Chapter13. Taxes and Assessments. IN THIS CHAPTER Taxes are what we pay for civilized society. 1

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1 Chapter13 Taxes and Assessments IN THIS CHAPTER Taxes are what we pay for civilized society. 1 Even if there is no mortgage, taxes are paid throughout property ownership. Purchasers are interested in the assessment process, the tax rate, and the taxes levied on properties. Classroom hours: 3 1 Compania de Tabacos v. Collector, 275 U.S. 87, 100 (1904) 435

2 436 Chapter 13 Taxes and Assessments PURPOSE OF TAXATION A purpose of taxation is to pay for municipal services. The property tax is the most important revenue of local governments and schools. Assessed values, upon which property taxes are based, are also used to calculate state aid for education. This state aid is the second largest revenue for schools. Property is taxed on an ad valorem basis that is, according to value. In New York, the real property tax is based on the fair market value of real property. Assessing units such as counties, cities, towns, villages, school districts, and special assessment districts raise money through real property taxes. Special assessment districts include, for example, a volunteer fire department. These taxes pay for the infrastructure of the community and other services. Exempt Properties All real property is subject to assessment. Houses; gas stations; office buildings; vacant land; motels; shopping centers; salable natural resources such as oil, gas, and timberland farms; apartment buildings; factories; restaurants; and, generally, mobile homes are assessed. Although all real property in an assessing unit is assessed, not all of it is taxable. Tax exemptions are set by state law. In some cases, the law allows municipalities to determine whether to grant exemptions and to decide their amounts. Exemptions are either full or partial. Properties owned by religious organizations and government-owned property are completely exempt. Other exemptions may include farms or nonprofit educational and charitable organizations. Lesser-known exemptions may exist for water and wastewater treatment facilities, business and industrial development, solar and wind energy, and specific types of housing. Certain groups of people in New York such as senior citizens and veterans may be partially exempt. YOU SHOULD KNOW Why tax land and improvements (as opposed to sales and income taxes)? The following are some of the advantages of property tax as opposed to other taxes: Predictability Property market values are generally not subject to the whims of the stock market or the economy. Difficulty in concealing Because property tax is secured by the property, the tax has a high compliance rate. Property owners pay more than 95 percent of the tax levied. Very few owners do not pay their property tax. Many lenders require that property tax be escrowed as part of the monthly mortgage. Historic relationship to wealth and land productivity Since the Middle Ages, land ownership has evolved as an indicator of wealth. Because land is productive in some way, government participates in its productivity. Property tax reaches all sectors of the economy: residential, agricultural, forestry, commercial, industrial, and utility. This adds to the stability of the tax. Taxes generate more than one-third of the revenues received by local governments. Low administrative costs The taxation process costs less than $7 per $1,000 raised in property taxes. YOU SHOULD KNOW The Tax Map The tax map is drawn to scale showing all of the real property parcels within a city, town, or village (assessing unit). These maps are used to locate parcels and obtain information required for assessments. The size, shape, and dimensions (or acreage) of a parcel may be found on a tax map. Local governments use tax maps to maintain a current inventory of all parcels in a city, town, or village (Figure 13.1).

3 Chapter 13 Taxes and Assessments 437 FIGURE 13.1 A Sample Tax Map (s) 700(s) 2750(s) WNHWY (s) ROUTE (495 WIDE) A(C) A A(C) A(C) A 27 (66.0 WIDE) 39.8A D A(C) (s) Parcels of one acre or more are required to have only the road frontage dimensions given and must show the parcel acreage. If the acreage is a calculated value rather than a deed value, the acreage figure is followed by a (C). Source: New York State Office of Real Property Services

4 438 Chapter 13 Taxes and Assessments CALCULATION OF REAL ESTATE TAXES Two items determine a tax bill: (1) the property s taxable assessment and (2) the tax rates of the taxing jurisdiction in which the property is located. A property s assessment is a percentage of its market value. The market value is the amount for which a property would sell under normal conditions. The amount of the tax levy determines the tax rate. The rate must provide the amount of revenue needed for the budget of the local government. Property taxes supply the tax levy funds. The graph in Figure 13.2 shows the percentages of funds that make up a typical town budget. PUTTING IT TO WORK Ad Valorem Tax Calculation Real estate brokers should know how to calculate taxes. If the market value of a property increases, brokers can help predict future tax obligations. Turn to Chapter 10, Real Estate Mathematics. Work through the sample problems and check the solutions in the property tax section. Complete the practice problems in the multiple-choice section of that chapter. YOU SHOULD KNOW Classification of Homestead and Nonhomestead Properties An approved assessing unit is a taxing jurisdiction that has completed a property reevaluation and is certified by the NYS Office of Real Property Services. Approved assessing units may elect to establish separate tax rates (discussed later) for homestead and nonhomestead real property. The homestead class includes: one-, two-, or three-family residential parcels residential condominiums mixed-use parcels when they are used mostly for residential purposes mobile homes and trailers only when they are owner-occupied and separately assessed all vacant land parcels not exceeding 10 acres that are located in an assessing unit with a zoning law. These parcels must be in a zone that allows only a residential use for one-, two-, or three-family residential properties. farm dwellings land used for agricultural production and farm buildings and structures on the land The nonhomestead class includes all other real property. Nonhomestead properties include commercial, industrial, special franchise, and utility property and some vacant land. In most places, all properties, regardless of type must be assessed at a uniform percentage. In New York City and Nassau County, however, different classes of property for example, residential, vacant land, commercial, and industrial are assessed at different percentages of market value. However, all property within a certain class, such as one-, two-, and three-family homes, must be assessed at the same uniform percentage. ASSESSED VALUE Property taxation begins with the determination of assessed values. The assessor determines the value of each parcel in his assessing unit. He then decides the level of assessment (LOA) (discussed later). He applies the LOA to each parcel to produce the assessment roll. Once the roll is produced, local officials responsible for budgets can divide their levy requirements by the taxable value of the assessment roll to determine tax rates. Property tax assessment involves establishing the market value of each parcel of land to be taxed within the taxing unit. A taxing unit may be a city, town, or county. Market value is what a willing buyer will pay a willing seller for a property. An appraisal of the property determines market value. Property values must be reasonably uniform to provide equal taxation of property owners.

