Bill Morris in Legal/Financial on March 24, 2022
Under a proposed new rule, the co-op and condo tax abatement will remain available only in buildings where service employees are paid the prevailing wage — and only to shareholders and unit-owners who use their apartments as their primary residence. The rule change has led to serious number crunching among the city’s 4,000 affected co-op and condo boards. It has also led to confusion.
“We’re getting a lot of questions from boards that have security guards and cleaners and other employees hired through third-party contractors,” says Ira Meister, president of Matthew Adam Properties. “They want to know if these outside workers are exempt from the prevailing-wage requirement.”
The answer to the question is contained in the Department of Finance’s (DOF) nine-page explanation of the proposed rule change. It ends with this: “The obligation to pay prevailing wage applies to any building service employee who performs building services at a designated property regardless of whether the owner of such designated property employs such employee.”
Translation: boards that contract with third-party companies for service employees must ascertain that those employees are being paid the prevailing wage if the board wants to continue receiving the property tax abatement.
“Otherwise, everybody would hire third-party employees to get around the rule,” says Benjamin Williams, a member of the law firm Rosenberg & Estis who specializes in property tax law. “The city was smart enough to say you can’t do that. The city’s saying that if a building is going to get this tax break, it has to give up something.”
Drew Donovan, a CPA who is chief operating officer at Choice New York Management, is advising his board clients that in order to continue receiving the tax abatement, they must be prepared to prove that their third-party employees are paid the prevailing wage. “You need a formal agreement that affirms the contractor is paying prevailing wages,” Donovan says. “My recommendation is don’t pretend you didn’t know they weren’t paid the prevailing wage and supplemental benefits. It will come back on you.”
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The property tax abatement, which ranges from 17.5% to 28.1%, is available in buildings with an average per-unit assessed value of $60,000 or less, in buildings with an average per-unit assessed value between $60,000 and $100,000 and fewer than 30 dwelling units, and in buildings that submit a notarized affidavit by April 15 attesting that they will pay prevailing wages for the duration of the abatement. The prevailing wage, set annually by the city Comptroller, is the pay and supplemental benefits received by workers in the same trade or occupation. Two bills before the state Legislature seek to make the abatement unavailable to owners of apartments assessed at $200,000 and above. (Assessed value is used to compute property taxes and is a fraction of market value.)
The confusion over the rule change doesn’t stop with questions about third-party employees. The abatement will not be available to buildings that are receiving the 421-a or J-51 tax exemptions as of January 5 of the tax year. In the DOF website’s comments section, Paul Korngold, a partner at the law firm Korngold Powers, addresses this issue on behalf of the New York City Real Estate Tax Review Bar Association. “This is a problem for buildings in their final year of either a J-51 or 421-a exemption,” he writes. “For example, a building which in its final year of a 421-a exemption will have this exemption on January 5, 2022 so the current rules provide that this building is not eligible for the abatement. However by July 1 (the commencement of the tax year) there no longer is an exemption, but the building is unfairly precluded from obtaining the abatement on July 1 even though there is no exemption for that tax year because the exemption was still in effect on the prior January 5.”
The DOF will hold a virtual public hearing on Monday, March 28 at 11 a.m. To read the proposed rule changes, make comments and attend the public hearing, click here.
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