Tax Assessments on Property Condemned – What, Me Worry?

One of the nice things of being a member of the Owners’ Counsel of America (OCA) is that you can ask for help or ideas regarding your condemnation case.  Today Paul G. Henry, Esq., the member from Missouri posed the question about a case he has where the owners protested their property taxes.

Various members weighed in with their thoughts.  Howard Roston, Esq. from Minnesota commented that if the dates of valuation are close and the property is in the same condition for both appraisals, the courts will let this information in and these arguments go to weight and not admissibility.

On the other hand, Charles McFarland, Esq., the OCA member from Texas, stated that he has never seen a tax protest admission against interest used effectively; and if the government’s appraiser didn’t rely on it, or better if they didn’t give it to him/her to consider, it’s a tacit admission that is not credible market evidence.  Michael Faherty, Esq., the OCA member from Pennsylvania, reports that assessed valuations are not admissible by statute in a condemnation case.

Anthony Della Pelle, Esq., the OCA member from New Jersey, states that in New Jersey tax assessments are inadmissible pursuant to case law, as they are nothing more than the hearsay opinion of the tax assessor.

In New York, it is well established that tax assessments are irrelevant in a condemnation matter.

In a condemnation proceeding, the subject property must be valued at its highest and best use regardless of actual use.  Matter of City of New York (Clearview Expressway), 9 NY2d 439 (1961).  The valuation of the subject property is set forth in the parties’ appraisal reports.  Upon trial, all parties shall be limited in their affirmative proof of value to matters set forth in their respective appraisal reports.  22 NYCRR 202.61(e). Article I, § 7, of the New York State Constitution provides that “private property shall not be taken for public use without just compensation.”  The constitutional requirement of just compensation requires that the former property owner be indemnified so that it may be put in the same relative position, insofar as that is possible, as if the taking had not occurred.  Buffalo v J. W. Clement Co., 28 NY2d 241 (1971).

There is a fundamental difference in valuing property for tax assessment purposes. New York Real Property Tax Law (“RPTL”) §302(1) states that “the taxable status of real property in cities and towns shall be determined annually according to its condition and ownership as of the first day of March and the valuation thereof determined as of the appropriate valuation date.”  The New York State Office of Real Property Services (“ORPS”) has set forth their opinion on this issue in Volume 10 Opinions of Counsel SBRPS No. 45.  This opinion discusses when property should be valued according to its current use and when it should be valued based on its highest and best use.  ORPS counsel concluded in their opinion that for purposes of real property tax assessments, property must be valued based on its current use, not its highest and best use.  The courts in New York State have adopted current use as the general standard for tax assessment purposes in valuing improved properties.

The cardinal principle of property valuation for tax purposes set forth in the State Constitution is that property assessments shall in no case exceed full value.  NY Const. Art. XVI, § 2; Matter of Commerce Holding Corp., v Board of Assessors of the Town of Babylon, 88 NY2d 724, 729 (1996).  A tax certiorari determination requires an inquiry as to the property’s condition and ownership on the applicable valuation date.  RPTL § 301(1). The cardinal principle of valuation has been interpreted to require valuation of improved property according to its existing use, not a potential one contemplated in the future.  Matter of Gen. Motors Corp. Cent Foundry Div. v Assessor of the Town of Massena, 146 AD2d 851, 852 (3d Dept 1989).  There are other reasons why a tax assessment review proceeding is irrelevant to a condemnation proceeding.  First, the date of title vesting in a condemnation proceeding is different than a tax assessment date. Matter of Lincoln Square Slum Clearance Project, 22 Misc2d 260 (Sup Ct, New York County, 1959), aff’d and mod, 15AD2d 153 (1st Dept 1961), aff’d, 16 NY2d 497 (1965).  Second, building values in tax certiorari proceedings cannot exceed certain amounts. Id.  Specifically, the building value in a tax certiorari proceeding cannot exceed the buildings reconstruction cost less depreciation.  No such limitation exists in establishing just compensation in an eminent domain proceeding.  And third, evidence of earnings in a tax certiorari proceeding carries less weight than in a condemnation proceeding. Id.

The general and well-established law prohibits disclosure of all tax filings because of their confidential nature.  Gordon v Grossman, 183 AD2d 669 (1st Dept 1992) (citing Matthews Indus. Piping Co. v Mobil Oil Corp., 114 AD2d 772 (1st Dept 1985)).

Some courts might permit the introduction of assessed value of property in a condemnation proceeding, but such evidence should only be admissible when the other proofs of value are questionable,  Zogby v State, 26 AD2d 899 (4d Dept 1966), and, generally, to assure that compensation is not less than the assessed valuation, see Matter of City of New York (Brooklyn Bridge Southwest), 25 NY2d 627 (1969).

In Matter of City of New York (2460 Jerome Ave. Realty Co.), 18 AD2d 991 (1st Dept 1963), the court considered the assessed value of the subject property only when there was no evidence of rental value of the property in question or sale value of comparable properties.  And, courts have recognized that the probative value of a tax assessment proceeding is not very high in condemnation proceedings even when such evidence is admissible.  For example, in In Re Shinnecock Inlet, 43 NYS2d 532 (Suffolk County Ct 1955), the court did not consider tax assessment evidence because the facts and the testimony in the condemnation proceeding differed so widely from the real property tax valuation.  The court in that case noted that “the tax valuation has little, if any, probative value.” Id. at 536.  And in Matter of City of New York (Lincoln Square Slum Clearance Project), 15 AD2d 153 (1st Dept 1961), the court acknowledged that statements made by property owners in prior tax assessment proceedings lacked probative value in condemnation proceedings when it explained that:

“A certain degree of cynicism is no doubt warranted by the very general practice of landowners who have applied for writs of putting down estimates that vary widely from the claims that they make when the property is about to be condemned.” Id. at 163.

Posted in Admissibility, Condemnation, Owners' Counsel of America, Tax Assessment
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