5 Chapter 13 Taxes and Assessments 439 TOWN BUDGET FIGURE 13.2 A Sample Town Budget Federal Aid 2.3 % All Others 23.9% State Aid 11.0% Non-Property 8.1% Real Property Tax 54.7% Data from Office of the State Comptroller Source: New York State Department of Real Property Services Relationship to Full or Market Value The New York Real Property Tax Law requires all properties in a municipality to be assessed at a uniform percentage of market value each year. That percentage of market value or full value at which properties are assessed within a community is called the level of assessment (LOA). For example, an LOA of 50 percent indicates that assessments are at half the market value. An LOA of 100 percent represents a community that is assessing at full value. Table 13.1 indicates the different assessed values of a property whose market value is $100,000. If a town chooses to assess at 40 percent of market value, all of the properties in the town should be assessed at 40 percent. (Only New York City and Nassau County are allowed by New York law to assess each of four specific classes of property at different levels.) The best way to ensure that assessments are fair and uniform is for the assessing unit to keep assessments up to date annually. To encourage compliance with state law, New York provides state aid of $5 per eligible parcel to municipalities that keep assessments at 100 percent of market value each year. Percentage of Value Assessed Value 005% $005, % $015, % $050, % $100,000 TABLE 13.1 Market Value of Property = $100,000 Assessment Ratio The state tax law requires the calculation of Residential Assessment Ratios (RARs) annually. Assessors use RARs as a general measure of assessment equity. Taxpayers also use RARs in board of assessment review grievances and/or small claims hearings. RARs are not issued for:. municipalities currently conducting revaluation projects or. municipalities that have less than five residential usable sales that year

6 440 Chapter 13 Taxes and Assessments The State Board of Real Property Services certifies the RAR no later than 60 days before the last day provided by law for the filing of the tentative assessment roll. The certified RAR and the number of sales used in its calculation are sent to the Office of Court Administration. The RAR is also sent to the appropriate county director, county clerk, and assessor. When an RAR is established for New York City, it is certified to the New York City Tax Commission. In all cases, an informational copy is forwarded to the chief executive officer of the assessing unit. PUTTING IT TO WORK Finding the Assessment Ratio Step 1: The following ratio is applied to individual properties. Assessed value Sales price ¼ Ratio Step 2: The ratios are arrayed in ascending order (smallest to largest). Step 3: The median, or middle value, of the arrayed ratios is identified. This median value is the RAR. YOU SHOULD KNOW The State Board of Real Property Services is a five member board that oversees administration of real property assessments in New York. Equity Issues and Differences in Assessments Properties become underassessed over time when assessments are not updated. The more a property increases in value in contrast to that of its neighbors without its assessment being adjusted, the more it will be underassessed. Real Estate Example: Why Reassessment? The town of Wonderville has not updated its assessments in 20 years. In the 1990s, Ms. Smith and Ms. Jones each owned a home worth $100,000. During the past 18 years, the value of real estate has changed. Today, because of being in a more affluent neighborhood, Ms. Smith could sell her home for $300,000. Ms. Jones could sell her home for $150,000. Since the town has not conducted a reassessment, both properties are still assessed at $100,000. Both are paying the same amount of taxes. Increasing both Ms. Smith s and Ms. Jones s assessments to reflect their new market values will not produce more taxes for the town. However, it redistributes the burden based on the current value of each property owner s home (Table 13.2). Source: NYS Office of Real Property Services TABLE 13.2 The Reassessment of Ms. Smith and Ms. Jones Ms. Smith Ms. Jones Total Taxes Collected by Town Assessment before Reassessment 0100, ,000 Taxes before Reassessment $002,000 $002,000 $4,000 Assessment following Reassessment 0300, ,000 Taxes following Reassessment $002,667 $001,333 $4,000 If the properties are not reassessed, Ms. Smith would pay $667 too little in taxes, while Ms. Jones would pay $667 too much. Ms. Jones would subsidize Ms. Smith s tax bills. Source: NYS Office of Real Property Services

