In the Matter of Highbridge Broadway, LLC, Appellant,v.Assessor of the City of Schenectady, Respondent, Schenectady City School District, Respondent.

Brief

N.Y.March 22, 2016

To be Argued by: Jonathan P. Nye Time requested: 10 minutes Court of Zippeat of tie tate of Pebi Porli In the Matter of the Application of HIGHBRIDGE BROADWAY, LI,C Petitioner-Appellant, -against- THE ASSESSOR OF THE CITY OF SCHENECTADY, NEW YORK Respondent. -and- SCHENECTADY CITY SCHOOL DISTRICT Non-Party Respondent. For a Review of the Tax Assessment under Article 7 of the Real Property Tax Law for Tax Map No. 39.79-2-17.1 BRIEF OF NON-PARTY RESPONDENT SCHENECTADY CITY SCHOOL DISTRICT Case No. APL-2015.00158 WHITEMAN OSTERMAN & HANNA LLP Jonathan P. Nye Vitally Volpov Attorneys for Non-Party Respondent Schenectady City School District One Commerce Plaza Albany, New York 12260 (518) 487-7600 Appellate Division No. 518851; Schenectady County Index No. 2008.1701 TABLE OF CONTENTS TABLE OF AUTHORITIES iii QUESTION PRESENTED PRELIMINARY STATEMENT STATEMENT OF FACTS AND PROCEDURAL HISTORY 4 ARGUMENT 9 POINT I IN ORDER TO OBTAIN A REFUND OF TAXES, A TAXPAYER MUST SHOW THAT ITS PAYMENT WAS INVOLUNTARY 9 POINT II TO BE ENTITLED TO REFUNDS OF TAXES PURSUANT TO RPTL 726, HIGHBRIDGE WAS REQUIRED TO COMMENCE SEPARATE ARTICLE 7 PROCEEDINGS FOR EVERY YEAR THAT IT CLAIMED ITS ASSESSMENT WAS EXCESSIVE WHILE ITS INITIAL CHALLENGE OF THE 2008 ASSESSMENT REMAINED PENDING 15 A. The Statutory Scheme of RPTL Article 7 Requires a Taxpayer to Commence Separate Tax Certiorari Proceedings in Order to Preserve its Right to a Refund Pursuant to RPTL 726 15 B. The Requirement that Taxpayers Timely File Separate Tax Certiorari Petitions is Essential to a School District's Ability to Effectively Budget its Annual Expenses in Light of the Constraints on Establishment and Record Keeping of Reserve Funds Under Education Law § 3651[1-a] . 23 C. RPTL 727 is Not at Issue on This Appeal 28 POINT III APPELLANT'S FAILURE TO COMMENCE SEPARATE TAX CERTIORARI PROCEEDINGS WAS A JURISDICTIONAL DEFECT WHICH COULD NOT BE WAIVED BY THE DISTRICT 31 CONCLUSION 32 ii TABLE OF AUTHORITIES State Cases City of Rochester v Chiarella 58 NY2d 316 [1983] 10, 11, 13 Corporate Prop. Investors v Board of Assessors 153 AD2d 656 [2d Dept 1989], appeal dismissed in part, denied in part 75 NY2d 802 1 1 F. O. K Holding Co. v Board of Assessors of Town of Clarkstown 45 AD2d 875 [2d Dept 1974] 17 Finnerty v New York State Thruway Auth. 75 NY2d 721 [1989] 31 Matter of 43rd St. Second Ave. Corp. v City of New York 186 AD2d 68 [1st Dept 1992] affd, 83 NY2d 776 [1994] 12 Matter of Bowery Say. Bank v Board of Assessors 80 NY2d 961 [1992] 11 Matter of Circulo Mous. Dev. Fund Corp. v Assessor of City of Long Beach, Nassau County, NY 96 AD3d 1053 [2d Dept 2012] 16 Matter of Frei v Town of Livingston 50 AD3d 1381 [3d Dept 2008] 16 Matter of Grossman v Board of Trustees of Vil. of Geneseo 44 AD2d 259 [4th Dept 1974] 16 Matter offonsher Realty Corp./Melba, Inc. v Board of Assessors 118 AD3d 787 [2d Dept 2014] 19, 21 Matter of Liberty Healthcare Mgt. Group v Fahey 257 AD2d 964 [3d Dept 1999] 18 iii Matter of Scellen v Assessor for City of Glens Falls 300 AD2d 979 [3d Dept 2002] 18, Matter of Sterling Estates v Board of Assessors of County of Nassau 66 NY2d 122 [1985] Matter of Tennessee Gas Pipeline Co. v Town of Chatham Bd. of Assessors 22, 28 passim 239 AD2d 831 [3d Dept 1997] 12, 14 Matter of The Torok Trust v Town Bd. of Town of Alexandria 128 AD3d 97 [4th Dept 2015] 19 Matter of Walton v New York State Dept. of Correctional Servs. 13 NY3d 475 [2009] 12 Matter of Willig v Town of Ballston 126 AD2d 856 [3d Dept 1987] 32 People ex rel. Hilton v Fahrenkopf 279 NY 49 [1938] 17 People ex rel. Wessell, Nickel & Gross v Craig 236 NY 100 [1923] 11 Video Aid Corp. v Town of Wallkill 85 NY2d 663 [1995] 10, 11, 13 Administrative Decisions and Guidance Appeal of Giardina, Dec. No. 15,583 [Dated May 8, 2007] 25 Appeal of Goldin, Dec. No. 14,904 [Dated July 22, 2003] 25 State Comptroller Op. 98-16 24 iv Statutes and Regulations Education Law § 3651[1-a] RPTL 485-b passim passim RPTL 485-b[2][a][i]-[iii] 30 RPTL 485-b[2][a][ii] 30 RPTL 524 17 RPTL 554 15 RPTL 701[4] 22 RPTL 701[4][b] 23 RPTL 701[4] [d] 22 RPTL 702[2] 17 RPTL 702[3] 17 RPTL 706 16 RPTL 706[2] 16 RPTL 708[3] 5 RPTL 712[2]-[1] 5 RPTL 726 15, 16, 18, 31 RPTL 726[1][c] 9 RPTL 727 passim RPTL 727[1] 29 RPTL 727[2][h] 29, 30 RPTL 1302 5 RPTL 1302[1] 19, 20 RPTL 1805 19, 21, 22 QUESTION PRESENTED 1. May a court, in a proceeding pursuant to Article 7 of the Real Property Tax Law, order a school district to refund real property taxes paid in respect of assessments that were never challenged by the taxpayer in any administrative or judicial proceeding, and where the taxes were not otherwise paid under protest? The Appellate Division, Third Department held that the courts were without a jurisdictional basis to correct assessments that had never been challenged by the taxpayer, and that accordingly no refund of real property taxes could be ordered with respect to such unchallenged assessments. PRELIMINARY STATEMENT On this appeal, Petitioner Highbridge Broadway, LLC ("Highbridge") seeks to compel non-party Schenectady City School District (the "District") to refund real property taxes Highbridge never protested, and which had been predicated on real property assessments Highbridge never challenged. As will be shown in this brief, Highbridge's argument is inconsistent with decades of decisional precedent and volumes of statutory authority requiring taxpayers to timely challenge assessments in order to be entitled to such refunds. In 2008, Highbridge commenced a Real Property Tax Law ("RPTL") Article 7 proceeding challenging the assessment of certain of its property on the 2008 assessment roll of the City of Schenectady (the "City"). In addition to claims that the assessment was excessive, Highbridge complained of an allegedly erroneous computation of a business tax exemption. In 2011, despite that Highbridge had not challenged its assessment for any other years, the Supreme Court held that Highbridge was entitled to corrected assessments and a refund of taxes paid to the City during each of the intervening years (2009, 2010 and 2011) between its initial challenge and the date of the Supreme Court's decision and order. Ruling on Highbridge's subsequent contempt motion against the non-party District for its refusal to pay refunds, the Supreme Court further held that the District was also required to refund to Highbridge