Commerce Holding Corp. v. Board of Assessors of the Town of Babylon

• Decision Date: 22 October 1996
• Citation: 88 N.Y.2d 724,649 N.Y.S.2d 932,673 N.E.2d 127
• Parties: , 673 N.E.2d 127 In the Matter of COMMERCE HOLDING CORP., Respondent, v. BOARD OF ASSESSORS OF THE TOWN OF BABYLON et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 932

649 N.Y.S.2d 932

88 N.Y.2d 724, 673 N.E.2d 127

In the Matter of COMMERCE HOLDING CORP., Respondent, v. BOARD OF ASSESSORS OF THE TOWN OF BABYLON et al., Appellants.

Court of Appeals of New York.

Oct. 22, 1996.

John C. Bivona, Huntington, for appellants.

Meyer, Suozzi, English & Klein, P.C., Mineola (Andrew J. Turro, Jeffrey G. Stark, Michael A. Ciaffa and Anne J. DelCasino, of counsel), for respondent.

Paul A. Crotty, Corporation Counsel of New York City (Robert P. Carver, Paul T. Rephen and Elizabeth Dvorkin, of counsel); Donna M.C. Giliberto, Albany; A. Kevin Crawford, Albany; Owen B. Walsh, County Attorney of Nassau County, Mineola (Robert T. Bloom and Robert N. Goldstein, of counsel); Edward D. Peace, Corporation Counsel of City of Buffalo (Joyce J. Manch, of counsel); and Joseph E. Lamendola, Corporation Counsel of City of Syracuse (Robert G. Stone, of counsel), for City of New York and others, amici curiae.

OPINION OF THE COURT

CIPARICK, Judge.

In these consolidated tax certiorari proceedings, petitioner Commerce Holding Corp. seeks a reduction of the assessed value of its property by the Board of Assessors and the Board of Assessment Review of the Town of Babylon. ¹ The main point of contention is whether environmental contamination should be considered in valuing Commerce's property for tax purposes. Because environmental contamination can depress a parcel's true value, we hold that it must be considered in assessing real property tax. In addition, we review the methodology by which environmental contamination may be measured and uphold the valuation of Commerce's property by the reviewing court.

I.

Commerce owns a parcel of industrial property in the Town of Babylon in Suffolk County. The property, purchased by Commerce in 1984, consists of 2.7 acres of land improved with a one-story industrial building that is presently divided into 37 rental units. A former tenant of the property performed metal plating operations on the premises and discharged wastewater containing copper, lead, cadmium, zinc and other metals into on-site leaching pools, ultimately resulting in severe subsurface contamination.

As a result of the contamination, the subject property was designated a Superfund site in 1986, pursuant to the provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) (42 U.S.C. § 9601 et seq.), making the owner of the property strictly liable for the cleanup costs (42 U.S.C. § 9607[a] ). In 1988, Commerce entered into a consent order with the Environmental Protection Agency to remediate the site.

From 1986 to 1991, assessors for the Town valued Commerce's property at between $1.5 million and $2.6 million each year. Commerce filed timely challenges to each yearly assessment on the ground of excessive valuation, contending that the assessors should have reduced the assessed property value to account for environmental contamination. Commerce thereafter instituted timely annual tax certiorari proceedings pursuant to RPTL article 7, later consolidated, to review the assessments for tax years 1986-1987 through 1991-1992.

In a hearing before Supreme Court, real estate experts for both Commerce and the Town primarily used the income capitalization method to determine the value of the property as if unaffected by contamination, and then subtracted a cost to cure from that value. Specifically, Commerce's expert valued the property by using an income capitalization approach, with a sales approach for the land only, and then subtracted from the property's value in each year the total remaining cost to cure all the contamination. The outstanding cost to cure was calculated in 1991 dollars, tendered back to account for inflation in each of the prior years, and reduced by any sums actually spent on remediation that particular year. ² By contrast, the Town's expert valued the property in an uncontaminated state based on comparable sales data "blended" with an income capitalization approach, and then subtracted from the property's value only the amount actually expended by Commerce in the year the costs were incurred.

