The use of the property tax for what may be described as non-fiscal purposes — to accomplish goals other than raising municipal revenue — is a controversial topic, particularly as such uses extend beyond the traditional confines of religious, educational, or charitable purposes and are directed toward economic, environmental and social ends. The following are examples of types of property which may be partially or fully tax-exempt: public housing, privately owned multiple dwellings, industrial development agency facilities, commercial and industrial facilities, railroads, air pollution control facilities, industrial waste treatment facilities, agricultural and forest lands, and the residences of veterans and low-income senior citizens.

Property tax exemptions may cause financial stresses on local governments. Exemptions do not reduce tax levies, but instead shift a greater portion of the levy to remaining taxpayers, who consequently must pay higher taxes. An exception is the School Tax Relief (STAR) exemption, a partial school tax exemption applicable to most residential property, which is State-funded. Many challenge the use of property tax exemptions for non-fiscal purposes, arguing that subsidies for such purposes might better come from broader revenue sources than the limited base of the local property tax.

The standard source at the state level for technical assistance on the law and practice of property tax exemption is the State Board of Real Property Tax Services. The Board has published a number of reports on the impact of various exemptions on local tax bases. In addition, it annually publishes a statistical report detailing the value and location of exempt property in the state.

The value of exempt property is often obscure. Many assessors conclude that they have no reason to place realistic values on property which will not be taxed. Furthermore, many assessors do not revise exempt property lists, even periodically, since the figures are not utilized for any apparent purpose. However, where a tax levy is spread between or among two or more municipalities, the equalized value of tax exempt properties is used when calculating the tax rates, so unrealistic values on tax exempt properties can affect a tax levy. Consequently, the reported valuations of exempt properties in New York State in all likelihood do not reflect their full impact on municipal tax bases or the revenue they would return if they were made taxable. With that caveat in mind, it is worth noting that the ratio of exempt valuation to the total of taxable and exempt valuation in New York State rose from 11 percent at the turn of the twentieth century to about 32 percent in 2005.

In 2005 there were 4.5 million property tax exemptions on assessment rolls in New York. The value of exempt property in cities and towns totaled $678 billion in 2005, almost 32 percent of the state’s real property assessed value. In nine of New York’s cities, more than half of the value of the real property contained therein was exempt from taxation. Twenty-three of the 933 towns in New York had in excess of 50 percent of their total real property value exempt from taxation on their 2005 assessment rolls.

Property owned by government and quasi-government entities, such as public authorities, accounts for 47 percent of the total value of exempt property. As for private owners, the largest proportion of exempt property is owned by community service organizations, social organizations and professional societies (13 percent of all exempt property). As for exempt residential property other than multiple dwellings, the leading categories of exemption based on value are the School Tax Relief (STAR) Program (23 percent of total exempt value), property owned by veterans (almost 5 percent) and property owned by senior citizens (about 2.5 percent).

The percentage of exempt value attributable to state-mandated exemptions statewide was 94 percent. In absolute terms, the total value of state-mandated exemptions on 2005 assessment rolls was $637 billion.

The first three of the above tasks are the duty of local assessors. In New York State the assessing units include the 62 cities and 933 towns. Other local governments use the assessment rolls as they require them. County and school tax levies, it was noted earlier, are distributed among constituent municipalities in relation to their equalized values. Although the 550 villages are empowered to assess property for purposes of village taxation, many accept the town rolls and a majority have terminated their status as assessing units and transferred that function to the towns.

There are two county assessing units in the state: Tompkins County and Nassau County. Under the Tompkins County Charter, an appointed county director of assessment assesses all real property in the county subject to taxation for county, town, village, school district or improvement district purposes. The Nassau County Government Law establishes a county board of assessors, consisting of four appointed members and a chairman and executive officer who is elected from the county at large. The board assesses real property on a countywide basis for purposes of county, town, school district and improvement district taxation.

Local assessors are either elected or appointed to their positions. All but two cities have a single appointed assessor or appointed boards of assessors. Since 1927 village assessors have been appointed, and villages have either one or three assessors. In some villages, the village trustees act as assessors.