7 Relationship of the Building Permit Process to Reassessment Reassessment of property for tax purposes occurs on a regular basis established by statutes. Reassessment also occurs when improvements are made to the real estate. Tax assessors are not permitted to do spot reassessments on a single property unless it is apparent or reported that a material change has been made to the property. When a property owner undertakes major renovations, even without increasing the footprint of the property, the market value is likely to be increased. Then the assessor may have cause to increase the assessment above other similar-sized houses. Undeclared Improvements Discovered If the tax assessor regularly cross-checks building permit applications, he may find and investigate completed improvements to a property. Building permits are regularly reviewed and property records updated to reflect new construction. The guidelines of the International Association of Assessing Officers (IAAO) require that all properties be field-inspected at least every six years to ensure that data is current and consistent. Physical inspection is required at least once every six years for a municipality to qualify for annual state aid. Old versus New Construction Examples of construction projects subject to reassessment include: 3 a basement finished into a living space 3 a garage 3 a swimming pool If an assessor discovers that these or similar improvements are not in the assessor s tax record, he can reassess the property to reflect those changes that increase value. Community-Wide Reassessment The purpose of community-wide reassessments is to restore fairness within the community. A property s assessment is supposed to reflect its market value. Market values may increase or decrease. As discussed earlier, if assessments do not reflect these changes, some property taxpayers could pay more or less than their fair share. A reassessment does not always mean that property assessments or taxes increase. If the assessment does increase, it does not necessarily mean the property taxes will increase. Sometimes taxes are shifted to other types of property. In some cases, during a reassessment, a municipality will go from a fractional level of assessment to 100 percent. If the original level of assessment was 10 percent, the assessed value could go from $9,000 to $90,000; but there might not be any increase in taxes. Of course, market values of properties also go down. This means that such properties should see a decrease in assessed values. Chapter 13 Taxes and Assessments 441 Real Estate Example: Reasons for Reassessments Suppose that market values in a community have increased since the last reassessment. However, the value of brick houses had increased faster than wooden houses. The owners of brick houses should pay a greater portion of taxes. The owners of wooden houses should pay a smaller portion. This is why the Office of Real Property Services believes that municipalities should conduct frequent reassessments, preferably annually. The longer the time between reassessments, the more likely taxpayers will experience dramatic tax shifts.

8 442 Chapter 13 Taxes and Assessments Reassessment upon Sale Generally, the assessment does not change upon purchase. For example, if Laura pays $250,000 for a ranch house in Woodstock, New York, assessed at $150,000, the house must still be equitably compared to other similar houses. So if the Woodstock tax assessor raises Laura s assessment to $250,000 (that may be the fair market value of the house, since she paid that amount), the assessor technically must increase the assessment on other similar houses to that amount. This may not happen right away. Illegal/Legal Assessments There are cases when the assessor is within his rights to change an assessment. A taxpayer has the right to protest assessments he believes may be unequal or unlawful. Grounds for protesting these types of assessments are discussed later. YOU SHOULD KNOW Back Taxes Back taxes are unpaid real property taxes. If title is to be transferred, the back taxes, or tax arrears, are paid at closing. Generally, the owing of back taxes does not affect the reassessment of a property. However, if a property owner takes title to a new property not yet assessed when he moves in, when the property is fully assessed, the town is not entitled to the back taxes. TAX RATE Each taxing unit of government counties, cities, towns, villages, schools, and special districts adopts an annual budget. The proposed expenditures are determined. The revenues from various sources, such as state and federal aid, are estimated. The difference between the two represents the amount that the municipality must raise by taxes on real property the tax levy. That amount divided by the taxable assessed and nonexempt value of all real property within that jurisdiction produces the tax rate for the year. The tax rate is set by the municipality to meet the budgetary requirements. The formula for the tax rate is: Rate ¼ Tax dollars required Taxable assessed value The tax rate is usually expressed as a certain number of tax dollars per $1,000 of assessed value. Example: $40 for each $1,000 of assessed value. If a town levy is $2 million and the entire town has a taxable assessed value (the sum of the assessment of all taxable properties) of $40 million, the tax rate would be $50 for each $1,000 of taxable assessed value. $2 million/$40 million ¼ $1,000 ¼ $50 Different localities use different tax rates for example, dollars per hundred or thousand, mills, or percentages. The tax rate is stated in dollars or mills (one-tenth of a cent). Find out the standard in your area. Multiple Tax Districts In New York, with some exceptions, all types of property within the municipality pay taxes using the same tax rate. Only differences in assessed value account for differences in tax bills among properties. The exceptions to the single-rate tax system are special assessing units in New York City and Nassau County. In these places, there are four classified tax rates depending on the property type. Some approved assessing units use two tax rates.