Supreme Court adopted Commerce's analysis in its entirety. The court concluded that Commerce's base value was more accurate in view of the "weakness of comparable sales in the area" and subtracted from that value the total remaining cost to cure the contamination in each year. The Appellate Division affirmed (see, Matter of Commerce Holding Corp. v. Board of Assessors, 216 A.D.2d 466, 628 N.Y.S.2d 186). This Court granted the Town's motion for leave to appeal and we now affirm.

II.

The cardinal principle of property valuation for tax purposes, set forth in the State Constitution, is that property "[a]ssessments shall in no case exceed full value" (N.Y. Const., art. XVI, § 2; see, W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 512, 438 N.Y.S.2d 761, 420 N.E.2d 953). As this Court has stated, the "ultimate purpose of valuation * * * is to arrive at a fair and realistic value of the property involved" (Matter of Great Atl. & Pac. Tea Co. v. Kiernan, 42 N.Y.2d 236, 242, 397 N.Y.S.2d 718, 366 N.E.2d 808).

The concept of "full value" is typically equated with market value, or what "a seller under no compulsion to sell and a buyer under no compulsion to buy" would agree to as the subject property's price (Matter of Allied Corp. v. Town of Camillus, 80 N.Y.2d 351, 356, 590 N.Y.S.2d 417, 604 N.E.2d 1348). In view of this market-oriented definition of full value, the assessment of property value for tax purposes must take into account any factor affecting a property's marketability (accord, RPTL 302[1] ["The taxable status of real property * * * shall be determined annually according to its condition "] [emphasis added] ). It follows that when environmental contamination is shown to depress a property's value, the contamination must be considered in property tax assessment (see, Lee and LeForestier, Review and Reduction of Real Property Assessments in New York § 8.11, at 73 [3d ed 1996 Cum Supp] ).

The Town nevertheless asks this Court to adopt a per se rule barring any assessment reduction for environmental contamination. Otherwise, the Town contends, polluters would succeed in shifting the cost of environmental cleanup to the innocent taxpaying public in contravention of the public policy of imposing remediation costs on polluting property owners and their successors in title. ³

Whatever the merits of the Town's argument, the "full value" requirement is a constitutional mandate that cannot be swept aside in favor of the asserted environmental policy. As the State Board of Equalization and Assessment has recognized, the public policy "argument, while possessing superficial appeal, runs afoul of the requirement found in * * * New York's Constitution, that real property may not be assessed at more than its full (fair market) value" (9 Opns Counsel SBEA No. 58, at 113 [citing N.Y. Const., art. XVI, § 2] ). The high courts of Massachusetts and New Jersey have ruled likewise, concluding that statutory and constitutional full value requirements cannot be subordinated to environmental policy concerns (see, Reliable Elec. Finishing Co. v. Board of Assessors, 410 Mass. 381, 382-383, 573 N.E.2d 959, 960-961; Inmar Assocs. v. Borough of Carlstadt, 112 N.J. 593, 600-601 549 A.2d 38, 41-42; see also, Firestone Tire & Rubber Co. v. County of Monterey, 223 Cal.App.3d 382, 391-392, 272 Cal.Rptr. 745, 750-751).

Thus, in response to the Town's contention that assessment reductions for environmental contamination will encourage landowners to delay remediating their property, this policy argument cannot eviscerate the constitutional directive. Moreover, the Town's concern appears to be overstated; whatever tax benefit Commerce might obtain by deferring implementation of remedial measures pales in comparison to Commerce's potential liability for failure to take appropriate remedial action, including severe penalties under CERCLA (see, 42 U.S.C. § 9607[c][3] ) and $2,000 in daily penalties for noncompliance with the consent order.

We also reject the Town's argument that because Commerce, by consent order, has agreed to pay the cleanup costs even if it sells the property, the property's market value would be unaffected by the presence of contamination. This contention is belied by the reality that a purchaser of the site, on notice of the environmental contamination, nevertheless would be liable for the cleanup costs under CERCLA (see, 42 U.S.C. § 9607[a] ). Moreover, that Commerce has agreed to remediate the property does not resolve the question of whether, and to what...