New York's Cooperative and Condominium Community

Habitat Magazine December 2020 free digital issue

HABITAT

TAX PROFESSIONAL ON UNFAIR PROPERTY-TAX COMPARABLES

Tax Professional on Unfair Property-Tax Comparables

In 2011, the New York City Department of Finance (DOF) admitted that it had improperly used commercial-property rent numbers — rather than the figures for residential rents — to set tax valuations for co-ops and condos in northeastern Queens. Although citywide valuation taxes for most Class 2 properties — a classification that includes co-ops and condos — increased 7.98 percent, in northeastern Queens it was a different story: They went up in some cases by as much as 146 percent. Was this a simple error or something more? Was Queens the only affected borough, or did the problem extend into the others?

To find answers to these questions, Habitat's Carol Ott and Tom Soter talked with a prominent property tax professional, who made a targeted examination of "comparables" — i.e., the supposedly similar buildings that are used as a basis for the city's assessments. (New York State's Real Property Tax Law, Section 581, currently requires cooperatives or condominiums to be valued for tax purposes as if they were rentals. This means their values are derived from comparison with similar rental buildings.) What he found was not conclusive but certainly slightly damning: properties that have no commercial space are routinely paired with properties with commercial rentals. Whether this is done through incompetence, calculation, or a little bit of both is unclear, but the bottom line is that through its recent actions, the city has badly shaken the confidence of its residents. An edited version of Habitat's talk with our analyst follows. The tax professional requested anonymity.

 

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How pervasive is the problem of comparables not being accurate?

It's there. The problem is there. [The DOF] has to have the confidence of the taxpayer, [who needs to believe] that the [department's] actions are correct.

Is what happened in Queens the first time this happened?

No. But [it's never happened] to the extent that we saw in Queens.

Is there any reason for that?

There is a real lack of quality control in the [tax] assessor's office. At the beginning of [Mayor Michael] Bloomberg's administration, there were allegations that assessors were taking money and allegedly keeping the assessments of those buildings low. [Veteran] assessors were pretty much cleaned out of the department, and they really didn't bring a lot of new people in [to replace them]. They started relying a little bit more heavily on the computer. They also lost a lot of people to attrition, and they made a lot of deals for early retirement. The problem is that some of those who left were real good. There was a little bit more human oversight of the data than they have now. You can't just take what a computer spits out and apply it. You look back. What did you do last year? Buildings' [assessments] shouldn't be swinging dramatically upwards and downwards. You need to check by looking back and comparing this year with last.

The City is not doing that?

Not up until this point. [If they had been,] then we wouldn't have had what happened in Queens.

Do you feel less confident or comfortable with the city's assessments than you did a decade ago?

A decade ago you rarely saw the swings in assessments that are occurring now. There has been clearly an attitudinal change, which is: "We're doing things the way we want to do them. We don't care how they have been done in the past." Queens is a good example. [Finance Commissioner David] Frankel went out to all these meetings [of co-op tax protesters] and said, "You guys are all wrong! We did it right. There's nothing to talk about." And then the commercial comps came up. He went, "Whoops! I guess you're right!"

This sort of problem does or does not pertain to single-family houses?

It does not pertain because they have a cap [on increases] and their assessments are not derived from the capitalization of income. But the problem with these caps is that you create a situation of haves and have-nots. It's no longer an ad valorem tax. It's a political decision, and a lot of these caps and evaluations have virtually no relationship to what the real market values are. This goes on all over the city.

Next page: How much worse can it get for co-ops and condos? >>

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