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[The Hall Monitor] New York State Real Property Tax Law is Kafkaesque (Or is it the other way around?)

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues.

In this column, Todd makes an arcane labyrinth of taxation more understandable in a literary confusing and complex sort of way. …Jonathan Miller

I had never read anything by Franz Kafka but I was familiar with the term “Kafkaesque” and I used it when trying to explain the nature of tax assessment in most of the municipalities comprising Westchester County. I didn’t really know what it meant but somehow it seemed appropriate. Then one night just for fun I decided to read one of his stories, “The Metamorphosis” actually, I only read the first sentence “As Gregor Samsa awoke one morning from uneasy dreams he found himself transformed in his bed into a gigantic insect.” (note to self forget “The Metamorphosis”, by Franz Kafka and pick up a copy of “Charlotte’s Web”, by E.B. White)

Understanding Kafka may be difficult, but it is nothing in comparison to deciphering New York State Real Property Tax Law, particularly Tax Assessment as it is practiced in most of Westchester County. Here are just a few of the inconsistencies, contradictions and misconceptions you will find in the Tax Law.

The law states that “All property must be assessed at a uniform percentage of value”. It doesn’t have to be assessed at 100% of value, it can be assessed at 1%, but it must be “uniform” for all property. So if your property has a market value of $1,000,000 its assessment may be $1,000,000 (100%) or $10,000 (1%), or as is the case in my town presently $13,800 (1.38%). That’s easy enough to figure out, right? Your house has a value of $500,000 and the small office building around the corner has a value of $500,000, therefore, your assessments and taxes should be the same. Except that they’re not the same. While the law states they “must be assessed at a uniform percentage”, residential and commercial properties are, in fact, assessed at two different rates. Commercial property uses an Equalization Rate while residential property (except for co-ops and condos, but we’ll get to that later) uses the Residential Assessment Ratio, or RAR.

Not too long ago, in an effort to make your property tax bill easier to understand, New York State came up with the Taxpayer’s Bill of Rights. In my opinion this was done, at least in part, as a service to people living in municipalities where fractional assessments were the norm. This used to be the case in all of Westchester County but now it’s only the case in most of the county. It’s very easy to understand what the market value of your property is if it’s assessed at 100% because if it’s worth $500,000 it’s assessed for, you guessed it, $500,000. With fractional assessments your $500,000 property would have (if it’s in my town) an assessment of $6,900. Naturally, this confuses people. So New York State decided to “translate” the fractional assessed value shown on your tax bill into the “market value” so you could know, at a glance, its presumed market value. This way, if you believe the assessment is excessive you can file a grievance. Trouble is, the bill utilizes the Equalization Rate to translate the assessment and this is only appropriate for commercial property. Homeowners who look at their bill to see the “market value” are getting false information, unless the Equalization Rate and the RAR happen to be the same. Usually, they are not the RAR is lower. So in most cases the homeowner is lulled into thinking their assessment/market value is lower than it may actually be.

Let’s talk about co-ops and condos for a minute. Since “all property must be assessed at a uniform percentage of value” that must mean that the guy who paid $500,000 for his co-op is paying the same taxes as the woman with the $500,000 single family house. Well, maybe it must mean that but it doesn’t mean that. Those of us who are old enough remember a time when most apartment buildings were rentals. Very few apartment buildings were built as cooperatives, most were converted from rental buildings. Back when they were rentals, they were valued for assessment purposes using the Income Approach. This was appropriate since their value to an investor was based on their income stream. You couldn’t buy or sell one apartment, just the whole building. However, in buildings that have converted to co-op or condo, now you can buy or sell one apartment and that apartment has a far greater value than it did when it could only be sold together with the rest of the building. Is it fair that the owner of a $500,000 co-op should pay less taxes than the owner of a $500,000 single family house? No it isn’t, but he does.

Trust me when I say that we have not even begun to scratch the surface of this topic but before you leap, headlong into the world of New York State Real Property Tax Law, you just might want to brush up on your Kafka. Keep in mind however, Kafka is “assessmentesque”.