UPDATED september 2023

Oregon Taxation of Delta Airlines Intangible Property Unconstitutional

In Oregon, centrally assessed properties have historically been subject to assessment of their intangible property. While locally assessed properties are statutorily exempt from taxation of intangible property, which includes a business’s work force, customer lists, patents, trademarks, trade secrets, goodwill, and contacts. 

In a significant decision, the Oregon Tax Court concluded that this statutory scheme, the taxation of intangible property listed for centrally assessed businesses, violated the Oregon Uniformity Clause and the federal Equal Protection Clause. The opinion was specific to Delta Airlines, because the court found no genuine differences between Delta’s (taxable) use of intangible property in its transportation business and the (exempt) use of intangible property in road transportation businesses or other businesses that rely on a network of property. How the court will later interpret “other businesses that rely on a network of property” is yet to be seen.

In this same decision, the court rejected the PacifiCorp’s regulated utility challenge because the court found genuine differences between PacifiCorp’s (taxable) use of intangible property in its business as a regulated public utility and (exempt) uses of intangible property in non-regulated businesses. Additionally, the court concluded the legislature could have determined that taxing the value of intangible property of a utility compliments the regulatory scheme by redistributing for public purposes some value that accrues through regulated operation that would otherwise be inure to investor-owners. 

As of the date of this writing, the Department of Revenue had not appealed this decision.

Delta Air Lines, Inc. v. Dep't of Revenue, No. TC 5409, 2023 WL 5425246 (Or. T.C. Aug. 23, 2023).

Cynthia M. Fraser
Foster Garvey PC
American Property Tax Counsel (APTC)

UPDATED march 2026

Pennsylvania Appeals Court Finds School District's Selection Scheme Violated Uniformity Principles

In a case stemming from a 2012 appeal, the Pennsylvania Commonwealth Court recently held that a School District's selection scheme violated the Pennsylvania Uniformity Clause where it intentionally excluded single-family residentially properties from consideration for tax assessment appeals, which was apparent in its written policy.

In Upper Merion School District v. King of Prussia Associates, the Court considered the legality of Upper Merion School District's appeal selection policy wherein it stated that "only under unusual circumstances, and with the approval of the Board, shall a property with an assessment of $500,000 or less be considered for a district-initiated assessment appeal."

The record in the case was replete with references that the school's policy would specifically  target commercial and/or industrial properties, and even preclude residential properties. The School District argued that its monetary threshold was proper and had been approved in Coatesville Area School District v. Chester County Board of Assessment. The Court, however, discerned that unlike in Coatesville, there were specific factual determinations in the record that the School District had zeroed-in on commercial properties and that the policy was largely designed to carry out that purpose. 

The Court's ruling corrobates the Supreme Court's 2017 decision in Valley Forge Towers, which affirmed that all real estate is a designated class entitled to uniform treatment, and thus a taxing authority is not permitted to implement a program of only appealing the assessments of one sub-classification of property. 

Christina Gongaware Noga, Esq.
Siegel Jennings, Co., LPA
American Property Tax Counsel (APTC)

Updated December 2022

File an account to protect your right of appeal

Now is the time for Rhode Island taxpayers to preserve their right of appeal for Tax Year 2023 by filing an account with the local assessor. In most jurisdictions the Tax Year 2023 tax bill will be sent out during the summer of 2023. The Tax Year 2023 tax bill has a valuation or assessing date of December 31, 2022. In most cases the filing of a valid account by January 31, 2023, is a prerequisite to a valid appeal. The account must describe the property, claim a value of the property, and be signed under oath and notarized. Occasionally the assessors do not send out account forms or the form may omit a section on real estate. It is incumbent upon the taxpayer to seek out a form and add a section for real estate if needed and properly complete and file it. It is acceptable for a taxpayer to construct his own account form, but it must include all required information and be signed under oath, notarized, and filed timely.

David G. Saliba
Saliba & Saliba
American Property Tax Counsel (APTC)

UPDATED december 2025

Truth in Taxation Explained

There is often confusion among taxpayers surrounding Tennessee’s “truth in taxation” statutes.  The statutes require assessors to certify the “total assessed value” of taxable property, new construction and improvements not on the previous tax roll and deletions from the tax roll within the jurisdiction to the governing body of the jurisdiction.  The governing body must then certify a tax rate “which will provide the same ad valorem revenue for that jurisdiction as was levied during the previous year.”  In other words, if total assessments go up, the tax rate must come down. 

