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Highest Court Strikes Down Nassau County’s Attempt to Shift Obligation to Pay Tax Refunds

Posted in Court Decisions, Property Tax Laws, Property Tax News, Property Tax Trends, Tax Appeals

Nassau County was dealt a decisive blow to its financial prospects on February 18 when the State’s highest court held that it had exceeded its constitutional authority in attempting to shirk its obligation to pay tax refunds — estimated at some $450 million — by shifting the duty to individual taxing districts.

Justice Abdus-Salaam

In a 29-page opinion, the seven member panel of the New York State Court of Appeals, writing in one of three companion proceedings, Matter of Baldwin Union Free School District v. Nassau, struck down County Local Law 18, enacted in 2010 and called the “Common Sense Act”. That law purported to amend the County’s Administrative Code to repeal a 1948 special State law that obligated the County, rather than the local taxing districts, to pay any refunds resulting from property tax over-assessments. This earlier State law was known as the “County Guaranty”, and was a notable departure from the practice of the rest of the State. It was based on the notion that Nassau County was the government unit responsible for assessing and so it should take responsibility for its mistakes.

Nassau County’s 1986 reassessment of commercial properties resulted in soaring tax challenges that have continued unabated each year at a cost of some $100 million per year, which is paid mostly through borrowing. The Guaranty means that the county pays the refunds even though the school districts and towns collected more than 80 percent of the overpaid taxes.

Apparently, County legislators were feeling far more flush and generous in 1948 than in 2010. The 2010 Common Sense Act was a response to the County’s dwindling finances and overwhelming debt. The County Comptroller had blamed the debt on both the number of tax certiorari proceedings and the County Guaranty (Howard S. Weitzman, Nassau County Must Stop Paying School Tax Refunds). The Common Sense Act was an attempt by the County Legislature to override the State special law and so make Nassau act like every other county in the State and charge property tax refunds back to the taxing districts.

The Common Sense Act was immediately challenged by various interested parties including school districts, towns, special districts and private parties, who contended that Nassau had run afoul of its statutory and constitutional authority in attempting to supersede a special State tax law.

Although the trial court granted summary judgment in favor of the County, the Appellate Division disagreed and reversed, entering a declaratory judgment that Local Law 18, the Common Sense Act, was unconstitutional. To pass muster, such a law was required to be “consistent with…laws enacted by the legislature”, and this was clearly not. It provided the opposite of State law. Moreover, the County lacked authority to enact the law in the first place.

On appeal, the highest court of New York affirmed. In an opinion by Justice Abdus-Salaam, the Court of Appeals wrote, “[b]eyond its constitutional authority, neither a county nor the State can act, regardless of the perceived wisdom of its conduct or the nobility of its aims.”

The Court went on to say,

‘The power of taxation, being a State function, the delegation of any part of that power to a subdivision of the State must be made in express terms,’ and the delegation of any form of taxation authority ‘cannot be inferred’. [citations omitted].

County Exec Mangano

In short, there was no grant of authority by the State by which the County had the power to directly alter the assignment of tax burdens and the administration of the tax review system. Local Law 18, no matter how much “common sense” it may have seemed to contain, was an insufficient means of repealing the County Guaranty that was passed by the State Legislature at the County’s own request many years before. In effect, the County had confined itself to a system that was at odds with the rest of the State in 1948 and was unable to set itself free by any simple means. “The State Legislature has not delegated to the County the prerogative to supersede a special State tax law, and this lack of authority is fatal to Local Law 18. * * * The County possesses substantial home rule powers, but the prerogative to impinge freely upon the State’s constitutional power of taxation, by means of superseding a special State tax law, is not among them.”

David N. Yaffe, who represented 41 school districts in the challenge, said the decision “confirms the county had no right to place the burden of its incompetent tax assessment system onto school districts.”

The County suggested that it will do what it probably should have attempted from the start – at least legally speaking: seek state legislation to enable what Local Law 18 could not do, according to County Attorney Carnell Foskey.

Of course, this wouldn’t really address the County’s financial woes. More than 150,000 tax protests were filed last year, and the County has failed to address thousands of outstanding commercial protests. The county estimates its refund liability at $300 million, though it is estimated that there are as much as $250 million in outstanding judgments and another $200 million in cases that have not been finalized, for a total of around $450 million. Some of the existing judgments are as much as three years old, with no clear prospect of being paid.

Though the decision was a victory for local tax districts, it is hollow at best with few prospects for real improvements that result in affordable taxes and the avoidance of drastic cuts in services and programs. Minority Leader Kevan Abrahams (D-Freeport), said, “I do hope this decision from the State’s highest court will inspire (Mangano) to stop the budget gimmicks and finally focus on fixing the broken assessment system so taxpayers can receive what they are rightfully owed.” And Legis. David Denenberg (D-Merrick) complained, “Republicans great reform was to dump the problem on the schools.”