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NYC's Property Tax System Violates Housing Laws, State's High Court Rules

The 4-3 decision by the New York Court of Appeals Tuesday follows a seven-year legal battle.

A decision by the New York Court of Appeals could force an upheaval of the property tax system in the country's largest city.

The 4-3 decision Tuesday by the highest court in the state allows a lawsuit by Tax Equity Now New York — an organization consisting of homeowners, industry groups and landlords, including The Durst Organization, Related, RXR, Silverstein Properties and Two Trees — to continue.

The group claims that the property tax system imposes higher rates on rental buildings and homes in less affluent areas than condos, co-ops and other homes in wealthier neighborhoods. 

In alleging that low-income homeowners and renters — and specifically residents of color — bear a larger burden, TENNY's lawsuit could change the way that billions of dollars in property taxes are collected. It could also shape the future of affordable housing in the city.

“The court’s decision means that finally, after decades of avoiding responsibility to fix a universally-acknowledged problem and a seven-year legal battle, city and state leaders will be required to create a property tax system that is equitable and just for millions of renters and homeowners in lower income and minority communities,” Martha Stark, TENNY policy director and former commissioner of the New York City Department of Finance, said in a statement.

It has been a long road for TENNY. 

The lawsuit was originally filed in 2017, but in 2020, a midlevel appeals court dismissed the case, saying TENNY failed to connect racial segregation to the property tax system and that flaws in the system don’t necessarily violate equal protections under the state constitution.

In Tuesday’s decision, the high court reinstated various claims against the city. 

The first is that the city’s tax system violates the state's tax laws with respect to disparity in assessments between Class 1, defined as single- to three-family homes that have low assessed values despite having high market values, and Class 2 properties, or buildings with higher assessed values compared to their market values. 

It also reinstated the claim that the system violates portions of the Fair Housing Act by overassessing and overtaxing majority-minority communities. 

“It has been evident to everyone that New York City’s property tax system is inequitable and systemically racist for the past four decades,” Jay Martin, executive director of the Community Housing Improvement Program, said in a statement. “This has manifested itself through skyrocketing tax hikes on older rent-stabilized buildings, which provide the majority of the affordable housing in New York City, as wealthy homeowners are given huge tax breaks.”

In a tentative assessment roll released by the Department of Finance in January,  Class 1 properties had an overall assessed value of $26.1B and a market value of $738.8B — approximately 28 times the assessed value. Class 2 properties were assessed at $116.1B and had a market value of $370.4B.

The complaint says that properties in Class 1 majority-minority neighborhoods are overassessed annually by $1.9B and overtaxed annually by $376M compared to those in majority-white neighborhoods. 

An analysis by NYU's Furman Center released earlier this year also showed a correlation between Black residents facing higher effective assessment rates compared to their white counterparts. 

In the statement, CHIP said that the system encourages the building of smaller homes over more affordable housing.

The decision also raised that city officials have acknowledged disparities among property owners.

“While these officials bemoan the situation, the City fails to act,” Judge Jenny Rivera wrote in the majority opinion.

Following the judgment, the case will be sent back to the lower courts for discovery and further proceedings. The city will have to defend the practices and potentially pass legislation to change the law. Any changes to the city's property taxes would also require legislation at the state level.