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New York County has given us another case to help us though the morass of what is – and what ain’t - taxable real property under the Real Property Tax Law. On March 12, 2013, New York County Supreme Court issued a decision consistent with the RCN v. Frankel decision and, thereby making it clearer that all power generating apparatus – even if it is movable and could otherwise be considered equipment – is taxable real property under Real Property Tax Law Section 102. See, RCN_Decision_March__2013. Perhaps the courts are throwing municipalities a bone in light of the RCN v. Tax Cmm’n decision that exempted from taxation all fiber optic cables. If nothing else is clear, the RCN trilogy demonstrates that the New York State Legislature needs to take a hard look at the Real Property Tax Law, including the definition of real property, and make some tough decisions about how we define – and assess – real property in this State.
What do you think?

On February 19th, 2013, the New York State Teacher’s Union (NYSUT) made good on its threat to challenge Cuomo’s property tax cap on schools by commencing an action in Supreme Court. The lawsuit, spearheaded by a plaintiffs group composed of teachers, taxpayers, and even parents, alleges in a 50-page complaint how Cumo’s tax cap harms school districts that serve low-income areas (creates an “education gap” and perpetuates inequalities between wealthy and poor districts), violates the state’s “education clause” (guarantees every child in New York the right to a basic education), and violates the equal protection clause (allows the cap to be overridden by super-majority vote).

According to an article in Syracuse’s Post Standard, NYSUT’s President, Richard Ianuzzi, said that the goal of the suit is merely to “force difficult conversations in Albany’s corridors of power about how inequitable funding and this tax cap doom generations of students to lesser educational opportunities.” Cuomo’s office, however, has advised in statements to papers like the New York Times that it stands by the cap, the cap is working, and that the answer to improving our educational system does not lie in throwing more money at it.

Brian Sampson of Unshackle Upstate has been sharp in his criticism of the lawsuit saying in a statement: “Rather than attacking taxpayers by undermining the property tax cap, NYSUT and its members should be working with school districts and families to ensure that our children receive a world class education that is affordable.” Sampson’s group has supported the tax cap since its inception.

At the end of the day, will the tax cap alone erradicate the systemic property tax issues that drive up the cost of living in New York? Probably not. Until New York curtails the explosion and exploitation of exemptions found the Real Property Tax Law (RPTL); finds equity and true equalization in values and assessments; and removes assessors from political processes and pressures, we are likely stuck with this “spending bandaid” to slow the bleeding…

…which begs the question: what else should we be doing now to fix our property tax problems in New York?

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Over the past few days, there have been numerous news articles informing New York State property owners that they have to re-register for their STAR tax exemption. To set things straight – there is nothing you need to do right now to keep your STAR exemption.

New York State Senate Bill S02607 details the “STAR Registration Program.” The Program requires that the Commissioner of Taxation and Finance create a program requiring all property owners currently receiving or initially applying for a basic STAR exemption to register with the Commissioner. Current property owners have to register with the Commissioner by April 2014. Well before April 2014 (at least 60 days), the Commissioner will send out notices to property owners informing them of the registration deadline.

For all the current property owners out there who receive a STAR exemption, the game will come to you. You don’t have to do anything about your STAR exemption until you receive the notice from the Commissioner prior to the April 2014 deadline.

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Property owners should be aware of the impact that contamination plays in assessing the value of their property for tax purposes. It is frequently the case that assessed value does not take contamination into account.  For this reason, owners whose land suffers from contamination may well be entitled to an assessment reduction.

The New York State Constitution provides that real property cannot be assessed at more than its full value. N.Y. Const. Art. 16, § 2. New York’s highest court, the Court of Appeals, has held this to mean that property cannot be assessed at more than its fair market value, thus, equating full value with fair market value. Commerce Holding Corp. v. Bd. of Assessors of the Town of Babylon, 88 N.Y.2d 724 (1996).

The presence of contamination on property is certainly one factor that can reduce property value and, thereby, affect market value. Landau v. Assessor of Town of Carmel, 236 A.D.2d 403 (2d Dep’t 1997). The Court of Appeals has recognized the impact contamination has on market value and has stated that it should be taken into consideration for the purposes of tax assessments. Commerce at 729.  In fact, some cases have even extrapolated this principal to situations where the stigma of having suspected contamination on the property impacts market value.

In Commerce Holding Corp., the Court held that Commerce’s assessment method which determined the property’s value using the income capitalization method as though the property was not contaminated and then subtracted the cost to cure the property of contamination, though imperfect, was an acceptable method to determine fair market value. However, this is but one approach that has been accepted and judicial opinions have held that, “…there is no fixed method for determining market value . . . [a]ny fair and nondiscriminatory method that will achieve that result is acceptable. …. Flexibility is especially important in the valuation of contaminated properties, for which there has yet to emerge any single generally accepted valuation methodology.” Commerce at 727. In assessing contaminated properties, factors to consider in determining value include: “the property’s status as a Superfund site, the extent of the contamination, the estimated cleanup costs, the ability to obtain financing and indemnification in connection with the purchase of the property, potential liability to third parties, and the stigma remaining after cleanup.” Commerce at 732.

