Guaranty, an increase of tax assessment litigation at the turn of the century led to increased awareness of this unique law.  In 2010, it was estimated that the County Guaranty cost taxpayers at least $80 million annually, with the debt servicing of past refund payments exceeding $150 million annually.  Accordingly, the County Legislature passed Local Law 18 – titled the “Common Sense Act of 2010” – attempting to repeal the County Guaranty and requiring the County to “act in accordance with the provisions of the Real Property Tax Law with respect to the correction of assessment rolls and tax rolls.”

Upon review of Local Law 18, the Court of Appeals was not persuaded that “common sense” equated to constitutionality.  In a 29-page opinion, the Court struck down Local Law 18 as an unconstitutional attempt to override State powers.  In short, the Court of Appeals concluded that because the County Guaranty was codified in a 1948 State law, the County was prohibited from unilaterally taking action inconsistent with that law.

Obviously, this decision does not bode well for Nassau County’s fiscal situation.  It remains uncertain whether the County will attempt to solve this dilemma by appealing the recent decision to the United States Supreme Court.  Even if there is no further appeal by the County, the Court noted that the County could submit a “home rule message” asking the State Legislature to repeal the County Guaranty.  Considering that other counties have benefited from charge backs for decades, equity may favor extending the right to Nassau County.  However, it remains uncertain whether school districts, municipalities, taxpayers or other special interest groups would organize to block such a proposal.

For more information about the related legal disputes surrounding this issue, see New York Telephone Co. v. Supervisor of the Town of North Hempstead (2d Dept. 2010) and Steel Los III/Goya Foods, Inc. v. Board of Assessors of County of Nassau (N.Y. 2008).

Public Information Session Held on the Alternative Veterans’ Exemption

Posted in Exemptions, School Districts

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

We recently posted about the Legislature’s recent amendment to the RPTL 458-a Alternative Veterans’ Exemption. From what we have seen and heard, most school districts statewide have determined not to pass the law by March 1, 2014 so that it would have been effective for the 2014/15 assessment and tax season. The reason for the delay generally is that districts feel they were not given enough time to fully investigate the financial impact of this exemption on other non-exempt property owners or to obtain a true picture of whether a majority of the taxpayers within their district support the exemption and would be willing to foot the tax increase that would likely follow.

The North Syracuse Central School District recently asked us to prepare a presentation for an informational session on the exemption. A copy of the presentation is available at http://www.nscsd.org/files/news/veterans%20exemption%20powerpoint.pdf.  News reports of that presentation can be found on twcnews and 9wsyr.

 

 

 

Is Property Tax Reform Finally Coming to New York?

Posted in Assessments, Valuation

Image courtesy of Stuart Miles / FreeDigitalPhotos.net

In November 2013, Governor Cuomo released the Final Report of the New York State Tax Reform and Fairness Commission regarding tax reform. One week later, the New York State Senate Republican Conference Tax Policy Review & Reform Initiative issued a Preliminary Report regarding the same issue. Among other tax reforms, each report recommended action to reform New York’s real property tax system.

It should come as no surprise that there is widespread agreement that property tax reforms are necessary. The real property tax system in New York ranks among the lowest of the 50 states. For example, New York is among the last remaining states that do not require assessments to be periodically updated and that do not provide a single set of valuation standards to be applied to all properties. Further, New York has almost 1,000 different assessing units - more than other states its size. For these reasons, both reports conclude that New York’s real property taxation system lacks fairness and transparency of administration.

To address the issues of fairness and transparency, both studies propose similar recommendations. First, the legislature must establish a clear, statutory standard for assessment to apply to all properties. Second, assessment updates should be required in no less than five year increments. Third, the legislature should provide for state assessment of complex properties, such as power plants. Such a system, which is already used for special franchise properties such as utilities and telecommunications, would reduce the burden of assessment on local governments.

Each report also contains unique recommendations. For example, the Tax Reform and Fairness Commission proposes modifying state aid programs to promote efficiency, such as the sharing of assessment resources at the county level. The Republican Conference Tax Policy Review & Reform Initiative proposes re-instating STAR rebate checks and making the tax cap permanent, avoiding the possibility of it lapsing in 2016.

