The question I get asked most frequently about real property taxes is this: "Will real property taxes for this property increase if I buy it for X dollars?" The answer is basically simple - unless there is a planned revaluation or a comprehensive plan to review the assessments of all properties in the assessing unit, reassessment on sale violates the Equal Protection Clauses of the federal and New York state constitutions.

Nassau County and New York City annually reassess all parcels. Reassessment on sale is thus permissible as part of these broader reassessment programs. However, reassessment on sale is not allowed in most other Long Island and downstate assessing units, which do not periodically reassess. But some assessors make back-door attempts to reassess.

Two U.S. Supreme Court cases have recently analyzed reassessment on sale. In Allegheny Pittsburgh Coal Co. v. County Commission of Webster County, W.V., 488 U.S. 336, 109 S.Ct. 633, (1989), the subject property was purchased for $30 million and was thereafter assessed at $15 million, at the prevailing ratio of 50 percent. The Court held reassessment on sale to be unconstitutional where assessments of similar properties are not changed or reviewed although "[s]ome adjustments were made in the assessments of properties that had not been recently sold, [which] amounted to, at most 10 percent increases."

The West Virginia Supreme Court reversed a lower court holding that this "systematic and intentional" discrimination was in violation of the state and U.S. constitutions because the assessment at issue was "appropriate" for the subject property. The Court unrealistically relegated the complaining property owners to the remedy of "seek[ing] to have the assessments of other taxpayers raised to market value."1

The U.S. Supreme Court reversed, holding that: The Equal Protection Clause 'applies only to taxation which in fact bears unequally on persons or property of the same class.' . . . As long as general adjustments are accurate enough over a short period of time to equalize the differences in proportion between the assessments of a class of property holders, the Equal Protection Clause is satisfied. . . . [I]t does not require immediate general adjustment on the basis of the latest market developments. In each case, the constitutional requirement is the seasonable attainment of a rough equality in tax treatment of similarly situated property owners. . . . The county's adjustments to the assessments of property not recently sold are too small to seasonably dissipate the remaining disparity between these assessments and the assessments based on a recent purchase price.

Allegheny effectively barred reassessment on sale in the absence of ongoing reassessment programs providing "rough equality in tax treatment." But footnote four to such decision opened up a loophole anticipating California's Proposition 13.

The footnote stated:

We need not and do not decide today whether the Webster County assessment method would stand on a different footing if it were the law of a State, generally applied, instead of the aberrational enforcement policy it appears to be. The State of California has adopted a similar policy as Article XIIIA of its Constitution, popularly known as 'Proposition 13.' Proposition 13 generally provides that property will be assessed at its 1975-1976 value, and reassessed only when transferred or constructed upon, or in a limited manner for inflation. Cal. Const., Art. XIIIA, § 2.

Four years later, the Supreme Court in Nordlinger v. Hahn, 505 U.S. 1, 112 S.Ct 2326 (1992), upheld the constitutionality of Proposition 13, despite cited inequities such as an owner of a home purchased in 1989 paying $19,000 in taxes while a comparable house purchased in 1975 paid only $4,100. Another example was an increase for a new purchaser's taxes to $4,650 whereas the seller had paid only $270.

State Legislatures have great leeway in classifying provided that "the classification rationally furthers a legitimate state interest," according to Nordlinger. Moreover, "[t]his standard is especially deferential" for classifications in "complex tax laws."

The Nordlinger Court had:

[N]o difficulty in ascertaining at least two rational . . . considerations . . . that justify denying petitioner the benefits of her neighbors' lower assessments. First, the State has a legitimate interest in local neighborhood preservation, continuity, and stability. . . . Second, the State legitimately can conclude that a new owner at the time of acquiring his property does not have the same reliance interest warranting protection against higher taxes as does an existing owner.

Reassessment on sale was the subject of two New York cases during this decisive period. Krugman v. Board of Assessors, Village of Atlantic Beach, 141 A.D.2d 175, 533 N.Y.S.2d 495 (2d Dep't 1988) - decided just 2-1/2 months before Allegheny - invalidated a reassessment on sale which more than doubled the previous assessment. The village admittedly only reassessed recently sold properties.

The decision held that reassessment on sale violated the Equal Protection Clauses of both the federal and state constitutions because:

In order to achieve uniformity and ensure that each property owner is paying an equitable share of the total tax burden the assessors, at a minimum, were required to review all property on the tax rolls in order to assess the properties at a uniform percentage of their market value. The respondents' disparate treatment of new property owners on the one hand and long-term property owners on the other has the effect of permitting property owners who have been longstanding recipients of public amenities to bear the least amount of their cost.

The Court could:

[C]onceive of no legitimate governmental purpose to be served by perpetuating this differential treatment. . . . It would appear that the sole purpose of the different classes is to serve administrative convenience by relieving the village of the burden of conducting a total review of the tax roll and instead permitting a piecemeal approach to reassessments. This approach lacks any rational basis in law and results in invidious discrimination between owners of similarly situated property.

The next and most significant New York decision was Nash v. Assessor of the Town of Southampton, 168 A.D.2d 102, 571 N.Y.S.2d 951 (2d Dep't 1991), where the town was held to have validly used reassessment on sale as part of a comprehensive reassessment system. For reasons set forth below, the court misunderstood what constituted a proper comprehensive reassessment system.