the excess school taxes Highbridge paid during the same time period. The Appellate Division, Third Department reversed and held that Highbridge lost any entitlement it may have had to refunds for those years by failing to commence separate tax certiorari proceedings in each of the years in question as required by Article 7. Highbridge now asks this Court to excuse its failure to timely protest the assessments for the intervening years by holding that a single Article 7 petition in 2 2008 was sufficient to preserve its claims for refunds in future years. The Court should reject Highbridge's argument for several equally compelling reasons. First, the rule in this State has always been that a taxpayer is not entitled to a refund of taxes unless it can show that its payment of those taxes was involuntary. Involuntariness can be demonstrated either by showing that the taxpayer protested the particular tax at issue before or at the time of payment or, in the absence of explicit protest, by showing that the payment was made under duress. Highbridge has failed to make either showing here. Second, although an Article 7 proceeding can constitute a protest of taxes based on the specific assessment challenged in that proceeding, the language and structure of Articles 5 and 7 of the RPTL establish that a taxpayer is required to commence separate and timely annual challenges to each assessment from which relief is sought. In this case, Highbridge challenged only the 2008 assessment and thus was not entitled to refunds for any other years. Finally, a determination that a taxpayer who elects to challenge its assessment via a RPTL Article 7 proceeding may receive a refund for years not actually challenged would severely hinder the ability of school districts throughout this State to appropriately formulate their budgets and would impose an undue burden on school districts to monitor tax certiorari proceedings to which they are 3 not a party. Such a determination may also lead to unnecessary tax levies as school districts are forced to place funds in reserve in order to account for the additional and uncertain tax refund liabilities. For the foregoing reasons and the reasons discussed more fully below, the Court should reject Flighbridge's arguments and affirm the decision and order of the Appellate Division, Third Department. STATEMENT OF FACTS AND PROCEDURAL HISTORY On July 31, 2008, Highbridge filed a notice of petition and petition pursuant to Article 7 of the Real Property Tax Law challenging the assessment of certain of its property on the 2008 assessment roll of Respondent City of Schenectady ("City"). [R-54, 56].' The petition alleged that the assessment of the property was excessive, and should be reduced from $643,100 to $455,000. [R-57]. The petition also alleged, in its second cause of action, that although the challenged assessment reflected an exemption pursuant to RPTL 485-b (a ten year business investment exemption),2 the amount of the exemption was "not adequate as All citations to the Record on Appeal are cited herein as "R- ." 2 RPTL 485-b provides a partial tax exemption to an owner of a commercial property who expends $10,000 or more on capital improvement. The exemption is calculated by determining the difference in the value attributable to the improvement and multiplying the resulting figure by a declining percentage over a 10-year period. In year one, the percentage multiplier is 50%. The percentage is reduced by 5% in each subsequent year until it reaches zero. 4 required by the statute" [R-58], that such an improperly determined exemption was "equivalent to an excessive assessment," and that the court should reduce the assessment to reflect an exemption in a "proper amount." [R-58]. A copy of the notice of petition and petition were mailed to the District, but in accordance with RPTL 708[3], the District was not named as a party to the proceeding. Although the District had the right to intervene in the proceeding as a respondent pursuant to RPTL 712[2]-[1], it had no reason to do so because the City's 2008 assessment roll was not and would never be used by the District for any purpose. By virtue of RPTL 1302, and due to the timing of its tax warrant and the unavailability of the City's 2008 assessment roll at the time the warrant was annexed, District taxes for its 2008-2009 fiscal year were based on the City's 2007 assessment roll. District taxes for its 2009-2010 fiscal year were based on the City's 2009 assessment roll which, due to a change in the timing of the District's levy, was available at the time of levy.3 [R-31, 32]. Nearly three years later, with no further Article 7 petitions concerning the property having been filed in the interim, and without any other notice or protest of any kind having been presented to the District contesting or objecting to any taxes 3 That the District's change in tax levy procedures was authorized by law and appropriate is not in dispute. 5 levied and paid during that period, a judgment (the "Underlying Judgment") was entered in the proceeding, correcting the 2008 assessment and determining what Supreme Court found to be the proper amount of the exemption to be applied to the "tax year" at issue. [R-24, 26]. Additionally, upon what appeared to have been a default by the City in connection with a motion for summary judgment filed in the 2008 proceeding [A-7]4 (notice of which was never provided to the District), the court also ordered specific exemption amounts to be applied to the assessments for "tax years" 2009 through 2014 [R-26], despite that no proceedings of any kind, administrative, judicial or otherwise, challenging the 2009 through 2011 assessments had been commenced or filed, and that the assessments for 2012 through 2014 had not even been set by the City. After applying the statutory exemption percentages,5 the court directed the City "to issue refunds to petitioner for previously paid tax years in accordance with [the court's] calculations and to correct its assessment roll to reflect the appropriate exemption for future tax years." [R-26]. 4 All references to the Appendix filed by Highbridge on this appeal are cited herein as "A- ." 5 Insofar as relevant here, the exemption percentages and the corresponding exemption amounts as determined by the court were as follows: 35% exemption for "tax year 2008" (in the amount of $176,260.00), a 30% exemption for tax year 2009 (in the amount of $151,080.00), a 25% exemption for tax year 2010 (in the amount of $125,900.00), and a 20% exemption for tax year 2011 (in the amount of $100,720.00). 