"New York City and Nassau County tax rates
are so high because back in 1981, the state legislature
decided to preserve the high share
of the tax pie paid by commercial taxpayers."

Why are real property taxes in New York City and Nassau County so exorbitantly high? That's a good question considering New York State real property taxes, with the exception of New York City and Nassau County, generally conform to the notional norm of an effective tax rate - between 2% and 3% of full market value. However, the effective tax rate in New York City for commercial properties is 5.14% and for apartment, cooperative and condominium properties, the effective tax rate is 5.5%. Thus a $10-million property would pay $514,000 in taxes.

Effective tax rates in Nassau County are even more complex. In fact, the county has the dubious distinction of having the nation's highest tax rates. Unlike New York City with a single set of citywide rates for its four property classes, nassau County has over 1,000 sets of tax rates depending on the combination of town, school district and special districts in which a property is located. Effective rates for commercial properties generally differ on a North Shore versus South Shore asset, running as high as 8.32% in East Meadow and as low as 4.26% in Manhasset.

Elsewhere in the state, effective tax rates are much lower. For example, uniform tax rates in Whit Plains and the Routh 110 corridor in Suffolk county are 2.27% and 2.17%, respectively.

To understand tax-rate discrepancies throughout New York, one must recognize that effective tax rates and actual tax rates are different numbers. The effective tax rate is computed by multiplying the actual tax rate by a percentage of the full value at which properties are assessed. For example, if a municipality has a 5% tax rate and it assesses at 50% of its full market value, the effective tax rate for the property is 2.5%.

New York City and Nassau County commercial tax rates are so high because back in 1981, the State Legislature decided to preserve the high "share of the tax pie" paid by commercial taxpayers. At that time, legislation was enacted to circumvent the Court of Appeals' decision to enforce a 200-year-old requirement to ass properties at full value. This decision, together with appellate decisions allowing the use of State equalization rates as a relatively cheap and efficient method of proving the ratio of assessed value to full value, gave commercial property owners the ability to win assessment cases and threatened to bankrupt New York City and Nassau County.

The legislature then enacted a statute entitled "Preservation of Class Shares of Taxes in Municipal Corporations... and Limitations of Increases in Assessments Therein." Basically the statute claimed that uniformity of assessment ratio or tax rates were no longer legally required in New York City and Nassau County. The statute also stated that discrimination between property classes, when assessing value, was against the law.

Class shares of taxation were preserved as they previously existed, even though up to that point it was illegal to assess and tax different classes of property in a non-uniform manner. the legislation also created four property classes that were to be assessed at different ratios and taxed at different rates. Thus, if all four classes of commercial properties in the city of county had paid 40% of the total tax burden under the previously illegal de facto assessment system, the properties would still pay the same 40% in future years, subject to certain minor modifications which only increased the share of taxes for commercial properties. Anyone doing the arithmetic can see that higher non-uniform tax rates can reduce the value of commercial properties by 33% or more.

Efforts to change this burdensome system continually fail because of two factors. First, residential voters vastly outnumber commercial property owners. Therefore it is political "wisdom" to reduce residential owners' taxes by 20% and make up the lost revenue by doubling or tripling commercial property taxes. Second, while "equal protection under the law" would seem to require equality in taxation that is not the case. Equal protection strictly applies to racial, religious or gender discrimination, but has little application to the apportionment of taxes. To date, actions challenging this system have all failed.

William D. Siegel is a senior partner in the law office of Siegel Fenchel & Peddy PC and the New York State member of the American Property Tax Counsel. He can be reached at wds@nytaxappeal.com