Thus, while most impacts of contamination are detrimental to property owners, the potential for reduction in property tax assessments should not be overlooked.

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If you are anything like me, you miss the ORPTS Reporter and the days when you’d see lengthy decisions from Hons. Thomas A. Dickerson and John R. LaCava that methodically and meticulously reviewed various portions of the Real Property Tax Law (“RPTL”). So, I get a little excited when the Appellate Division hands down a 9-page decision that thoroughly investigates the “nitty gritty” of specific statutory provisions or the regulations found at 22 NYCRR 202.59 like it did on February 1, 2013 in the French Oaks Condos v. Town of Amherst case.

In French Oaks, the Fourth Department upheld Judge John A. Michalek‘s decision that an appraisal submitted by Petitioner (the Condos) was legally sufficient despite Respondents’ (Town of Amherst) arguments that it was not worth the paper upon which it was written. The Town made numerous specific objections to the form and substance of Petitioner’s appraisal, which it argued warranted reversing Judge Michalek’s decision to reduce the assessment, including: (1) the appraiser was not qualified to testify; (2) the appraiser took a fee for his/her services; (3) the appraiser failed to inspect the interior of all the condos at issue; (4) the appraiser failed to include a clear and concise statement of every fact he/she relied upon. The Town’s substantive complaints included: (1) the appraiser provided no rational basis for his/her cap rate analysis; and (2) the appraiser failed to establish a FMV for each of the individual condo units (did not provide a final reconciled allocated value).

The Appellate Division, in its majority opinion, held that each of the alleged deficiencies go to the weight, not the sufficiency, of the appraisal report. This means that, in general, a ruling on a case will not be overturned where the report is sufficient in a general legal sense (i.e., it allows the adversary to prepare for cross examination) and basically meets the broad requirements of 22 NYCRR 202.59, even if the report is not wholly persuasive in the end.

But wait, there’s more! Reading only the majority opinion would lead one to conclude that the Town was just bitter about Judge Michalek’s assessment reduction, and that its only way out from under the reduction was to launch an elaborate attack on the appraiser’s body of work rather than sticking to the basic valuation issue. But reading the dissenting opinion, it appears that there were (potentially) so many “glaring” errors with the report both in the facts presented and in the ultimate valuation conclusions that, perhaps, some (or in this case many) deficiencies should go to the sufficiency rather than the weight of the appraisal.

It could be that the goal to be accomplished by the majority’s decision was that tougher standards on appraisers in assessment cases may chill access to assessment reviews. While I can certainly understand the Court’s policy position, most practicing attorneys in this field would likely find more comfort in holdings that tighten, not expand, what is necessary for a legally sufficient trial-ready appraisal.

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A recent New York Time’s Op Ed post on February 13, 2013 from City of Syracuse Mayor, Stephanie Minor, states that “the model of using property taxes to finance schools, police, fire, sanitation and other services is no longer sustainable.” For years, we have heard from assessors, attorneys and appraisers heavily involved in assessment litigation that NYS needs to find another way to fund government services other than property taxes. A drop in or total lack of funding for proper assessing combined with ever increasing external pressures to “find more taxable value” so that tax rates don’t skyrocket, some assessors may feel over-worked (underpaid) and unable to keep up with the basic mandate of RPTL Section 305 (that all property be assessed at a uniform percentage of value every year). Revaluations usually result in a more equitably-distributed tax burden, but remain exceedingly unpopular among local politicians because they generally don’t result in more tax revenue and can be political suicide (never mind that no local operating budget can afford the cost of a full revaluation with data collection).

Property values are, and always have been, difficult to ascertain on both an individual level and across similar property types in comparable municipalities. Further, property values may not be the best indicators of wealth or one’s “fair tax share”. Moreover, beyond the exemptions provided by RPTL 420-a, many exemptions simply do not encourage business or provide the benefits for which they were intended, but rather could be viewed as nothing more than unfunded state mandates.

Some have opined that NYS should utilize the lottery or switch to an income-based system like NYC to pay for municipal services. While the Governor’s property tax cap has successfully put our state’s system of real property taxation in the spotlight, allowing the citizenry of this state to realize, if nothing else, that the property tax system may be broken, little has been done at the legislative/state level to effectuate positive change to the fundamental problems underlying our entire system of real property taxation. The issues that have plagued NYS since the last RPTL rewrite in the 1950s remain the same issues we face today. It’s time for the state to stop taking baby steps and half-measures. Full scale property tax reform is needed now more than ever for the benefit of all constituencies – property owners, businesses, and municipalities.