This provision leads many taxpayers to mistakenly believe that overall property taxes cannot increase.  Unfortunately for taxpayers, these statutes do not prevent a taxing jurisdiction’s ability to increase both the tax rate and assessments in the same year.  The statutory exception that makes this “double-dip” possible provides that any governing body may levy a greater tax rate so long as it (1) advertises its intent to exceed the certified rate in a newspaper for 30 days, and (2) adopts a resolution levying a tax rate in excess of the certified tax rate. 

This exception swallows the rule.  Taxing jurisdictions may merely give lip service to maintaining the status quo while being free to raise tax rates and assessments in the same year.  This is authorized by law despite the potential windfall to the government and hardship on the taxpayers.  A taxpayer’s only real protection is to challenge the value of their property if they believe it is overvalued.

Andy Raines
Evans Petree PC
American Property Tax Counsel (APTC)

Updated March 2026

Texas Property Tax Updates

This quarter, Texas saw a fresh round of legislative changes and court rulings shaping property tax law. Following the 2025 legislative session, meaningful reforms began on January 1, and simultaneously notable appellate decisions were released, both of which will impact property owners, businesses, and appraisal districts statewide. From exemption eligibility to valuation procedures, the Texas property tax landscape is shifting. Below are the top developments from the 2025 Legislative Session and the latest court opinions from early 2026.

1.   Business Personal Property Exemption Increase and Reporting Relief

This year’s legislative updates are all about making life easier for Texas businesses. Lawmakers have rolled out major changes to business personal property taxes: exemptions are bigger and reporting is simpler. House Bill 9 increases the business personal property exemption from $2,500 to $125,000 through its amendment of Section 11.145 of the Texas Property Tax code. And it relieves some small business owners from filing yearly rendition statements reporting the value of their personal property though its amendment of Section 22.01. This is a meaningful change.

In Texas, each year property owners are required to file yearly renditions reporting all personal property they use in the production of income. Now, under amended Section 22.01 an owner is only required to file yearly renditions if “in the person’s opinion . . . the aggregate market value of the property” is greater than $125,000. Tex. Tax Code § 22.01(j-1). If it is less, then the owner only is required to file one rendition statement that “includes a certification that the person reasonably believes that the value of the property” is not more than $125,000. Tex. Tax Code § 22.01(j-3). And importantly, once that certification is filed, no additional statement (or yearly report) is required until ownership changes, the chief appraiser requires it, or the owner subsequently acquires property that causes their aggregate property to be valued more than $125,000. Id. This is a huge administrative relief for small business owners.

Of course, these new rules aren’t without their quirks: there are still questions about how the expanded exemption applies. Specifically, the statute increases the exemption amount to $125,000. But what does that mean in the context of this statute? The statute states that the $125,000 applies “to each separate location in a taxing unit in which a person holds or uses tangible personal property for the production of income.” Tex. Tax § 11.145(c). And then goes on to state, “all property that has taxable situs in each separate location in the taxing unit is aggregated to determine taxable value.” Id. This raises an unresolved interpretive question that should be noted — does each separate business location receive its own $125,000 exemption; or is the exemption applied once per taxing unit?

For example, if a business owns and holds personal property at two separate addresses located within the taxing unit of Dallas Independent School District, does the business receive a $250,000 exemption — two $125,000 exemptions (one at each address) — or does the business receive one $125,000 exemption covering both addresses? Guidance on this topic has not been uniform between Texas Appraisal Districts, and further clarification may be necessary through litigation, but time will tell. Either way, this is a big, meaningful development in Texas.

2.   Business Personal Property Deadlines, Penalties, and Procedural Reforms

In addition to expanding exemptions and reducing reporting requirements, the Legislature also took aim at one of the most common—and costly—problems facing Texas businesses: harsh penalties tied to missed deadlines for personal property exemptions. For many taxpayers, particularly those with mobile or high‑value assets, the prior penalty structure could produce results that felt wildly out of proportion to a business’s actual tax liability.

Under prior law, if a business missed the deadline to apply for a Freeport or interstate allocation exemption, the penalty was calculated as 10 percent of the difference between the tax owed with the exemption and the tax owed without it. While this may sound reasonable at first glance, in practice it often led to extreme outcomes.

