Nassau County’s Tax Assessment Dilemma: The High Court Invalidates Local Law

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In Matter of Baldwin Union Free School District v. Nassau County, the New York Court of Appeals recently struck down a Nassau County (the “County”) law adopted to shift the obligation to pay real property tax refunds onto individual taxing jurisdictions (i.e. schools, towns, etc.).  This decision was a great relief to local school districts, but will have a continued impact on the County’s deteriorating fiscal condition.

This legal battle involved almost a century of real property tax legislation.  In the 1930s, the County adopted a system of tax assessment where the County would maintain the tax rolls and pay all refunds resulting from assessment errors.  In 1948, at the County’s request, its obligation to pay refunds was codified by amending the County Administrative Code and State law (the “County Guaranty”).

In 1958, the New York State Legislature enacted Real Property Tax Law § 726, which authorized counties to charge refunds back to individual taxing jurisdictions.  Virtually every county has been charging refunds back to individual taxing jurisdictions for decades.  However, the County Guaranty prohibited Nassau County from charging back refunds.

Although there has always been some opposition to the County Guaranty, an increase of tax assessment litigation at the turn of the century led to increased awareness of this unique law.  In 2010, it was estimated that the County Guaranty cost taxpayers at least $80 million annually, with the debt servicing of past refund payments exceeding $150 million annually.  Accordingly, the County Legislature passed Local Law 18 – titled the “Common Sense Act of 2010” – attempting to repeal the County Guaranty and requiring the County to “act in accordance with the provisions of the Real Property Tax Law with respect to the correction of assessment rolls and tax rolls.”

Upon review of Local Law 18, the Court of Appeals was not persuaded that “common sense” equated to constitutionality.  In a 29-page opinion, the Court struck down Local Law 18 as an unconstitutional attempt to override State powers.  In short, the Court of Appeals concluded that because the County Guaranty was codified in a 1948 State law, the County was prohibited from unilaterally taking action inconsistent with that law.

Obviously, this decision does not bode well for Nassau County’s fiscal situation.  It remains uncertain whether the County will attempt to solve this dilemma by appealing the recent decision to the United States Supreme Court.  Even if there is no further appeal by the County, the Court noted that the County could submit a “home rule message” asking the State Legislature to repeal the County Guaranty.  Considering that other counties have benefited from charge backs for decades, equity may favor extending the right to Nassau County.  However, it remains uncertain whether school districts, municipalities, taxpayers or other special interest groups would organize to block such a proposal.

Topics:  Local Taxes, Property Tax

Published In: Civil Procedure Updates, Constitutional Law Updates, Elections & Politics Updates, Residential Real Estate Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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