Hats off to Mayor Minor for putting in print what many have thought – that it’s time for an independent tax commission to be formed to revamp the RPTL.

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The Fifth Amendment provides that private property may not be taken for public use without the payment of just compensation. The payment of “just compensation” must reflect the fair market value of the property acquired in its highest and best use on the date of the taking. How is “fair market value” determined when the property taken is a permitted mining operation? The New York State Appellate Division, Second Department recently addressed the appropriate valuation methodology for land with established mineral deposits In the Matter of Metropolitan Transportation Authority (Washed Aggregate Resources, Inc.), 2013 NY Slip Op 00212 (January 16, 2013).

In Metropolitan Transportation Authority, the MTA condemned portions of Washed Aggregate’s property in connection with the extension of the Metro-North Railroad and the construction of the Metro-North Wassaic station. Washed Aggregate rejected the MTA’s offer of just compensation, and filed a claim alleging that the taking eliminated access to the remainder of its property for mining vehicles and limited its ability to exploit the land’s gravel deposits. Washed Aggregates sought consequential damages based on the projected value of its mineral resources. The MTA questioned whether Washed Aggregate was entitled to consequential damages and objected to the valuation methodology relied on by Washed Aggregate’s appraiser.

Addressing the appropriate valuation methodology, the Second Department noted that to determine the fair market value of a property with mineral resources, the courts should consider the effect of expected profits from the exploitation of resources on the land’s value, but may not award damages based upon projected revenues minus projected expenses. Similarly, it is not proper to multiply the estimated quantity of resources by a given price per unit. According to the court, these methodologies would not accurately reflect the fair market value of the land because a prospective buyer would not pay for the right to extract mineral resources in an amount equal to the amount that could be realized in business profits. Instead, a purchaser would likely pay a price based on the present worth of those rights as influenced by expected profits and taking into account those business risks associated with the particular venture. Accordingly in eminent domain proceedings a court should determine the fair market value of property containing mineral resources by considering ”the value of the land as enhanced by the mineral deposit” - a value that can be established by using comparable sales that take into account the enhancement value resulting from the land’s mineral deposits.

While this holding is consistent with prior case law, it seems to fall short of the Fifth Amendment’s requirement that the condemning authority pay ”just compensation” so that the property owner ”may be put in the same relative position . . . as if the taking had not occurred.”Matter of City of New York [Kaiser Woodcraft Corp.], 11 NY3d 353 (2008). More specifically, failing to compensate owners of permitted mining operations for profits lost as a result of the taking of land containing mineral resources does not allow them to recoup significant economic resources spent on obtaining the required approvals necessary to extract those resources. Thus, while the decision is favorable to mine owners by recognizing ”enhancement value” attributed to the presence of mineral resources, it may not go far enough to put those mine owners in the same relative position as they would have been had the taking not occurred.

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For many years, county websites across New York State have maintained real property tax information databases that are easily searchable by property owner name, address or tax map parcel number. Searching one of these databases by name would quickly call up a list of all properties owned by that person within the entire county. Recently, Onondaga County Executive Joanie Mahoney issued a decision to preclude searches of the Onondaga County real property tax information database by using the name of the property owner, purportedly in the interest of protecting the privacy (and thus the safety) of law enforcement personnel who own residential real property. Now, the only way for the public at large to search Onondaga County’s real property tax information database is by address or tax map parcel number. The change makes it more difficult for real property professionals and common citizens to research sales prices and assessment information needed to determine whether a grievance should be filed challenging a property’s assessed value.

However laudable the reason behind the Onondaga County Executive’s decision might be, eliminating the search by name function on the Onondaga County database will not necessarily improve officer safety or protect officers’ personal information from disclosure. For example, the Real Property Tax Law requires each municipality to publish a copy of its tentative assessment roll and final assessment roll for each assessment year on its county’s website. These assessment rolls contain the names and addresses of each property owner within that municipality. In fact, although a little more effort is required, many of these assessment rolls are posted in such a way that they can be searched by name. Accordingly, although access to such information has become more cumbersome, the information sought to be eliminated by the Onondaga County Executive is still widely available on the Onondaga County website.

Many question the County Executive’s decision and motives. The change has caused an uproar among real property professionals and citizens who regularly used the site to search sales and assessment information. Even journalists, who used the site to verify information, are complaining. The new County Clerk Sandra Schepp said, “The removal of the name-search function makes access to this public information much more cumbersome.” Ryan McMahon, chairman of the Onondaga County Legislature, stated that there needs to be a happy medium and suggested eliminating only the names of law enforcement officers from Onondaga County’s database. While McMahon’s suggestion may be inconvenient for database administrators, it is preferable to inconveniencing the public at large.

