Advocacy group can challenge NYC’s ‘unfair’ property tax system, appeals court rules

(CN) — New York’s high court on Tuesday revived a lawsuit from advocacy group Tax Equity Now New York that confronted the socioeconomic fairness of New York City’s property tax system.

In a split 4-3 ruling, the Court of Appeals ruled that Tax Equity made a sufficient argument at the pleading stage to challenge city defendants “on the general basis that the system is unfair, inequitable and has a discriminatory disparate impact on certain protected classes of New York City property owners.”

Judge Jenny Rivera, an appointee of former Governor Andrew Cuomo, wrote for the majority that the state appellate division wrongfully dismissing the complaint for failing to state a cause of action in a 2020 ruling.

Tax Equity — an organization of developers, homeowners and civil rights groups — first brought the challenge in 2017, claiming that New York City’s property tax structure unfairly punished racial minorities and low-income residents. 

Industrial and commercial buildings in the city are taxed relative to their zoning type. But residential buildings are taxed based on how many units they contain. Properties with three or fewer units are taxed at 6%, while buildings with four or more units are taxed at 45%.

Tax Equity claims this results in vastly disproportionate tax rules for different parts of the city, which allows residents of whiter areas to pay less than minority neighborhoods.

“By way of example, the complaint alleges that Class One properties in two Brooklyn boroughs are assessed at vastly different rates: Canarsie properties are assessed at over triple the rate of the same properties in Park Slope,” Rivera wrote. “The complaint alleges that this disparity is regressive and benefits wealthy taxpayers in neighborhoods with rapidly-increasing property values.”

Co-ops and high-end condos are also taxed at lower rates than rental properties, which passes extra costs onto renters, Tax Equity said in its complaint.

Rivera notes in the ruling that numerous city officials have criticized the tax system over the years, but haven’t been able to stoke any meaningful change.

“The complaint recounts acknowledgements from city officials that these rampant disparities lead to inequality among similarly-situated property owners,” Rivera wrote. “While these officials bemoan the situation, the city fails to act. According to the complaint, the numbers tell the story of a taxation scheme that requires lower-income property owners and renters in majority-minority New York City neighborhoods to pay more than their fair share of the tax burden in violation of the law.”

Though these claims against the city can move forward, the majority also established that Tax Equity can’t target state defendants. Rivera wrote that the organization "fails to separately explain why the state is liable for the city’s methodological choices, including the city’s failure to cure the inter- and intra- property class inequities."

Dissenting Judge Michael Garcia, appointed by Andrew Cuomo, found that the suit still didn’t meet the standard to move forward, though, regardless of the state or city defendants. He criticized the complaint from Tax Equity, which he described as “frustrated with the political process,” but whose claim “falls well short of alleging any cognizable legal theories of statutory violations.”

Garcia sided with the state appellate division’s original ruling to dismiss.

Tuesday’s ruling revives the years-old battle and gives a big win to Tax Equity and advocates for fairer taxation.

“We’re pleased with today’s watershed decision, for which we have been working the past seven years,” Latham & Watkins’ Jonathan Lippman, who represents Tax Equity, told Courthouse News in a statement. “This opinion sends a clear signal that New York City must fix the longstanding disparities in its property tax system that have treated so many unfairly for decades.”

The city will now have to defend itself against Tax Equity’s scathing accusations, but it’s unclear exactly how it will proceed. New York City Corporation Counsel Sylvia Hinds-Radix told reporters at a presser Tuesday “determinations will be made” when the suit goes back to the lower court.

But it’s possible that the revived suit is the motivation the city needs to finally make change. Mayor Eric Adams campaigned on a promise of providing solutions to the city’s tax system.

“I’m going to immediately put in place a committee to look at these tax laws and come up with real solutions to alleviate co-ops and condominiums and shift the tax burden off of renters and homeowners in less affluent areas to the owners of pricey apartments in wealthy areas," Adams wrote on his campaign website in 2021.

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