D.S. Alamo Associates v. Commissioner of Finance of City of New York

• Decision Date: 17 February 1988
• Citation: 71 N.Y.2d 340,525 N.Y.S.2d 823,520 N.E.2d 542
• Parties: , 520 N.E.2d 542 In the Matter of D.S. ALAMO ASSOCIATES, Respondent, v. COMMISSIONER OF FINANCE OF the CITY OF NEW YORK, et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 823

525 N.Y.S.2d 823

71 N.Y.2d 340, 520 N.E.2d 542

In the Matter of D.S. ALAMO ASSOCIATES, Respondent, v. COMMISSIONER OF FINANCE OF the CITY OF NEW YORK, et al., Appellants.

Court of Appeals of New York.

Feb. 17, 1988.

Peter L. Zimroth, Corp. Counsel (Edith I. Spivack, Joseph I. Lauer and Regina Feder, New York City, of counsel), for appellants.

Kevin L. Smith, Paul E. Breene and Lauren G. Klein, New York City, for respondent.

OPINION OF THE COURT

SIMONS, Judge.

Petitioner is the owner and developer of a newly constructed multiple dwelling in New York City and entitled to the tax exemption authorized by section 421-a of the Real Property Tax Law. The owners of such properties pay only a minimum or "mini tax" which is calculated not on the assessed value of the new improvement but by applying the current tax rate to the assessed value of the property in the year before construction began. The full benefit of the exemption may be claimed during the period of construction and for two years after construction is completed. Thereafter, it is phased out in increments of 20% every two years (RPTL 421-a[2][a][i]-[v] ).

Petitioner's building is a 32-story mixed-use condominium building: it contains 223 residential units and 5 nonresidential units consisting of a parking garage, a drug store, a fruit and vegetable store, a bakery/pastry cafe and a children's clothing store. The commercial space in the building comprises less than 12% of the aggregate floor area of the entire building. Thus, petitioner contends that under the plain meaning of RPTL 421-a, the entire building, including its commercial condominium space, is eligible for the full range of tax benefits granted by the statute and that the proper assessed value for the building during construction and for two years after its completion was $757,000, the mini tax assessed value on the property prior to construction.

The city determined, however, that only the residential condominium units in the building should be accorded the 421-a tax exemption and assessed the building at $1,621,691. It arrived at this assessment by apportioning the amount of the mini tax assessment, $757,000, between the residential and commercial units. Inasmuch as the residential units comprised 92.41% of the common interest of the building, 92.41% of the mini tax assessment, or $699,575, was allocated to them. A transitional assessment of $12,156,000 was applied to the whole property, however, and 7.59% of that assessment, or $922,116, representing the aggregate common interest of the commercial units which the city considered nonexempt, was added to the residential portion of the mini tax assessment. The resulting 1983/1984 assessment of the premises thus became $1,621,691, the sum of $699,575 (residential) + $922,116 (commercial), rather than the $757,000 mini tax assessment claimed by petitioner.

Petitioner, contending that the city erred by applying the exemption to the individual units rather than on a building-wide basis, commenced this article 78 proceeding seeking to annul respondents' determination, to compel them to assess the building at $757,000 for the year 1983/1984 and to refund excess taxes paid for that year. Special Term granted the petition (134 Misc.2d 303, 512 N.Y.S.2d 612) and the Appellate Division, 126 A.D.2d 497, 510 N.Y.S.2d 997, affirmed on the opinion at Special Term. There should be an affirmance.