For example, consider an aircraft valued at $50 million. After applying the interstate allocation formula, only $250,000 of that value might be taxable in Texas. At a 2 percent tax rate, the correct tax bill with the allocation would be just $5,000. Without the allocation, however, the tax would be $1,000,000. Under the old penalty structure, the “difference” between those two numbers was $995,000, and a late‑filing penalty of 10 percent meant a penalty of $99,500—almost twenty times the amount of tax actually owed.

The Legislature corrected this disconnect through Senate Bill 1352. Under the new law, the penalty for filing a Freeport or interstate allocation exemption late is capped at 10 percent of the tax owed after the exemption is applied, not 10 percent of the tax savings. Using the same example, the penalty would now be $500, bringing the total tax bill to $5,500 instead of $104,500. This change dramatically reduces risk for businesses and ensures penalties remain tied to the actual tax liability, not a hypothetical one.

Senate Bill 1352 also simplified the filing process by aligning deadlines that previously required separate tracking. When a business requests—and receives—the standard extension to file its business personal property rendition until May 15, the deadlines for the Freeport exemption and interstate allocation application are now automatically extended to May 15 as well. Under prior law, businesses often assumed those deadlines moved together, only to learn too late that a separate extension request was required. This automatic alignment removes a common compliance trap and makes the process far more predictable.

Together, these changes substantially reduce the financial and administrative risk associated with filing business personal property exemptions. While businesses still need to be mindful of deadlines, the consequences of an honest mistake are no longer disproportionate, and the overall process is more forgiving and easier to manage.

 3.   Timely Payment and Jurisdiction in Tax Appeals

Two recent Houston‑area appellate decisions squarely address a real‑world problem in property tax appeals: what happens when a taxpayer timely puts a tax payment in the mail, but the envelope is postmarked after the February 1 delinquency date. In both cases—Harris Central Appraisal District v. LXMI Copper Cove Property Owner, LLC and Harris Central Appraisal District v. LXMI Ashford Pointe Property Owner, LLC—the appraisal district argued that the postmark date was controlling and established that the payments were untimely, depriving the trial court of jurisdiction over the appeal.

The underlying facts in the two cases were very similar. In each, the taxpayer hired a third‑party tax agent to handle payment. The agent submitted an affidavit swearing that the required tax payments were physically delivered to the post office and deposited in the mail on January 31, before the statutory delinquency date. In both cases, however, the tax office allegedly received the payments later. In the Ashford Pointe case, the envelope itself was postmarked February 1, while in Copper Cove the payment was not received until February 17. Both payments followed a period of severe winter weather affecting mail operations.

Harris Central Appraisal District (HCAD) took the position that the postmark date was dispositive—and that a postmark on or after February 1 automatically meant the payment was untimely. The courts rejected that argument. Instead, they focused on what the Tax Code actually requires: a taxpayer can establish timely payment by showing the payment was properly addressed, postage prepaid, and deposited in the mail before the deadline, even if the postmark reflects a later date.

In both cases, the courts held that the taxpayers met that burden. The affidavits from the tax agent, together with supporting documents such as check copies, payment records, and evidence of mail service delays, were sufficient to raise a fact issue that the payments were mailed on January 31.

Just as significant was a procedural lesson embedded in both decisions. HCAD attempted on appeal to challenge the affidavits and supporting evidence by arguing hearsay and lack of personal knowledge. The courts made clear that those objections are considered defects of form, not substance—and because HCAD did not timely object to the evidence in the trial court or obtain rulings on those objections, the arguments were waived. With controverting evidence of timely mailing in the record, dismissal for lack of jurisdiction was improper due to an unresolved fact issue.

The takeaway from these cases is practical and important. A late postmark is not automatically fatal to a property tax appeal. Taxpayers can carry their burden by proving that payment was actually deposited in the mail before February 1, even if the postmark shows otherwise. At the same time, appraisal districts that believe affidavits or documentary evidence are unreliable must raise those objections promptly in the trial court—waiting until appeal is too late.

 4.   Exemptions, Corrections, and Administrative Exhaustion

Two appellate decisions from the Corpus Christi court this quarter serve as an important reminder that how a taxpayer raises an issue can be just as important as what issue is raised. Both cases reinforce long‑standing principles in Texas property tax law: exemption claims must follow the proper administrative path, and courts will enforce those procedural requirements even where the underlying tax issue may be substantial.

