The governments of New York City and New York state are fighting to dismiss a suit by a group of property owners and renters who say that the city’s property tax system unconstitutionally imposes lower tax rates on some wealthy New Yorkers’ properties than those in poorer neighborhoods.
The suit, filed by a group called Tax Equity Now, which is represented by a team from Latham & Watkins that includes Jonathan Lippman, the former chief judge of New York’s judiciary, takes aim at an “inequitable and antiquated” property tax system throughout New York City in which similarly situated properties are saddled with “widely different” tax burdens based on where they are located in the city.
“No one thinks the tax policy in the city of New York is good,” said James Brandt of Latham & Watkins on Wednesday in oral arguments before Acting Manhattan Supreme Court Justice Gerald Lebovits on motions to dismiss the case. “The city itself admits right front and center that the tax system is broken.”
For example, according to the suit, the city’s Finance Department valued a 68-unit apartment building at 960 Fifth Avenue in Manhattan at $48.5 million, but one of the units in that building sold for $70 million in 2014.
The disparities in value can also be seen within the each of the five boroughs, the plaintiffs allege, and appear to fall along racial lines: according to testimony from the city’s own budget office, a $500,000 house in the relatively affluent and majority-white Park Slope section of Brooklyn would pay less than $1,300 in property taxes, while the owner of a house with the same value in Brooklyn’s Canarsie neighborhood, where the population is about one-quarter white, would pay about $5,460.
They argue that the disparities in the city’s property tax system hurts renters because it tends to undervalue cooperatives and condominiums relative to rental apartments, thus shifting the tax burden to landlords who ultimately pass the costs along to renters.
Latham & Watkins attorneys Richard Bress and Michael Bern are also appearing for the plaintiffs. The plaintiffs request that Lebovits issue a declaration that the city’s property tax scheme and the state statutes that govern it are unconstitutional.
But in motions to dismiss, lawyers for both the city and the state argue that Tax Equity Now lacks standing to bring the suit and that their claim of violations of the Fair Housing Act should be rejected because they have not proved that anyone has lost housing because of the alleged disparities in property tax assessment.
At oral arguments, Assistant Attorney General Andrew Amer, arguing for the state, said the plaintiffs’ argument that the city’s property tax scheme hurts renters amounts to “wild speculation.”
“Renters do not pay property taxes,” Amer said. “They never have, and they never will. It’s the landlords.”
Assistant Corporation Counsels Joshua Sivin and Andrea Chan appeared at oral arguments for the city.
Lebovits reserved judgment on the motions to dismiss.
The city estimates that it will collect more than $27 billion in property taxes in its 2018-19 fiscal year, the largest line item in the $60.2 billion it expects to collect in total tax revenue during the fiscal year, according to city budget documents.
The arguments in the legal battle, which has made odd partners of big-time real estate powerhouses like the Durst Organization and renters of modest means, came within two weeks after Mayor Bill de Blasio and New York City Council Speaker Corey Johnson announced the creation of an advisory commission to study reforms to the city’s property tax system, in which de Blasio lamented a system that is “too opaque, too complex and just feels unfair.”
The case has also put members of the New York City Council at odds with the city’s Law Department over whether or not the members could file an amicus brief and appear with a private attorney in the case on behalf of the plaintiffs.
On that issue, Lebovits sided with the Corporation Counsel, finding that, because the council members are acting in their official capacities by attempting to join the case, no one but the Corporation Counsel may represent them.
The council members are appealing the ruling to the Appellate Division, First Department.