Respondents' position is that entitlement to a tax exemption is never to be presumed; the taxpayer's right to the benefit must appear by clear and unambiguous statutory language ( see, Matter of Mobil Oil Corp. v. Finance Adm'r, 58 N.Y.2d 95, 99, 459 N.Y.S.2d 566, 446 N.E.2d 130; County of Herkimer v. Village of Herkimer, 251 App.Div. 126, 127, 295 N.Y.S. 629, affd. 279 N.Y. 560, 18 N.E.2d 854). They maintain that the provisions of section 421-a are not clear and unambiguous. Accordingly, they assert that their interpretation of the statute should be given deference because they are the parties charged with implementing it ( see, Matter of John P. v. Whalen, 54 N.Y.2d 89, 95, 444 N.Y.S.2d 598, 429 N.E.2d 117; Matter of Slattery Assocs. v. Tully, 79 A.D.2d 761, 434 N.Y.S.2d 788, affd. 54 N.Y.2d 711, 442 N.Y.S.2d 978, 426 N.E.2d 472). They support their claim of ambiguity by (1) reference to previous decisions of this court dealing with the exemption ( see, Hewlett Assocs. v. City of New York, 57 N.Y.2d 356, 456 N.Y.S.2d 356, 442 N.E.2d 1215; Teleon Realty Corp. v. City of New York, 88 Misc.2d 767, 391 N.Y.S.2d 282, mod. 68 A.D.2d 858, 414 N.Y.S.2d 566, affd. on opn. below 50 N.Y.2d 824, 430 N.Y.S.2d 50, 407 N.E.2d 1346), (2) the alleged inconsistency of petitioner's claim to an exemption calculated on a building-wide basis, rather than a unit-by-unit basis, with Real Property Law § 339-y and RPTL 580 and 581, relating to individual assessment of condominiums, and (3) the contention that the primary purpose of the statute, encouraging residential building, will not be furthered if the exemption is applied to commercial condominiums. Respondents note that residential units in rental and cooperative properties benefit by reduced rents if the exemption is applied building-wide, but no similar benefit accrues to residential condominium owners if commercial condominiums receive a tax benefit by receiving the exemption. However, the provisions of section 421-a apply to "new multiple dwellings" which the statute defines as a dwelling occupied as a residence or home by three or more families "whether such dwelling is rented or owned as a cooperative or condominium" (RPTL 421-a[1][c] ). Thus, for purposes of according the tax exemption, it directs that no distinction is to be made based upon the nature of the building's ownership.

As originally enacted in 1971 (as RPTL 421, L.1971, ch. 1207), the statute left unclear the extent to which nonresidential space in new buildings qualified for RPTL 421-a tax benefits. The city interpreted this section to authorize exemption for accessory uses necessary to the residential units but not commercial uses, and the obligation of identifying which space was actually accessory or incidental to the residential units was left to the agencies charged with implementing the statute (see, Hewlett Assocs. v. City of New York, 57 N.Y.2d 356, 367-371, 456 N.Y.S.2d 704, 442 N.E.2d 1215, supra ). A typical question was whether a parking garage designed primarily for the building's tenants, but open to members of the general public, was incidental to the residential units. In 1975 the Legislature clarified the matter by amending the statute to provide that in any multiple dwelling entitled to exemption: "in the event that the aggregate floor area of commercial, community facility and accessory use space exceeds twelve per cent of the aggregate floor area * * * there shall be a diminution of such tax exemption in an amount equal to the ratio of floor area of commercial, community facility and accessory use space in excess of twelve per cent of the aggregate floor area". (RPTL former 421[2] [now RPTL 421-a(2)(d) ].) ^*

Thus, although the original 1971 statute was silent with respect to commercial uses, community facilities or accessory uses in mixed-use buildings, thereby inviting interpretation, the amended statute, which applies to petitioner, explicitly recognizes that such uses are entitled to the exemption and establishes a fixed formula, based upon the ratio of aggregate floor area devoted to each use, to establish the maximum commercial use which may be incorporated in the building without impairing the exemption. It further provides that even if the commercial use exceeds the maximum 12% of the aggregate floor area allowed the exemption is not lost but only diminished pro tanto by the area exceeding 12%. Thus, it appears that, far from disqualifying commercial uses from the benefit of the exemption, the Legislature expressly recognized their limited entitlement to it by the 1975 amendment.

Respondents' interpretation of the statute--that it must be applied on a unit-by-unit basis excluding commercial condominiums--would not only run counter to the express provisions of the statute but it would also exclude all condominium property from the tax exemption of RPTL 421-a because individual units could never qualify as "multiple dwellings" housing three or more families. We are obliged to read the words of the statute in their natural and most obvious sense (McKinney's Cons. Laws of N.Y., Book 1, Statutes § 94) and when we do so it appears that the Legislature...