In response to public outcry, Mahoney claims that she is looking for ways to balance safety with public needs and is considering ways to make the real property tax database fully searchable by those with a legitimate interest. While that may help real property professionals and journalists, it does nothing to ease the plight of regular taxpayers seeking information to support an assessment challenge.

Since the information Mahoney eliminated from the County-wide database is still available in municipal assessment rolls that are required by law to be posted on the County’s website, her decision achieves little, if any, enhancement in officer safety, at significant practical cost to taxpayers and the public at large. Mahoney should reconsider her decision and once again make the County’s database searchable by property owner.

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As discussed in our prior post, cows might be considered assessable or taxable real property under Section 102(12) of the Real Property Tax Law. See RCN v. Frankel, (1st Dept. 2012). However, fiber optic cables are not assessable real property under the same statute. At least that is what the First Department concluded in RCN NY Communications, LLC v. Tax Comm’n of the City of NY, 95 A.D.3d 456 (1st Dept. 2012).

In RCN/NYC, the court was asked to consider whether fiber optic lines, poles, wires, supports and enclosures located in the buildings of RCN’s customers were assessable or taxable real property. Although fiber optic cables are electrical insulators, these cables transmit light impulses and do not conduct electricity. As a result, the First Department concluded that fiber optic cables do not satisfy the definition of real property under RPTL Section 102(12)(i), which includes “all lines, wires, poles, supports and inclosures for electrical conductors . . . used in connection with the transmission or switching of electromagnetic voice, video and data signals . . .”.

The municipality argued that the fiber optic cables transmitted voice, video and data signals and that light is part of the electromagnetic spectrum. However, the unambiguous language of the statute includes only “lines, wires, poles, supports and inclosures” which are “for electrical conductors.” Accordingly, the First Department held that since fiber-optic cables are not “for electrical conductors” they are not assessable or taxable real property under RPTL 102(12)(i).

The implications of this decision are far reaching and will impact every municipality or assessing unit that includes fiber-optic cable in its tax base. The decision will also impact the State Office of Real Property Services’ advisory values for the 2013 rolls and some of the appraisals used to establish the 2013 equalization rates. On the flip side, telecommunications companies whose physical plants consist mostly or exclusively of fiber optic cable should see a dramatic reduction in their property tax bills.

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Are cows assessable real property under RPTL 102(12)(f)? Sounds ridiculous, but a recent ruling by the First Department could result in the answer to this question being “yes.” In November, the First Department analyzed  the scope of “power generating apparatus” under RPTL 102(12)(f) in RCN Telecom Services of New York, LP v. Frankel (2012 NY Slip Op 07890, 1st Dept. November 2012). In RCN, the First Department concluded that it was the Legislature’s intent that all power generating apparatus be deemed assessable real property.  In RCN, the specific ”power generating apparatus” at issue was “banks of batteries and emergency backup generators” that, allegedly, generated power.

The parties in RCN did not dispute (and the Court did not question) that these batteries and generators were movable with a few days’ worth of work and, that, moving them would not damage the buildings in which they were housed. Petitioner argued that because the batteries and generators were “movable machinery” they were not assessable real property. Respondents countered that the batteries and generators were “power generating apparatus” as stated in RPTL 102(12)(f) and, thus, were assessable.

Interestingly, the Court recognized that both parties were right – that the batteries and generators were both movable machinery and power generating apparatus. To resolve the case in favor of the Respondents, the Court turned to the the former Tax Law Section 3 to hold that, regardless of whether something is actually movable machinery that might otherwise fall outside the definition of assessable real property, all “power generating apparatus” is assessable real property. So, in the First Department, “power generation” trumps mobility.

Case law throughout the State’s four judicial departments has not always been consistent on what is and is not real property as it pertains to power generating machines. The prevailing case law in the Fourth Department might not find these batteries and generators assessable, while the other Departments have for some time now have been leaning in the same direction as the First Department in the RCN case.

The implications of this decision are far reaching. In short, in an age where technology is all about mobility, the mobility of the equipment takes a back seat to the commercial end use of the equipment. For example, new modes of “power generating apparatus” such as turbines that are frequently moved or removed and replaced, are not essential to any building (or might not even be within any building), are easily extracted, are sold on the open market, and are not intended to be permanent could be assessable real property under the First Department’s holding in RCN just because they are “power generating apparatus.”

Thus, the question becomes, where will the line be drawn as technologies make power generating equipment less cumbersome, more compact and more mobile? Just remember that, with today’s technologies, even a cow generates power (in more ways than one).

Who knows what tomorrow will bring to the power generating world. Is it not within the Legislature’s best interests to protect our State’s power generators and their financial health by encouraging such innovation without risking assessment?  Thus, despite the RCN decision, property owners, assessing units and taxing jurisdictions are cautioned about applying such a broad definition to all types of power generating technology. And cows.