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Volume 11 - Opinions of Counsel SBRPS No. 61

Opinions of Counsel index

Assessment, special franchise (assessment by State Board) (judicial review - assessing unit costs) - Real Property Tax Law, § 742; State Finance Law, § 8:

Where the State Board finds it necessary to employ experts in its defense of judicial review of a special franchise assessment, the costs of employing such experts are to be borne by the assessing units for which the special franchise assessments are determined. If an assessing unit fails to pay its share of such costs, the State Comptroller may use the State’s common-law right of set-off against State moneys otherwise due the assessing unit to recover the amount owed.

We have been asked to explain the provisions of section 742 of the Real Property Tax Law insofar as it relates to the contribution of assessing units toward the expenses of the State incurred in its defense of judicial proceedings to review certain special franchise assessments made by the State Board.

The powers and duties of the State Board are set forth in section 202 of the Real Property Tax Law, and the very first responsibility listed is to “[a]ssess special franchises” (RPTL, § 202(1)(a)). A “special franchise,” essentially, means utility property located in the public right-of-way, including the value of the “intangible” element of the right or franchise to operate in a public thoroughfare (RPTL, § 102(17); see, Metropolitan St. Ry. Co. v. State Board of Tax Com’rs., 174 N.Y. 417, 67 N.E. 69 (1903)).

The State Board annually determines the assessed value of each special franchise and provides notice thereof to each “special franchise owner and the chief executive officer of each assessing unit in which such special franchise is situated . . .” (RPTL, § 608). Special franchise owners and assessing units are afforded the opportunity to file a written complaint (§ 610) and to have their complaints heard at a hearing before the State Board or its duly authorized representative (§ 612). After the hearing, the State Board determines final special franchise assessments (§ 614), which are subject to all local “taxes and special ad valorem levies . . .” (§ 622). {1}

In addition to the right to an administrative hearing, as noted above, special franchise owners and assessing units may institute judicial proceedings for further review of special franchise assessments, as provided in Article 7, title 2, of the RPTL. Such a proceeding is “maintained against the state board . . .” (RPTL, § 740(4)).

In defense of such proceedings, the State Board is represented by the Attorney General who “may employ experts” (RPTL, § 742(1)). By this same statute, the cost of employing such experts “shall be a charge upon the assessing unit upon whose rolls appears the assessment sought to be reviewed and the amount thereof shall be audited, allowed and paid in the same manner as other claims against the assessing unit” (emphasis added).

Where it deems it necessary, the State Board contracts for such experts. Again, pursuant to the provisions of RPTL, section 742(1), the State Board then advises the assessing units upon whose rolls the litigated special franchise assessments appear that the cost of employing the experts in defense of those assessments are a charge upon each such assessing unit. This notification is sent as early as possible so as to allow the local governments sufficient time to budget, levy and collect the necessary revenue.

If, however, an assessing unit fails to pay its share of the costs, the State Board has no alternative but to ask the State Comptroller to exercise the State’s common-law right of set-off against State moneys otherwise due the recalcitrant assessing unit in an amount equal to its remaining unpaid obligations imposed pursuant to the requirements of section 742(1) of the RPTL (see, N.Y. Const., Art. 5, § 1; State Finance Law, § 8; Carlon v. Regan, 98 A.D.2d 544, 471 N.Y.S.2d 896 (3d Dept., 1984), mod., 63 N.Y.2d 1011, 473 N.E.2d 734, 484 N.Y.S.2d 506 (1984)).

April 9, 2004

{1}  Note that although the State Board assesses the value of special franchises, the State derives no revenue whatsoever from the taxation of same. Rather, taxes on special franchises are imposed by and are revenues of local governments exclusively.