In Molina v. QET Aircraft Services, LLC, the dispute centered on whether aircraft owned by the taxpayer were exempt from taxation. Rather than protesting the denial of the exemption through the traditional administrative process under Chapter 41 of the Tax Code, the taxpayer attempted to challenge the assessment through a motion to correct the appraisal roll under Tax Code § 25.25(c)(3). That provision allows limited corrections for clerical errors or property listed in the wrong form or location, but it is not a substitute for an exemption protest.

The court made clear that exemption determinations must be raised through timely Chapter 41 protests and decided by the appraisal review board before a court can review them. Because the taxpayer did not follow that process, the trial court lacked jurisdiction over most of the claims. The court also rejected an attempt to frame the dispute as an ultra vires action against the chief appraiser, explaining that determining whether property is taxable or exempt involves the exercise of statutory discretion—not conduct outside legal authority. In short, even if a taxpayer believes an exemption clearly applies, failure to exhaust administrative remedies will prevent judicial review.

By contrast, San Patricio County Appraisal District v. Vitol, Inc. addressed a substantive exemption issue that was properly presented. In that case, the appraisal district challenged a ruling holding crude oil inventories exempt from ad valorem taxation because they had entered the “stream of export.” The appellate court reaffirmed that property in the stream of export is constitutionally immune from state taxation under the Import–Export Clause. The appraisal district’s arguments focused largely on procedural and discovery complaints, but the court rejected those arguments as either waived or harmless and affirmed the exemption.

Taken together, these cases illustrate two sides of the same coin. On one hand, courts will strictly enforce procedural rules governing how exemption claims must be raised and preserved. Motions to correct appraisal rolls are narrow tools and cannot be used to sidestep the protest process. On the other hand, where exemption issues are properly presented, courts will not hesitate to enforce well‑established constitutional protections—even in cases involving high‑value inventory.

Kendal L. Carnley
Gray Winston & Hart
American Property Tax Counsel (APTC)

updated june 2022

Proposed Changes to Assessment Appeal Process

In the District of Columbia, the assessment appeal calendar was designed for taxpayers to complete the two-level administrative appeal process prior to the payment of their property taxes. As a result, taxpayers often pay lower property taxes in the first instance as a result of successful administrative appeals, instead of paying higher taxes and then challenging the assessment through an administrative appeal.

The Office of Tax & Revenue (“OTR”) in the District of Columbia has recently proposed significant changes to the administrative appeal calendar, which is governed by the D.C. Code. Although proposed assessments are currently issued by March 1st each year, under OTR’s proposal, new assessments would be issued later in the calendar year. OTR’s justification for the change is that this would purportedly allow the assessors time to review the property’s most recent financial data that is reported annually through the Income & Expense report filing prior to the issuance of the assessment.

OTR's proposal suffers from serious flaws that would weaken the current protections provided to taxpayers. First, issuing assessments later in the year would necessarily push back or truncate the administrative appeal process. This would either result in a compressed administrative appeal calendar that does not provide the opportunity for sufficient review of taxpayers’ claims, or it would place taxpayers in the unenviable position of paying property taxes prior to the issuance of a decision on their administrative appeal. Second, diminishing the effectiveness of the administrative appeal structure that is currently in place would lead to additional appeals filed in D.C. Superior Court and burden the court system with appeals. Third, OTR alleges that its proposal would result in more “accurate” assessments. In our experience, however, more “accurate” assessments from OTR mean an unjustified increase in taxpayers’’ liability.  

In sum, the D.C. Code’s administrative appeal process was carefully crafted to provide a robust administrative appeal process for taxpayers, and there is no legitimate justification for tinkering with the current appeal calendar.

Wilkes Artis, Chtd.
American Property Tax Counsel (APTC)

Updated March 2025

Wisconsin Tax Appeals Commission Rejects State’s Attempt To Divest It Of Jurisdiction Over Large Tax Appeals

In a decision issued on March 11, 2025, the Wisconsin Tax Appeals Commission rejected an attempt by the Wisconsin Department of Revenue to divest it of subject matter jurisdiction over a large group of manufacturing assessment appeals involving millions of dollars in value.

