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Business investment exemption (generally) (measuring exemption as of taxable status date) - Real Property Tax Law, §485-b:
Pursuant to Real Property Tax Law, section 485-b, increase in value is to be measured annually as of taxable status date by determining the value of the property with the new construction or renovation minus its value without such construction or renovation. The amount of exemption is ascertained by applying the stated percentage for the appropriate year to the difference.
Our opinion has been requested concerning the computation of the Real Property Tax Law, section 485-b partial exemption, where property is gutted by its new owner and subsequently rebuilt. The question is whether the prior assessment should be considered when determining the increase in value referred to in this law.
Real Property Tax Law, section 485-b, authorizes a ten year partial exemption based on the increase in value as a result of real property improvements made for the purpose of commercial, business or industrial activity where the costs incurred exceed $10,000. As provided by this statute, the measure of the exemption for property which qualifies is 50 percent of the increase in value the first year, decreasing by 5 percentage points each year thereafter for nine years (subd. 2(a)).
We have stated in a previous opinion (2 Op.Counsel SBEA No. 27) in relation to the exemption for farm buildings (Real Property Tax Law, §483), where an exemption is also based on increase in value due to construction or reconstruction of a structure, that the assessor should determine: (1) the assessed value of the property without the new construction; and (2) the assessed value of the property with the new construction. We concluded that the excess of (2) over (1) is the increase in assessed value attributable to the construction. That opinion indicates that measuring the amount of the increase in value (which for §483 is the measure of exemption) by the increase over the prior assessment rather than the current value less the improvement would create the possibility for inequitable application of the exemption. The following example evidences the inequity. If an owner whose real property was accidentally destroyed prior to taxable status date replaced the property prior to such date, he would be entitled to an exemption which would be limited to the increase in assessed value as computed by subtracting the prior year's assessment from the current year's. A second owner could obtain a total exemption for replacement property simply by delaying construction of such property until after taxable status date. This could not have been the intent of the legislation.
The same rationale is equally applicable to the exemption authorized by section 485-b of the Real Property Tax Law. Accordingly, in the instant situation the assessor should first determine the value of the property in its present completed state, and then determine the value of the property excluding the renovation. Assuming the value of the property in its present completed state exceeds the value determined excluding the renovation, the resulting difference represents the increase in value due to the renovation. Since the measure of the exemption is 50 percent of the increase in value the first year, and this measure decreases by 5 percentage points each year thereafter for nine years, the stated percentage for the appropriate year of the exemption should be applied to the difference. As is evident, the procedure described above should be utilized in relation to the taxable status date for each year that an exemption is to be allowed.
April 23, 1979