6 When the Underlying Judgment was presented to the District by Highbridge, District administrative personnel, who were aware that the 2008 assessment had not been used by the District for any purpose, were confused by its ambiguous reference to "tax years" as opposed to specific assessment rolls6, and sought clarification from the City as to the specific assessments affected. [R-31, 32, 37]. Although the lower court thereafter clarified that refunds of taxes should be based "on the assessment for each year from 2008 through the present . ." [R-41], that information was not communicated to the District by either the City or by Highbridge. [R-62]. Instead, Highbridge quickly moved to hold the District in contempt for not complying with the Underlying Judgment. [R-16]. Insofar as relevant here, the District demonstrated in its response to the motion that it had not used the 2008 assessment for any purposes and, moreover, that the assessments that had become final while the proceeding was pending— those for 2009, 2010 and 2011—had never been challenged by Highbridge and therefore no jurisdictional basis existed for an order requiring the District to make 6 The District's 2008 "tax year" was predicated on the City 2007 assessment roll. 7 refunds of any school taxes paid with respect to those assessments. [R-27, 30, 61, 89].7 In resolving the motion, the lower court agreed that because the District did not use the 2008 assessment of Highbridge's property as the basis for any taxes, there were no taxes to refund based on a correction of that assessment. With respect to District taxes levied on the 2009, 2010 and 2011 assessments, however, the court found that by the mere service of the 2008 petition, the District should have understood that refunds of taxes based on corrections to subsequent assessments could be required, and ordered that the District refund any taxes paid in excess of those that would have been paid had varying amounts of exemption been applied. [R-10-11] . The District appealed the part of the Supreme Court's order requiring it to issue refunds for tax years 2009, 2010, and 2011. [R-3]. Highbridge cross- appealed on the grounds that the lower court had failed to find the District in contempt and had erred by "not awarding the RPTL 485-b exemption for tax year 2008-9." [R-14] . 7 The District also contended that a motion for contempt was inappropriate because the District had proceeded in good faith, no notice of claim had been filed, the District had never received notice that changes in the 2009-2011 assessments would be sought, and that the Underlying Judgment did not expressly direct the District to do anything in any event. 8 The Appellate Division, Third Department modified the lower court's order by reversing so much of it as ordered that the District was required to issue refunds based on the 2009 through 2011 assessments. The Third Department acknowledged that an RPTL 485-b exemption may be obtained upon a single application, but correctly identified the issue before it as "whether petitioner was required to annually commence separate proceedings while its 2008 challenge was pending in order for the court's 2011 judgment increasing the RPTL 485-b exemption to be binding on the subsequent years." [A-5]. Citing the statutory scheme underlying RPTL Article 7, the court held that "[t]he separate point here . . . is that property owners must preserve their right to relief through annual challenges to the assessment pending a determination of the original assessment challenge, Since petitioner failed to do so here, Supreme Court lacked jurisdiction to direct the District to refund payments made based on the 2009 through 2011 assessments [see RPTL 726(1)(c)]." [A-6,] ARGUMENT POINT I IN ORDER TO OBTAIN A REFUND OF TAXES, A TAXPAYER MUST SHOW THAT ITS PAYMENT WAS INVOLUNTARY This Court has long held that no refund of taxes can be had unless the taxpayer can show that its payment of those taxes was "involuntary." Video Aid 9 Corp. v Town of Wallkill, 85 NY2d 663, 666 [1995]; City of Rochester v Chiarella, 58 NY2d 316, 323 [1983]. Moreover, absent payment made "under actual duress or coercion, which is present when payment is necessary to avoid threatened interference with present liberty of person or immediate possession of property," failure to protest the taxes at or prior to payment is fatal to a subsequent claim for a refund. See Video Aid Corp., 85 NY2d at 666. Thus, in Video Aid Corp. v Town of Wallkill, this Court rejected taxpayers' claims for refund of water tap-in fees, even though such fees were unquestionably unlawful, where the taxpayers failed to make any protest of the fees at the time of payment. See 85 NY2d at 667-668. In doing so, the Court disregarded the taxpayers' claims of duress, holding that disruption of a construction schedule was insufficient to constitute duress or coercion and thereby excuse formal protest. Id. at 668. This Court explained the rule favoring protests as follows: "Payment under express protest is an indication that a tax is not paid voluntarily. Where protest has been interposed, the municipality is notified that it may be obliged to refund the taxes and must be prepared to meet that contingency. Otherwise, moneys remitted as taxes or fees are applied to authorized public expenditures, and financial provision is not made for refunds." Id. at 667 [citations omitted]. 10 In Video Aid Corp., the Court observed that notations such as "without prejudice" or "under protest" on the payment may be sufficient to indicate that the taxes are being paid under protest and the municipality would thus be placed on notice. Id. at 668. The Court also indicated that other, more formal, means of protest include the "pendency of a tax certiorari proceeding" and "pendency of legal proceeding at time of payment in each year recovery [is] sought." Id. at 667 [citing People ex rel. Wessell, Nickel & Gross v Craig, 236 NY 100, 105 (1923) and Corporate Prop. Investors v Board of Assessors, 153 AD2d 656, 660 (2d Dept 1989), appeal dismissed in part, denied in part 75 NY2d 802, affd sub nom. Matter of Bowery Say. Bank v Board of Assessors, 80 NY2d 961, 964 (1992)]. Because the taxpayers in Video Aid Corp. did none of these things nor paid under duress, this Court denied their requests for refund. 