Local property tax is the oldest tax levied in the United States, and it has historically been viewed as the least fair when compared to other taxes like social security, federal income tax and state sales tax. It’s also New York City’s largest source of revenue.
In fiscal year 2015, property tax represented 27 percent of all city revenue, at nearly $21 billion. The second largest source of revenue comes from income tax, which raised less than half that amount. Each year, the revenue the city intends to raise from property tax is known as the “property tax levy.” Different property classes each have a set share of property tax they are expected to raise, and that amount can vary year to year.
To address perceived inequities in the current City property tax system, the Furman Center, a NYU urban policy research organization, has recommended several changes to the system.
Stop undervaluing co-ops and condos
The Furman Center says that some of the city’s most valuable properties are “significantly and persistently undervalued.” Its report found that, in 2012, 50 individual co-ops in 46 buildings were sold for well over the Department of Finance’s estimate of the market value of the building. According to the Furman Center, Section 581 of New York’s Real Property Tax Law inappropriately values co-ops and condos based on “comparable” rental properties that are hard to fairly replicate, especially when dealing with the City’s most exclusive neighborhoods.
The NY Post reported on this imbalance, noting that the New York’s most expensive apartment, a $100 million condo on 57th Street is currently being assessed at just $8.1 million.
Make homeowners pay their fair share
The Furman Center found that equally valuable properties experience “radically different tax treatment,” depending on the use of the property and its ownership designation. Homeowners have more favorable assessments “at the expense of residential landlords and their tenants.”
New York residential buildings are designated either Class 1 or Class 2, and Class 1 buildings pay an effective tax rate that is five times lower than Class 2. One difference between the designations is that properties in Class 1, which includes residential properties up to three units and condominiums under four stories, have significantly more residents that own their homes than Class 2, which includes larger multi-family rental buildings and condominiums above four stories.
Property tax rates are the only tax rates that the City has the power to change without prior approval from the State Legislature, but the issue still gets state-level attention.
Last month, Mayor de Blasio met with state lawmakers to tax about a New York City’s property taxation system and a possible property tax cap. Overall, the City’s tax levy increased by 5.7 percent in 2014 and 6 percent in 2015.