9 Determination of the Property Tax Bill The annual property tax bill is calculated by multiplying the assessed value by the tax rate. The formula for calculating property tax is: Assessed value tax rate = annual taxes For example, a house valued at $100,000 is assessed at a uniform percentage rate of 15 percent. The assessed value is $15,000. The tax rate for the municipality is $50 per $1,000 of assessed value. To obtain the property tax bill, divide the assessment of $15,000 by $1,000 to obtain $15 (because the tax rate is based on each $1,000 of assessed value). Then multiply the $15 by the tax rate to obtain the tax bill of $750. $15,000/$1,000 ¼ $15 $50 ¼ $750 (tax bill) VARIOUS TAXING JURISDICTIONS New York has no statewide real property taxes. Assessing units (taxing jurisdictions) follow municipal boundaries: county, city, town, or village. All cities and towns in New York are assessing units and have assessors. Exceptions are Nassau and Tompkins counties that have county assessing. Villages in New York are also assessing units. Villages have the option of ceasing to be assessing units. Villages can levy their taxes on the village portion of the town roll. School districts and special districts use assessment rolls prepared by the various assessing units as the basis for collecting taxes. EQUALIZATION The law does not specify any particular percentage for assessment purposes. Therefore, homes in one town may be assessed at 5 percent of value. Those in a neighboring town may be assessed at 50 percent of value. In two neighboring towns, homes that have identical market values may have greatly different assessed values. This can be a problem when a taxing jurisdiction such as a county or a school district contains more than one assessing jurisdiction (several cities or towns). Some common denominator must be used to apportion or appropriate taxes fairly. Appropriation occurs when a government agency sets aside funds for a certain purpose. To remedy this problem, the Office of Real Property Services (ORPS) has developed an equalization rate to determine at what percent of market value different municipalities are assessing. The rate is the result of the appraisal of all properties in every city, town, and village and the comparison of these appraised market values with assessed values. At its simplest, an equalization rate is the state s measure of a municipality s level of assessment (LOA). This is the ratio of total assessed value (AV) to the municipality s total market value (MV). The equalization rate formula is: Total assessed value (AV) Total market value (MV) ¼ Equalization rate Equalization rates do not indicate the degree of uniformity among assessments within a municipality.. An equalization rate of 100 means that the municipality is assessing property at 100 percent of market value.. An equalization rate of less than 100 means that the municipality s total market value is greater than its assessed value.. An equalization rate of greater than 100 means that the total assessed value for the municipality is greater than its total market value. Chapter 13 Taxes and Assessments 443

10 444 Chapter 13 Taxes and Assessments There would be no need for equalization if all municipalities assessed all property at 100 percent of market value every year. There are many uses for equalization rates, including: 3 setting municipal tax and debt limits 3 apportioning school taxes when school districts are located in more than one city or town 3 establishing county taxes among member municipalities 3 distributing many forms of assessments on specialized types of properties 3 defining special assessment districts Special Assessments At times, taxing units levy special assessments in addition to real property taxes. The purpose of these assessments is to collect payment for a share of improvements costs made to nearby areas or to areas adjoining the property. These assessments can be levied against property only when they are for local benefits. Examples of assessments for local benefits are streets, sidewalks, sewers, rural drainage ditches, and other public improvements. The special assessment is a specific lien against the property until paid. If the lien is not paid, the taxing unit may execute on the lien. The lien forces a sale of the property for payment of the assessments. These assessments may be calculated on an ad valorem basis. Alternative methods could be length of road frontage or percentage of cost. Although special assessments resemble property taxes because they are collected and are often calculated the same way, they are different. Special assessments for local benefits can be deducted from an individual s income tax return when they are for the maintenance, repair, or interest charges related to the benefits. An example is a repair to an existing sidewalk and interest included in that charge. Property taxes are tax-deductible. PROPERTY TAX EXEMPTIONS Certain qualified individuals may be eligible for a reduction in real property taxes or receive a partial exemption. Veterans Exemptions The tax law provides a partial exemption to veterans who purchase their property with a veterans pension, bonus, or insurance monies. These monies are referred to as eligible funds. Another exemption, known as the alternative veterans exemption, is available only for residential property of veterans who served during wartime or who received a medal. This provides a tax exemption of 15 percent of assessed value to veterans who served during wartime and an additional 10 percent to those who served in a combat zone. Each municipality in New York was given the option of not granting this alternative exemption. Residents must check to see if the alternative exemption is available in their municipality. The eligible funds exemption generally carries a maximum $5,000 deduction of a property s assessed value. It applies to general municipal taxes but not to school districts or special district levies. Exemptions are not automatic. An application must be filed with the local assessing unit. Senior Citizen Exemption New York law gives local governments and public school districts the option of granting a reduction in property taxes that qualifying senior citizens must pay. The assessed

