New York City Real Estate Tax Certiorari
Real estate Tax Certiorari (“Certiorari”) is the legal process by which a property owner can challenge a real estate tax assessment. The Tax Commission is the City of New York’s forum for independent administrative review of real property tax assessments set by the New York City Department of Finance annually on January 15th. The Tax Commission reviews applications for and determines correction of assessment filed by owners and other parties with sufficient legal interest in properties they claim are incorrectly assessed or improperly denied an exemption from real property tax. The Tax Commission allows for the appeal of assessments for rent producing properties, cooperative and condominium properties, hotels or motels and department stores, theatres, and service sites.
A Certiorari differs from the annual Real Property Income and Expense (“RPIE”) filing. Rent-producing properties assessed for $40,000 or more are required to file a RPIE statement with The NYC Department of Finance for use in preparing real property tax assessments. Exclusively residential properties with ten or fewer apartments, residential properties with up to six apartments and one store, and other types of properties may claim an exclusion from filing. Failure to comply timely with RPIE filing requirements results in the loss of eligibility for Tax Commission review of the assessment the following year and subjects the owner to liability for fines
One of the most common Certiorari filings is for rent producing properties, which must be filed by March 1st, annually, and requires the interested party to submit Form TC-201, the Income and Expense Schedule for Rent Producing Property (“Income and Expense Schedule”). Properties assessed at $750,000 or more and recently acquired properties, must file the Income and Expense Schedule by March 23rd. If any of these dates fall on a weekend, the required filing should be done on the Friday before the due date.
When preparing the Income and Expense Schedule, having an accountant and attorney that are knowledgeable in the filing of the Certiorari is a key ingredient for success. The Schedule should cover the full calendar year of the filing or the full fiscal year ending after July 31st, annually. The basis of accounting of the Income and Expense Schedule may be cash or accrual, but must be consistent with the method used for income tax purposes. The Certiorari is presented based on the rules and regulations promulgated by the Tax Commission and is not intended to be a complete presentation of a property’s operations under GAAP. The Income and Expense Schedule reports all income received or accrued (in the case of accrual basis statements) in connection with the property, while not including income that is known as straight-line rent. Straight-line rent is rent on leases providing scheduled increases in rent, as prescribed under Accounting Standards Codification 840. A similar situation occurs for expenses, where only actual operating expenses are reported, while disallowing all projections and reserves.
Depreciation and amortization is only allowed for:
- All costs incurred to lease space to tenants over the term of their respective leases
- Tenant improvement costs
- Common area improvements, replacements of existing building components, major repairs, and installation of safety and health systems
- Lease buyout costs including all costs to acquire the unexpired lease of an existing tenant to secure an identified prospective tenant
CPA Audit Requirement
If the actual assessment is $5,000,000 or more (prior to January 1, 2019 the threshold was $1 million or more), TC201 must be accompanied by an Accountants’ Certification, Form TC309, which must be signed by an independent certified public accountant who has conducted an appropriate audit of the applicant’s records under generally accepted auditing standards.
NYC has approved a law that will account for future adjustments to the $5 million audit requirement threshold based on changing real estate values. In the adjustment years, which will be every five (5) years beginning July 1, 2024 (the first adjustment year), the Tax Commission will calculate the assessed value threshold and any increase or decrease, will apply beginning with the fiscal year immediately following the adjustment year.
In filing the Certiorari the flier should be prepared to substantiate questions from the Tax Commission on such items as:
- Why the property has an operating loss
- Why there is a decrease in gross income
- Changes in operating expenses
- Vacancy issues
- Apparent inconsistencies between the Certiorari and the RPIE filing
All owners of rent producing properties who are not filing Certiorari’s should speak to their accountant or real estate legal counsel about the potential advantages of doing so for their respective properties.
Contact John Guttilla for more information on how we can assist you with the NYC real estate tax certiorari process.