By Douglas Atkins
Long Islanders pay some of the highest property taxes in the nation, and most of that goes to fund our very strong school districts.
After schools, the next biggest use of your tax funds is police, followed by a variety of other essential services: garbage, roads, parks and several others.
Towns, counties and school Districts are municipal corporations with financial obligations, similar to an ongoing business. The most significant source of revenue for these government entities is the annual property tax levy.
This is the amount of money that must be raised by taxing each and every property owner within its geographic district. Property owners do not only mean homeowners, but also the owner of every parcel of commercial real estate.
This includes your favorite shopping centers, movie theaters and gas stations. All properties contribute to the tax levy in proportion to their assessed value (more on that below).
All of these taxing entities have one thing in common: since 2012, they have been subject to New York State’s Tax Cap Law.
In simple terms, the Tax Cap Law limits each district’s ability to raise its tax levy by the lessor 2% or the rate of inflation. In the years leading up to the Tax Cap Law, the average school tax increase was 3-6% per year. Since the Tax Cap Law has been implemented, the range of increase is .1% to 2%.
On its face, this does not seem like a stark difference, but the numbers tell a whole different story. Take a $12,000 tax bill and escalate it 1% for five years straight. The result would be an aggregate increase of 5.1% and a tax bill of $12,612 in year five.
Now take the same $12,000 tax bill and increase it 5% per year, again for five years. The result in year five is an astounding 27.6% increase, totaling $15,315! Consider what those trends mean over ten years or more.
Thankfully, the Tax Cap Law worked. While it does not feel like it, taxes have actually become more affordable on Long Island. This does not mean our taxes are low. They are not, and they still greatly exceed the property tax in other parts of the country, particularly for commercial real estate.
With the tax levy being one half of the calculus going into a tax bill, a property’s assessment (valuation) is the other half.
A higher assessment means a larger property tax bill; a lower assessment is the opposite. On Long Island, the assessing is done either by Nassau County or by your local Town in Suffolk.
Assessing is a difficult task: every piece of real estate is unique and its valuation changes each year. Assigning a fair assessment is more art than science.
Making matters even more difficult was the pandemic, which resulted in uneven change in values among property segments.
Industrial properties and homes increased significantly over the last two years. Meanwhile, office buildings and properties where crowds congregate (i.e., malls, cinemas, restaurants) were battered. A municipal tax assessor must accurately capture those market changes.
It is often said, the three most important things in real estate are location, location and location. Assessment is no different. Because assessment laws vary by which county and town a parcel is in, commercial property owners pay higher taxes in certain parts of Long Island.
For example, Nassau County creates four classes of real estate: houses, apartments, utilities and finally, commercial real estate.
Nassau commercial real estate can be taxed at rates almost three times higher than equally assessed houses. The Town of Islip is similar in that it classifies properties as either a home or business, and again, the latter has the heavier tax burden.
This business hostility is actually the exception, not the norm. There are 13 towns on Long Island. In nine of those towns, businesses are taxed at the same level as homes.
This means their share of the tax burden is the same, provided that their assessments are the same. In Hempstead, North Hempstead, Oyster Bay and Islip, business properties pay more, enabling homes to pay less.
So, what can you do about your taxes?
The first thing is to pay attention to your annual tax assessment. That assessed valuation is the sole item of your tax bill where the law allows you to contest it annually.
You should talk to a property tax attorney to ensure that your valuation is fair and that you are not being over-charged.
Secondly, we all have the right to vote for our school budgets and for our town and county representatives. Even if you think your taxes are fair, you should inform yourself on how your local government money is spent.
Finally, you should be aware of any exemptions (tax discounts), particularly for senior citizens.
Staying apprised your property tax burden is an active process that you should not leave on auto-pilot.
Only by paying attention to your business (or house) finance along with your local government spending, can you minimize your annual property tax burden. Commercial real estate taxpayers, in particular, should be consulting with an attorney at least once per year.
Douglas W. Atkins is a partner at Forchelli Deegan Terrana LLP in Uniondale, NY. He is a member of the firm’s Real Estate Tax Certiorari practice group.