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Last week the Court of Appeals of the State of New York sent a shock wave through the real estate community with their decision in the case of Tax Equity Now, NY, LLC vs. City of New York, State of New York etal. The decision essentially kept alive the lawsuit filed by the Plaintiff Tax Equity Now NY, LLC (TENNY) challenging New York City’s property tax system. The lawsuit alleges that the current system of property taxation in New York City imposes substantially unequal tax bills on similarly valued properties that bear little relationship to the property's fair market value.
The plaintiffs further allege the result of this tax system is “staggering” inequities and harms those property owners who can least afford to pay the higher taxes. In the meantime, higher-valued properties, it is alleged, pay far lower tax rates than their lower-valued counterparts. It is further alleged that districts with owners of color are over-assessed and subjected to “higher taxes compared to properties in majority-white districts”. The plaintiff sought a judicial declaration against New York City and New York State deeming the system of taxation to be unlawful and calling for its’ revision. The original case was filed in 2017 and was dismissed by motion by the Supreme Court, New York County. The dismissal was upheld by the Appellate Division.
In the recent Court of Appeals decision, the Court found that two causes of action were improperly dismissed by the lower courts and remanded those issues back to the Supreme Court, New York County. The Court in their decision reviewed the challenges to both Class 1 and Class 2 properties under the New York City property tax system. Class 1 includes 1 to 3-family homes. These properties are taxed based on market valuations, but the tax increases are capped at 6% per year and 20% over 5 years. Class 2 properties include rental buildings cooperatives and condominiums. These properties are taxed based on the value of the rental properties. Essentially, cooperatives and condominiums are not assessed based on their actual values, but rather based on the value of a comparable rental property. According to the decision this has led to wild fluctuations and tax bills for real property owners in New York City and disparate treatment of taxpayers. Minority-owned properties end up paying more than their fair share.
These issues will be heard by the lower court in the future, and we will follow it and report back as the matter progresses.
https://www.nycourts.gov/ctapps/Decisions/2024/Mar24/1opn24-Decision.pdf
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