11 Chapter 13 Taxes and Assessments 445 value of residential property owned by seniors can be reduced by 50 percent. To qualify, seniors must be 65 or older and show that they have owned the property for at least 12 consecutive months before the date of filing the application (unless the owner received a senior citizen exemption for his previous residence). Then the 12-month requirement is satisfied. For the 50 percent exemption, the law allows each assessing unit to set the maximum income limit at any figure between $3,000 and $26,000. Localities have the added option of giving exemptions of less than 50 percent to seniors whose incomes are more than $26,000. Under this option, called the sliding-scale option, the owner can have a yearly income as high as $34, and obtain a 5 percent exemption in places that are using the maximum limit. The School Tax Relief Program (STAR) The School Tax Relief (STAR) Program provides a partial exemption from school property taxes for owner-occupied primary residences. These include one- to three-family homes, condominiums, and cooperatives; manufactured homes; and farm dwellings. The Basic STAR exemption is available for owner-occupied primary residences regardless of the owner s age or income. Basic STAR works by exempting the first $30,000 of the full value of a home from school taxes. The Enhanced STAR exemption is available for the primary residences of senior citizens (65 and older) with yearly incomes of $60,000 or less. This amount increases annually according to a cost-of-living adjustment (COLA). For qualifying senior citizens, the Enhanced STAR program works by exempting the first $50,000 of the full value of the home from school property taxes. In counties where the median home value is higher than the statewide median home value, this exemption increases proportionally. The homeowners in these areas realize equivalent tax relief. For a husband and wife or for siblings who own property, only one of them must be at least 65 years of age as of December 31 of the year in which the exemption begins to qualify for the Enhanced STAR exemption. Their combined annual income must not exceed the STAR income standard. YOU SHOULD KNOW Disability Exemption New York Real Property tax law gives local governments and public school districts the option of granting a reduction in property taxes to qualifying persons with disabilities. To qualify, persons with disabilities must have certain documented evidence of their disability. They must meet certain income limitations and other requirements. They also must file the exemption application with their local assessor by a certain filing date. The basic exemption is a 50 percent reduction in the assessed value of the legal residence of the qualifying disabled person. For the basic exemption, the law allows each county, city, town, village, or school district to set the maximum income limit at any figure between $3,000 and $26,000. The local option maximum income must not exceed $28,000 beginning July 1, 2008, or $29,000 beginning July 1, Localities have the further option of giving exemptions of less than 50 percent to persons with qualifying disabilities whose incomes are more than $26,000. Under this sliding-scale option, a qualifying owner can have a yearly income as high as $34, and receive a 5 percent exemption in places that are using the maximum limit. PROTESTING ASSESSMENTS The assessor determines assessments. The assessor is an elected or appointed local official or officials who have the legal authority to estimate independently the value

12 446 Chapter 13 Taxes and Assessments NYS Office of Real Property Services (ORPS) PUTTING IT TO WORK of real property in an assessing unit. Some municipalities have a single appointed assessor. Some have a board of elected assessors. Sometimes factual errors occur in deriving the assessment. Taxpayers have the right to look at the assessment of their property. They can compare it with other properties on the assessment roll. If a property owner believes the assessment is wrong, the owner may file a written complaint, called a grievance, with the local board of assessment review. The property owner may make the protest on his behalf or have someone, such as an attorney, represent him. The decision of the board of assessment review appears on the final assessment roll. An important date in the assessment grievance process is the tentative roll date. The assessor must file the tentative assessment roll that he uses for taxing purposes by that date. This date varies among cities, villages, and some towns. The assessor s office or the municipal clerk of the municipality can furnish the date (Figures 13.3 and 13.4). Property owners in New York may meet with their local assessors to discuss their property assessment at any time in an informal meeting. If a property owner wants to protest his assessment, he must file a standard complaint form with the board of assessment review for his municipality. Complaint forms (RP-524) are available at the assessor s office, the real property tax service agency of the county, or the ORPS website. The completed complaint must be mailed or delivered to the assessor on or before the first day the Board of Assessment Review (BAR) meets to hear complaints or with the BAR on they day it meets (also known as grievance day ). When Is the Final Assessment Roll Filed? In most towns, the final assessment roll is filed by July 1. The exception is towns in Suffolk County, where it must be filed no later than September 1. In towns in Westchester County, it must be filed no later than September 15. In towns in Erie and Nassau counties, it must be filed no later than April 1. In cities, the date for filing final assessment rolls varies. It is based on provisions of each city s charter. The assessor s office or the city clerk has this information. In most villages, final assessment rolls must be filed by April 1. Some village assessment calendars vary. The village clerk s office has this information. Grievances Board of Assessment Review The board of assessment review (BAR) hears grievances. The board consists of three to five members appointed by the governing body of the municipality. The board does not include the assessor or any of the assessor s staff. Property owners who file a protest may appear in person before the board; assign an agent to appear on their behalf, such as an attorney; or not appear at all. The complaint is still considered. Assessors are required to attend all formal hearings of the board. They can comment on any complaint. Complainants must make a case that the assessor or assessing body is wrong. The complaint must name a specific figure that the complainant believes is the accurate assessment. The law presumes that the assessor is correct. The burden of proof is on the complainant to prove the assessor incorrect. The four grounds for review in New York are unequal assessment, excessive assessment, unlawful assessment, and misclassification. Unequal Assessment/Unequal Assessment Ratio As previously discussed, New York law requires that assessments be made at a uniform percentage of value. A complainant may believe that his property is assessed at a higher percentage of value than the average of all other properties on the same assessment roll.

