NYC Property Tax System Survives Court Challenge

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A mid-level New York state appeals court dismissed a constitutional challenge to the New York City property tax system brought by a coalition of real estate interests and civil rights groups.

The long-awaited decision released Thursday by the state Supreme Court Appellate Division, First Department, found that the coalition, Tax Equity Now New York (TENNY), had failed to show a link between racial segregation in city neighborhoods and the property tax system in its 2017 lawsuit.

TENNY didn’t “demonstrate a robust causality between the application of the property tax system, as opposed to other factors, and the continued patterns of segregation that have long existed in New York City,” the court said.

The city’s widely criticized property tax system has been a source of controversy for years, if not decades, as businesses, residential property owners, and elected officials questioned its fairness and transparency. Its basic structure hasn’t changed in more than 40 years, and the last major revision was made in 1996.

TENNY, in a statement, said it would appeal the decision to the state’s highest tribunal, the Court of Appeals. The city continues to evaluate changes in the system through an advisory commission appointed by Mayor Bill de Blasio (D) and City Council Speaker Corey Johnson (D) in 2018.

A City Hall spokeswoman, Laura Feyer, welcomed the decision. “The property tax system should be fair, equitable and transparent,” she said in a statement. “The mayor believes strongly that reform should be done legislatively, not through the courts.”

The city advisory commission “has proposed the most comprehensive reforms in 40 years, and we will continue to push for change before the mayor leaves office,” she added. De Blasio’s term ends Dec. 31, 2021.

A spokeswoman for Johnson, Breanna Mulligan, said that he and the council “are working hard to achieve needed change.” She added that they “look forward to public feedback in upcoming months” on the commission’s preliminary recommendations.

The commission’s preliminary report came out Jan. 31, months behind schedule, after its members struggled with the complexities of issues raised over numerous public hearings and information sessions.

The preliminary report proposed eliminating assessment caps, basing assessments on market value, and shifting co-ops and condos into the same tax class as small residential properties, which would likely bring higher taxes in areas of the city where home values have risen sharply and provide tax relief in working-class neighborhoods. But the panel postponed making even preliminary recommendations on how to tax rental properties, among other issues.

Quick Action Unlikely

The commission plans a series of additional hearings around the city before it puts together its final recommendations, which in turn would require action by the mayor, the city council, and the state Legislature. That timeline effectively rules out changing the system in the current state legislative session, which ends in early June.

But TENNY, in its statement, discounted the commission’s work and held to its position that the solution to the system’s problems lies in the courts.

The commission’s preliminary report, “coupled with recent comments from elected officials, make it very clear that the political will to change this system doesn’t exist and change will only come from the courts,” the group said.

TENNY credited the decision for acknowledging the system’s failures in resolving disparities between the tax burdens of owners of similar pieces of property in different parts of the city.

“But despite overwhelming evidence that the system perpetuates and exacerbates racial and economic injustice in our City, the court believed that the law does nothing to prevent such results,” the group said. “We profoundly disagree. New York’s courts have a deep and longstanding record of striking down government actions that violate state and federal constitutional and statutory guarantees.”

The group’s legal team includes a former chief judge of the state’s highest court, Jonathan Lippman, who is of counsel to Latham & Watkins LLP in New York.

Unanimous Decision

In the decision, Associate Justice Cynthia S. Kern wrote for a unanimous four-judge panel that, contrary to the position of the city and the state in the case, TENNY members have enough interests at stake in the system to have standing to challenge it in court. But she went on to reverse a September 2018 lower court decision and dismissed the lawsuit in its entirety.

Kern concluded that the city system hadn’t violated legal standards defining equal protection under the law and that the features cited as unfair by the lawsuit had a rational basis and served a legitimate government purpose. The system’s “dramatic disparities” aren’t enough to justify judicial intervention, she said.

“It is up to the legislature to implement a fair and equitable property tax system,” Kern wrote. “The grievances plaintiff raises are more appropriately addressed by that branch of government.”

Joining in the decision were Justices Judith J. Gische, Barbara R. Kapnick, and Peter H. Moulton.

The case is Tax Equity Now New York LLC v. New York City, N.Y. App. Div., 1st Dep’t, No. 2019-3610, 2/27/20.

Published by Bloomberg Tax

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