Title 2 of Article 3 of the Real Property Tax Law provides that, except in Tompkins and Nassau Counties, cities under 100,000 population and all towns shall have a single assessor, appointed to a six-year term of office. In any city or town where one or more of the offices of assessors was elective, the governing body was empowered to retain elective assessors by enactment of a local law, providing such action was taken prior to April 30, 1971. About 50 percent of towns retained elected assessors under this option.

There are three basic methods for arriving at the value of real estate for tax assessment purposes - sales analysis and comparison, income capitalization, and the replacement cost of improvements. The separate valuation of land entails a further set of value factors and a judgment as to their combined effect upon a give parcel of land. Among the various considerations are prevailing land use or classification, sales and income data, and the establishment of separate units of value (such as front foot), subject to modification for reasons of lot size, depth or irregularities.

The basic issues in property valuation are treating the owners of taxable property fairly and administering the property tax efficiently in the interest of both the municipality and the taxpayers. Until December, 1981, Section 306 of the Real Property Tax Law required all assessments to be set at full value. Historically, however, real property in this state was usually assessed at a percentage of full value. Inequities had long existed among and within different classes of property, e.g., residential, industrial, commercial. These inequities stimulated a series of court challenges to the property tax assessment system in New York State. The most notable cases are Hellerstein v. Assessor of the Town of Islip 37 NY2d 1,371 NYS2d 388 (1975) modified by 39 NY2d 920,386 NYS2d 406 (1976) and Guth v. Gingold (34 NY2d 440,358 NYS2d 367 (1974)).

In its June 1975 decision in Hellerstein, the Court of Appeals found that assessment of real property must be at its full value since the Real Property Tax Law did not, at that time, authorize fractional assessments. In Guth, the Court of Appeals determined that a property owner could use the equalization rate established by the State Board of Equalization and Assessment (now the State Board of Real Property Tax Services) as a sole means of proving inequality with respect to the assessment of a property.

In December 1981, the State Legislature repealed Section 306 of the Real Property Tax Law thereby removing the full value assessment requirement. Section 305 of the Real Property Tax Law authorizes the continuation of existing methods of assessment in each assessing unit. However, it specifically requires assessment at a uniform percentage of value (fractional assessment) within each assessing unit.

Special provisions applicable to New York City and Nassau County prescribe a classification system. In all other areas of the state, assessing units are authorized to preserve homestead class tax shares on taxing jurisdictions completely within the assessing unit - predominantly cities, towns or villages. This means they may reduce the tax burden on residential real property (dwellings for three or fewer families) and farmhouses relative to other types of property.

Efforts at the local level to improve assessment administration take various forms such as assessor training, improved record-keeping, tax maps and computerization of assessment data. Many municipalities have conducted comprehensive reappraisals. State financial assistance on a per parcel basis is available to assessing units which conduct reappraisals. Statewide, however, wide disparities still exist among classes of property and within classes of property regarding a uniform and equitable relationship of property assessments to full value.

The State Board of Real Property Tax Services maintains a comprehensive system of software programs called the Real Property System (RPS) which is available, for free, to all assessing units. It is capable of maintaining assessment, physical property inventory, and valuation information for any type of real property. In addition, RPS has the ability to conduct a mass appraisal of an entire municipality and is capable of producing assessment rolls, tax rolls and tax bills. In addition, it includes a Geographic Information System (GIS) and ten layers of State-provided geographic coverage data (roads, municipal boundaries, wetlands, school district boundaries, etc.). A document image management system (DIM) allows any document, such as a photograph, a sketch, a deed or a map, to be electronically attached to a parcel of property. A custom report writer (CRW) provides the assessor with the ability to create reports regarding assessment, sale or inventory data. Other municipal systems or off-the-shelf software can be easily integrated with the RPS system. The Office of Real Property Tax Services (ORPTS) periodically develops updates to the RPS system.

Legislation passed in 1970 provided for the appointment of property tax directors at the county level to coordinate and assist local assessment functions; gave towns the option of converting from elected to appointed assessors; created boards of assessment review in each municipality; required all counties with the exception of Westchester and those in New York City to provide assessors with modern, accurate tax maps; established minimum qualifications for appointed assessors; and required many town and most city assessors to achieve certification from the State Board of Real Property Tax Services. The legislation also provided for advisory appraisals of taxable utility property by the State Board upon local request.