Failing to cite Allegheny decided just two years earlier, but citing various sister state decisions allowing multiple year or "cyclical" reassessment programs (which theretofore had never been attempted or allowed in New York), the court distinguished Krugman because:

[T]he town's reassessment of property was not limited to situations where the property was sold. Rather, as previously noted, reassessments were performed in 1 of 4 situations. Indeed, it is uncontroverted that under the town's land equalization program, all of the parcels within the town would ultimately be reassessed. Under such circumstances, the central question on this appeal is whether the purported delay in the reassessment plan worked an equal protection violation. This question is substantially distinguishable from the issue . . . in Krugman and that case is therefore inapplicable to the instant appeal.

But the Nash court did not consider that (1) the town had embarked on a cyclical reassessment program not authorized by New York state statute; (2) two of the four situations did not constitute reassessment; and (3) the improvements of all properties were never scheduled to be reassessed.

The four "reassessment" situations cited by the court were (1) reassessment on sale, which is uncontrovertedly a reassessment situation, and which, standing alone, had been proscribed by both Krugman and Allegheny; (2) subdivided property, which is not an instance of reassessment, but is the initial assessment of a newly created property; (3) property improved by new construction, which again is the initial assessment of a newly created property; and (4) a "land equalization program," which was at least a six-year project to reassess the land-only portions of properties. The assessor admitted that from 1983 to 1987, only 20,000 of the town's 45,000 parcels had been "land equalized."

Situations 2 and 3 are performed by every assessing unit whether or not there is a cyclical or a comprehensive reassessment program. Thus, the only reassessed parcels during the cycle were sold properties, whose total assessments (land and improvements) were reassessed and properties being land equalized over a period of time well in excess of six years, without the improvements being reassessed. The so-called comprehensive plan did not include the improvement portion of most parcels.

The court correctly held that reassessment on sale was only allowed where there is a comprehensive plan of reassessment, but completely booted the definition of a comprehensive plan.

Additional Rulings

Nash was followed by Feigert v. Assessor, Town of Bedford, 204 A.D.2d 543, 614 N.Y.S.2d 200 (2d Dep't 1994). The interesting twist there was that the sale took place in 1983 and the reassessment took place in 1991. The action challenging reassessment was "not time barred [by the eight year delay] as each tax year is separate and distinct from every other."

A group of decisions have emanated from Westchester County where assessors have often pushed the envelope on reassessment on sale. In DeLeonardis v. City of Mount Vernon, 226 A.D.2d 530, 641 N.Y.S.2d 83 (2d Dep't 1996), a recently purchased home received building permits for renovations. The homeowner argued that the $75,000 of improvements did not justify an assessment increase equivalent to $225,000 of value.

The City of Mount Vernon contended that it reassessed all properties that had received building permits. However, the assessor admitted that the resulting 52 percent increase in assessment was predicated on the purchase price. The Appellate Division, Second Department, held "the evidence support[ed] the petitioner's contention that the 1992 purchase price formed the basis for the resultant 1993 increase in assessed value" and remitted the matter to the assessor to make a new assessment taking into account only the value of the improvements.

Stern v. City of Rye, 268 A.D.2d 482, 702 N.Y.S.2d 100 (2d Dep't 2000), involved a similar situation where the assessment was increased from $15,100 to $32,450.

The court held that:

Here, the petitioners' properties were reassessed after recent improvements. However, rather than adding the value of the improvements to the prior assessment . . . the properties were reassessed to a comparable market value that included the value of the improvements. . . . Since no comprehensive assessment plan was in place to reassess the entire tax roll to reflect the comparable market value of all appreciated properties, those properties with recent improvements bore a discriminatory tax burden not imposed on similarly-situated properties that had also appreciated, but which had no recent improvements.

Selective Reassessment

A close cousin of reassessment on sale is "selective reassessment" of a portion of an assessing unit, often involving second home or waterfront properties that tend to appreciate faster than other properties. See Schwaner v. Collins, 17 A.D.3d 1068, 794 N.Y.S.2d 233 (4th Dep't 2005), where the Appellate Division upheld the cause of action of seven recent purchasers of lakefront homes in the Town of Canandaigua alleging an improper reassessment because their newly purchased properties were assessed at a larger percentage increase than other properties.

Another example of selective reassessment occurred where the author represented several thousand Fire Island homeowners. The Town of Islip in the earlier 1980s reassessed only the Fire Island portion of the town. The Nash case also came about from the Town of Southampton's attempts to increase its tax revenues from second homeowners.

Reassessment on sale is not entirely a downstate problem. See Gray v. Huonker, 305 A.D.2d 1081, 758 N.Y.S.2d 731 (Fourth Dep't 2003), where the City of Rochester increased the assessment of a newly purchased home by 74 percent and was held to have made an invalid "selective reassessment."

Justice Thomas Dickerson, who has jurisdiction of all tax certiorari cases in the Ninth Judicial District, has written extensively on selective reassessments. For a comprehensive review of the case law, see his July 13, 2005, decision in MGD Holdings HAV, LLC v. Assessor of the Town of Haverstraw, Index No 4725/04, denying summary judgment where the 2004 assessment of an apartment complex "mostly completed in January 2002" was increased. The 2003 assessment was for a completed building. The court held that the assessor had supplied a "factually reasonable explanation which meets the threshold" level of explanation recommended by the State Office of Real Property Services in 10 ORPS Opinions of Counsel SBRPS 60.

William D. Siegel is a member of Siegel Fenchel & Peddy in Garden City. He was counsel for the property owners in 'Nash' and for the amicus in 'Krugman.'

Endnotes: 1. The U.S. Supreme Court reversed this holding stating that "a taxpayer in this situation may not be remitted by the State to the remedy of seeking to have the assessments of the undervalued property raised. The ['Equal Protection Clause'] is not satisfied if a State does not itself remove the discrimination," U.S. at 346; 109 S.Ct. at 639.