Tax Equity Now Ny LLC v. City of N.Y.

• Decision Date: 27 February 2020
• Docket Number: M-7371,M-7370,Index 153759/17,M-7369,10293 &amp
• Citation: 182 A.D.3d 148,122 N.Y.S.3d 23
• Parties: TAX EQUITY NOW NY LLC, Plaintiff-Respondent-Appellant, v. CITY OF NEW YORK, et al., Defendants-Appellants, State of New York, et al., Defendants-Appellants-Respondents. Citizen Budget Commission, National Association for the Advancement of Colored People New York State Conference and Latino Justice PRLDEF, Amici Curiae.
• Court: New York Supreme Court — Appellate Division

182 A.D.3d 148

122 N.Y.S.3d 23

TAX EQUITY NOW NY LLC, Plaintiff-Respondent-Appellant,

v.CITY OF NEW YORK, et al., Defendants-Appellants,State of New York, et al., Defendants-Appellants-Respondents.

Citizen Budget Commission, National Association for the Advancement of Colored People New York State Conference and Latino Justice PRLDEF, Amici Curiae.

10293 &

M-7369

M-7370

M-7371

Index 153759/17

Supreme Court, Appellate Division, First Department, New York.

ENTERED: February 27, 2020

Zachary W. Carter, Corporation Counsel, New York (Joshua Sivin, Andrea M. Chan, Kevin R. Harkins, Neil Schaier and Yu Wen of counsel), for appellants.

Letitia James, Attorney General, New York (Seth M. Rokosky and Steven C. Wu of counsel), for appellants-respondents.

Latham & Watkins LLP, New York (James E. Brandt and Jonathan Lippman of counsel), for respondent-appellant.

Cadwalader, Wickersham & Taft LLP, NY (Jason M. Halper and Ellen V. Holloman of counsel), for Citizen Budget Commission, amicus curiae.

Mololamken LLP, New York (Jessica Ortiz of counsel), for National Association for the Advancement of Colored People New York State Conference, amicus curiae.

Friedman Kaplan Seiler & Adelman LLP, New York (Eric Seiler, Ricardo Solano Jr. of counsel), Juan Cartagena, New York, and Jackson Chin, New York, for Latino Justice PRLDEF, amicus curiae.

Judith Gische, J.P., Barbara R. Kapnick, Cynthia S. Kern, Peter H. Moulton, JJ.

KERN, J.

In this action, plaintiff seeks a declaration that the New York State property tax system, as enacted and as applied by New York State, the New York Office of Real Property Tax Services (State defendants), New York City and the New York City Department of Finance (City defendants), violates state and federal constitutional and statutory mandates that require that property taxes be imposed uniformly within each property class and reflect a fair and realistic value of the property involved. Plaintiff also seeks a permanent injunction against the City's alleged unlawful and discriminatory exaction of property taxes. The City and State defendants separately move to dismiss this action on the grounds that plaintiff lacks standing to challenge the property tax system and that plaintiff's complaint fails to state a claim. As will be explained more fully below, this Court grants the motions to dismiss this action in their entirety.

We start with a discussion of the New York State property tax system, as it is applied in New York City. In 1981, the New York State legislature enacted article 18 of the Real Property Tax Law (RPTL) in an effort to reform the property tax system in response to the Court of Appeals' decision in Matter of Hellerstein v. Assessor of Town of Islip, 37 N.Y.2d 1, 371 N.Y.S.2d 388, 332 N.E.2d 279 [1975].¹ As part of that reform effort, article 18 established four classes of real property in New York City, which can be summarized as follows:

(1) Class One, primarily one-, two-, and three-family residential real property;

(2) Class Two, all other residential property, including condominiums, cooperatives and rental buildings;

(3) Class Three, utility real property;

(4) Class Four, all other real property (see RPTL 1801[a], 1802[1] ).

Article 18 allocates the total property tax burden of New York City among the four statutory classes and preserves the relative tax burden of each statutory class over time. To this end, RPTL 1803–a sets forth a formula for determining the proportion of all real property taxes owed by each statutory class (see RPTL 1801[f] and 1803–a[1][b] ) and caps the annual amount by which the class share for any particular class may increase relative to the total property tax burden.² Article 18 also provides yearly caps on the amount by which the assessed value of certain individual properties may be increased. Assessed values on Class One properties may not increase by more than 6% in one year or 20% over any five-year period ( RPTL 1805[1] ). Assessed values for Class Two properties that have fewer than 11 residential units may not increase by more than 8% in one year or 30% over any five-year period ( RPTL 1805[2] ). Increases in assessment values for Class Two properties with 11 or more units are not capped but must be phased in over a five-year period ( RPTL 1805[3] ).