In 1977, the State Legislature enacted Article 15-B of the Real Property Tax Law. This article provides for state financial assistance to local governments which implement improved systems for real property tax administration. This program has been revised several times, including to encourage cyclical reassessments. The “Aid for Cyclical Reassessments” replaces the previous Aid programs. Assessing units that commit to conducting reappraisals of all property at least once every four years may receive up to $5 per parcel in the year of a full reappraisal with additional payments of up to $2 per parcel in interim years.

Effective in 1982, the legislature amended the Real Property Tax Law to make training mandatory for all assessors, whether elected or appointed, as well as for directors of county real property tax services. In addition, the State Board of Real Property Tax Services was given authority to review the qualifications of appointed assessors and county directors to determine if they meet the minimum qualification standards.

Origins of state aid in New York go back to the early days of statehood. References to state aid for common schools appear in 1795, and education aid began to assume real importance with the free public school movement of the 1840’s, although the principle of free schools was not fully realized until after the Civil War. A leading purpose of school aid in this era was to compensate for revenue losses which resulted from eliminating local tuition. At a later point, the state introduced incentive grants to stimulate local participation in particular aspects of public education. These purposes - providing assistance in meeting the costs of state-originated programs and providing an incentive for localities to participate in such programs - have continued to this day.

State aid has grown from its small beginnings to its present dimensions because of various economic and social developments. These include free schools; the coming of the automobile; statewide initiatives in health and mental health, sanitation and public welfare; and, more recently, concern with the environment and natural resources, educational opportunity beyond twelfth grade, public safety and mass transportation.

General purpose assistance can be defined as financial aid for the support of local government functions without limitation as to the use of such aid and without the substantive program and procedural conditions that are routinely attached to categorical grants-in-aid. In the late 1990’s, interest centered on the General Purpose Local Government Assistance program, which distributed over $770 million to cities, towns and villages during state fiscal year 1999-2000. The program, which had been titled “Revenue Sharing” in the early 1970’s, grew to include four distinct components: General Purpose Local Government Aid (GPLGA); Emergency Financial Aid to Certain Cities; Emergency Financial Aid to Eligible Municipalities, and Supplemental Municipal Aid. The 2005-06 budget established the Aid and Incentives for Municipalities (AIM) Program, which collapsed these four programs into one “base level grant” for all cities, towns and villages statewide.

New York State has provided financial aid to its municipalities since 1789. Early programs included categorical grants for activities encouraged by the state and the shared tax system whereby localities received portions of taxes they had participated in collecting. The per capita aid program instituted in 1946 allocated specific dollar amounts per capita to cities, towns and villages. In 1965, a statutory formula was established to calculate aid based on fiscal need, effort and capacity indicators.

The revenue sharing program created in 1970 was designed to eliminate the complexity and uncertainty of previous state aid programs and to provide municipalities with flexible, equitable and predictable aid. New York State Finance Law Article 4-A, section 54 outlines the framework of the Revenue Sharing Program, which is based on the previous Per Capita Aid Program. This program was designed to allocate specific amounts to counties, cities, towns and villages (with special emphasis on cities), based on population and full value data. The original legislation envisioned a distribution of aid equaling 21 percent of Personal Income Tax (PIT) revenues and that such aid would grow annually keeping pace with growth in the State’s major revenue source.

The revenue sharing program underwent numerous changes in the 1970s. Before the program was even implemented, allocations were cut in 1971 to 18 percent of PIT receipts. In 1977-78, the State capped distributions at the 1976-77 level. In 1978-79, revenue sharing aid was further restricted when statute was amended to change the basis of funding from 18 percent of PIT receipts to 8 percent of total State tax collections. In 1979-80, the State froze revenue sharing at the 1978-79 level, and until 1984-85, funding was capped at $800 million.

The program peaked in fiscal year 1988-89 at nearly $1.1 billion. During the early 1990’s, New York reduced numerous programs, including unrestricted local government aid by roughly 50 percent over four years. By 1992-93, revenue sharing had been decreased by more than $500 million to a low of $532 million.