Volume 11 - Opinions of Counsel SBRPS No. 20
Residential improvements exemption (local option) (single family homes) (owner occupancy) (reduction of term of exemption) - Real Property Tax Law, § 421-f:
A municipality granting the residential improvements exemption may not restrict it to one-family or to owner-occupied homes. It may, however, reduce the term of the exemption by reducing to zero the otherwise applicable exemption percentage in the later years of the authorized period of exemption.
We have received an inquiry concerning the residential improvements exemption (Real Property Tax Law, § 421-f). A city is contemplating the adoption of the exemption, but some officials have expressed a preference to restrict the exemption to one-family homes that are owner-occupied homes, and to reduce the term of the exemption. In our opinion, only the last of these options may be adopted.
The statute authorizes municipal corporations to offer a limited term, partial exemption from taxes and special ad valorem levies to “[r]esidential buildings reconstructed, altered or improved . . .” (RPTL, § 421-f(1)). The exemption is generally equal to 100 percent of the increase in value attributable to the improvement in year one, with the exemption percentage declining by 12½ percent each year over the next seven years (§ 421-f(2)(a)). The law defines a “residential building” for purposes of the exemption as “any building or structure designed and occupied exclusively for residential purposes by not more than two families” (§ 421-f(5)).
The law does give municipalities some flexibility in tailoring the exemption to local needs. While the exemption is normally limited to $80,000 in increased market value, a municipality may reduce that figure to as low as $5,000 (RPTL, § 421-f(2)(a)(iii)). In addition, a municipality may limit the percentage of exemption (§ 421-f(7)(a)(i)), limit the exemption to specific forms of reconstruction (§ 421-f(7)(a)(ii)), or provide that the exemption will apply only to those improvements which bring the property into compliance with local building codes (§ 421-f(7)(a)(iii)).
In general, however, a “municipal corporation may exercise only those options with respect to [local option exemptions] that have been made available by the State Legislature . . .” (8 Op.Counsel SBEA No. 120). Here, municipalities have been given no authority to limit the exemption to one-family and/or owner-occupied homes. To the contrary, as noted above, the statute defines qualifying property as one- or two-family homes. And, while many other exemption statutes have been restricted to the legal residence of the applicant (e.g., RPTL, §§ 425(3)(b), 458-a(1)(d), 459-c(5)(c), 467(3)(d)), no such restriction is included within section 421-f. Since the general State law does not include that restriction and the ability to impose that restriction is not among the local options granted to municipalities by the Legislature, we conclude that the city may not restrict its residential improvement exemption to one-family and/or owner-occupied homes.
Since, as noted above, section 421-f(7)(a)(i) specifically permits municipalities to reduce the percentage of exemption, in our opinion, a municipality is authorized to reduce the term of the exemption (e.g., by setting the exemption percentage at zero in later years in which a higher percentage would otherwise be allowed; see, 5 Op.Counsel SBEA No. 81). So long as the exemption percentage established in local law for any year does not exceed the percentage otherwise permitted by the general State law, the municipality may set its percentages accordingly.
February 15, 2002