Wednesday, June 18, 2008

State bill could end tax benefits for condos, coops
State bill could end tax benefits for condos, coops
BY ELIZABETH MOORE,0,3937701.story
June 18, 2008


Two town houses in gated Smithtown communities offer similar features and amenities such as a pool and clubhouse -- but one costs less than half as much in property tax as the other. The reason? It's a condo.

In Mount Sinai, an enclave of single-family homes offers good schools, ready access to a golf course -- and, because they're condos, less than half the tax bill paid by a comparably priced house outside their gate.

In Southold, officials have reluctantly decided only people 55 and older may live in a planned Cutchogue subdivision, because its 130 homes will pay less than half as much in school taxes as their neighbors do. That is because they're condos.

The "condo deal" is under fire
After years of pleas from frustrated local officials about New York State's rules for taxing condominiums, state lawmakers in the waning days of the current session hope to give them the power to at least put the brakes on building any more homes with tax breaks like these. That legislation is ready for final passage, but it has powerful opponents -- developers and condo owners -- and its fate is unclear.

"We need relief for this -- it's not fair to the other property owners," said Southampton tax assessor Edward Deyermond.

Smithtown's assessor Gregory Hild agreed: "I've been shouting on this thing for years."

New York State passed its law for co-ops and condos in 1964, as people began converting urban high-rise rental apartments to private ownership. The law was meant to protect them from being taxed more heavily than their former landlord, by assessing them by the entire building's potential rental value instead of each unit's market value.

New York City and Nassau County do not experience the current disparities because they later adopted a tax code that taxes commercial property more than homes and classifies high-rise condos as commercial, explained Thomas Frey, executive secretary of the state Assessors' Association. Later changes to that system taxed condos of three stories or fewer like other homes.

But the rest of the state, including Suffolk County, did not adopt that system, Frey said. And only gradually did developers elsewhere realize the condo law could be used to cut tax bills by up to two-thirds on all kinds of new developments and even existing subdivisions, from Montauk to the Adirondacks to Buffalo. Those tax savings have allowed them to market the homes for much higher prices than they could otherwise get.

"Condos are a relatively new phenomenon outside of New York City until the past 15 years," Frey said. "You never heard of a problem in western New York with condos until five years ago, but it's a major problem out there now."

Suffolk County Executive Steve Levy didn't return a call, but political observers and legislators say elected officials have been reluctant to incur the wrath of the growing number of condo owners.

Affordable or luxury?
In Suffolk County, at least 42,756 homes in 404 developments are condos or co-ops, according to the county planning department. Those include nine affordable developments and 54 for senior citizens. Many others are made up of luxury homes overlooking the waterfront or members-only golf courses. At least 18 Suffolk condo complexes are made up of detached, suburban-style houses.

Town officials are powerless to block condo construction or conversion because they are a form of ownership, not land use.

"People who don't have condos don't realize they are paying for them," said the leader of efforts to revise the law, State Sen. Betty Little (R-Glens Falls). "I think when people start to understand [the condo law], they see there are more people being hurt by it than helped."

Little and her Assembly counterpart, Sandy Galef (D-Westchester), are proposing to leave tax breaks intact on existing condominiums and co-ops, but allow local communities to impose their standard assessment rules on those converted or built after Jan. 1, 2010.

The state Association of Towns, Conference of Mayors and Association of Counties have been urging lawmakers to close the condo loophole for years. In a hearing earlier this month, Lee Kyriacou, director of the state's Office of Real Property Services, called it "far too broad a tax break to serve any valid purpose -- developers are driving a truck through it."

But year after year, bills have been defeated under fierce resistance by the developers' lobby and by condo owners whose homes would be worth dramatically less on the market if they lost the tax break.

"This [proposal] is a pretty watered-down version of our bill," said Little. "I think we decided we wouldn't get very far taking them [the tax breaks] away from people."

They may not get very far either way, Galef found when she co-hosted a Long Island hearing on this year's bill with Assemb. Ginny Fields (D-Oakdale). The people they found packing the room were angry condo owners; the fact that the bill wasn't aimed at them was irrelevant -- if this one isn't, they figured the next one would be. Their ire was enough to turn Fields into an opponent of Little and Galef's bill.

"At first I thought [ending the tax break] was a great idea," Fields said. "But what was very strongly brought up by the people is, it basically is affordable housing for senior citizens."

Lobbyists vs. homeowners
The state builders association, representing builders, remodelers and developers, also opposes Little's measure this year. "These co-op and condo developments should be encouraged because the increased density of such development is in accord with the principles of smart growth," executive vice president Philip LaRocque testified.

That is not the view in Southold, where residents have been up in arms over plans to build The Heritage at Cutchogue, 130 high-end homes on 45 acres just outside the historic downtown.

As condominium owners, Heritage residents will get a total reduction of about $1 million in taxes each year. Alarmed about the impact on schools, the town added a covenant restricting it to owners aged 55 and older. But town board member Tom Wickham is dismayed about the changes it will bring to the hamlet his ancestors settled in the 1600s.

"Is that what we want for our community -- is that the price we have to pay for all the condominium developments in our town?" he said. "This law is distorting the family composition of people living out here."


A condominium is a building or multiple-unit complex where residents own their individual living space and share joint ownership of common hallways, driveways and surrounding land.

A cooperative is jointly owned real estate whose shareholders are granted the right to occupy their individual unit.

How the condo law works
New York passed its condominium law in 1964 to protect buyers of urban high-rise apartments from being taxed more than the landlords. Developers have used that law to cut taxes by as much as two-thirds on properties from Montauk to Buffalo, building ever-bigger homes and even converting existing subdivisions. They can market the tax savings and charge more for the homes. Tax experts say the loophole is unfair to other homeowners, but fierce resistance from developers and condo owners has killed several efforts to close it. This time around, state lawmakers propose at least giving local communities the option to block new condo developments after 2010. Nassau's tax code compensates for the condo law, but Suffolk's does not. Below are examples of how much less condo owners are paying



Address: Van Nostrand Place

Year Built: 1948

Sale Price: $455,000 (Jan. 2008)

Taxes this year: $7,629.52


Address: Harbor Road North

Year Built: 1974

Sale Price: $460,000 (June 2007)

Taxes this year: $2,843.54

East Hampton


Address: Hayseed Way

Year Built: 1983

Sale Price: $1,075,000 (Jan. 2007)

Taxes this year: $6,898.00


Address: Huckleberry Lane

Year Built: 1985

Sale price: $1,150,000 (April 2008)

Taxes this year: $1,851.00


Fig Dr.

Built 2003

Sale price: $1.4M ('07)

Taxes: $21,568.59


Altessa Blvd.

Built 2004

$1.4M ('07)

Taxes: $7,284.75

Mt. Sinai


Remsen Court

Built 1987

Sale price: $850,000 ('08)

Taxes: $17,276.49


Hamlet Drive

Built 2004

$825,000 ('07)

Taxes: $8,421.26

Copyright © 2008, Newsday Inc.

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