New York Law Review

Tag: Matter of 860 Fifth Ave. Corp.

  • Matter of 860 Fifth Ave. Corp. v. Tax Com’n of City of New York, 60 N.Y.2d 638 (1983): Property Tax Assessments and Double Deductions

    Matter of 860 Fifth Ave. Corp. v. Tax Com’n of City of New York, 60 N.Y.2d 638 (1983)

    In property tax assessment cases using the income capitalization method, deducting both a maintenance reserve (which includes reserves for replacing personalty) and the depreciated value of personal property constitutes an impermissible double deduction.

    Summary

    This case concerns a dispute over property tax assessments for an apartment complex. The owners, 860 Fifth Ave. Corp., challenged the assessments, arguing that the value of their personal property was not properly excluded. The Court of Appeals affirmed the Appellate Division’s decision, holding that deducting both a maintenance reserve (which included reserves for replacing personalty) and the depreciated value of the personalty resulted in an impermissible double deduction. The court reasoned that the maintenance expense already accounted for the personalty’s value, making a subsequent subtraction duplicative.

    Facts

    860 Fifth Ave. Corp., owned a 28-building apartment complex and initiated a tax certiorari proceeding to challenge property tax assessments for the tax years 1977-1978, 1978-1979, and 1979-1980. The trial court, in determining the property’s value, relied on the income capitalization method. It deducted various expenses from the annual gross income, including a maintenance reserve intended for replacing personalty items like carpeting and appliances. After capitalizing the property’s value, the trial court then deducted the depreciated value of the personal property.

    Procedural History

    The trial court initially calculated the property tax assessments. The Appellate Division modified the judgment, determining that deducting both the maintenance expense and the depreciated value of personalty constituted a double deduction. On remittal, the trial court recalculated the assessments in accordance with the Appellate Division’s findings. The case then went before the Court of Appeals for review of the recalculated assessments.

    Issue(s)

    Whether, in calculating property tax assessments using the income capitalization method, deducting both a maintenance reserve that includes amounts for replacing personal property and the depreciated value of that personal property constitutes an improper double deduction, where personal property is not subject to ad valorem tax.

    Holding

    Yes, because by deducting maintenance expenses from annual gross income, the value of the personalty was already excluded from the calculation of fair market value; subtracting the depreciated value of the personalty again results in an impermissible double deduction.

    Court’s Reasoning

    The Court of Appeals focused on preventing a double deduction for the value of the personal property. The court acknowledged that personal property should be excluded from ad valorem tax according to Real Property Tax Law § 300. The court agreed with the Appellate Division’s finding that the maintenance reserve already accounted for the value of the personalty. Allowing a second deduction for the depreciated value of the personalty would effectively credit the appellants with more than the value of the personalty. The court stated, “While neither calculation may perfectly achieve the objective, by permitting deduction of both the maintenance reserve and the depreciated value, appellants would in effect be credited with more than the value of the personalty.” The court emphasized that the Appellate Division’s findings aligned more closely with the weight of the evidence, citing Matter of Marine Midland Props. Corp. v Srogi, 60 NY2d 885, 887. The decision underscores the importance of accurately reflecting the value of taxable real property by avoiding redundant deductions that could distort the assessment.

  • Matter of 860 Fifth Ave. Corp. v. Tax Comm’n of City of N.Y., 55 N.Y.2d 683 (1981): Actual Rent vs. Fair Market Rent in Property Valuation

    Matter of 860 Fifth Ave. Corp. v. Tax Comm’n of City of N.Y., 55 N.Y.2d 683 (1981)

    When determining property value using the income capitalization method, actual rent is not necessarily indicative of fair market rental, especially when the landlord and tenant are affiliated companies.

    Summary

    860 Fifth Ave. Corp. (petitioner) challenged the tax assessments on its building, leased to its affiliate, from 1975-1979. The central dispute was whether the actual rent charged or a lower, fair market rent should be used to determine property value via the income capitalization method. The petitioner’s expert used comparable leases to find fair market rent, while the city’s expert used the higher actual rent, comparing it to other branch banks. The Appellate Division rejected the actual rent, finding it unrelated to fair market value and accepted the petitioner’s evidence. The Court of Appeals affirmed, holding that actual rent is not necessarily indicative of fair market rental when dealing with affiliated companies.

    Facts

    The petitioner owned a bank and office building leased to its affiliate. The petitioner challenged the 1975-1979 tax assessments on the property. The dispute focused on the proper rental figure to use in the income capitalization method for valuation. The petitioner’s expert analyzed leases of similar properties to determine fair market rental value. The city’s expert used the actual rent charged by the petitioner to its affiliate, comparing it to rents of other branch banks in the area. The trial court rejected the petitioner’s calculation and accepted the city’s analysis.

    Procedural History

    The trial court adopted the city’s valuation analysis, based on the actual rent. The Appellate Division modified the judgment, rejecting the actual rent and accepting the petitioner’s evidence of fair market rental value. The Appellate Division performed its own calculations, arriving at a property value between the petitioner’s and the city’s figures. The City of New York appealed to the New York Court of Appeals.

    Issue(s)

    Whether the Appellate Division erred in rejecting the actual rent charged between affiliated companies and instead relying on evidence of fair market rental value when determining property value for tax assessment purposes.

    Holding

    No, because the weight of the evidence supported the Appellate Division’s conclusion that the rent charged was influenced by factors unrelated to market value and that the comparable rents relied upon by the city lacked probative value.

    Court’s Reasoning

    The Court of Appeals affirmed the Appellate Division’s order, stating that when the Appellate Division reverses the trial court’s findings and makes new findings, the Court of Appeals may choose between the two by determining which is in accord with the weight of the evidence, citing Grant Co. v Srogi, 52 NY2d 496, 510-511. The court emphasized that while actual rent may indicate fair market rental, it is not necessarily so when the rent is arbitrarily set, such as between affiliated companies, referencing Matter of Merrick Holding Corp. v Board of Assessors, 45 NY2d 538, 543. The court found that the Appellate Division’s conclusions were supported by the weight of the evidence, specifically that the rent charged was influenced by non-market factors, and the city’s comparable rents lacked probative value. The court reasoned that the rent charged by petitioner to its tenant was essentially a computation of the cost of carrying the property, with no relation to fair market rental.