13 Chapter 13 Taxes and Assessments 447 FIGURE 13.3 The Real Property Tax Cycle Valuation Date Taxable Status/ Exemption Filing Date Public Inspection of Inventory End of Interest-Free Period County/City/ Town Taxes Tentative Assessment Roll Correction of Errors for County/City/ Town Taxes Public Notice of Tentative Roll County/City/Town Tax Lien Date Assessment Change of Assessment Notices County/City/Town Tax Roll THE REAL PROPERTY TAX CYCLE Public Inspection of Tentative Roll End of Interest-Free Period School Tax Tax Collection Grievance Day Correction of Errors for School Roll Notice of Board of Assessment Review Decisions School Tax Lien Date Final Assessment Roll School Tax Roll Filing of Article 7 Certiorari Writ Small Claims Assessment Review Filing Dates vary by locality. (continued)

14 448 Chapter 13 Taxes and Assessments FIGURE 13.3 Continued The Real Property Tax Cycle Identifies and explains important events in the annual real property assessment tax cycle. Specific dates vary by locality. Valuation Date: Real property price level for the assessment cycle is frozen as of this date. Taxable Status/Exemption Filing Date: The ownership and physical condition of real property as of this date are assessed (valued) according to price fixed as of the valuation date. All applications for property exemptions, including the School Tax Relief exemption (STAR), must be filed with assessor by this date. Public Inspection of Inventory: Period of time in which property owners can review the information on file for their property. Tentative Assessment Roll: The assessor completes, certifies and files a roll containing proposed assessed values for each property in the assessing unit. Public Notice of Tentative Roll: Assessor publishes and posts notice of completion and filing of tentative assessment roll. Change of Assessment Notices: Notices are sent to property owners who have a change in assessment or taxable status on the tentative roll. Public Inspection of Tentative Roll: Period of time in which property owners may examine the assessed values on the tentative roll and discuss them with the assessor. Grievance Day: Board of Assessment Review meets to hear assessment complaints. Last day property owners may file a formal complaint seeking reduction in their tentative assessments. Notice of Board of Assessment Review (BAR) Decisions: Property owners are notified of the results of the review by the BAR. Final Assessment Roll: The assessor signs and files a roll that contains the final assessments, including all changes. Small Claims Assessment Review: The last date by which an owner of a one, two, or three family residence and eligible vacant land may apply for Small Claims Assessment Review of the BAR determination. This is 30 days after the filing of the final assessment roll, except for New York City, where it is October 25. Filing of Article 7 Certiorari Writ: A legal action pursuant to Article 7 of the Real Property Tax Law challenging an assessment must be filed in State Supreme Court no later than 30 days after the date the final assessment roll is filed. School Tax Roll: The assessor delivers to the school authorities a duplicate of the part of the final assessment roll that applies to the school district. School Tax Lien Date: The date school authorities attach to the school tax roll an authorization for collection of taxes. Tax collector publishes notice of tax collection. The tax bill is required by the Property Taxpayer's Bill of Rights to contain the full value of the property, the total assessed value, and the uniform percentage of value at which properties are assessed in your municipality. Correction of Errors for School Roll: The last date for a property owner to apply to the county director of real property tax services for correction of a clerical error or unlawful entry on the school tax roll. End of Interest Free Period School Tax: Taxes may be paid without interest or penalty fees for one month after publication of a notice of collection. County/City/Town Tax Roll: The assessor delivers to the county/city/town authorities a duplicate of the part of the final assessment roll that applies to the county/city/town. County/City/Town Tax Lien Date: The date county/city/town authorities attach to the county/city/town tax roll an authorization for collection of taxes. Tax collector publishes notice of tax collection. This tax bill also is required to contain the full value of the property, the total assessed value, and the uniform percentage of value at which properties are assessed in your municipality. Correction of Errors for County/City/Town Roll: The last date for a property owner to apply to the county director of real property tax services for correction of a clerical error or unlawful entry on the county, city, town, or school tax rolls. End of Interest Free Period County/City/ TownTax: County/city/town taxes may be paid without interest or penalty fees for one month after publication of a notice of collection. Source: New York State Office of Real Property Services

