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NYC property tax out of order, say experts

10:00 am, February 20, 2013

By Sarah Trefethen

Wading through city tax codes is like an episode of Law & Order.

You can stop wondering if taxes on your New York City residential property will be going up this year, according to analysts at Eastern Consolidated. The answer, they say, is yes.

In fact, a recent report by Barbara Byrne Denham, the brokerage’s chief economist, proposes adding a third certainty to the inevitable duo of death and taxes: In New York City, real property taxes increase every year, regardless of market conditions.

Little else, however, seemed certain in the analysis of 111 Manhattan properties in three neighborhoods, which compared non-condominium residential property tax payments on a per-square-foot basis in the Upper East Side, the Upper West Side and the West Village.

Property tax collections on multifamily properties showed little correlation to the age of the building, location, size or overall value, according to the report.

“As a former tax lawyer, I am confounded by the City’s tax code,” Peter Hauspurg, Eastern Consolidated’s chairman and CEO, said in a statement. “Researching these numbers was akin to a Law and Order episode — every new piece of information generated more and more questions.”

The owners of rental buildings in the West Village paid an average of $3.82 psf in property tax in the 2012 tax year, according to the report, but the actual tax per square foot varied widely among the 13 buildings surveyed, from a low of $3.82 psf to a high of $13.41.

PETER HAUSPURG

On the Upper East Side the average tax on a rental building was $10.23 psf, with a range from $6.46 to $14.31. On the Upper West Side, the average was $6.22 psf, with a range from $3.61 to $13.64.

Eastern Consolidated’s report calls for further analysis to explain the wide disparity in taxes collected on these properties. But it also rules out the suspicion that any one property class or neighborhood is carrying more than its share of the property tax burden. Co-op buildings did not necessarily pay less in property taxes per square foot than rentals, according to the report.

“For the 40 rental properties surveyed in the three neighborhoods, property tax collections on the Upper East Side were consistently higher and showed less variation than in the West Village and the Upper West Side. Collections on the Upper West Side were, on average, lower but showed a far greater range. Finally, collections increased consistently every year in all but seven of the 40 buildings surveyed. A few more showed the same tax levied in two subsequent years,” Denham wrote.

The steady increase in tax payments in spite of a turbulent market is the result of a rule that caps the amount that the assessed value of a property can increase year-to-year.

“While this stabilization policy eases the tax burden in the frothy years, it adds to the tax burden when property values start to decline, which is why the property taxes collected increased from 2008 to 2012,” according to the report.

BARBARA BYRNE DENHAM

As long as the taxable assessed value of a property lags behind its market rate value, the assessed value and the resulting tax bill will continue to rise. And that’s where Denham concludes the inevitability of property tax increases in Manhattan and Brooklyn, where taxable value increases have yet to catch up with the increases in market value.

The report concludes with a look at the ratio of all New York City real estate taxes collected to total taxes collected, from 1994 to 2012. Real estate’s share of the city’s entire tax burden has moved up and down within a narrow range of 40 percent to 49 percent over those years. In 2012, it was 47.5 percent.

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