Council of New York Cooperatives & Condominiums
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Tax Issues


Reprinted from the New York State Senate Web site.


This bill grants a partial abatement of real property taxes to certain homeowners of cooperative or condominium units in multi-family residential properties classified as class two pursuant to the Real Property Tax Law. The abatement is intended to partially reduce the disparate tax treatment in New York City between cooperative and condominium homeowners in class two and homeowners in class one.

Under the bill residential condominium owners and tenant-shareholders in cooperative apartment buildings would be eligible for an abatement of property taxes levied for FY 1997, 1998 and 1999. The NYC financial Plan provides up to $8.5 million in FY 1997 and $70 million and $120 million, respectively, for this purpose in FY 1998 and 1999.

To determine the amount of the abatement, the bill provides specific abatement percentages to be applied in each year of the program. The percentage will be applied to the tax liability for the proportion of the building that is eligible for the abatement. The abatement percentages fall into two categories depending upon the average tax assessment per residential unit. For cooperative and condominium units in which the average tax assessment per unit is less than or equal to $15,000, the abatement rates will be 4% for FY 1997, 16% for FY 1998 and 25% for FY 1999. All other class two cooperative and condominium units will be granted reductions of 2.75%, 10.75% and 17.5%, respectively, for the same fiscal years.

The property tax abatement will be reflected on the tax bills of eligible condominium units. For cooperatives the legislation requires that the abatement be passed through from the buildings's tax bill to eligible dwelling units. The bill also imposes a penalty if the board of directors of a cooperative willfully fails to fully credit any tax abatement granted pursuant to this program.

The bill contains specific provisions for cooperatives and condominiums in other tax benefit programs. Those under the J-51 abatement (not the exemption) program are qualified to participate in this program. The abatement is also available to owners receiving benefits under the veterans' exemptions or the senior citizen homeowner exemption programs.

To qualify for abatement under this program, an application must be filed with the Commissioner of Finance by September 15, 1996 to receive the FY 1997 abatement. The deadline for filing for abatements for FY 1998 and FY 1999 is April 1, 1997 and 1998, respectively. The Commissioner of Finance, however, is authorized to defer the credit of the FY 1997 abatement until FY 1998.

The information required in the application includes, but is not limited to physical information, such as the number of stories; the number of dwelling and non-dwelling units; the common interest or number of shares allocated to each unit; and the total number of shares in a property held in cooperative form of ownership. The application also requires the names, social security or tax identification numbers of all owners of units and the names and addresses of those designated by the board of directors or board of managers for receipt of notices issued under this program.

The proposed bill also requires NYC to prepare and present a plan to the state legislature containing recommendations by December 31, 1996 to address problems of disparate tax treatment between class one residential properties and class two cooperative and condominium properties. The bill provides that the program shall take effect immediately.

JUSTIFICATION: A 1993 study by the New York City Real Property Tax Reform Commission found that the average effective tax rate -- as measured by the ratio of tax liability to market value -- of cooperatives and condominiums in class two was more than three times greater than the effective tax rate of class one homeowners. The disparity in effective tax rates can be attributed to differences in valuation methods and the effect of statutory limitations on assessment increases.

One-, two-, and three- family homes are valued using sales prices of comparable properties and the assessed value is equivalent to eight percent of the estimated market value. The Real Property Tax Law limits the amount the assessed value can increase due to growth in market values to six percent annually and 20 percent over any five-year period.

In comparison, cooperatives and condominiums in class two are valued as income-producing rental properties and are assessed at 45 percent of the estimated market value. Unlike class one's limitations, state law provides for a five-year phase in of assessment changes that are the result of market value increases.

The differences in the methods of determining assessed value combined with extraordinary growth in market values which occurred during the 1980's have created a situation in which the effective tax rate of co-op and condo homeowners in class two are, on average, three times higher than of homeowners in class one. The proposed abatement represents the first step on addressing this long-standing problem. In its Financial Plan, the City has allocated $70 million and $120 million in fiscal years 1998 and 1999 for tax reductions under this program. Based upon the Department of Finance estimates, more than 200,000 owners of cooperative and condominium apartments residing in over 6,800 buildings or developments will be eligible for an abatement.

The average annual abatement per apartment will vary depending on the current tax liability of the building excluding non-residential units and spaces. For a typical unit, the yearly abatement per apartment will start at less than $100 in the first year of the program and will increase to several hundred dollars in the third year. For example, a cooperative apartment with a current annual tax liability of $2,000 will receive an estimate abatement of $200 for FY 1998 and $350 for FY 1999. The bill provides a higher abatement percentage for units with an average assessed value of $15,000 or less because this group was found to have higher effective rates than the units above $15,000.

The eligibility provisions of the bill are intended to benefit owners of cooperatives and condominiums. However, the abatement is not available to the sponsors of the building and block investors who hold more than three units.

The bill's provisions to exclude buildings receiving J-51 or 421-A tax exemptions or other property tax incentives or subsidies recognizes that the effective tax rates in these buildings are comparable to, or less than, those of small homes. These limitations do not apply to buildings which receive only J-51 abatements or units eligible for the Veteran's and/or Senior Citizens Homeowner Exemptions.

The legislation also includes a provision for the City to prepare recommendations that will provide equivalent tax treatment of homeowners, whether the home is a one-family house, for example, or a cooperative studio apartment.


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