"These assessment change notices are attributable to an
about face in the City's policy."

The new 2006/2007 tentative assessments were released on January 15 but, hardly out of the door, the New York City Department of Finance found it necessary to mail some 12,000 corrections to taxpayers, with the prospect of thousands more changes to come.

Reversal In Policy
Many of these assessment change notices are attributable to an about face in the City's assessment policy. this year the Department of Finance reassessed a subclass of residential properties consisting of buildings containing less than 10 residential units, known as classes 2A, 2B and 2C. In an attempt to bring greater equality within these three classes of property, the department reduced their equalization ratio to 15% from the 45% ratio used last year. The equalization ratio works like this: if a property's market value were $500,000, at the 45% ratio, the assessed value would be $225,000 with taxes of $27,891. At a 15% ratio, the assessment on the same property would be $75,000 and the tax $9,297.

The ratio reduction eliminated the growing disparity in taxes within class 2A, 2B and 2C properties and brought them closer to Class 1 properties, which have a 6% ratio. This disparity resulted from more than 20 years of assessments caps that limited property tax increases to 8% per year or 30% over five years. The caps caused high value properties to pay far less a percentage of market value than those properties located in poorer sections of the City.

The City's Law Department vehemently opposed the change in the equalization rate for class 2A, 2B and 2C residential property. They feared that the ration change for only some class 2 properties would violate the Real Property Tax Law, which provides that all property in a class be assessed at a uniform percentage of value. By creating a new ratio for some properties in class 2, it left the City vulnerable to a claim by large residential properties that they, too, were entitled to the 15% equalization ratio rather than the 45% used currently. The Law Department's point of view prevailed, but this decision came after the 15% ratio was applied and appeared on this year's January 15th assessment roll. This precipitated the massive change notice mailing.

Changes in Condominium Assessments
In yet another change in assessment policy, the Department of Finance altered the way they determined assessments for individual residential condominium units in the same building. The change involves how total assessment is allocated among the individual units in the building. In past years, the assessment was allocated based on the proportionate weight of the initial selling price of each apartment. For example, a two bedroom apartment on the 40th floor may have a selling price twice that of the same apartment on the second floor. Under the old policy the assessment for the 40th floor unit would be double that of the lower apartment. The new policy considers the percent of the total building occupied by each condo unit, called the percent common area factor. condo associations allocate maintenance expenses this way. The change leaves the taxes on both apartments at about the same level. The new policy only applies to condos assessed for the first time.

This change will decrease the large variances in taxes between the high-priced and lower-priced apartments. Therefore, high-floor apartments will have only a relatively smaller increase in assessed value than the same size apartments on the lower floors. The effect seems to raise the value of the high floors and depress the value of the low floors. Good news for some, bad news for others.

Changes in Exemption Levels
Under Industrial and Commercial Incentive Program rules, property owners can claim physical assessment deductions for the cost of new construction or renovation. For each property filing a physical assessment exemption, the Department of Finance has begun a new policy of looking up the Department of Buildings' permit filings to determine the estimated cost of construction or renovation stated by the applicant on the permit. Therefore, if an owner underestimated the cost of their alteration or construction on their initial Building Department permit, the Department of Finance will also underestimate the ICIP exemption, which applies for 12 years. Serious disagreements on this issue appear likely and assessment appeals may be the only route to achieve proper exemption levels.

The views expressed in this article are those of the author and not those of Real Estate Media or its publications.

Joel Marcus is a partner in the New York City law firm of Marcus & Pollack LLP, the New York City member of American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at jmarcus@marcuspollack.com.