New York’s highest court issued a new ruling on Tuesday that could upend the way New York City collects billions of dollars in property taxes each year.
The state Court of Appeals sided with a coalition of homeowners and real estate industry groups — known as Tax Equity Now New York — who sued the city, claiming the property tax system sets far higher rates on rental buildings and small homes in lower-income neighborhoods than on condos and homes in wealthier areas.
In a 4-to-3 decision, the court said TENNY should be allowed to argue the current system violates the federal Fair Housing Act and real property tax law after lower courts dismissed their claims.
The judges also wrote that a number of city officials have criticized the way taxes are levied without doing anything about it.
“While these officials bemoan the situation, the city fails to act,” Judge Jenny Rivera wrote for the majority. “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.”
The decision means the city will have to defend against the coalition’s claims that the tax system punishes people of color in low-income neighborhoods.
“Today is a great day for millions of New Yorkers who have been treated unfairly by the city’s unconstitutional property tax system,” said TENNY Policy Director Martha Stark, a former city finance commissioner, in a statement.
Still, it remains unclear how the city will respond to the ruling. Mayor Eric Adams’ office did not immediately respond to a request for comment.
Adams promised “real solutions” to the inequitable tax system while on the campaign trail.
“While we are still in the process of developing our own updated recommendations and analysis, we look forward to working with our partners in government and advocates to ensure the system is simpler and more equitable for all,” a former spokesperson for the mayor told Gothamist last year.
Any future changes to the city’s property tax system would require state legislation, said state Sen. Liz Krueger, a Manhattan Democrat who chairs the Finance Committee.
Krueger said she had not yet seen the court’s decision when contacted by Gothamist on Tuesday morning, but she reiterated her long-held stance that Albany should be “open to making changes” to the system — just not by itself.
“We should do some coordinating with the city of New York, because it is … a critical part of their revenue stream,” she said, referring to property tax revenue. “So Albany can try to go it alone, but I’m pretty sure we would make some huge mistakes if we did that.”
Potential changes would have a far-reaching impact on the city’s ability to raise money and cover the costs of bills, salaries and services. Property taxes accounted for about 42% of New York City’s revenue in fiscal year 2022.
City Comptroller Brad Lander has frequently criticized the property tax system and on Tuesday called on state lawmakers to overhaul it in the wake of the appeals court ruling.
“As my office has advocated, New York needs to overhaul its property tax system because it overtaxes outer borough communities of color, while undertaxing my neighbors in brownstone Brooklyn and high-rise Manhattan,” he said. “New York’s property tax system is deeply unfair and must be reformed, and Albany must make it happen.”
Layers of complicated mathematical formulas and assessment methods have created a property tax system divorced from the actual value of properties, according to experts. That has led to imbalances benefiting luxury condo owners and small homeowners in affluent neighborhoods while making homeowners in low- and middle-income areas owe more. The system can also take a financial toll on tenants and landlords.
Most U.S. properties are taxed at a straightforward percentage of their market value. But in New York City, property taxes are based on a fraction of their estimated market price, called an “assessed value.” Those fractions vary based on property type, such as small houses, moderate-sized co-op buildings, massive rental complexes and commercial buildings.
Current caps on property tax increases further complicate matters by keeping the rate down in wealthier neighborhoods. Small homes with slowly rising market values in places like Laurelton in Queens or Brownsville in Brooklyn are subjected to steadily rising assessed values and property tax totals.
But a home in a neighborhood like Brooklyn’s Park Slope, where prices have skyrocketed over the years, will hit a cap that stops the tax rate from increasing relative to its market value. As a result, homeowners with multimillion-dollar properties in high-demand areas end up paying less than homeowners of properties valued in the mid-six figures in middle- and low-income neighborhoods.
This is a developing story and may be updated.
David Brand, Jon Campbell
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