85 NY2d at 670.8 Numerous other decisions of this Court and the Appellate Divisions addressing this issue have resulted in similar conclusions. See e.g. City of Rochester, 58 NY2d at 323 [taxpayers who failed to timely register official protests 8 The Court summed up its holding as follows: "a simple payment 'under protest' for the taxpayer preserves its challenge and for the municipality alerts it, at the time of receipt, to the uncertainty of those revenues. Short of that simple, unequivocal step--plainly important to governmental fiscal operations--a taxpayer may recover an illegal payment only where the taxpayer establishes that payment was made under duress, meaning more than business or economic inconvenience. Here, plaintiffs failed to make that showing. Plaintiffs were not prevented from possessing or using their property and showed no impairment to their business operations. All plaintiffs showed was that they could not proceed with an intended renovation as they had hoped." Id. 11 had not been forced to pay the tax under duress even though the tax constituted a lien on their properties and were thus not entitled to refunds]; Matter of Walton v New York State Dept. of Correctional Servs., 13 NY3d 475, 489 [2009] [petitioners, who failed to protest allegedly illegal DOCS commissions or demonstrate duress were not entitled to a refund even if such commissions could be deemed to be a tax]; Matter of 43rd St. Second Ave. Corp. v City of New York, 186 AD2d 68, 69 [1st Dept 1992] affil, 83 NY2d 776 [1994] [property owners who did not protest the assessment are barred from recovery]; Matter of Tennessee Gas Pipeline Co. v Town of Chatham Bd, of Assessors, 239 AD2d 831, 833 [3d Dept 1997] [taxpayer was not entitled to a refund because it failed to protest the school tax at the time of payment]. Matter of Tennessee Gas Pipeline Co. v Town of Chatham Bd. of Assessors is especially relevant here, In that case, the Town of Chatham rescinded a partial property tax exemption previously granted to petitioner pursuant to RPTL 485-b. Matter of Tennessee Gas Pipeline Co., 239 AD2d at 831. Petitioner's CPLR Article 78 challenge to this determination was unsuccessful in Supreme Court, but on appeal the Third Department reversed, annulled the Town's actions, and reinstated the exemption. Id. Petitioner then sent demand letters to each relevant taxing entity requesting refunds. Id. The school district refused to issue refunds, 12 however, claiming that it was not a party to the proceeding and that for such a claim to be made petitioner needed an enforceable judgment or a statutory basis authorizing such payment. Id. The petitioner then obtained a judgment from the Supreme Court ordering the district to refund the overpayment of taxes for the prior years. Id. at 832. On the district's appeal, the Third Department reversed, holding, among other things, that because the "petitioner failed to make a formal protest at the time it paid the tax to the [djistrict, it [wa]s not entitled to a refund." Id. at 832-833 [citing Video Aid Corp, 85 NY2d at 667 and City of Rochester, 58 NY2d at 323]. The court acknowledged that the requirement of formal protest may be satisfied if payment is made during the pendency of a legal proceeding, but that "given that the purpose of a protest is to alert the municipality, at the time of receipt, to the uncertainty of those revenues so that it can be prepared to meet the possible contingency that it may be obliged to refund the taxes, we find that the commencement of such a proceeding can be an effective protest only to those who are named as parties or otherwise have actual notice of such lawsuit neither circumstance existing here." Id. [internal quotation marks, alterations, and citations omitted]. 13 Here, Highbridge made no effort to protest the assessments, the exemption amounts, or the school taxes it owed and paid in the years 2009, 2010, or 2011. Nor is there any claim that it was under any duress when it paid its school taxes for those years. Pursuant to the clear New York authority discussed above, Highbridge was not entitled to refunds of any taxes for the years in question. Although Highbridge timely filed a RPTL Article 7 tax certiorari petition in 2008, that proceeding expressly challenged only the assessment applicable to that year. [R-56 — R-59]. Further, despite that the 2008 challenge remained pending when Highbridge paid the school taxes in the years 2009 through 2011, the rule regarding pending legal proceedings referenced in Matter of Tennessee Gas Pipeline Co. did not relieve Highbridge of the obligation to protest. Like the school district in that case, the District was not a party to the underlying proceeding. More importantly, because Highbridge only challenged the 2008 assessment in the underlying proceeding, it failed to "alert [the District], at the time of receipt, to the uncertainty of . . . revenues [based on future assessments] so that [the District could] be prepared to meet the possible contingency that it may be obliged to refund the taxes." Id. at 833. 14 Furthermore, as discussed at length in Part II below, because Highbridge chose to pursue its tax assessment challenge via an Article 7 proceeding,9 Highbridge was required to commence separate proceedings for each of the years in question in order to obtain a refund pursuant to RPTL 726. Having failed to do so, it is not entitled to a refund. POINT II TO BE ENTITLED TO REFUNDS OF TAXES PURSUANT TO RPTL 726, HIGHBRIDGE WAS REQUIRED TO COMMENCE SEPARATE ARTICLE 7 PROCEEDINGS FOR EVERY YEAR THAT IT CLAIMED ITS ASSESSMENT WAS EXCESSIVE WHILE ITS INITIAL CHALLENGE OF THE 2008 ASSESSMENT REMAINED PENDING A. The Statutory Scheme of RPTL Article 7 Requires a Taxpayer to Commence Separate Tax Certiorari Proceedings in Order to Preserve its Right to a Refund Pursuant to RPTL 726. In this case, the Appellate Division, Third Department held that a taxpayer who wishes to obtain refunds of taxes it paid on allegedly excessive assessments during the years that its initial Article 7 tax certiorari proceeding was pending must have timely commenced a separate tax certiorari proceeding for each of the 9 Notably, Highbridge could have challenged the allegedly improper calculation of its RPTL 485-b exemption through a simple administrative correction of errors procedure under RPTL Article 5. See RPTL 554. However, having selected the Article 7 remedy, Highbridge is bound by the procedural requirements of that Article, including timely filing separate tax certiorari petitions while its initial challenge remains pending. 