15 Chapter 13 Taxes and Assessments 449 FIGURE 13.4 A Closer Look at the Tentative Assessment Roll A Closer Look at the Tentative Assessment Roll STATE OF NEW YORK COUNTY -Big County CITY -Anywhere SWIS A 2006 TENTATIVE ASSESSMENT ROLL TAXABLE SECTION OF THE ROLL-1 UNIFORM PERCENTAGE OF VALUE IS 95% B C VALUATION DATE - JULY 1, 2005 D TAXABLE STATUS DATE - MAR 01, 2006 TAX MAP PARCEL NUMBER CURRENT OWNERS NAME CURRENT OWNERS ADDRESS Archer, John Acher, Louise 3 Main St Anywhere, NY PROPERTY LOCATION & CLASS SCHOOL DISTRICT PARCEL SIZE/GRID COORD ASSESSMENT LAND TOTAL EXEMPTION CODE TAX DESCRIPTION SPECIAL DISTRICTS *************************************************************************************************** ************* E 3 Main St F Family Res School FRNT 60,00 DPTH EAST NRTH DEED BOOK 2509 PG-260 G 5,000 H 145,400 COUNTY CITY SCHOOL TAXABLE VALUE ACCOUNT NO STAR B ,000 J COUNTY TAXABLE VALUE 145,400 K CITY TAXABLE VALUE 145,400 SCHOOL TAXABLE VALUE 115,400 FULL MARKET VALUE I 153, *************************************************************************************************** ************* Baker Janice 5 Main St Anywhere, NY *************************************************************************************************** ************* Cook, Ima 310 George Street Somewhere, CA Main St Family Res School FRNT DPTH EAST NRTH DEED BOOK 2605 PG-355 FULL MARKET VALUE 7 Main St 421 Restaurant School FRNT DPTH EAST NRTH DEED BOOK 2670 PG-640 FULL MARKET VALUE 3, , ,789 2, , ,737 VETERANS STARE COUNTY CITY SCHOOL COUNTY CITY SCHOOL ,357 0 TAXABLE VALUE TAXABLE VALUE TAXABLE VALUE TAXABLE VALUE TAXABLE VALUE TAXABLE VALUE 17, ,343 98,343 65, , , , ,000 I, the undersigned, do depose and swear that, to the best of my knowledge and belief, I have set forth in the tentative assessment roll attached hereto or filed herewith all the real property situated in the assessing unit in which I am assessor and, with the exception of assessments made by the State Board of Real Property Services, I have estimated the value of such real property at the sums which I have determined to be in accordance with the provisions of section three hundred five of the Real Property Tax Law. L Source: New York State Office of Real Property Services

16 450 Chapter 13 Taxes and Assessments To show that the property is unequally assessed, a protester must first establish the property value. Examples of information that a protester uses to defend his complaint are:. purchase price of the property if recent purchased. offering price of the property if recently offered for sale. professional appraisal of the property. rental information if property is rented. income and expense information if property is commercial, industrial, or rented. purchase price of comparable property recently sold including information describing each comparable property and a comparison with the protested property. cost of construction if recently built. assessment ratio Real Estate Example: Unequal Assessment If a property owner proves that the value of his property is $100,000, an assessment of $75,000 means that the property is assessed at 75 percent of its value. If the property owner proves that all other property, on average, is assessed at 50 percent, the owner may claim a reduction of his assessment to $50,000. Excessive Assessment Full Value Disagreement If property owners believe that their property s assessed value is greater than the property s full value, they may claim excessive assessment. This category also includes complaints that a portion of a partial exemption was denied. Unlawful Assessment This category includes properties that, under law, are fully exempt from real property taxation. If a property is located outside the boundaries of the city, town, village, school district, or special district indicated on the assessment roll, the assessment is unlawful. Other unlawful assessments include property entered on the assessment roll by someone other than the assessing unit. It also includes inaccurate identification of a property. Misclassification Homestead and Nonhomestead Classes This protest can be used only for approved assessing units that have adopted homestead and nonhomestead classes, as discussed earlier. The two possible types of claims of misclassification are: 1. the parcel has been designated in the wrong class on the assessment roll or 2. the allocation of the parcel s total assessed value between the homestead and the nonhomestead part is incorrect Real Estate Example: Misclassification of Property A 100-acre parcel is assessed for $100,000. The assessor allocates $50,000 of that amount to the residence and its surrounding 10 acres. The other $50,000 is allocated to the remaining 90 acres. The protester may believe that the $100,000 total assessment is correct. But he also may believe that the residence and 10 acres are worth more than half that total, for example, $67,000. The question of allocation becomes important because of the different tax rates assigned for the homestead and nonhomestead classes. In these cases, the protester can claim that the property is misclassified. He can request that the assessed value be allocated equally between the residence and surrounding 10 acres and the remaining 90 acres.

17 Chapter 13 Taxes and Assessments 451 Possible Assessment Review Board Decisions Full denial of claim Full reassessment of the property Partial reassessment of the property YOU SHOULD KNOW Maximum Reduction In certain cases, a property owner may not request an assessment reduction of more than 25 percent of the current assessment. If the equalized value is greater than $450,000, the total reduction in assessment requested may not exceed 25 percent of the assessed value. PUTTING IT TO WORK SMALL CLAIMS ASSESSMENT REVIEW If homeowners who protest their assessments are dissatisfied with the board of assessment review s decision, they have options. Further review can be held in the state Supreme Court or before a specially appointed small claims hearing officer. The Supreme Court review is costly for most homeowners. A tax certiorari proceeding is a judicial review of the case in the state Supreme Court. The small claims assessment review process is generally the next step. Residential Only Individuals who own and live in a one-, two-, or three-family home used for residential purposes may file for a Small Claims Assessment Review (SCAR). Owners of vacant land that is too small for a one- two- or three-family dwelling may also use this review process. Complainants may not request a reduction greater than that already sought from the board of assessment review. Among those not eligible to file are: 3 owners of cooperatives 3 apartment renters 3 condominium owners, except those who own condominiums in Class One special assessing units that include Nassau and New York City and those designated in the homestead class as approved assessing units 3 owners of buildings not used for residential purposes 3 owners of vacant land other than the exceptions noted 3 owners of farm buildings 3 owners of commercial property Filing with the County Clerk Small claims assessment review (SCAR) petitions are available through the county clerk s office. The fee for filing is $30. The petition must be filed within 30 days of the last date allowed for filing a final assessment roll for the assessing unit where the property is located. Hearing Procedure After the petition is filed, the assessment review clerk in state Supreme Court assigns a hearing officer to decide the case. The hearing is held within 45 days of the final date for filing the petitions.

