Important Dates for Challenging NYC Property Taxes
Every Jan. 15, the NYC Department of Finance (DOF) sends to each owner a tentative assessment for the next fiscal year (2016, in the current case) conveying the market value of the lot, including improvements, the actual assessed value of the lot, and, most important, the value upon which the lot will be taxed for the upcoming fiscal year.
According to the recently released tentative property assessment roll, New York City’s hot real estate market led to a 9.1 percent hike on assessed property values, which probably translates to more in taxes for owners. “The real estate market remains robust in sales, rentals, and leases, with strong demand across the board,” says Commissioner Jacques Jiha. “We are also seeing increased construction activity in the boroughs outside of Manhattan. The Bronx, in particular, has seen an increase of 46 percent in new construction value, which is very good for job creation in that borough.” The total market value for the upcoming year is $988.3 billion, an increase of $82 billion, or 9.1 percent from the 2015 fiscal year.
Approximately 6.7 percent of the growth on the tentative roll reflects continued strength of real estate sales and leasing in the city. But 2.4 percent reflects other factors, including new construction. These other factors include the addition of value of some previously tax-exempt properties that may have their exemptions restored on the final roll.
The release of the tentative assessment roll marks the beginning of the time period in which property owners can examine and challenge their property values before the roll is finalized in May. The assessed values in the final roll, along with the tax rates and any exemptions or abatements, are used to calculate property taxes for the fiscal year that starts on July 1, 2015.
Values for Class 2 Properties
Market values for fiscal year 2016 in Class 2 and 4 are based on calendar year 2013 income and expense data provided by owners, which are trended to reflect current market conditions, as well as mortgage and bond interest rates, which are used to determine income capitalization rates.
The total market value for Class 2 residential buildings, which include rental apartment buildings, rose $23.4 billion, or 10.9 percent, to $239.3 billion citywide. Seventy-five percent of this increase, or $17.7 billion, is due to market forces, with the remainder coming from other changes, including new construction. The total assessed value for Class 2 increased 10.5 percent to $69.7 billion. Class 2 rentals saw a market value increase of 14.6 percent and an assessed value increase of 12.7 percent.
Values for Class 4 Properties
The total market value for Class 4 commercial properties increased $29.1 billion, or 11.8 percent, to $275.8 billion. Market forces accounted for $14.4 billion of the increase for non-utility commercial property, while new construction and other forces accounted for $14.7 billion of the increase. Other factors also include certain previously exempt properties being restored to the roll, which may become exempt again before the final roll. The total assessed value for Class 4 increased 10.6 percent.
Important Dates and Information for Owners
The NYC real property tax assessment and appeal procedure is calendar driven. With the release of the tentative assessment roll, owners have an opportunity to examine and challenge the values on the roll before the final assessment roll is finalized in May. Here are the important dates to consider:
- The upcoming NYC tax year begins on July 1, 2015, and runs through June 30, 2016. This is the 2015/2016 tax year.
- The Jan. 15, 2015, Tentative Assessment for the 2015/2016 tax year is based on the property’s condition as of Jan. 5, 2015. This date is referred to as the “Tax Status Date.”
- This year, the absolute deadline for filing a challenge to a property’s assessment is March 2, 2015, and owners who don’t file a tax appeal by March 2 lose any right to contest assessments for the ensuing July 1, 2015, through June 30, 2016, tax year. Forms to file a challenge are available on the Tax Commission’s website at www.nyc.gov/html/taxcomm.
Owners who believe that the DOF has incorrect property information, such as the wrong number of units or square footage, may file a Request to Update with the DOF. These forms are posted at www.nyc.gov/finance. The deadline for correcting property errors with DOF this year is March 16 for Class 2 properties. Filing a Request to Update with the DOF, however, is not a substitute for challenging the assessed value with the Tax Commission.
The final assessment roll will include any changes based on the decisions made by the New York City Tax Commission, as well as new information the DOF gathers about abatements, exemptions, and other adjustments. In June, the DOF will use the final roll to generate property tax bills for fiscal year 2016.
Permitted Valuation Approach
Most NYC commercial property is comprised of Tax Class 2 properties and Class 4 properties. Class 2 consists of buildings with greater than three residential units, and Class 4 properties include non-residential commercial property other than utility buildings. For tax assessment purposes, the market value of each commercial property is determined using the income capitalization approach.
For income-producing commercial properties, the actual income and expenses reported by the owner are used to determine the property’s net operating income. For mixed-use property, each category of income must be separately stated—for example, gross residential income must be separated from gross office income. All income derived from the property must be disclosed.
Similarly, in determining net revenue expenses directly related to the operation of the property that are to be deducted from the gross revenue must be separately stated. Non-operational expenses, such as mortgage interest, depreciation, and corporate income tax, are not considered. Although the entire cost of a capital improvement cannot be deducted in the year of expenditure, a reasonable reserve may be treated as a deduction for one or more years.
After determining net operating income, a capitalization rate (often called the cap rate) is applied. In simple terms, the cap rate is the annual rate of return expected by an investor in the property. The cap rate varies based on the use, condition, and location of a particular commercial property. Arithmetically, the cap rate is the net operating income divided by the market value of a property expressed as a percentage. In many cases, the success of an appeal hinges on the cap rate applicable to the property.
NYC Tax Commission Hearings
Between March and October, the NYC Tax Commission conducts hearings with property owners who have challenged their Tentative Assessments or their representatives to consider whether an assessment should be reduced. At such hearings, information and documentation supporting a property owner’s appeal may be presented. Hearing Officers typically render decisions within weeks of a hearing.
If the property owner accepts a NYC Tax Commission offer to reduce the assessment, the appeals process is concluded, the reduction is effective as of July 1, and the property owner may apply for a refund of any tax overpayment.
If the NYC Tax Commission does not extend an offer to reduce the assessment, or if the property owner does not accept the offer and believes that a greater reduction is warranted, the tax appeal for the current year may be continued by filing a petition in New York Supreme Court on or before Oct. 24. Note that tax appeal cases very rarely proceed to trial because the appeals for which petitions are filed are considered in the next year by the NYC Tax Commission, which has jurisdiction over two years of tax appeal cases (that is, those initiated in the current year and those continued from the previous year).