15 intervening years in order to be eligible for such refunds pursuant to RPTL 726. This basic requirement is firmly rooted in the comprehensive statutory scheme comprising RTPL articles 5 and 7 and is well-supported by sound decisional authority of this Court and the Appellate Divisions. The purpose of a proceeding under Article 7 of the RPTL is to determine whether a specific assessment on a specific assessment roll is "excessive, unequal or unlawful," or whether the property at issue has been misclassified. See RPTL 706.1° Section 706[2] makes a timely administrative challenge to a tentative assessment a condition precedent and a jurisdictional prerequisite to judicial review of the final assessment. See Matter of Circulo Hous. Dev. Fund Corp. v Assessor of City of Long Beach, Nassau County, NY, 96 AD3d 1053, 1056 [2d Dept 2012]; Matter of Frei v Town of Livingston, 50 AD3d 1381, 1382 [3d Dept 2008]; Matter of Grossman v Board of Trustees of Vit. of Geneseo, 44 AD2d 259, 262-263 [4th Dept 1974]; RPTL 706[2] ["Such petition must show that a complaint was made in due time to the proper officers to correct such assessment."]. In order to fulfill this requirement, a taxpayer must file an administrative complaint prior to the meeting of the assessing unit's Board of 10 An "excessive assessment" includes "an entry on an assessment roll of the taxable assessed valuation of real property which is excessive because the real property failed to receive all or a portion of a partial exemption," which is what Highbridge claimed occurred in its 2008 petition. RPTL 701[4] [b]. 16 Assessment Review [See RPTL 524]. Highbridge not only failed to file Article 7 petitions for 2009, 2010 and 2011, it did not even initiate the administrative grievances necessary, pursuant to RPTL Article 5, to preserve its entitlement to do so for those years. Even if Highbridge had filed administrative grievances necessary to preserve its rights to challenge the 2009-2011 assessments, RPTL 702[2] provides, in relevant part, that a proceeding to review an assessment of real property under Article 7 "shall be commenced within thirty days after the final completion and filing of the assessment roll containing such assessment." Section 702[3] further provides that a failure to commence the proceeding within the allotted time constitutes "a complete defense" and compels dismissal of the proceeding. Highbridge concedes that no such proceedings were commenced. Courts in this state have long interpreted these statutory provisions as requiring individual challenges to each separate assessment alleged to be unequal, excessive, or unlawful. See Matter of Sterling Estates v Board of Assessors of County of Nassau, 66 NY2d 122, 124-125 [1985]; People ex rel. Hilton v Fahrenkopf, 279 NY 49, 52-53 [1938] [interpreting the predecessor statute to RPTL]; F. 0. R. Holding Co. v Board of Assessors of Town of Clarkstown, 45 AD2d 875, 876 [2d Dept 1974]. Indeed, a judgment as to a property's value in one 17 year does not even have res judicata effect as to its value in a succeeding year. See e.g., Matter of Liberty Healthcare Mgt. Group v Fahey, 257 AD2d 964, 965 [3d Dept 1999]. Finally, and critical to the issue before this Court, the sole statutory basis for an order compelling a refund of taxes paid on an assessment that has been determined to be erroneous in the course of an Article 7 proceeding is RPTL 726. That section provides that if "the assessment reviewed" has been found to be excessive, unequal or unlawful, refunds of excess taxes predicated on the uncorrected assessed are required. By its terms, however, RPTL 726 applies only to the consequence of a correction of the specific "assessment reviewed", that is, an assessment that has been the subject of a petition under Article 7 of the RPTL and over which the court has jurisdiction. Recognizing these provisions, the Second and Third. Departments, while addressing different substantive RPTL provisions, have held that in order for a taxpayer to obtain a refund of taxes paid during the years in which its initial Article 7 proceeding remained pending, the taxpayer was required to timely commence a separate proceeding in each of those years. See Matter of Scellen v Assessor for City of Glens Falls, 300 AD2d 979, 980 [3d Dept 2002] [interpreting RPTL 727]; Matter of Jonsher Realty Corp./Melba, Inc. v Board of Assessors, 118 AD3d 787, 18 790 [2d Dept 2014] [analyzing RPTL 1805]; but see Matter of The Torok Trust v Town Bd. of Town of Alexandria, 128 AD3d 97, 99 [4th Dept 2015] [disagreeing with the Third Department and concluding that RPTL 727, when implicated, obviated the necessity of challenging each assessment for which relief is sought.]" The relevant assessments in this case were available for administrative review up until the fourth Tuesday in May of 2009, 2010, and 2011, respectively; became final on July 1 of each of those years; and were subsequently relied upon by the District in calculating the school taxes due from Highbridge. [See R-82 — R-85]. At no point in time did Highbridge raise an objection to or otherwise commence any administrative or judicial challenge of those assessments. Having failed to comply with the plain mandates of RPTL Article 7, Highbridge was not entitled to any refunds of taxes it paid in those years.12 31 The apparent split between the Third and Fourth Departments relates specifically to the courts' varying interpretations of RPTL 727. As discussed more fully in Point II.C. of this brief, RPTL 727 is not implicated here and the divergence is not relevant to this appeal. In any event, it would be the District's position that Torok was decided incorrectly and should not be followed. 12 Contrary to Highbridge's argument, the City's voluntarily payment of refunds of property taxes following the Underlying Judgment has no relevance to the issue whether the District was obligated to issue any refunds of school taxes for the years in question. The District acknowledges that RPTL 1302[1] required the District to utilize the final assessment roll prepared by the City, but that is exactly what the District did. In each of the years in question, the District calculated Highbridge's school taxes utilizing the latest taxable assessment provided to it by the City. That the City subsequently accepted the Supreme Court's determination, as Highbridge puts it, "judicially correcting" the unchallenged final assessment rolls despite the fact that the court lacked subject matter jurisdiction to make such corrections, does not obligate the 19 Undaunted by its own failures, Highbridge now claims that it is entitled to refunds anyway simply because it challenged the 2008 assessment