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Volume 5 - Opinions of Counsel SBEA No. 125

Opinions of Counsel index

Railroad ceiling assessment (application by local assessor) - Correction of errors (procedure) - Real Property Tax Law, §§ 489-d, -p, 553, 554, 556:

The assessor has the duty to assess railroad real property, but such property is exempt from taxation to the extent that the assessed valuation thereof exceeds the railroad ceiling determined by the State Board.

The failure of an assessor to reduce the assessed value of railroad real property subject to a “railroad ceiling” constitutes a “clerical error” as defined in section 550(2)(c) of the Real Property Tax Law (i.e., a failure on the part of the assessor to act on a partial exemption). Taxes attributable to such error may be refunded if application is made within three years of the annexation of the warrant for the collection of same.

There is no statutory authority in New York State for a property owner to unilaterally pay less tax than that levied against his property.

Our opinion has been requested concerning the assessment and taxation of real property of the Consolidated Rail Corporation (Conrail).

The inquiry concerns the authority of Conrail to refuse to pay the full school tax bill which was levied against its property, and to pay instead a tax bill which it recomputed by substituting the assessment ceiling established by the State Board of Equalization and Assessment for the assessed value entered on the roll by the local assessor.

Since 1959, railroads in New York State have been eligible for special taxable status pursuant to Article 4, Titles 2-A and 2-B (§§489-a to 489-v, and §§489-aa to 489-ss, respectively) of the Real Property Tax Law. These statutes, commonly known as the “railroad ceiling law,” permit qualified railroad companies to obtain valuations of their railroad real property from the State Board of Equalization and Assessment. Upon final completion, such state valuations become the ceilings for local assessments of railroad real property. That is, while the assessor still has the duty to assess railroad real property (Real Property Tax Law, §§489-c, 489-cc), such property is exempt from taxation to the extent that the assessed valuation thereof exceeds the railroad ceiling determined by the State Board (id., §§489-d, 489-dd).

Prior to 1977, valuation by the State Board required completion of a five year earnings history and an inventory of system valuations of the railroad company’s property. The entire procedure, however, must be preceded by a formal election by the railroad company to submit itself to the valuation process, and this election procedure generally requires at least one tax year.

On April 1, 1976, Conrail became the owner and operator of most of the freight rail lines in New York State previously owned by bankrupt railroads. However, due to the aforementioned requirements relating to election (Real Property Tax Law, §489-v) and the five year earnings records (id. §§489-g, -h, -i), it would not have been possible to establish ceilings for properties conveyed to Conrail without some statutory amendments authorizing the use of information compiled prior to the conveyance. Such authorization was granted by chapter 921 of the Laws of 1976, repealing former section 489-t and adding a new section 489-t guaranteeing Conrail and/or a private railroad the same ceiling on local property tax assessment as existed prior to the railroad reorganization.

Pursuant to chapter 921 then, Conrail was eligible in 1976 for so-called ceiling assessments, and it was this enactment on which the company’s general tax agent based his presumption of the invalidity of the assessed value established by the local assessor.

The assessor has the duty to assess all real property of railroad companies situated in his assessing unit, but such property is exempt from taxation to the extent that the assessed valuation determined by the assessor exceeds the railroad ceiling established by the State Board. Subdivision one of section 489-p of the Real Property Tax Law provides that if the assessed value exceeds the railroad ceiling,

such railroad real property shall be exempt from taxation to the extent of such excess and the assessor shall forthwith reduce the assessments of such railroad real property of such railroad company, so that the aggregate of the taxable assessed valuations of such property shall not exceed such ceiling. . . [T]he amount so deducted from the assessed valuation of each parcel shall be set forth on the portion of the assessment roll provided for property exempt from taxation. The taxable portion of the assessment remaining on railroad real property shall be apportioned among the school districts and special districts directly in proportion to the apportionments of the assessed valuations of such railroad real property made by the assessor prior to the adjustment for the exemption resulting from application of the railroad ceiling. . . .

