Local Taxation

Inability to Recoup Costs for Municipal Services Provided to Tax-Exempt Properties

The Mandate: All real property in New York is subject to taxation unless the law grants it exempt status. Real property tax exemptions are permitted on the basis of many different criteria, including the use to which the property is put, the owner’s ability to pay taxes, the desire of the State and local governments to encourage certain economic or social activities, and other such rationale. Many tax-exempt properties require the same, and in some cases, more municipal services than non-exempt properties require, yet they are not obligated to pay for such services due to their tax-exempt status. While municipalities currently have the ability to impose user fees and benefit assessments to cover some of these expenses, they are prohibited from doing so for the most costly services, including police and fire protection (see Opinions of the Office of the State Comptroller 81-366 & 90-39).

The Cost:  Municipalities regularly expend resources providing services for properties which are tax-exempt. While real property tax exemptions do play an important role in New York State's property tax system, it is important to note that exempting property from taxes does not diminish the need for revenues; it simply shifts the burden of generating those revenues to the remaining taxpayers in the community. ​In 2016, Gannett newspapers completed an eight-part series on tax exemptions in New York State that helped to portray the magnitude of the issue. According to their research, approximately $866 billion in property is exempt from municipal and school taxes; the number of wholly tax-exempt parcels in New York grew from 179,420 in 1999 to 219,602 in 2016, a 22% increase; and the value of those properties more than doubled from $276 billion to $567 billion over the same time period.Prohibiting local governments from being able to recoup a portion of the costs they incur to provide services to tax-exempt properties only exacerbates the burden on local taxpayers.

The Solution:  The proliferation of real property tax exemptions -- which often times occurs in a haphazard manner via special laws and expansive judicial interpretation -- has resulted in a dilution of local tax bases. As cities and villages statewide continue to try to contend with the increasing expenses associated with the delivery of municipal services, they must be given greater latitude to recover a portion of these costs from those properties that are benefitted. The state should enact legislation that would permit municipalities, at local option, to impose a service charge on certain tax-exempt properties to offset some of the costs of providing such properties with municipal services.