and that RPTL 485-b only requires it to file one application for exemption. Highbridge further asserts that in modifying the Supreme Court's decision below, the Appellate Division wrongly imputed an annual exemption application filing requirement into Section 485-b. It is Highbridge that is mistaken. First, as discussed above, the Appellate Division held that in order to preserve an entitlement to a refund Highbridge was required to file annual tax certiorari petitions to correct its assessments while its initial 2008 challenge was pending, not annual applications for exemption. Second, it is undisputed that the only assessment challenged in Highbridge's July 2008 petition was the 2008 assessment. As such, the Supreme Court lacked jurisdiction under RPTL Article 7 to alter the assessment or, more importantly, to order refunds for any years other than 2008. Highbridge argues that because RPTL 485-b merely requires the application of an arithmetic formula to the City's assessments, Highbridge need not be bound by the annual filing requirements of RPTL Articles 5 and 7. But this argument was squarely rebuffed by the Second Department in Matter of ionsher Realty District to do the same retroactively once taxes have been levied on the original assessment, nor does it mean that the District failed to comply with RPTL 1302[1]. 20 Corp./Melba, Inc., 118 AD3d at 790 [a case not cited by Highbridge in its brief], in which the court directly rejected a contention that the purportedly rote application of an underlying substantive statute can relieve a taxpayer from complying with the procedures imposed by the provisions of Article 7. In Jonsher, the Second Department held that compliance with the requirements of Article 7 was necessary in relation to each and every assessment for which relief was sought, even where the only issue presented was one of the application of the mathematically- computed limitations of "transitional assessments" within the meaning of RPTL 1805. See 118 AD3d at 789. Section 1805 provides limitations on the percentage of increases in certain assessments in special assessing units in accordance with a schedule as set forth in that section. In Jonsher, the petitioner brought an Article 7 proceeding alleging that its 1998 through 2006 assessments had been improperly calculated, which challenge was upheld in 2012. Id. at 787. The petitioner then brought a proceeding pursuant to Article 78 challenging the assessments of its property that had become final in the interim, seeking only to implement the arithmetic schedule provided by RPTL 1805. Id. The Second Department dismissed that attempt, regardless of the petitioner's demonstrated entitlement to transitional assessments for those years, on the grounds that the petitioner had failed to preserve its rights to 21 correction of the interim assessments by first exhausting its administrative remedies and otherwise complying with the requirements of RPTL Article 7. Id. at 789-790. In doing so, the Second Department found the Third Department's determination in Scellen to be "persuasive" in concluding that the statutory scheme of Article 7 of the RPTL evinced a clear legislative intent that a separate proceeding must be brought, and administrative remedies exhausted, in relation to each assessment for which relief is sought, regardless of the basis for that relief. Id. at 789. The Second Department acknowledged that Scellen concerned the three year limitation on changes in assessment provided by RPTL 727 rather than the schedule for transitional assessments provided by RPTL 1805, but described the latter as an analogous circumstance equally subject to the requirement that each assessment for which relief is sought must be separately challenged. Id. A transitional assessment subject to RPTL 1805 and an assessment affected by an RPTL 485-b exemption (as is at issue here) are equally analogous for purposes of Article 7. An assessment that fails to comply with the schedule of transitional assessment limitations provided by RPTL 1805 is an "excessive assessment" within the meaning of RPTL 701[41. See RPTL 701[4][4 An assessment that fails to receive a partial exemption is also an excessive assessment. 22 See RPTL 701[4][b]. Indeed, the instant proceeding was brought by Highbridge in part to do just that: to correct the 2008 assessment of its property on the basis that the assessment was "excessive" due to its failure to reflect a properly calculated RPTL 485-b exemption. [R-57, 58]. Accordingly, this Court should reject Highbridge's invitation to accord special treatment to tax certiorari challenges requiring interpretation of Section 485-b exemptions and affirm the Third Department's holding requiring compliance with the provisions of RPTL Article 7. B. The Requirement that Taxpayers Timely File Separate Tax Certiorari Petitions is Essential to a School District's Ability to Effectively Budget its Annual Expenses in Light of the Constraints on Establishment and Record Keeping of Reserve Funds Under Education Law § 3651[1-4 In addition to the clear legislative intent evidenced in the comprehensive statutory scheme of RPTL Articles 5 and 7, practical and public policy considerations weigh heavily in favor of the requirement of continued filing of tax certiorari proceedings while a taxpayer's initial challenge remains pending. As this Court stated in Sterling, "[i]t is scarcely necessary to recite the importance of the assessment process to the fiscal operation of municipalities. Real property taxation provides the major source of municipal revenues and departmental appropriations are necessarily dependent on the funds available. The share which each taxpayer must contribute to support these expenses varies with the assessment placed on his property. Thus, the taxpayer and the municipality have a palpable interest in the 23 amount and accuracy of individual assessments and the municipality has an additional incentive to resolve disputes concerning them as promptly as possible so that the roll may be stabilized and tax rates established."13 66 NY2d at 124-125. This is especially true in the case of school districts. In preparing their annual budgets, school districts rely on a reasonable estimate of their potential tax certiorari exposure derived from a review of the Article 7 petitions filed in the preceding year. Once a school district determines the amount of the funds needed to meet its potential liability, Education Law § 3651[1-a] allows it to deposit such funds into a tax certiorari reserve fund. That