The New York City Department of Finance (DOF) assesses the taxable value of a parcel of real property by multiplying its market value by the fractional assessment rate applied to that parcel's property class, with Class One properties assessed at 6% of their market value and all other classes of property assessed at 45% of their market value. Once the taxable value is determined, and after the application of any pertinent assessment caps, the DOF applies the tax rate applicable to that class of property, a proportional rate determined based upon each class's share of the tax burden, in accordance with RPTL 1803–a.

The tax assessment for any particular property may also be subject to adjustment by an abatement and/or exemption. For example, condominium and cooperative owners in the City may be eligible for abatements under the Cooperative and Condominium Property Tax Abatement Program ( RPTL 467–a ), with the amount of the abatement, which varies from 17.5% to 28.1%, dependent on the average assessed value of units in the building.

Condominium and cooperative owners also benefit from RPTL 581, which provides that "real property owned or leased by a cooperative corporation or on a condominium basis shall be assessed ... at a sum not exceeding the assessment which would be placed upon such parcel were the parcel not owned or leased by a cooperative corporation or on a condominium basis" ( RPTL 581[a][1] ). As a result, the DOF values condominium and cooperative buildings as if they were rental properties, using buildings of comparable age, size, location, and unit number, and such buildings' income and expenses, in order to establish their value.

Turning to this action, this Court finds that plaintiff has standing to challenge the property tax system. Plaintiff, an association of owners and renters of real property who are allegedly harmed by the New York City property tax system, adequately pleads facts tending to show that one or more of its members would have standing to sue, the interests it asserts are germane to its purposes so as to satisfy the Court that it is an appropriate representative and neither the asserted claim nor the relief requires the participation of the individual members (see New York State Assn. of Nurse Anesthetists v. Novello, 2 N.Y.3d 207, 211, 778 N.Y.S.2d 123, 810 N.E.2d 405 [2004] ; Society of Plastics Indus. v. County of Suffolk, 77 N.Y.2d 761, 772–773, 570 N.Y.S.2d 778, 573 N.E.2d 1034 [1991] ). Moreover, plaintiff's allegations and affidavits demonstrate that its members suffered an injury in fact (compare Robinson v. City of New York, 143 A.D.3d 641, 40 N.Y.S.3d 381 [1st Dept. 2016] ).

Construing the pleadings liberally, accepting all the facts alleged in the complaint as true and according plaintiff the benefit of every possible favorable inference (see generally Leon v. Martinez, 84 N.Y.2d 83, 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511 [1994] ), the complaint fails to state a cause of action against any of the defendants. Each theory of liability proffered in plaintiff's complaint is hereinafter considered.

Plaintiff's complaint includes several causes of action containing allegations that defendants violated the Federal and State Equal Protection Clauses by assessing and taxing similarly situated properties differently within and across statutory classes. Each cause of action will be addressed in turn. However, we start with a set of bedrock legal principles that will guide our analysis.

The State Equal Protection Clause is no broader in coverage than its federal counterpart (see Matter of Walsh v. Katz, 17 N.Y.3d 336, 343, 929 N.Y.S.2d 515, 953 N.E.2d 753 [2011] ). Neither the Federal nor the State Constitution "prohibit[s] dual tax rates or require[s] that all taxpayers be treated the same" ( Foss v. City of Rochester, 65 N.Y.2d 247, 256, 491 N.Y.S.2d 128, 480 N.E.2d 717 [1985] ). All that they require is "that those similarly situated be treated uniformly. Thus, the creation of different classes for purposes of taxation is permissible as long as the classification is reasonable and the taxes imposed are uniform within the class" ( id. ). Put another way, the legislature may treat one class differently from others "unless the difference in treatment is palpably arbitrary or amounts to an invidious discrimination" ( Trump v. Chu, 65 N.Y.2d 20, 25, 489 N.Y.S.2d 455, 478 N.E.2d 971 [1985] [internal quotation marks omitted] ).

"This standard is especially deferential in the context of classifications made by complex tax laws" ( Nordlinger v. Hahn, 505 U.S. 1, 11, 112 S.Ct. 2326, 120 L.Ed.2d 1 [1992] ). Even dramatic disparities in property taxes paid by persons who own otherwise similar property are likely to survive review ( id. at 6–7, 112 S.Ct. 2326 ). "Where taxation is concerned and no specific[ ] right, apart from equal protection, is imperiled,[ ] States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation" ( Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359, 93 S.Ct. 1001, 35 L.Ed.2d 351 [1973] ).

"The scope of our review is narrow. Taxing statutes, like other social and economic legislation that neither classify on the basis of a suspect class nor impair a fundamental right, must be upheld if the challenged classification is rationally related to achievement of a legitimate State purpose" ( Trump, 65 N.Y.2d at 25, 489 N.Y.S.2d 455, 478 N.E.2d 971 ).

With these principles in mind, plaintiff's third and fourth causes of action, which allege that the City defendants' application of assessment caps to Class One properties violates the Federal and State Equal Protection Clauses because it results in properties...