The Byzantine NYC Property Tax System

by Laura Matiz 

If you do a Google search for "New York City property tax system," you will run across quotes from politicians and experts repeating statements such as, "the whole tax-assessment system is broken"  or stating the system as a "mind-numbingly complex method of assessing property taxes."  More importantly, the system has been broken for a long time with the last major correction enacted in 1996. That correction was known as the Cooperative and Condominium Tax Abatement.

Change may not be coming soon, but one thing all property owners can do is to educate themselves on the basics of the system. To start, all property is categorized into four classes, with most large cooperative and condominiums buildings in Manhattan falling under Class 2,  as shown in the graphic below:

Source: NYC.gov website.

The table from NYC.gov shows the tax rates for each property class, but it is a bit misleading because of how that rate is applied. Looking at the table, one would assume that Class 1 properties get hammered compared to Class 2 properties. That would be true if the rate was applied to the market value, but it is not. The property tax gets applied to the assessed value of the property and how the assessed value is figured out is interesting. 

The Class 1 tax rate, 19.157%, is applied to 6% of the market value, while for Class 2 properties, the 12.855% rate is applied to 45% of the market value.  In New York City, it is quite possible to have identical market values for properties in these two classes. Such an example is illustrative of some of the inadequacies of the system. For example, assuming no abatements or exemptions, a Class 1 property with a market value of $10M would be assessed $115,000; a Class 2 $10M property would be assessed just over $578,000, or about five times as much. Of course, many factors can be used to explain the discrepancy one way or the other, but better would be to simplify and reform the system. 

The NYC.gov site offers useful guides that explain the complexities of the property tax system.

• NYC Property Taxes - Class 1: One Two  Three Family Homes (PDF)
  
• NYC Property Taxes - Class 2: Coops Condos Rentals 4+ Units (PDF)

To check a property's market value and assessed value, the NYC.gov/finance site has a property search system. Of course, the market value assignments are also quite intriguing, but better left for another article. 

A number of politicians and public-interest groups are lobbying for property tax reform, but given the history of inaction, it doesn't appear that there is much will or leadership to get the kind of reform needed.  Here are articles should you be further interested in this topic:

• Inconsistent + Indecipherable + Intractable = New York City's Property Tax Code
  
• The New York City Property Tax System: A Nice Mess (2009)
  
• Assessing New York City's Property Tax—Yet Again (2009)

Categories: Policy, Property Tax