Challenging Real Estate Tax Assessments: An Overview
On May 1, the nation, as it has done every year since 1961, observed "Law Day" to commemorate the rule of law, the judiciary and its place in American society. This year the theme was "No Courts, No Justice, No Freedom". May 1 also marked an important date for all New Yorkers because it was the last date for assessors in most towns and cities to file the tentative assessment roll, which forms the basis for complaints of excessive or unequal assessments and may ultimately lead to seeking recourse in the courts for a lower real property tax.
Real property tax, whether for our residence or a parcel of commercial real estate, is the result of two factors. First, is the tax rate established by the relevant governmental unit. This is basically determined by dividing the total assessed value of all real estate by the amount of money necessary to be raised to meet the annual budget. In New York, school districts and counties rely upon the assessment determined by city or town assessors, and because all municipalities do not assess property at 100% of market value, it becomes necessary to apply an equalization rate to assure, for example, that residents of one town are not unfairly taxed compared to residents of another town where both are in the same school district. However, the equalization rate, which is determined by dividing the total assessed value of a municipality by the total market value of that municipality, does not correct individual, unfair assessments. The value of your property, as determined by the assessor, is multiplied by the tax rate to arrive at the amount of taxes, and thus, becomes the important second factor in the formula. Nevertheless, the law also permits a taxpayer to challenge the assessed valuation.
The New York Real Property Tax Law provides that on or before May 1, the assessor of each city and town must file the tentative assessment roll, containing a list of all real property in the municipality, with information about each parcel, including assessed value and exempt status. (Villages use a similar procedure but also may use different dates.) Beginning on the fourth Tuesday in May, the Board of Assessment Review must then meet to hear complaints about the individual assessments. On or before this date, which is referred to as "Grievance Day", an owner who wishes to challenge the assessment must file a complaint for administrative review by the Board of Assessment Review. The complaint must specify the respect in which the assessment is excessive, unequal, unlawful, or perhaps, misclassified. There are two important dates to keep in mind when challenging your assessment. March 1 of each year is the "Taxable Status Date", which determines the ownership and condition of the property. July 1 of the preceding year is the "Valuation Date", and thus, for example, property taxes for 2012 will be based upon the value of the property as determined on July 1, 2011.
The Board of Assessment Review is required to fix a place for hearing complaints, and may require a complainant to appear and produce papers in support of their application for a reduced assessment. A complainant who fails to attend a hearing as requested is not entitled to any relief. Notice of the decision, by the Board of Assessment Review, is mailed to the complainant, and in the event of an adverse ruling, will advise the owner of the right to seek judicial review.
On or before July 1 of each year, the assessor must prepare and file the final assessment roll. The Real Property Tax Law provides that within 30 days thereafter a complainant seeking a judicial review of the decision by the Board of Assessment Review must commence a proceeding in the Supreme Court in the Judicial District in which the subject property is located. This is done by filing a verified petition, which, again, must set forth the respect in which the assessment was excessive, unequal, unlawful or misclassified, and further, must show that a timely application was made for administrative review in order for there to have been a correction of the assessment. Over the years, there has been a fair amount of litigation involving the service and notice requirements related to the filing of the petition, and it is important to strictly adhere to them.
The Board of Assessment Review and/or assessor, who will be named the respondents in the proceeding, must serve an answer to the petition at least five days before the return date. However, unlike most other court actions or proceedings, all allegations in the petition are deemed denied even if the respondents fail to file an answer. As a general rule, valuation placed upon property by an assessor is presumptively valid, but may be rebutted by substantial evidence, which the courts have defined as relevant proof that a reasonable mind may accept as adequate to support a conclusion. In essence, this simply requires a taxpayer, who is challenging an assessment, to demonstrate the existence of a valid and credible dispute. Once rebutted, a court must weigh the entire record to determine if the petitioner has established overvaluation by a fair preponderance of the evidence.
As with any lawsuit filed in Supreme Court, a case involving a challenge to a tax assessment involves motion practice, pre-trial disclosure, including exchange of expert witness reports, and ultimately a trial if the parties do not otherwise agree upon a settlement. However, there is a simple and relatively expeditious and inexpensive alternative for owners of property improved by one, two and three family owner-occupied buildings used exclusively for residential purposes. This is called a Small Claims Assessment Review (SCAR), but there are certain conditions. For example, the assessed value divided by the most recent equalization rate must not exceed $450,000, or, if in excess of this amount, the taxpayer may not request a reduction of more than 25% of the assessed value. Again, a complainant is required to file a petition within 30 days of the filing of the final assessment roll, but a form petition will be provided upon request and may be filed at a cost of $30. A petitioner is not required to present expert witnesses or be represented by an attorney and the hearings are held within 45 days after the last day for filed petitions. The hearings are quite informal and are held before a hearing officer, who may not necessarily be a member of the legal profession. The hearing officer makes the decision based upon the evidence, including the assessment of comparable residential properties within the same assessing unit in order to ascertain fair market value. Therefore, although expert witnesses need not be produced, it is advisable for a petitioner to retain an appraiser to issue an appraisal report as to fair market value on the "Valuation Date" and then submit the report as evidence at the hearing.
Most cases which proceed in Supreme Court today involve commercial properties. In these cases it is necessary for both parties to retain the services of an expert appraiser, who will conduct a comprehensive study of the subject property and other properties. A report will be issued, containing the expert's opinion as to value, and the expert will be produced as a witness at trial for purposes of direct and cross examination.
In regard to commercial property, appraisers use three primary methods to arrive at an opinion as to value-cost approach, comparable sales approach and capitalization of income approach. The cost approach is not necessarily favored in today's appraisals, and although analyzing the sales of comparable properties is utilized, the capitalization of income is becoming increasingly relied upon by courts. In essence, this approach attempts to convert the projected net income of a property into present value by applying a capitalization rate. These commercial cases are quite complex, and whether a complainant or a municipality, an attorney specializing in tax certiorari cases should be retained to represent the respective interests of the parties.
The author of this article, Raymond E. Cornelius, Esq., is a retired NYS Supreme Court Justice. Following his retirement from the Supreme Court, Judge Cornelius served as a hearing officer in SCAR proceedings. You can contact Judge Cornelius at 585-512-3504 or email@example.com.
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