The jurisdictional statute (Wis. Stat. 70.995(8)(c)1) states that objections to manufacturing assessments must be made “on a form prescribed by the department of revenue that specifies that the objector shall set forth the reasons for the objection … and the basis for” the objector’s opinion of value. The appeal form the Department of Revenue created under this statute includes a section for the objector to provide these two pieces of information. That section contains two adjacent boxes, one designated for the reason for the taxpayer’s objection and the other for the basis of the taxpayer’s opinion of value.

In the appeals in question, the taxpayers’ agent had placed text encompassing both pieces of information in the first box and left the second box blank. The State argued that leaving the second box blank per se divested the Commission of subject matter jurisdiction irrespective of whether all the required information was in the other box or elsewhere on the form.

The Tax Appeals Commission firmly rejected the State’s position, holding that as long as a taxpayer provides all the information required by the statute on the Department’s form the taxpayer has satisfied the jurisdictional requirement, whether or not the taxpayer has placed text in every box. The Commission’s decision was unusually harsh, finding one of the Department of Revenue’s arguments to be “frankly ridiculous,” and admonishing the Department to “restrain itself from making such frivolous and overreaching arguments” in future cases.

The case is Badger Mining Corporation and Smart Sand, Inc v. Wisconsin Department of Revenue.

Bryan J. Cecil
Hansen Reynolds LLC
American Property Tax Counsel (APTC)

Whether a business is a seniors housing facility, a racetrack or other service-oriented operation - or even a manufacturing plant - part of the business’ value may be intangible and exempt from property tax. Recent court cases underscore this critical premise and provide valuable reference points for taxpayers struggling against unfair tax practices.

Local governments in all states have authority to impose property tax on the value of real estate. Local governments in all but seven states also impose property tax on the value of at least some tangible personal property, or property that can be moved, such as equipment.

But in most states, local authorities are prohibited from taxing any additional value of a business as a going concern, meaning value attributable to a brand, reputation for product quality, intensive management, licenses, contractual rights, proprietary technology, and other intangible assets.

For example, if a manufacturing plant receives additional revenue because it packages items with a well-known brand’s label instead of a generic one, that brand is an intangible asset. In numerous cases it has been seen that the value of intangible assets equal or exceed the value of the taxable property. Whatever the business, removing intangible assets from the property tax bill is key.

California tests intangibles

Some states provide clearer guidance than others on identifying and quantifying intangible assets. California, in particular, has been a hotbed of controversy over the treatment of intangibles in valuation for tax purposes lately.

Stephen Davis, a partner in the Los Angeles law firm of Cahill, Davis & O’Neall, summed up the latest developments during a presentation at the Seattle Chapter of the Appraisal Institute Fall Real Estate Conference in October by saying that major cases in the last two years capped two decades of controversy. He should know, since his firm was counsel of record in the SHC Half Moon Bay vs. County of San Mateo case, decided in May 2014. Davis commented that the result of this new case law has been “a few new controversies instead of a clean resolution,” but much was resolved favourably for taxpayers and provided helpful lessons that should apply anywhere in the nation.

The main takeaway from California’s recent cases is the importance of an appraisal of each intangible asset in order to deduct that value from the overall business value.

In SHC Half Moon Bay vs. County of San Mateo, the four-star Ritz Carlton Half Moon Bay Hotel proved that the assessor inappropriately included in the hotel’s taxable value approximately $2.8 million of exempt value attributable to its workforce and to contractual rights involving a parking lot and golf course. Granting a significant victory to taxpayers, the appeals court made clear that merely subtracting franchise fees from the value indicated by the income approach to value did not account for the value of the hotel’s franchise rights and other goodwill.

What does that mean for taxpayers? Under this case, an appraisal that provides evidence of the value of each intangible asset should result in removing those intangible values from property tax assessments. The reasoning espoused in this decision from California should apply in any state where intangible property is exempt from property tax.

For example, just last year the Montana Supreme Court declared invalid a Montana Department of Revenue regulation that attempted to narrow that state’s broad exemption for intangibles, such as by requiring valuation of goodwill only by the accounting method.

A growing volume of cases argues for valuing the intangible assets of a wide range of businesses by using generally accepted appraisal practices, bolstering the position of taxpayers defending themselves against unfair taxation of those assets.

