By Richard G. Fromewick, Meyer, Suozzi, English & Klein, P.C.
We live in a polluted world, the effects of which are increasingly apparent. Contamination appears in many forms, from the asbestos insulation in older buildings to the oil leaks at neighborhood gas stations or in residential oil tanks. However, the taxpayers of contaminated property sites may be entitled to some relief, even as they face escalating cleanup costs. In a far reaching decision, New York State's highest court requires local real estate tax assessors to acknowledge the negative effect contamination has on a property site's fair market value.
In Commerce Holding Corp. v. Assessor of Babylon, a unanimous Court of Appeals held "that when environmental contamination is shown to depress a property's value, the contamination must be considered in property tax assessment."
The Commerce case details the particular concerns which should be addressed when evaluating the effect of the contamination on the market value of the property that continues in business. The Town of Babylon was joined by the City of New York and other municipalities in arguing that reduction of tax assessment due to contamination would effectively shift the cleanup costs to the innocent public and actually reward polluters with a windfall award.
Although the court observed the taxpayer of the polluted property might obtain a tax benefit under its holding, it further recognized that any such advantage would pale in comparison to the potential liability for failing to take appropriate remedial action. The cardinal principal underlying the Court's decision is the constitutional requirement that properties be assessed at full value.
Remediation of a contaminated site can easily encompass several years because additional sources of contamination may be discovered during the various remedial stages. Of course, government required monitoring procedures add to a landowner's costs both during and after the actual cleanup work. There is also a stigma attached to many contaminated sites so that the cleanup may not return the property to its original market value as clean property.
As decided by the Commerce Court, the full cost associated with the contamination cleanup may be deducted by the amount of work accomplished each year. Since the cleanup of the contaminated site in Commerce spanned several years, the court endorsed an appraisal methodology using calculations based upon the present value of cleanup costs as a deduction for each individual tax year.
Once a property is found to be contaminated, an analysis should be made if the cost to cure as deducted from the market value proves an over valuation by the assessor. Rather than the innocent public paying for the cleanup costs, this is an appropriate and constitutionally correct way to have each property pay its fair share of taxes based on its market value as of each tax status date.
(Richard G. Fromewick is an attorney
and director of the Mineola, NY, law firm Meyer, Suozzi, English & Klein,
P.C. He heads up the firm's Certiorari and Condemnation Department. Mr. Fromewick
has served as Assistant Corporation Counsel for New York City and Deputy Chief
of the Tax Certiorari Bureau of Nassau County.)