Subdivision 2 of section 489-p further provides that the assessor is authorized to make the reductions provided for in subdivision 1 “notwithstanding the fact that he may receive the certificate of the railroad ceiling after the final completion, verification and filing of such assessment roll.” (emphasis added) Other local officials, including school authorities having custody and control of such roll, are empowered to make the reductions provided for in this section, based on information furnished by the assessor.

Thus, it is clear that the assessor had a statutory duty to reduce the assessment of the Conrail real property in question to the level established as the ceiling assessment for such property by the State Board. The fact that Conrail did not file a written complaint prior to grievance day nor subsequently commence a so-called “Article 7 Proceeding” (for judicial review), does not preclude all right of administrative redress to the company, because of the provisions of Title 3 of Article 5 of the Real Property Tax Law, the so-called “Correction of Errors” Law.

Originally enacted in 1974 (L.1974, c.177) and amended in 1975 (L.1975, c. 124) and (L.1976, c.634), sections 550-559 of the Real Property Tax Law represent the culmination of two years of study to develop strictly defined standards and procedures under which local officials may correct assessment and tax rolls, while maintaining both the integrity of these legal documents and administrative due process. No correction may be made that does not come within the ambit of definitions of errors set out in section 550 of the Real Property Tax Law.

Correctable errors defined in section 550 include a “clerical error,” “error in essential fact” or an “unlawful entry.” Subdivision 2, paragraph (c) of section 550 defines a “clerical error” to include:

(c) an incorrect entry of assessed valuation on an assessment roll or on a tax roll for a parcel which, except for a failure on the part of the assessor to act on a partial exemption, would be eligible for such partial exemption. . . (emphasis added)

The failure of the assessor to reduce the assessment of Conrail’s property to the ceiling assessment falls within this definition of clerical error, since the reduction Conrail should have received is a partial exemption from taxation. The question remains, however, as to how this error should have been or should be corrected.

Between the date of the filing of the final assessment roll and the extension of a tax, authority to correct such an error is granted to the board of assessment review, upon petition of the assessor with notice to the taxpayer (Real Property Tax Law, §553). However, the time limitations prescribed by the statute make it readily apparent that this particular remedy is no longer available to Conrail in regard to the school taxes in question.

After the extension of taxes (which is the case before us) authority to correct such errors shifts to the tax levying body (Real Property Tax Law, §554). Pursuant to section 554 the taxpayer must submit a form to the county director whose responsibility it is to investigate the error and to make recommendations to the tax levying body which has the power to authorize or reject the correction. However, time limitations once again play an important role in this statute: the application by the taxpayer must be made before the end of the interest free period to avoid payment of interest and penalties. The interest free period for payment of school taxes runs for one month from the date the tax collector receives a warrant for the collection of taxes and publishes notice of such fact, and generally (for school tax purposes) this one month period runs from September 1 through September 30. A taxpayer who fails to make such timely application must pay interest as prescribed by law on the corrected tax; the right to pursue this type of remedy remains, however, until such time as the expiration of the warrant for collection of taxes.

Thereafter, administrative redress is limited to refund after payment of the full tax bill (Real Property Tax Law, §556(1)). Again, the taxpayer must submit the proper form to the county director, who must investigate the error and make a recommendation to the tax levying body, which may or may not grant the refund.

The partial payment of the school tax bill by Conrail’s General Tax Agent did not satisfy the requirements of this State’s laws. The proper remedy depends upon the timing element. Between the filing of the final assessment roll and the date of extension of taxes, simple petition by the assessor to the board of assessment review to rectify this clerical error would have been sufficient (§553). From the date of the tax levy until the expiration of the warrant, the taxpayer might still have had review without payment of the bill, upon petition to the county director of real property tax services (although interest charges may accrue if petition is not made during the interest free period (§554)). Upon the expiration of the warrant for collection of taxes, the sole remaining administrative remedy is a refund after payment of taxes (§556). Therefore, the question now appears to turn on whether the warrant for collection of school taxes has expired; if so, the refund solution is Conrail’s only available administrative remedy; if not, the application for correction should be made in accordance with the requirements of section 554 of the Real Property Tax Law.

January 14, 1977

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