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Council of New York Cooperatives & Condominiums
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Financial Issues

Published: Summer 2001

FISCAL 2002 ABATEMENTS AND EXEMPTIONS
WILL BE ENUMERATED IN NOVEMBER

Property tax bills for cooperative corporations and condominium unit owners in New York City due July 1, 2001 contained no provision for the property tax abatements because extender legislation had not yet been enacted (see page 3). State legislation has been passed to extend through June 30, 2004 abatements at 25% for buildings where the average assessment per unit is $15,000 or less and 17.5% for cooperative and condominium units of higher assessed values. At the writing of this Newsletter, this legislation awaits Governor Pataki's signature.

DISTRIBUTING ABATEMENTS
Once the extender legislation becomes law, there will be an opportunity for those not already registered for property tax abatements to submit requisite information. Adjustments to reflect the abatements and exemptions will appear on January and April tax bills. Condominium unit owners receive individual bills, where they will each clearly see their abatements and exemptions. But shareholders in cooperatives do not receive individual tax bills, instead, their exemptions and abatements reduce the property tax on the building. The cooperative must distribute the abatements and exemptions to qualifying shareholders. In November, the Department of Finance (DOF) provided every participating cooperative with listings of the dollar amount due to each shareholder for all exemptions and abatements for which they qualify, including property tax abatements, the State's STAR (school tax relief) Program, and other programs for which veterans and seniors have qualified. The cooperative must credit shareholders appropriately by June 30, 2002, but it has the option of when and how this distribution is made.

DOF SEEKS ALL THOSE ELIGIBLE FOR STAR
Every New York homeowner is entitled to participate in the State School Tax Relief (STAR) program for their primary residence. Individuals must apply for STAR by filing DOF forms which permanently qualify the homeowner for Star.
Senior citizens with a family income of $60,000 or less can qualify for enhanced STAR benefits; to do so they must provide copies of their tax returns when applying and must reconfirm income on forms which the Department of Finance sends to them every two years. Because STAR applies only to one's primary residence, homeowners in cooperatives and condominiums who own more than one apartment can still only receive one STAR benefit.

When the STAR program was inaugurated four years ago, the Department of Finance was able to quickly contact a great number of the homeowners in New York City cooperatives and condominiums because it had developed an extensive database in the course of implementing the co-op/condo property tax abatement program. But a surprisingly small percentage of these homeowners returned the STAR forms. DOF continues to actively reach out to provide these benefits to all qualifying homeowners. By referring to the summary list received last November, you can see which shareholders in your cooperative are not currently receiving STAR. They can request application forms from Taxpayer Assistance at (718) 935-9500 or via the DOF website at www.nyc.gov/ contact finance. Expedite the process by providing the block and lot number for your building.

CITY RESOLVES "RS FEE" PROBLEMS
The owners of rent regulated apartments are required to pay an annual Rent Stabilization Fee of $10 to the City. When cooperatives and condominiums actually own occupied units, they are responsible for this fee; however, in most cases, sponsors or investors are responsible for the "RS Fee."

Last March, as the Department of Finance was updating and automating its records, suddenly delinquent "RS Fees" allegedly incurred from 1984 to 1998 appeared on property tax bills, where compound interest brought some bills to astronomical levels. CNYC immediately alerted its members, suggesting that they investigate these fees before paying them, since it was likely that sponsors, not the cooperative or condominium, were responsible for payment. CNYC also entered into discussion with the Department of Finance, which quickly confirmed that cooperatives would be pursued only when they were the actual owners of the rental units.

Reacting to the complaints from owners' groups and from CNYC and other co-op/condo advocates, the City Council took action. On June 18, 2001, Mayor Giuliani signed into a law a new bill eliminating interest due if payment is promptly made (by mid-September) on delinquent RS Fees due from 1984 through 1998. Furthermore, when an owner has made all required payments from 1993 through 1998, the city will waive all payments and interest that it was claiming due prior to 1993.

Soon the city will send bills for delinquent RS fees for 1999 and 2000. No retroactive interest will appear on these bills.