Source URL: http://nreionline.com/tax-strategies/recent-cases-affirm-tax-exempt-status-intangible-valueRecent

Norman J. Bruns and Michelle DeLappe are attorneys in the Seattle office of Garvey Schubert Barer, where they specialize in state and local tax. Bruns is the Idaho and Washington representative of American Property Tax Counsel, the national affiliation of property tax attorneys. Bruns can be reached at nbruns@gsblaw.com. DeLappe can be reached at mdelappe@gsblaw.com.

Taxpayers and tax professionals researching market conditions to determine fair market value should consider any impending government actions. Even a rumor of a government project that would require acquisition of a property through eminent domain, or would impose restrictions on future use, can reduce the property's market value and taxable value.

Property values begin to suffer even before community leaders approve the final plans or begin work on such a project. That's because the belief that the project will occur places a cloud on the property owner's ability to sell and on the price attainable in a sale.

A potential buyer would be reluctant to acquire a property that will be involved in future condemnation litigation, with its inherent costs and delays, nor would a buyer welcome the uncertainty that those plans place on the property's future use.

The government taking may not involve acquisition of the property as a whole. Rather, it may remove some rights of use through restricting zoning, creation of conservation corridors or the diversion or rerouting of traffic, for example.

The property value declines because the wheels are turning to take away some of the rights of ownership, perhaps as much as 100 percent of those rights. The property owner carries the burden of convincing the taxing authority of diminished value resulting from rumored or pending acts of government.

Fair market value determinations must match reality. A title search would not reveal the threat of a government taking, but the valuation process cannot assume clear title in the face of the cloud imposed by the contemplated taking of some of the owner's bundle of rights.

An array of public improvements has the potential to affect property values, with an equally wide range of implications for taxable value. "They sky is falling because a highway is coming through here someday" is at the extreme, but other property owners may learn of the future imposition of a conservation easement on coastal properties, or a restriction on land use, allowable sign dimensions, or other rights. Any of these limitations would have a direct and immediate effect on value.

Calculate the damage

When the reality of a government action hits, it may take up to 100 percent of the property's fair market value. The taxpayer should weigh the seriousness of the threat and the probability and timing of it actually occurring. Then the taxpayer should measure the weighted estimate against the value of the property without the threat.

If the property is in "the path of progress," questions to consider in determining its value are: Who will buy it? What is its anticipated economic life? And what purpose will it serve?

First, determine the seriousness of the threat. What is the likelihood of it occurring? Next, calculate the remaining life of the present use of the property in the face of the impending government action. If it is going to happen, when will that be?

In the case of projected highway takings, the probability is high. Once announced, the highway's completion is almost assured. The present use has a limited and uncertain life.

Market observations show that buyers avoid properties in the path of progress. The development of a highway project is a time-consuming process that can hang over a property for years, suppressing value.

Another diminishing value aspect of an impending road taking is that the property/s neighbors may defer, or altogether cease, to maintain their properties, a condition sometimes called "condemnation blight." Broken windows won't be replaced, leaking roofs won't get patched and buyers won't buy. Buyers will purchase, however, a competing property unthreatened by condemnation.

Regulatory threats

Anticipated or threatened taking for regulatory reasons likewise diminishes market value. Suppressed industrial expansion is one example, such as when a local authority announces it doesn't want noise or the use of industrial-use pollutants in proximity to a new residential development.

The force of regulation frequently drives industrial uses away from new residential development or expanding metropolitan uses. Community leaders may deem junkyards or outdoor storage undesirable and force those uses away. Forcing such uses away from the metropolitan area threatens future use of local properties, and therefore limits property value.

Taxpayers need to help taxing authorities understand that the portion of the government that weakens property values by taking away property rights should suffer the resulting loss of property taxes.

Jerome Wallach is the senior partner in The Wallach Law Firm based in St. Louis, Missouri. The firm is the Missouri member of American Property Tax Counsel, the national affiliation of property tax attorneys. Jerry Wallach can be reached at jwallach@wallachlawfirm.com.

The future of New York City's 421-a tax exemption is highly uncertain, particularly in light of the election of Mayor Bill de Blasio, whose initiatives appear to call for sweeping changes to the program.