18 452 Chapter 13 Taxes and Assessments Types of Evidence There are two issues in a tax assessment dispute: 1. the fair market value of the property that is proved by appraisal testimony 2. the ratio of assessed to full market value. The residential assessment ratio is intended for use only in small claims assessment review for one-, two-, and three-family owner-occupied residences. It may not be used in an Article 7 tax certiorari proceeding. Appeal The only choice for the taxpayer who is dissatisfied with the decision of the small claims hearing officer is to commence an Article 78 proceeding. This type of appeal process is brought forth according to the New York Civil Practice Law and Rules (CPLR) for administrative decisions. Those who file a small claims assessment review waive their rights to a tax certiorari proceeding in state Supreme Court. PUTTING IT TO WORK Licensed real estate brokers and licensed appraisers may qualify as SCAR hearing officers. Training is required. Protesting Commercial Property Assessments Certiorari Proceedings A real estate tax certiorari proceeding is the legal process by which a property owner can challenge the real estate tax assessment on his property. The proceeding, like the SCAR review, is an attempt to reduce the property s assessment and real estate taxes. A judicial review of an assessment is a proceeding brought under Article 7 of the Real Property Tax Law (RPTL). Under Article 7, when no grievance complaint is filed, no judicial review can be held. The proceeding begins by the filing of a Notice of Petition in the County Clerk s office in the county where the property is located. The New York Supreme Court hears the case. The taxpayer must hire an attorney. This proceeding must be filed in the state Supreme Court no later than 30 days after the date the final assessment roll is filed. Most Article 7 proceedings involve commercial property. REAL PROPERTY TAX LIENS When a taxpayer is delinquent in paying property taxes, a tax lien attaches against the property. Like other types of liens, a property tax lien creates an encumbrance against the property. However, a property tax lien takes first priority over all other liens. When a transfer of title takes place, any tax lien against the property should be paid first. However, in certain instances, the property can be sold subject to the tax lien. If the assessed real estate property taxes are not paid when they are due, the local official can bring legal action to collect the taxes. This procedure is called an in rem legal proceeding. It happens when an action is brought directly against the real property and not against an individual and his personal property. The typical action for collection is the forced sale of the property at a tax sale. Administrative Tax Sale In New York, the taxing district can foreclose on the property and hold an administrative tax sale sell the property to collect the taxes owed. When a real property tax remains unpaid for a specified time according to local statutes, a list of delinquent

19 Chapter 13 Taxes and Assessments 453 properties is published. A notice of tax sale is also sent to the property owner. On the date specified on the notice, the property is sold and the purchaser assumes any interest and penalties against the property. The purchaser at a tax sale receives a certificate of sale, which is an assignment of the tax lien. If the owner does not redeem the taxes by paying the purchaser in a prescribed time, the purchaser receives a deed from the city treasurer and may record the deed or foreclose on the lien. The theory behind this procedure is that the owner could come forth and pay his back taxes before the foreclosure sale. This method is seldom used in New York because owners have not always protected their property by paying their back taxes. Tax Foreclosure and Tax Sale A situation may occur when a tax district holds a tax lien for more than four years. (Local statutes may reduce this time.) With proper notice to the property owner and publication of the delinquent property, the tax lien is sold to the taxing district. The enforcing officer executes a deed to the taxing district. The deed is executed, delivered, and recorded. The proceeding concludes two years after the recorded date of the deed. The taxing district may then sell and deed the property to a purchaser. The time for foreclosure of a tax lien may vary according to local tax districts. This procedure is the most popular method of tax foreclosure because it is inexpensive and timely. AGENTS RESPONSIBILITIES Property taxes are an extremely important consideration in the purchase of real property. Agents should know the amount of the property taxes and disclose this information to the purchaser. The agent should be able to read and interpret a tax bill and explain the information to the purchaser. He should know of any tax exemptions or reductions that may apply to the purchaser. Other information regarding the property tax is included in the title search. SUMMARY OF IMPORTANT POINTS 1. In New York, property is taxed on an ad valorem basis, that is, according to the market value of the property. 2. A tax bill is determined by a formula that includes two items: the property s assessment and the tax rate of the taxing jurisdiction. 3. A property s assessment is a percentage of its market value; and in most areas outside of New York City and Nassau County, the assessment must be a uniform percentage of the property s market value throughout the taxing jurisdiction. 4. All property is subject to assessment; however, not all property is taxed. Property tax exemptions may be full or partial. 5. An approved assessing unit is a taxing jurisdiction that has completed a property reevaluation and is certified by the New York State Office of Real Property Services. 6. The assessment roll that describes all properties and their assessed value is published each year. Taxpayers who disagree with their assessment may file a complaint called a grievance. 7. If taxpayers are still dissatisfied with the decision of the board of assessment review, they may file a complaint with the New York Supreme Court, called a tax certiorari proceeding, or be heard by specially appointed small claims hearing officers.