In his State of the State address, Governor Cuomo proposed property tax credits for manufacturers and a conditional two-year freeze on homeowner’s property taxes that would transition into a circuit breaker system. To qualify for the property tax freeze, local governments must stay within the 2 percent tax cap in the first year and take concrete steps toward consolidating or sharing services with other local governments in the second year. Cuomo also proposed a refundable property tax credit for manufacturer’s equal to 20 percent of its annual real property taxes. Critics of the Governor’s proposal likened it to “voodoo economics” noting that tax breaks for businesses and the wealthy do not help the middle class and that if the state really wants to reduce property taxes, it should adequately fund schools and municipal services.

Although it is encouraging that these issues are being discussed, it remains uncertain whether there is political will to enact these reforms. Many assessing units may oppose mandated assessment updates because the financial burden would fall on them. In addition, some landowners will oppose an assessment update because such action will shift the relative valuation among similarly constructed properties, perhaps raising their assessment.

We will continue to monitor whether the recommendations in these reports move forward through the legislature.

Part II: Is a Public Hearing Mandatory Pursuant to the Eminent Domain Procedure Law?

Posted in Condemnation/Eminent Domain

Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net

Our first installment in this series on condemnation procedures detailed a key element of the process found in the New York Eminent Domain Procedure Law (“EDPL”) – the public hearing. While the condemnation process generally begins with a public hearing, the EDPL provides exemptions that allow the condemnor to bypass the public hearing requirement under certain circumstances.

As we discussed previously, the purpose of holding a public hearing is to inform the public of the details of a proposed project, to review the public use to be served, and to review the impacts of the project on the environment and on the residents of the locality where the project will be constructed. Where a public hearing considering the above listed factors was held to comply with another law, that public hearing may be used to satisfy the EDPL Article 2 hearing requirement and alleviate the condemnor’s need to hold another public hearing.

A separate exemption covers situations where a condemnor is required to submit information concerning the above factors to another governmental agency, board or commission prior to the acquisition of a license, permit, certificate of public convenience or necessity, or other similar approval. Similarly, a condemnor may be exempt from the public hearing requirement if it previously obtained a certificate of environmental compatibility and public need pursuant to the Public Service Law.  Finally, de minimis takings or takings necessary to address an emergency may be exempt from the public hearing requirements.

Our next installment in this series will discuss the use of eminent domain for economic development.

Your Appraisal or Their Appraisal? Applying For Federal Reimbursement May Destroy An Appraisal’s Protected Status

Posted in Condemnation/Eminent Domain

Image courtesy of franky242/ FreeDigitalPhotos.net

In a recent decision by the Appellate Division, Third Department, Lerner v. New York, the Court confirmed that documents prepared in anticipation of litigation, including appraisal reports, would lose their protection as “work-product” if disclosed to a third party. However, the Court went beyond this general rule holding that appraisal reports that were subject to review in connection with federal reimbursement programs were not protected as work-product, even if those reports were not actually provided to a third party.

In Lerner, Claimant filed suit against New York State alleging that the Department of Transportation (“DOT”) trespassed and caused property damage during a highway construction project that received federal funds. Prior to construction, the DOT obtained an appraisal of the parcel at issue. Claimant sought disclosure of the report to support its claim for damages. The issue before the Court was whether DOT’s application for federal funding waived the work-product protection for the State’s appraisal report. There was no dispute that the terms of the federal reimbursement program allowed the Federal Highway Administration (“FHA”) to review the supporting documentation, including appraisal reports. However, it was also undisputed that the FHA did not request or review the appraisal report in this case. In fact, the FHA had not reviewed supporting appraisals for many years.

Reversing the Court of Claims, the Third Department held that Claimant was entitled to disclosure of the appraisal report. The Court reasoned that relying on an appraisal report when submitting a federal reimbursement application waives the work-product protection for that report. The Court did not appear to be concerned that the appraisal report was never provided to the government.

Lurking behind the holding in this case is the fact that Claimant desperately needed the State’s appraisal report to prove its case. Claimant had only three photographs of the property prior to construction and was unable to otherwise obtain documents establishing the property’s pre-construction condition. As a result, the Court noted that, in the alternative, disclosure of the appraisal report was required because Claimant had a substantial need that could not otherwise be satisfied.

Lerner sends a strong message to both sides in eminent domain cases. Government officials must carefully consider the implications of future litigation when making applications for federal funding, even if an appraisal report is not attached to the application for federal funding. On the other hand, claimants should be aware of this potential source of useful information, which can be obtained on a showing of relevance, rather than need. It remains to be seen whether the Third Department’s reasoning will be adopted by other courts in the State.