statute, however, permits a school district to deposit only an amount reasonably necessary to meet the specific anticipated liability for a given year. See id. ["the total of the monies held in such reserve fund shall not exceed that amount which might reasonably be deemed necessary to meet anticipated judgments and claims arising out of such tax certiorari proceedings"]; see also State Comptroller Op. 98-16. Furthermore, the statute prohibits a school district from utilizing funds reserved for payment of judgments or claims for a particular year to judgments or claims in any other year. 13 The Sterling Court also expressly recognized that "the Legislature has imposed detailed requirements on the assessors to conduct an orderly assessment process and specific conditions on the procedure by which aggrieved taxpayers obtain administrative and judicial relief." Id. at 125. The Court further explained that while the initial "responsibility rests upon the assessors to investigate and establish a proper roll," once the roll is complete, "it is presumed to be accurate and free of error" and the burden shifts to the taxpayer to raise any concerns it may have regarding any alleged inaccuracies in the roll and explain why a correction is warranted. Id. 24 See Education Law § 3651[1-a] ["Any monies deposited to such reserve fund which are not expended for the payment of judgments or claims arising out of such tax certiorari proceedings for the tax roll in the year such monies are deposited to the said fund and/or which will not reasonably be required to pay any such judgment or claim shall be returned to the general fund on or before the first day of the fourth fiscal year following the deposit of such monies to said reserve fund." (emphasis added)]. The Commissioner of Education has repeatedly instructed school districts that such funds are not "fungible" and are not available to provide tax certiorari refunds for proceedings commenced in years other than for the specific year such monies were deposited. Appeal of Goldin, Dec, No. 14,904 [Dated July 22, 2003]; Appeal of Giardina, Dec. No. 15,583 [Dated May 8, 2007]. In Appeal of Giardina, the Commissioner ruled that a district's 2004-2005 tax certiorari fund established retroactively on July 14, 2005 was improper. See Dec. No. 15,583. Citing the statute, the Commissioner concluded that "[s]ince the [district] intended the 2004- 2005 [tax certiorari reserve fund] to be used for claims arising during the 2004- 2005 year, the board had to establish the [fund] not only with 2004-2005 funds, but during the 2004-2005 year." Id. [emphasis added], 25 The Commissioner's strict interpretation of Education Law § 3651[1-a] with respect to school districts' tax certiorari reserve funds further demonstrates the impractical and prejudicial nature of Highbridge's position on this appeal. Highbridge would have this Court hold that a taxpayer need only commence one Article 7 proceeding in just one of the years to which the RPTL 485-b exemption applies and, regardless of how much time passes between its initial challenge and the ultimate judgment, the taxpayer should be entitled to receive refunds of any taxes it pays in the interim. Such a holding would disrupt school districts' planning and administration of their budgets throughout New York State. First, as was the case here where Highbridge's petition expressly challenged only one assessment (indeed an assessment not used by the District for any purpose), a school district would have no notice or estimation of the scope of its potential liability. Second, as discussed above, because Education Law § 3651[1-a] permits a school district to make deposits into a tax certiorari reserve fund only in respect of proceedings challenging a specific assessment roll challenged by a taxpayer, such a holding would limit a school district to only one total deposit and would limit the amount only to the refunds claimed to be due for that year. If a taxpayer were then permitted to recover refunds for the additional intervening years as Highbridge asserts it should be, the amount deposited by the school district into the 26 fund would be insufficient to cover the district's liability. Even if Education Law § 3651[I-a] could be interpreted to permit a school district to continue to deposit money into its tax certiorari reserve fund in the years following the taxpayer's initial challenge in light of the possibility that the taxpayer intended to continue to prosecute its initial challenge—an interpretation which finds no support in the statute or in the rulings of the Commissioner of Education or the State Comptroller—such an outcome would essentially shift the burden of administering a tax assessment challenge from the taxpayer to the school district in contravention of the well-established presumption that once an assessment roll has been finalized, it is presumed to be accurate and free of error, See Sterling, 66 NY2d at 125. It would also require, as a practical matter, that school districts guess which Article 7 proceedings are intended to be continued by the taxpayer until their ultimate resolution, and which proceedings have been abandoned or dismissed. School districts are not entitled to receive notice of any developments in such proceedings unless they are parties thereto, and even the assessing jurisdiction need not receive any notice of a petitioner's decision to abandon a proceeding and to refrain from filing any subsequent proceedings. The practical effect of the rule pressed by Highbridge would be that school districts would be forced to err on the 27 side of caution and continuously set aside funds which may never be needed for Article 7 refund purposes, simply because a possibility exists that a taxpayer might (unknown to the district) be continuing to file petitions challenging the assessment of a particular property. Such deposits into reserve would affect other elements of school districts' budgets, and potentially result in unnecessary levies as districts attempt to make up for the funds that they are forced to place in reserve. In short, Highbridge's desired outcome would impair school districts' ability to effectively plan for their potential tax certiorari liabilities and would impose new administrative burdens on school districts and municipalities which were never contemplated by the Legislature in enacting RPTL Article 7. This Court should therefore reject Highbridge's arguments and affirm the Appellate Division decision and order in its entirety. C. RPTL 727 is Not at