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Can a Municipality Set Off a Tax Refund by Unpaid Real Property Taxes?


The state appellate court recently decided valuations for 21 real properties located in the Town of Ulster.  The appeal involved a massive record and a multi-million dollar tax assessment.

After the dust settled, the appellate court reduced several of the assessments, holding that the properties had been overvalued (see Matter of AG Props. of Kingston, LLC v. Town of Ulster Assessor, 138 AD3d 1273 [3d Dept 2016]).  “Cha-ching!”  A tax refund was coming.  Or so thought the property owners.

As it turns out, that was round one.  When the owners sought to settle the judgment, the Town opposed the application.  It turns out the owners still owe millions of dollars in unpaid real property taxes.  Should the owners be entitled to receive a tax refund when they still owe money for unpaid taxes?  The Town thinks not.  It asked the trial court to set off the tax refund by the unpaid taxes.  The trial court, however, refused.

A typhoon is now scheduled to hit the appellate court a second time.  This time, the parties arguing over the right to set off the tax refund by the amount of the unpaid taxes.

On the appeal, the owners are arguing that NY RPTL 726 prohibits setoffs because the statute does not expressly permit them.  However, the Town is taking the opposite position, pointing out that the statute does not expressly prohibit setoffs either.

The New York case law on this issue appears to be sparse.  As its authority, the owners are relying on Hedges v. Craig, (194 AD 786 [1st Dept 1920], affd 231 NY 513 [1921]).  That case, however, involved a post-judgment proceeding.  In contrast, this case involved a challenge to the initial settlement of the judgment.  Hedges was also decided nearly 100 years ago and has not been officially relied upon by New York State courts for 75 years.

Tax practitioners and blog followers look out!  Submissions and oral argument are scheduled to begin shortly.  The lines are likely to be long, so get your tickets early!  This will be a decision to remember.