Court of Appeals Revives Challenge to NYC Property Taxes

The state’s highest court ruled that the fight over New York City’s property tax system is not over.

In a 4-3 decision, the Court of Appeals found that a lower court made a mistake when it dismissed Tax Equity Now New York’s lawsuit against the city. It also laid out a path for the city to amend its property tax system in several key ways.

The court revived claims by the real estate industry-backed group that the city’s tax system violates the federal Fair Housing Act because it disproportionately burdens communities of color.

The 30-plus page opinion states that TENNY’s lawsuit sufficiently argues that the tax system is “unfair, inequitable and has a discriminatory disparate impact on certain protected classes” because rental buildings are taxed at a higher rate than condos and co-ops, a cost that gets passed on to renters.

The decision also finds that the state’s Real Property Tax Law requires the city to change the system that results in properties in gentrifying areas enjoying lower tax rates than properties that are not rising as fast in value.

The unequal taxation is a product of caps on assessments and tax breaks. State law allows the city to “make certain discretionary adjustments to address inequities and avoid unlawful treatment of similarly situated-properties,” the majority ruled.

The judges also found that TENNY adequately argued that older condo and co-op buildings should no longer be taxed at a similar rate as rent-stabilized apartments — a system that benefits individual owners of pricey units.

Tuesday’s decision means the case can move forward within the state Supreme Court. But that may not be necessary. Benjamin Williams, a tax attorney with Rosenberg & Estis, said the ruling paves the way for the city’s Department of Finance to make these changes. The specificity of Tuesday’s opinion could make that a more likely result.

Associate Judge Michael Garcia wrote in his partial dissenting opinion that the majority’s decision “virtually guarantees that the parties here will craft new tax policy in a settlement conference room.”

The city and state have argued throughout that any changes should be made by lawmakers. But the real estate industry said politicians have for decades been unwilling to do that, making the legal challenge necessary.

Representatives of the Department of Finance and the Adams administration did not immediately return messages seeking comment.

In February 2020, a state appeals court threw out the case, deferring to lawmakers to amend the tax system as they see fit. TENNY appealed, and the state’s highest court agreed in April 2022 to hear the case.

On Tuesday, the court ruled that TENNY’s claims against the city should survive, but agreed that so far the group had failed to prove its case.

The decision is a major win for TENNY, which filed the lawsuit in 2017, and comes as the state legislature debates whether to revive a property tax break aimed at incentivizing the construction of multifamily housing in the city. Developers argue that without it, the city’s property tax system makes rental projects too costly.