Issue on This Appeal. Contrary to Highbridge's assertions, the District has never claimed, and the Appellate Division did not hold, that RPTL 727 applied to this proceeding. Rather, the District cited Sullen for its basic holding that the statutory scheme of Article 7 in its entirety evidences the Legislature's intention that a separate Article 7 proceeding be commenced challenging each assessment from which relief is sought. Indeed, because the present case involves a gradually declining exemption 28 under Section 485-b, the three-year "freeze" mandated by Section 727 would be inapplicable in any event. Section 727[1] states, in relevant part, that "Except as hereinafter provided, . . . where an assessment being reviewed pursuant to this article is found to be unlawful, unequal, excessive or misclassified by final court order or judgment, the assessed valuation so determined shall not be changed for such property for the next three succeeding assessment rolls prepared on the basis of the three taxable status dates next occurring on or after the taxable status date of the most recent assessment under review in the proceeding subject to such final order or judgment. Where the assessor or other local official having custody and control of the assessment roll receives notice of the order or judgment subsequent to the filing of the next assessment roll, he or she is authorized and directed to correct the entry of assessed valuation on the assessment roll to conform to the provisions of this section." [emphasis added]. Section 727[2][h] further provides that "[a]n assessment on property subject to the provisions of subdivision one of this section may be changed on an assessment roll where . . . [t]he owner of the property becomes eligible or ineligible to receive an exemption." As discussed above, the exemption amount allowed under Section 485-b is derived by multiplying the increase in value resulting from the improvement of the property by a predetermined percentage. The percentage begins at 50% in the first year of the exemption and declines by 5% during each subsequent year until it 29 reaches zero. See RPTL 485-b[2][a][i]-[iii]. Thus, by design, neither the exemption amount nor the corresponding taxable assessment of the property is the same in any one year during the applicable ten-year period.14 Accordingly, the application of Section 727's three-year moratorium to this exemption scheme would lead to inequitable results. In particular, if Section 727 were deemed to apply, a taxpayer who challenged its assessment in the first year of the exemption's application and won would, by operation of the freeze, be entitled to three additional years of 50% exemptions. Such an outcome would be in direct conflict with the provisions of Section 485-b, which only permit the taxpayer to realize exemptions of 45%, 40%, and 35% in those years, respectively. Because the Legislature could not have intended Section 727 to override Section 485-b, the two sections must be read harmoniously, leading to the logical conclusion that the three-year freeze does not apply to taxable assessed values predicated on 485-b exemptions. Indeed, Section 727[2][h] provides that the three-year freeze does not apply when a taxpayer becomes eligible for an exemption, recognizing that an exemption will necessarily result in an adjustment to the taxable assessed value. 14 RTPL 4$5-b even allows year-to-year variations to the applicable exemption percentages set by that section, further underscoring the dynamic nature of this exemption. Specifically, RPTL 485-b[2][a][ii] states that the exemption base and the corresponding exemption amounts must be recalculated in any year in which the level of assessment changes by fifteen percent or more as compared to the previous year. 30 In sum, the plain language and structure of related sections of Article 7, read together, overwhelmingly support the conclusion that an Article 7 petition challenging each assessment for which relief is sought must be filed, and that RPTL 726 authorizes the recovery of refunds only with respect to assessments which were properly before the court and reviewed and found to be excessive, unequal or unlawful. Assessments never challenged are by definition un-reviewed, POINT HI APPELLANT'S FAILURE TO COMMENCE SEPARATE TAX CERTIORARI PROCEEDINGS WAS A JURISDICTIONAL DEFECT WHICH COULD NOT BE WAIVED BY THE DISTRICT Highbridge argues that in failing to appear in the underlying action and raise the "affirmative defense" of RPTL 727, the District has waived the right to invoke that section on this appeal. As previously discussed, the District is not relying on RPTL 727, as an affirmative defense or for any other purpose. Instead, the District's contention is that the Supreme Court lacked subject matter jurisdiction to compel refunds of taxes for the years 2009 through 2011. It is well-settled that an objection asserting a lack of subject matter jurisdiction can be raised at any time and cannot be waived. See Finnerty v New York State Thruway Auth., 75 NY2d 721, 723 [1989]. Failure of a taxpayer to timely commence an administrative review of his or her assessment and to timely 31 commence a tax certiorari proceeding are both jurisdictional defects which could not be waived by the District. See Sterling, 66 NY2d at 126; Matter of Willig v Town of Ballston, 126 AD2d 856, 857 [3d Dept 1987] [holding that timely filing of administrative grievance is a condition precedent to judicial review]. Contrary to Highbridge's claims of waiver, the District had never argued that it was entitled to refuse to refund taxes to Highbridge because of Section 727. Indeed, as discussed above, Section 727 has no application on this appeal. The District's sole argument has been and continues to be that Highbridge failed to timely challenge the 2009 through 2011 assessments, and that as a result Supreme Court lacked subject matter jurisdiction to decide the issues of tax exemption and order refunds of taxes in those years. Accordingly, Highbridge's waiver argument lacks merit and should be rejected. CONCLUSION For the forgoing reasons, the Court should deny Highbridge's appeal and affirm the Appellate Division's Decision and Order in all respects and grant the District such other and further relief as the Court deems just and proper. 32 Dated: September 24, 2015 WHITEMAN OSTERMAN & HANNA LIT Albany, New York By: Jona P. Nye Vitaly olpov Attorneys for Non-Party-Respondent Schenectady City School District One Commerce Plaza Albany, New York 12260 (518) 487-7600 33