New York Pagan Phryganium Wins Real Property Tax Assessment Appeal

Posted in Assessments, Assessors, Exemptions

In an unexpected turn of events, the New York State Appellate Division, Third Department recently held in favor of a newly founded pagan religion seeking a real property tax exemption.

In 1999, Rev. Mother Cathryn Platine founded the religion Maetreum of Cybele, which focuses on the obligation to do charitable works and the belief that the divine feminine mother goddess Cybele is present in everything. The Maetreum of Cybele is now recognized by the Internal Revenue Service and the State of New York as a religious organization.

In 2009, the organization filed an application for tax exemption under Real Property Tax Law (RPTL) 420-a that was denied by both the Assessor and Board of Assessment Review for the Town of Catskill. A subsequent challenge under RPTL Article 7 and CPLR Article 78 was denied by the Supreme Court, Greene County.  In November 2013, the Appellate Division, Third Department unanimously reversed the lower court, holding that the Phryganium (the organization’s place of religious worship) was entitled to tax exempt status under RPTL 420-a. Maetreim of Cybele, Magna Mater, Inc. v. McCoy 975 N.Y.S.2d 251. Citing the well-recognized standard for religious exemption, the Court analyzed whether the property was used primarily in furtherance of a religious purpose. The Court concluded that based on the “convent-style living,” the existence of alters in each of the seven priestess’s rooms, the taking in of “spiritual seekers” without the requirement of payment, the celebration of the phases of the moon, and the provision of religious instruction on the property, the property was in fact used for the furtherance of a religious purpose.

The Cybele case confirms that for the purpose of determining entitlement to a real property tax exemptions, judges will look beyond the history and institutionalization of a religion. Instead, the threshold issue continues to be whether there are concrete signs that the property is being used in furtherance of the religion. As the time for further appeal has passed, this case now stands for the proposition that placing alters in rooms and providing religious instruction on a property may be enough to transform a parcel from an inn to an exempt property. In addition, the case adds another step to local assessing units’ calculation when deciding to litigate a religious tax exemption case. In this unanimous decision, the Third Department not only ruled in favor of the Petitioner, but also ordered the Town to pay the costs of the litigation, indicating that local assessing units should strongly consider the merits of an exemption before litigating.

Two Rights Make War: The Expansion of the Veteran’s Exemption vs The Tax Levy

Posted in Assessments, Exemptions, School Districts

In December of 2013 the Legislature expanded Real Property Tax Law Section 458-a. This revision allows school districts, by local option after a public hearing, to offer veterans a significant property tax exemption. A veteran “qualifies” for this exemption if he or she served in active military, naval or air service during a period of war or received the armed forces expeditionary medal, navy expeditionary medal, marine corps expeditionary medal or global war on terrorism expeditionary medal, and was discharged or released under honorable conditions. The exemption applies only to the qualified veteran’s primary residence. The parents of a deceased qualified veteran may, by a further local option, also be eligible for the exemption on their primary residnce.

The RPTL 458-a exemption has been in existence since the 1980s and there are others like it - including RPTL 458. At the time of RPTL 458-a’s original enactment, however, the Legislature decided that only towns, counties and villages could offer this exemption to veterans living within their districts. School districts were intentionally omitted.

Perhaps the legislature omitted the districts because of the impact this exemption would have on them. Comparatively, this is a rather generous exemption. True, the law caps the value at a certain percentage and/or dollar value and has different levels depending on the veteran’s service and/or disability level, but even so, the benefit to the veteran is substantial. Also, this exemption is applied in addition to the STAR exemption so it is very possible that some veterans may not pay any school tax at all. However, as is typical of these types of exemptions, our schools will receive less STAR money from the state as a result.

Calculating the impact of this exemption on each district (really, on the non-exempt homeowners and businesses in that district) in terms of tax rate hikes and its interplay with the tax cap is a difficult prospect, but for a moderately-sized upstate New York district the impact might be close to $500,000 in tax dollars. The net effect to the district itself will be zero as the levy is the levy regardless of the taxable value of property within the district post-exemption. What this means is that tax rate will simply increase for non-eligible individuals. In fact, this is what happens every time a tax exemption is granted, so nobody should be surprised by this result.

Few exemptions out there seem to be more laudable than giving those who have served this country or gave their lives for our freedom. The good purpose behind this exemption is unquestionable. That said, protecting our tax base and keeping taxes low for everyone is also good. When these two “good goals” collide in the tax world, nobody really wins.

What do you think? What’s your district going to do about this? Leave your comments here.