U.C.C. 9 UPDATE CLARIFIES CO-OP LIENS
On July 29, 2001 Governor Pataki signed into law extensive amendments to Article 9 of the Uniform Commercial Code. With the passage of this legislation, New York became the first state to establish standard procedures for perfecting liens on cooperative apartments when share loans are made. The amendments also reinforce prior legislation which make it unnecessary for lenders to take possession of the proprietary lease and stock certificate when a loan is made.
The new law clearly acknowledges for the cooperative an automatic first lien on all shareholder apartments (provided, of course, that the proprietary lease and bylaws of the corporation grant such a lien). It further eliminates a provision of the old law which required that the co-op's lien be noted on the stock certificate.

The revised U.C.C.9 took effect July 1, 2001. It is anticipated that the New York co-op provisions will serve as a model for amendment of U.C.C. 9 in other states where cooperatives exist.

COURT RULING ON MORTGAGE RECORDING TAX
The New York Law Journal of July 18, 2001 reports a Court of Appeals decision confirming that refinancings are subject to the mortgage recording tax only to the extent that indebtedness is increased. The City of New York had appealed a lower court ruling that to the extend that refinancings did not increase indebtedness, they were not subject to the mortgage recording tax. The Court of Appeals considered the City's argument that subordination agreements amounted to new second mortgages, but determined that they did not. The Court ordered New York City to refund to four buildings tax it had collected, primarily for refinancing wraparound mortgages without increasing overall indebtedness.

ONLY CITY SALES TAX DUE ON FUEL & ELECTRICITY
In New York State, the purchases of fuel and electricity for residential use are wholly exempt from State sales tax.. However, these items are often taxed by the local government. New York City, for example, continues to impose a 4% tax on such purchases.

Where a single meter measures both residential and nonresidential use, all of the charges are exempt from that state sales tax so long as at least 75% of the use, based on square footage is residential. Because most cooperatives and condominiums satisfy the 75% test, few have been paying any State sales tax on such purchases. However if an organization has paid tax that it did not have to pay, it can apply to the State Tax Department for a refund. Such an application ordinarily must be made within three years. A cooperative or condominium seeking a refund must be sure that it is the State tax that was paid, as opposed to the New York City tax or some other local tax. Note that all sales taxes including those imposed locally are collected by the State Tax Department, so that the fact of payment to the State does not establish that it was the State tax that was paid.

Where the 75% test is not satisfied, a cooperative or condominium can certify the percentages of residential and non-residential use and pay the State sales tax on only the nonresidential portion of the total, rounded to the nearest 10%. Certification forms can be obtained from the supplier, from any State Tax Department office, on the Department's website (www.tax.state.ny.us) or from the Taxpayer Assistance Bureau, Department of Taxation and Finance, W.A. Harriman Campus, Albany, NY 12227. Newly certifying organizations as well as organizations that previously certified should be aware that last August the State Tax Department issued an advisory opinion (TSB-A-oo(31)S) liberalizing the rules concerning what portions of a condominium's areas and facilities may be treated as residential. Again, organizations that overpaid can apply for a refund.

COMPARATIVE STUDY OF 2000 OPERATING COSTS
The Comparative Study of 1999 Operating Costs has been published and a copy has been sent to every CNYC member cooperative and condominium and to all professional subscribers. Thanks to the cooperation of CNYC members and of many accountants, data from 782 cooperatives and condominiums is included in this Study. This annual analysis provides a framework to help you decide if your own building is operating economically and efficiently, by studying the various costs of operating a building. Code numbers are used to identify the participants, while preserving their anonymity. When the Study is sent to members whose financial data is included, they are advised of their code numbers so that they can find their own statistic.

The Comparative Study analyzes all data on a per-room basis, beginning with the current assessment and mortgage figures for participating buildings and the amounts paid as maintenance charges. It then lists amounts spent per room on wages, fuel, utilities, repairs and maintenance, insurance, management costs, administrative costs, water & sewer fees, property tax, and debt service. When possible, elevator maintenance and legal and accounting costs are each listed separately. The Study also presents summary statistics, calculating the averages and medians for each item, and the average portion of total operating budget devoted to each.

The Comparative Study of 1999 Operating Costs can be purchased from CNYC for $5. Send your check to CNYC at 250 West 57th Street, NYC 10023-2142, being sure to specify the address to which to send the Comparative Study.

CNYC is compiling data for the Comparative Study of 2000 Operating Costs. To ensure its success, we need financial statements from as many New York cooperatives and condominiums as possible. It has been suggested that CNYC add to the Study the number of units in each participating building. This will be attempted for the year 2000. Please send CNYC your financial statement for the year 2000 by mid-September, so that your information can be included in the Comparative Study.

 
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