Rose, of the Manhattan-based Herb Rose Consulting, works with condos and co-ops to file the proper paperwork with a building's utility provider, such as Con Edison, to change a building's status from commercial to residential as it pertains to the sales tax. He also files the correct documents with the state Division of Taxation to secure refunds for overpaid taxes, taking a percentage as a commission. He says refunds can only cover three years and that generally he secures between $1,500 and $3,000. In one case, he said he won a $20,000 refund for a client.

While it's possible for boards or managing agents to file the paperwork themselves, he says, it's a time-consuming and complicated process. "My personal suspicion is that it's been made so complicated that a lot of people just won't do it," says Rose, who estimates that he works with about a dozen co-ops or condos a month on this issue.

A Widespread Problem?

Michael T. Lockhart, president of American Utility Consultants, a firm that does utility audits for residential, commercial and industrial properties, says he hasn't encountered this issue frequently with his condo and co-op clients. "I've been in this business for 20 years, and I don't see it as a widespread problem," says Lockhart — who nonetheless adds that he's known of buildings paying commercial sales tax when they should have paid residential. On several occasions, he notes, it occurred at buildings that had been converted from hotels.

Several managing agents report that they had never heard of the problem before. Lynn Whiting, director of management at the Argo Corporation, now says she will look into the matter. The reason? She pulled the Con Edison bill for one of her buildings, a 100-unit co-op on the Upper West Side, and discovered it was paying nearly 10 percent sales tax on utilities, despite the fact that it had no commercial space.

To check what sales tax rate your building is paying, take a close look at your utility bill. A building considered to be commercial pays 8.875 percent sales tax on utilities. That's a 4 percent state sales tax, New York City's 4.5 percent sales tax, and a 0.365 percent Metropolitan Commuter Transportation District sales. A residential building only the 4.5 percent.

What to Do when You're Overcharged

If you discover you're being charged at the commercial rate, you then need to determine if your building should be considered residential. You'll need the state taxation form TP-385. If 75 percent or more of the space is for residential use, then your co-op or condo building is considered to be residential.

But even if less than 75 percent is residential, you can still get a discount. Indicate how much of the space is residential, to the nearest 10 percent, and then you can pay the correct rate on that amount. According to spokeswoman Sara Banda, Con Edison does not track how often buildings file the form to change from commercial to residential.

If you've determined that you've been overpaying sales taxes, the next step is to seek a refund from the state. Rose says the most crucial part of this process is to include the documentation required to prove you overpaid. This means not only the first page of your utility bill, which shows the total dollar amount, but also the other pages, which includes the tax rate. The TP-385 form indicates that you'll also need proof that you paid the bill and that all documentation must "clearly identify the purchaser," i.e. the condo or co-op seeking the refund.

From December 2008 to November 2009, a total of 1,049 claims for sales tax refund were made statewide, reports the state Department of Taxation and Finance, which also notes that the state paid out $4,051,802 in claims during that period. Spokeswoman Susan Burns says those claims were made by condos, co-ops, rentals and occasionally nursing homes. She adds that it's unclear whether those claims include those made for reasons other than buildings being mistakenly listed as commercial.

Whatever the case, you now have the power, so to speak, to unplug the overcharges.

Adapted from Habitat February 2010. For the complete article and more, join our Archive >>