Sunday, February 3, 2008

Who Pays the Most Taxes?

The New York Times
February 3, 2008
By JOSH BARBANEL
http://www.nytimes.com/2008/02/03/realestate/03cov.html

A TAX collector’s tour of Manhattan might rightfully begin in front of the neo-Georgian town house on East 63rd Street with stately stone pillars and a bowed brick front, a large flagpole protruding from a fourth-floor terrace. Once a private club and later a Catholic school, it is now the home of Ronald O. Perelman, the billionaire who made his fortune buying up troubled companies.

Mr. Perelman’s 40-foot-wide house, bought for about $5 million in 1983 (a few years before he famously took over Revlon), holds the distinction of being the highest-taxed single-family home in New York City. It is valued by the city’s tax assessors at $37.5 million, under new assessments released a few weeks ago, up 15 percent from the year before. The property taxes on it are likely to be more than $213,000 when the new tax bills arrive in July, based on current taxes rates.

While the taxes paid by wealthy town-house owners may seem high to ordinary mortals, they can be phased in over many years and usually do not reflect the current market values. The owners would pay even more if they were not protected by the same provisions of tax laws created to shield middle-class homeowners in the Bronx or co-op residents on Queens Boulevard from onerous tax increases. Without this circuit breaker, Mr. Perelman’s taxes could have been as high as $347,000.

Or a tax tour might reasonably begin instead at Rupert Murdoch’s opulent penthouse apartment, 20 rooms spread over three floors and 8,000 square feet (plus 4,000 square feet of terraces), at 834 Fifth Avenue (64th Street), one of grandest and most expensive co-op apartments in one of the most pedigreed buildings in the country.

One might think it would be one of the highest taxed as well. Mr. Murdoch paid $44 million for it three years ago, a record price at the time, and it is probably worth more today. However, Mr. Murdoch’s share of the co-op’s tax bill works out to only about $55,000, the equivalent of a ridiculously low $625 tax bill on a $500,000 home on any suburban street.

Assessors pay no attention to the sales prices of co-ops and treat prewar co-ops like Mr. Murdoch’s building as if they were aging rental buildings, driving down taxes far below those paid by the owners of condos and town houses.

The real tax losers among the rich are those who live in many of the newer buildings in town. The highest-taxed apartments are in the residential towers of the Time Warner Center, where owners on the upper floors can look out on the lower-taxed luxury co-ops lining the east and west sides of Central Park.

At Time Warner, and at other new condos, city records show that assessments are far higher than in prewar co-ops. Unlike other new buildings, the huge Time Warner project, built on public land, the former site of the New York Coliseum, did not qualify for a construction tax exemption to soften the blow.

David Martinez, a Mexican-born financier and art collector who assembled the largest apartment at the Time Warner Center by combining two penthouses on the 76th and 77th floors of the south tower, pays the most of any residential taxpayer in the city: $442,000.

Mr. Martinez paid $54.3 million for the 16,300 square feet of space in two apartments he combined, and resale prices in the building have been rising in the building ever since. But assessors are required to value the apartment as if it were in a rental building, and in each of the last three years the city’s Finance Department actually lowered Mr. Martinez’s assessment significantly. Mr. Martinez’s taxes for this coming year will fall 6 percent below the $468,858 he was billed this year.

Next is Stephen M. Ross, the chairman of Related Properties, which built the Time Warner Center. His full-floor 9,290-square-foot apartment atop the south tower, a few floors above Mr. Martinez’s duplex, is listed with taxes of nearly $241,000, with a 6 percent reduction from the year before.

But the situation is different across the way at 15 Central Park West, the new and much-celebrated project designed by Robert A. M. Stern, where the developers were able to obtain a 421-a tax exemption. The top-floor penthouse on the Central Park side of the building sold last summer for $42.4 million to Sanford I. Weill, the former chairman of Citicorp.

City records show that the tax bill for the apartment was about $76,000 in 2007, less than it might have been because the building’s developers, Arthur and William Lie Zeckendorf, got tax breaks.

To obtain these breaks, the Zeckendorfs bought housing certificates that went to help build low-income housing in other parts of the city.

