With local property tax assessments likely to be a frequent topic here for a while, this seems like a good moment to pull from my file a run-down of how those assessments work, which I wrote up for several email lists a few years ago.
Property taxes in New York State are levied as slices of an overall pie... that pie being the combined budgets of your town, county, school, fire, and any other taxing districts.
If one person's slice gets smaller, the rest all get proportionally bigger to make up the difference in that year's overall budget.
So a crucial thing to realize with assessments is that the dollar number assigned to your house (or building) can be less important than that figure's relation to those of your neighbors.
In theory, the goal should be to make assessments accurate not only for any given property, but also fair in relation to similar properties nearby. Otherwise, even when your assessment is 100% correct, you could wind up paying more than your fair share anyway—if your neighbors' assessments are artificially low.
For the sake of example: Say that all of the 10 buildings in Nowheresville, U.S.A. are two- family residences, all built at the same time, all in the same condition, all with 3,000 square feet of useable space and all with the same acreage. There are no other residential, commercial, industrial or other taxable properties in town, and the town's annual budget is $200,000.
The assessor determines that these houses, being identical, are all worth the same amount— $100,000—and assesses them all at that level.
Dividing the town's budget in ten equal slices, since all the homes are "comparable," each home owner pays $20,000 in property taxes annually. The total assessed value of the town is therefore $1,000,000, and the "mil rate" (the amount of tax paid per $1,000 of assessed value) is 20 cents.
This situation remains unchanged for a long time. But then several people decide they desperately want to live in Nowheresville, and since houses there rarely go on the market, a bidding war ensues. One of thes buyers eventually purhcases the only available house for $200,000.
Now the assessor faces a dilemma: What to do about this big sale?
At this point, the assessor often mistakenly raises the just-bought home to its full purchase price of $200,000, while leaving the others' assessments untouched at $100,000. Assuming the Town budget remains the same, this means that the new home owner effectively pays 2 shares of the town tax levy, or $36,363, while the other nine home owners pay 1 share each, or $18,181.
The new owner is now paying double what his neighbors pay, even though they all own identical houses and properties. This is what's known as the "Hello, stranger!" policy, which was struck down many years ago by the Supreme Court, but which remains rampant in areas with influxes of new residents.
Instead, the assessor could decide that the recent sale price was a fluke, and keep all the ten homes at their $100,000 assessment, ignoring the recent sale. Doing so would leave everyone's local tax bill the same as before ($20,000).
However, while that course of action might seem more fair, it also could have unforseen consequences. New York State could come in to tell the assessor that he was undervaluing property, since the recent purchase price had demonstrated that Nowheresville property values were going up.
The State would then tack on what is called an "equalization rate" to Nowheresville assessments, in this case perhaps as high as 200%. That equalization would not raise anyone's Town taxes, since everyone locally would still have equal assessments. But if the town shares County and School services with a neighboring municipality, it would bump up everyone in Nowheresville's non-Town taxes by that rate, so that Nowheresville as a whole became “equalized” with its neighbors.
Alternatively, the assessor could choose a third course of action: Raise everyone to the most recent sale price for a similar home (i.e., everyone in Nowheresville), $200,000. This would not change anyone's town taxes, since the Town budget is still $200,000 -- so everyone's share remained equal in relation to each other. But it would increase those residents share of County and School taxes if assessments don't also double in nearby municipalities sharing those services.
Finally, there is a fourth path--the one I think is most sensible, but which rarely seems to actually happen.
Namely: The assessor decides that while the recent sale does indicate that houses in Nowheresville are becoming more valuable, the bidding war was unusual, and that drastic changes should not be made based upon isolated incidents.
The assessor thus might choose to raise all ten houses somewhat (let's say to $125,000) including the recently-sold one. Everyone's share of the Nowheresville tax pie stays the same, and equal to their neighbors with comparable houses, while their County and School taxes may go up slightly if values have increased faster in Nowheresville than in neighboring towns. With hope, the State will agree that this is a reasonable course, and keep the equalization rate at 100% rather than bumping it way up based on one sale.
This in microcosm is the situation being faced in small towns and cities and every town in the Hudson Valley... only the calculations are much more complicated, since there are many classes, ages and sizes of property in many different conditions with varying acreage.
The basic dilemma remains the one posited above: Assessors need to keep up with changing times (both upward and downward) while making sure that changes are reflected in all "comparable" properties, not just tacking on additional value to only the most recently-sold homes.
If a Nowheresville property owner disagreed with their new tax assessment, their first course of action would be to schedule a time to “grieve” their taxes with the local Assessor. If the Assessor did not agree to lower it, the taxpayer then would have the chance to go before the local Board of Assessment Review (BAR), an appointed body which has the power to adjust the Assessor’s work. (The State has little police power over municipalities, beyond adjusting the aforementioned Equalization Rate.)
Typically, the best ways for you to convince an Assessors or BARs that your tax assessment is too high are to (A) show that some of their underlying data, such as square footage or amenities, is incorrect; and/or (B) show that comparable houses in the neighborhood or muncipality are not being assessed as highly as your own. In selecting comparables, you want to find properties that are of a similar size, acreage, age and condition as your own, preferably as close as possible.
Such information is publicly available either from your local Assessor, or from your County Real Property Department. You can even request it on a disc if you want to do a more thorough analysis or search for “comps.”
If the BAR doesn’t give satisfaction, the only remaining option is to go to court, which in these parts is a real longshot proposition. Judges around here seem to have little aptitude or patience with the excruciatingly detailed and wholistic analysis necessary to make tax assessments truly fair.
ENDNOTE: There is an additional problem worth mentioning, the tendency of local politicians to raise their budgets in relation to rising assessment values.
Just because assessed values are going up does not mean that a town's budget can just be jacked up accordingly. But it is very rare for budgets to stay flat or even below cost-of-living/inflation rates. Town leaders often look at the total increase in assessed values as a measure of how much they can boost their budget without too many people complaining. The Mayor or Supervisor or Board or Council will seize this chance to increase revenue while simultaneously bragging that they didn’t increase the tax rate—and hope that only a few people realize the consequences of that key distinction.
In the first scenario above, the total assessed value of Nowheresville would go up to $1,100,000 -- allowing the Mayor to boost the town's budget while claiming in the press that s/he'd "held taxes constant" by keeping the "mil rate" unchanged. The reality would be that the new homeowner would effectively be picking up the entire new increase in Town taxes.
