In Matter of Highbridge Broadway, LLC v. Assessor of the City of Schenectady et al., 2016 N.Y. Slip. Op. 03544 (N.Y., May 5, 2016), the New York Court of Appeals reversed the Appellate Division and held that a taxpayer that filed a petition challenging the amount of the tenyear business investment exemption under Real Property Tax Law (“RPTL”) § 485-b was not required to file annual petitions while the initial petition was pending. 

Background Regarding Real Property Tax Law Business Investment Exemption. RPTL § 485-b provides a partial ten-year exemption from property tax, commonly referred to as the “business investment exemption,” for certain improvements made to commercial, business, or industrial real property. The amount of the exemption in each of the ten years is calculated using an exemption base, which is the difference between the pre-improvements value of the property and the post-improvements value of the property, as determined by the “assessment roll” applicable during the initial year of the exemption. For the initial year, the exemption base is multiplied by 50 percent to calculate the actual exemption amount. In the nine subsequent years, the exemption base is multiplied by a decreasing percentage.

Factual and Procedural Background. Highbridge Broadway, LLC (“Highbridge”) applied for the business investment exemption with respect to a property in the City of Schenectady (the “Property”) in March 2008. In July 2008, the City of Schenectady Assessor (“Assessor”) published the assessment roll for the year 2008—i.e., the year relevant to determining the exemption base. Highbridge subsequently filed a petition challenging the assessed value of the Property on the 2008 assessment roll and the amount of the business investment exemption that was granted, arguing that the assessed value of the property was too high and that the amount of the exemption was too low. While the petition only named the Assessor, Highbridge served both the Assessor and the Schenectady City School District (“School District”)—one of the ultimate recipients of property tax funds—because the RPTL required Highbridge to serve the school district in which the Property was located. The School District did not intervene in the proceeding.

Nearly three years later, in June 2011, the trial court granted summary judgment to Highbridge on the amount of the business investment exemption and recalculated the exemption for the years 2008 through 2014. The trial court also directed the Assessor to issue refunds to Highbridge for a portion of previously paid taxes. The trial court’s order, which was sent to the Assessor and the School District, was not appealed. The Assessor complied with the order, but the School District refused to issue refunds. Highbridge subsequently brought another action to collect from the School District, also seeking costs, sanctions, and attorneys’ fees. In this subsequent action, the trial court ordered the School District to issue refunds consistent with the order issued in the initial action, holding that the plain language of RPTL § 485-b only required a single action to be brought to obtain the exemption in all applicable years. The court did not hold the School District in contempt, however, because the order in the initial action did not specifically reference the School District. 

On appeals made by both Highbridge and the School District, the Appellate Division reversed, holding that, in order to preserve its claims, Highbridge should have filed separate petitions challenging each annual property tax assessment while its 2008 petition was pending.

The Decision. The Court of Appeals reversed the Appellate Division, specifically reinstating the trial court’s order that the School District issue refunds on any taxes collected in excess of the amount Highbridge would have paid if the properly calculated business investment exemption had been applied in the applicable years.

The Court of Appeals reasoned that since under RPTL § 485-b the business investment exemption is provided for ten years, and the amount of the exemption in each year is calculated based on the same single year’s assessment roll, the plain language of RPTL § 485-b establishes that a single petition challenging the business investment exemption suffices. “Put another way,” the Court of Appeals explained, “when a computational error based on a single assessment roll results in the miscalculation” of the business investment exemption, it would be “a waste of resources for all involved, including the courts, to require a property owner to bring a challenge addressing the same error in each and every year the exemption applies.” 

As support for its decision, the Court of Appeals cited the legislative history of RPTL § 485-b. The statute initially required the business investment exemption to be recalculated each year based on annual increases in the assessed value of the improved property, but was amended in 1985 so that the exemption would be calculated for its entire period based on a single assessment roll. The Court of Appeals concluded that this method of calculating the exemption, which continues to be required under RPTL § 485-b to this day, “creat[ed] greater certainty during the ten-year duration of the exemption for taxpayers, assessors, and school districts alike, and remove[d] the need for annual challenges.” 

Additional Insights

One Court of Appeals judge dissented, maintaining that the Court’s ruling deviates from the general rule that a taxpayer challenging an assessment must commence annual proceedings to protest subsequent assessments while the initial proceeding is pending in order to preserve the right to a refund for taxes paid in any additional years. Indeed, in most circumstances, a taxpayer challenging an assessment or refund denial related to any type of tax should file separate appeals for assessments or refund denials for each subsequent period, even if an initial challenge is still pending. Nonetheless, taxpayers in a property tax case should closely examine the relevant property tax statutes and consider whether the applicable statutes similarly rely on a base year calculation for later years. If so, the Highbridge case could provide support for an argument that subsequent appeals are not necessary to preserve their claims.