The 421-a program, which is scheduled to expire on June 14, 2015, provides substantial real estate tax exemption benefits for the developers of new multifamily buildings. Currently, the city determines the level of exemption provided to an eligible building under 421-a; that determination is based on a geographical and functional basis.

That could change under de Blasio's proposed "Five-Borough, 10-Year Plan." The proposal, relating to the creation or preservation of 200,000 units of affordable housing, frequently references the 421-a program, alluding to its future presence in the real estate market.

The city created the 421-a program in 1971 to encourage multifamily construction by granting a partial tax exemption for the property owner. In 2008, changes to the program had a prospective effect on 421-a projects. These modifications included a dramatic expansion of the Geographical Exclusion Areas (GEA), in which properties must meet additional requirements to qualify for an exemption. The amended laws eliminated as-of-right, or automatic, benefits for new multifamily construction throughout Manhattan. In addition, significant sections of the outer boroughs became part of the GEA, effective for buildings that commenced construction after June 30, 2008.

The law created exceptions for projects within the GEA to obtain a tax exemption. To qualify, at least 20 percent of the units must be affordable to families whose income at initial occupancy does not exceed 6o percent of the area median income adjusted for family size. In addition, projects located in a GEA could qualify for benefits via the purchase of negotiable certificates. Under the negotiable certificates program, affordable housing developers can sell negotiable certificates to market-rate developers, who use the certificates to access tax abatements.

Hints of Change

Based on Mayor de Blasio's proposal, the percentage of affordable housing required per project may increase to provide for more affordable units.

The proposal highlights the establishment of a new, mandatory Inclusionary Housing Program, which will serve a broader range of New Yorkers with varying income levels. The Inclusionary Housing Program offers an optional floor area bonus to developers of new residential buildings, in exchange for the creation or preservation of affordable housing.

The new residential housing can be onsite or offsite, so long as it is within the same community board jurisdiction or within a half-mile radius of the site receiving the floor area compensation. The program seeks to promote economic integration in areas of the city undergoing significant new residential development. In order to qualify under the current Inclusionary Housing Program, the affordable units must be affordable to households at or below 80 percent of the area median income.

In contrast to the current Inclusionary Housing Program, some observers speculate that the mayor's proposed program would require all developers to put aside at least 20 percent of their units for low-income families. These units would then remain permanently affordable.

Currently, developers are able to layer 421-a benefits on top of inclusionary housing benefits, therefore allowing developers to take advantage of both programs. By allowing this double-dipping of benefits, the city creates a greater incentive for developers to provide onsite affordable housing.

However, de Blasio's plan may change the way developers use multiple subsidy programs together. The proposal states that in situations where a developer pursues multiple subsidies, the city will increase the percentage of affordable units required for eligibility and/or require that the developer provide deeper affordability.

No automatic exemptions?

Some observers have speculated that the mayor's plan may expand the GEAs of the city and reduce, if not completely eliminate, any as-of-right areas for 421-a construction. As Manhattan is already a GEA, this proposal would affect those areas in the outer boroughs that were not classified as GEAs in 2008. Moreover, developers in the expanded GEAs would be required to provide a higher percentage of affordable units (some proposals call for as much as 50 percent affordability) and offer apartments to families at 40 percent to 50 percent of area median income.

Proposed changes to the program also include eliminating some of the strict requirements that developers must meet in order to receive a 421-a Certificate of Eligibility. For example, under the current program, a qualifying property must meet one of the following three conditions:

• All affordable units must have a comparable number of bedrooms to the market rate units, and a unit mix proportional to the market rate units. Or
• At least go percent of the affordable units must have two or more bedrooms, and no more than go percent of the remaining units can be smaller than one bedroom. Or
• The floor area of affordable units is no less than 20 percent of the total floor area of all dwelling units.

Mayor de Blasio's proposal seeks to modify or eliminate what the administration terms inefficient regulations," since existing requirements may force developers to build larger units than the market dictates.

Overall, the filing process to receive a Certificate of Eligibility is time consuming, due to regulations such as the unit distribution requirement. Mayor de Blasio's proposal states that it seeks to "streamline the 421-a program, improving its usefulness to developers and its ability to promote affordability, by eliminating outdated and unnecessary programmatic, eligibility, and oversight requirements."

Joel R. 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 (APTC), the national affiliation of property tax attorneys. He can be reached at jmarcus@marcuspollack.com.