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Volume 8 - Opinions of Counsel SBEA No. 81

Opinions of Counsel index

Business investment exemption (calculation) (effect of reduction in assessed value) - Real Property Tax Law, §§ 485-b, 726:

If the assessed value of property receiving a business investment exemption is reduced in an assessment review proceeding, the amount of exemption should be reduced by the same percentage as was the assessed value.

We have been asked to assist in resolving a disagreement between a property owner and an assessor concerning the extent of a business investment exemption (Real Property Tax Law, §485-b) following the reduction of an assessment by court order.

The pertinent facts are as follows. Prior to remodeling, the parcel in question was assessed at $15,000. When the remodeling was completed, the assessment was increased to a total assessed value of $30,000 and granted an exemption pursuant to section 485-b in the amount of $7,500 (50% of the $15,000 increase). The property owner then instituted proceedings for administrative and judicial review of the assessment. A stipulation between the Town and the taxpayer was ultimately signed and approved by the court. Pursuant to the court order, the total assessed value of the parcel in question was to be reduced to $18,000.

Neither the stipulation nor the court order made reference to the exemption. The assessor believes that the exemption should be 50% of $3,000 (the difference in total assessed value between the court order and the assessment prior to the remodeling) while the property owner contends that the exemption should be 50% of $15,000 (the difference in total assessed value between the assessments before and after the remodeling).

Article 7 of the Real Property Tax Law provides for judicial review of assessments. Section 726 relates specifically to refunds of taxes. It provides, in pertinent part, that if an assessment is reduced by a court order pursuant to Article 7, a refund shall be paid of the amount of taxes paid in excess of the amount which would have been paid if the assessment had been made as determined by such order. The statute does not expressly address the question of how an exemption that is based upon the total assessed value of the parcel is to be affected by a reduction in that total assessed value. It is our opinion that since only the total assessed value is at issue, the ratio between the taxable and exempt assessed value should be preserved. Thus, the exemption should be reduced by the same percentage as the total assessed value was reduced.

Such a conclusion was reached in an analogous situation in the case of Linden Hill No. 2 Cooperative Corp. v. Tishelman, 107 Misc.2d 799, 435 N.Y.S.2d 936 (S.Ct..,New York County 1981), aff’d, 87 A.D.2d 577, 450 N.Y.S.2d 404 (2d Dept. 1982). That case concerned the exemption for improvements to multiple dwellings provided by section 489 of the RPTL and section J-51-2.5 of the Administrative Code of the City of New York. The “J-51 program”, as it is known, exempts for 12 years any increase in assessed valuation resulting from alterations and improvements to eligible real property. In that case, after the taxpayer completed certain improvements, the assessment was raised by $40,000 (from $3,480,000 to $3,520,000) and a J-51 exemption was granted in the amount of $40,000.

In a judicial proceeding to review the assessment, the taxpayer then challenged the total assessed value (of $3,520,000) and succeeded in obtaining a reduction of this figure. Prior to making the refund, the City reduced the exemption by prorating the total assessment reduction between the taxable and exempt portions. This, of course, reduced the tax refund. The court rebuffed the taxpayer’s objection to the City’s reduction of the exemption, stating:

Section 726 of the Real Property Tax Law is clear that if the total tax assessment is reduced, the new assessment replaces the original assessment. Since the J-51 exemption is computed on the basis of the difference between the tax assessment of the year prior to the improvement and the tax assessment after the improvement, applying section 726 of the Real Property Tax Law would proportionally reduce the amount of the exemption, at least for purposes of a tax refund. . . . The effect of petitioner’s position, if not its intent, is to disproportionally increase the exempt portion of the property relative to the total assessment (435 N.Y.S.2d at 938-939).

The same reasoning would be applicable to the case presented to us, especially since the business investment exemption, like the J-51 exemption, is based on the increase of assessed value attributable to the improvement. Accordingly, since the assessed value in this instance was reduced by 40 percent by the court order, the exemption should be reduced by the same percentage, resulting in an exempt value of $4500 (the original exemption having been $7500).

November 12, 1985

Updated: