What NY Can Do to Help Real Estate – Fix a Defective Tax Appeal System
Tax appeals are expected to increase significantly due to challenging conditions, such as Covid. Unfortunately for CRE owners, the NYC appeal process was designed to ensure healthy fees to attorneys while the quality of the process lags most states.
Writes Bill Quinn, a veteran tax appeal industry insider
The tax appeal

Commercial real estate (CRE) owners and asset managers of all property types typically review annually and appeal real estate taxes, when warranted, by challenging the value assessed by local governments throughout the U.S. – so CRE owners are well versed with this opportunity and process of lowering real estate taxes. This article is not a commentary on the much written about NYC tax appeal constitutional inequities or the NYC lawsuit brought by Tax Equity Now NY LLC (the case was dismissed for failure to state a cause of action but is likely to be appealed or re-initiated with a specific plaintiff who has suffered damages). This article speaks to one change through executive order and how the application of technology can fix a defective NYC tax appeal system.

A NY City Tax Appeal Primer

New assessments are published annually around January 5. An appeal must be filed with a NYC Tax Commission on or before March 1, and the owner must use a tax certiorari attorney. For income producing CRE valued above $5M, the appeal must be accompanied by an income operating statement certified by a CPA. There is no guarantee of an in-person or paper hearing before the Tax Commission. In 2018, the Tax Commission received more than fifty-five thousand applications for properties in the City, which represented approximately 81% of the total tentative taxable assessed value of all City properties across the tax classes, but entertained in-person or paper hearings on only 54% of those applications. The Tax Commission has created a “supplemental” process requiring corroboration for alleged “sins” – this is insulting terminology invented to describe facts the Commission may find objectionable, such as when a building is vacated by a tenant and becomes 100% vacant. While such a building would deserve a value reduction in any state, NYC labels it a “sin”. Where a case is not resolved, a petition may be filed with the New York State Supreme Court while another hearing may be requested with the NYC Tax Commission the following year.

For those familiar with tax appeal rules and process throughout the U.S., the NYC process seems absurd and unnecessarily costly to both CRE owners and government. Here is how one knows a tax appeal process is defective: i) it costs more than it should, ii) it takes a long time to resolve, iii) it doesn’t give owners enough time to assemble evidence, iv) it doesn’t give an appeal hearing to every petitioner seeking one, v) it is rife with unnecessary burdens, vi) it doesn’t use technology to bring down the burdens on taxpayers and government alike, and vii) it requires too many cases to be filed to court for resolution. Using this criteria, the NYC system has a failing grade.

An executive order to allow CRE owners to appeal without certiorari attorneys

An executive order should be published allowing appeal filings to the existing Tax Commission without the use of attorneys and by CRE owners or their non-attorney valuation specialists. No doubt this non-attorney author could get lambasted for this recommendation, but would members of the NY Bar really sue over the possible illegality (i.e., inconsistency with existing code) of such an order when said order helps so many CRE owners? Why not let the market decide if it really needs the attorneys.

The appeal evidence and ensuing discussion is based on valuation, which is a finance discipline – and not a legal discipline. NY state is one of a few states that requires that a CRE tax appeal be filed by an attorney – who does that benefit? How is it the same tax appeal valuation arguments are being made throughout the country without the insertion of an attorney? When there are matters of the application of law, cases can be appealed to the NY State Supreme Court.

The same executive order should enable NYC assessors the authority to settle tax appeal cases. Oh yes, many years ago NYC was stricken with an assessor bribery situation; so a bunch of legislators thought up a flawed Tax Commission scheme and CPA certifications as the solution? This scheme increases the fees paid to attorneys and accountants while not guaranteeing due process for appellants. NYC could keep the same [flawed] Tax Commission timeline in place while authorizing assessors to settle appeal cases with an appeal window open up until December 31 (Virginia has this). You mean to tell CRE owners that NYC cannot put into place the same checks and balances the rest of the country uses to ensure its assessors are unable to be bribed? With a supervisor based organizational system and well-designed technology, the government can guarantee assessors, with criminal intent, would not be able to carry out nefarious activity – this is the way the rest of the U.S. does it!

And the same executive order should remove the CPA certification requirement, which is a specious guarantee anyway. It is not an audit and is probably the result of a CPA engagement letter which describes that, given the limited timeframe of weeks, the CPA is relying on certain best practices employed by the CRE owner to produce the financial statements. Why not rely on the standard operating procedure used by the rest of the U.S. – similar to an affidavit standard, the CRE owner swears, subject to perjury, that the information is true and has personal knowledge of the facts therein.

Applying technology to cure many of the NYC tax appeal system defects

One NY attorney recently recommended re-assessments should not be conducted annually because of the large amount of NYC properties and any Tax Commission settlements should freeze the value for several years. The problem with attorneys designing the tax appeal construct is they have little to no expertise on technology and valuation. Many of the defects of the NYC tax appeal situation could be cured by advanced technology.

CRE owners are required to file income and expenses with the Department of Finance June 1 each year (the “RPIE”). Many U.S. jurisdictions have this requirement – it is not onerous, depending on how technology is used to make it seamless for owners and government. Technology can be used to auto ingest this data from a CRE owner’s backend software into a government software that auto generates the assessed valuation, with minor tweaking. This would relieve owners of unnecessary time and enable NYC to value each property annually. A value freeze, which would rob taxpayers of the expectation the government is setting values annually per state law, would not be necessary and is nothing but a bureaucrat’s solution.

Technology can be used to effectuate the attestations regarding income and expense filings, both for the June 1 deadline and subsequent appeal filings. Technology can be used to auto schedule assessor and Tax Commission hearings, with little human intervention. Technology can organize the data and report to owners and government officials what data is missing and what additional questions remain regarding “sins”, with little human intervention. Assessor and Tax Commission could hold many hearings virtually with the technology managing and presenting all relevant data – this would enable the execution of many more hearings with the same amount of time and resources and could guarantee every appellant a fair hearing.

CREyield is leading the way
CRE owners and the NYC government should embrace those tax appeal companies that are driving dramatic change to the tax appeal paradigm by applying innovative technology – CREyield has the technology platform and functionality described in this article. Technology can be used to ensure the delivery of accurate and complete data, competent and fair valuation analysis, and complete documentation.

Bill Quinn is CEO of CREyield and formerly Director of Tax & Legal Services at PwC. He has saved CRE owners hundreds of millions of dollars appealing tax values. He can be reached at bill.quinn@creyield.com