Understanding NYC property tax assessment challenges:
You don’t need to let the seemingly complicated tax certiorari process beat you.
If you are New York City homeowner, sometime after January 15th, you received a “Notice of Property Value” from the city’s Department of Finance, showing your property tax increase as of July 1, 2016. Coops pay taxes as a building, not individually, though the same tax process applies.
If your taxes jumped, you are not alone. According to the Wall Street Journal assessments increased 10.6% from last year across the city. In Brooklyn, the increase was a staggering 18.2%. In my building, the increase was higher still.
Most people are confused by the jumble of numbers the DoF produces and don’t give the assessment a second thought. But the property tax system is not perfect, and conscientious buildings may challenge the City’s assessment of their property by hiring lawyers in a proceeding called tax certiorari. These lawyers will take between 12 and 20% of the total tax savings, only if they achieve a reduction. Sounds fair, right? Well, it’s not that simple.
Let’s say, for example, that I have previously been assessed $2 million, and the City raised my assessment to $2.2 million. And let’s assume the lawyer is getting 20% of the reduction (on the high end, but that is what the poorly-managed attorneys were making off my building). So if the lawyer successfully brought our taxes down $100,000, they’d take 20% of that – $20,000 – but we’d still be up $80,000. Right? Not exactly.
There is a state law that says the City can only implement an increase in our taxes over 5 years, 20 percent each year. So the hypothetical $100,000 tax increase – after our tax challenge was successful, remember it had been a $200,000 increase – only represents a $20,000 increase in year 1. That’s the same amount as our lawyer’s fee.
We are paying the lawyer the entirety of the year 1 tax savings. Then in year 2, the city will very likely raise our taxes again, and the lawyer will again take 20%. This process will go on every year. For owners and boards, the tax cert process is much closer to revenue neutral than it is a big bonanza. To see the benefit, you will have to think 4th dimensionally.
The reason to challenge your assessment is that your taxes would have been higher otherwise. Remember our tax increase of $100,000 after our successful challenge? Even though we paid the lawyers the entirety of the year 1 savings, as the City implemented the rest of that increase over the next 4 years, it was $20,000 at a time for a total of $80,000. If we didn’t challenge the assessment, we would have paid $40,000 in each of the 4 following years. This build up of past years’ increases is the “Transitional Assessed Value” line on your tax bill.
What should you do? It does make sense to challenge your property tax assessment each and every year. But owners and boards should understand that the benefit is not a large refund check. The benefit is in smaller increases in future years. As always, being an educated consumer can yield huge savings. Tax certiorari firms will charge what they are able. If your building’s firm is taking 20% of your savings upfront, renegotiate – or find a new firm – that will charge you less, let you pay over a period of years, or reduce their fee for settlements over consecutive years.