Soon tax breaks like that will end because most of the abatement program is being phased out over the next few months in Manhattan. People who buy apartments in new buildings in the future may face sharply higher taxes.

Some interesting histories pop up on the top 10 list of highest property taxes paid.

After Mr. Perelman’s, the town house with the highest taxes is a 59-foot-wide house on East 81st Street, built to house a private art collection. Just down the street from the Metropolitan Museum, it was later used as a residence by the Catholic Church. Tax records list a corporate owner, but neighbors say that a Kuwait-born billionaire has maintained a home there for many years. The house is valued by the taxing authorities at $32.8 million, 13 percent below Mr. Perelman’s house, but its property tax bill is almost as high, at $211,000.

The list includes the house on East 92nd Street sold by Woody Allen for $24.5 million in 2004 ($153,000), as well as the Guccione mansion on East 67th Street, which sold for $45.4 million in 2006 ($151,000). Renamed the Milbank mansion, it is back on the market at an asking price of $59 million.

No. 4 is the house on East 71st Street owned by Jeffrey Epstein, a billionaire financier who frequently describes it as the largest private home in Manhattan. Mr. Epstein is said to have bought the house from Leslie Wexner, the chief executive of Limited Brands, about 10 years ago, though the transaction does not appear in online city property records. Its taxes are $177,000.

But No. 7 on the list is a house valued by the city at only $18.4 million on East 65th Street. The former home of the American Federation of Arts, the house was bought in June 2006 by Jane Holzer, the former Andy Warhol star known as Baby Jane. She now lists her occupation on campaign finance filings (for Senator Hillary Rodham Clinton in 2006 and for Senator Barak Obama in 2007) as being self-employed in real estate.

Because Ms. Holzer converted the 28-foot-wide house from offices to a one-family home, she was unable to phase in property tax increases the way most other homeowners do. Instead, she ended up paying taxes based on the house’s full market value last year. This year the taxes are likely to rise to $157,000.

Many experts on the tax system agree that it is flawed and often inequitable, but they have been unable to develop alternatives with broad-based support. That is because the current system was created by the State Legislature to protect various interest groups, from middle-class homeowners outside Manhattan to real estate developers.

Homeowners, even billionaires like Mr. Perelman, can phase in assessment increases over many years (at no more than 6 percent a year or 25 percent over five years). With market values rising rapidly, Mr. Perelman now pays only about 61 percent of what he would pay if the full market value were used.

This works out to about 57 cents for every $100 of market value, compared with about $2 in Hempstead, $1.60 in Scarsdale, or $1 in Great Neck, N.Y., according to a regional tax analysis by The New York Times in 2006.

And because of laws that tie the value of older co-ops to that of older rental buildings, Mr. Murdoch and his neighbors at 834 Fifth Avenue pay far less than they would if they lived in a newly constructed condominium.

The market value for tax purposes of the entire building at 834 Fifth, designed by Rosario Candela, is only $30 million, according to assessment records, even though the building has 24 apartments, many of them sprawling duplexes worth many millions. This is less than Mr. Murdoch paid for his single apartment. (It is even less than the second-highest sale in the building, $33.4 million last November for a duplex owned by Loida N. Lewis.)

Mr. Murdoch’s $55,000 share of the building’s taxes, based upon his apartment’s square footage, works out to about 12 cents for every $100 he spent on his $44 million purchase.

This includes the savings from a special abatement provided by the Legislature for co-op and condo owners a decade ago, because of complaints that their taxes were too high.

“It is an unequal and incomprehensible system,” said Paul Korngold, a property tax lawyer.

But do these taxes really matter to buyers of real estate in this price range?

Robert A. Haberman, a senior vice president at Prudential Douglas Elliman who specializes in town houses, said the wealthiest buyers never flinch at New York taxes.

“When people start buying a town house in the $30 million range and up, they couldn’t care less about taxes,” he said. “You tell them, you give them the information, but I never had a complaint about taxes.”


Photographs by Tina Fineberg and Kate Glicksberg for The New York Times

A CRAZY QUILT OF TAX LAWS The same provisions created to shield middle-class homeowners in the Bronx or co-op residents on Queens Boulevard from onerous tax increases also protect the billionaire owners of opulent town houses and sprawling triplexes.

No comments: