City Agency Audit Reports

Audit Report on the Department of
Finance’s Tax Classification of
Vacant Lots

FM13-120A

March 13, 2014

AUDIT REPORT IN BRIEF

The Department of Finance (DOF) is responsible for annually assessing the value of more than one million properties located throughout the City and reflecting the results of the valuation in DOF’s assessment roll. DOF applies tax rates to the assessed value of each property to calculate the amount of property taxes due and then bills and collects taxes that are assessed. DOF’s Property Division is responsible for producing a fair, accurate, and legal assessment roll each year.  DOF assessors are responsible for valuing properties in their assigned areas.  Assessors assure that properties are assigned the correct tax class and building class, that physical characteristics of the property are recorded accurately, and that properties are recorded in accordance with assessment roll guidelines.

Audit Findings and Conclusion

Although DOF properly classified the tax class and building class in a majority of vacant lots reviewed, DOF needs to enhance its procedures to ensure that all vacant lots are properly classified on future assessment rolls and that appropriate taxes are being paid.  According to New York City Administrative Code §11-207, assessors are required to personally examine each taxable property once every three years. However, DOF informed us that the physical inspection process for all properties is “permit-driven,” that is, assessors are likely to inspect properties, including vacant lots, more often when a Department of Buildings (DOB) permit is filed for a property to undergo a major alteration. 

DOF inspection methods resulted in the accurate assessment of most properties identified as vacant lots.  However, we nonetheless found that 308 properties listed as vacant and Tax Class 1 appear to have been misclassified and that as a result, DOF did not properly assess these properties for tax purposes. Specifically, we found that 281 of the 308 properties had both an incorrect tax classification and an incorrect building classification.  Had these properties been properly classified, we estimate that DOF could have billed the owners as much as $1,730,794 in additional real estate taxes.  The remaining 27 properties that were correctly classified as Tax Class 1 but appear to have had an incorrect vacant lot building classification which could have affected the market value of each property.  The amount of additional taxes due cannot be determined, however, until DOF determines any change in market value of these properties. 

We found that most of the vacant properties that had an incorrect tax classification and an incorrect building classification were used as storage yards or as licensed and unlicensed parking lots.  Thus, their change in use from vacant would not necessarily have required a permit. 

Audit Recommendations

Based on our audit findings, we make the following four recommendations to DOF:

  • Inspect the properties identified in this report and confirm whether they are misclassified and make the necessary adjustments to the assessment rolls for those misclassified properties.
  • Conduct periodic reviews (including virtual inspections) of the properties with the vacant lot classification to determine whether the classification change needs to be considered.
  • Consider modifying the annual Notice of Property Value sent to property owners requesting that they notify DOF if any permanent improvements or changes were made to the property.
  • Coordinate with DOB to ensure that those 27 lots that had a permitted activity and were listed as vacant land had the proper permits issued to modify their properties.

Agency Response

The Commissioner of DOF agreed with all of the audit recommendations except for the recommendation that DOF modify its annual Notice of Property Value.  DOF’s Commissioner said, “All of the lots questioned by the Comptroller are being inspected, and needed corrections will be reflected on the tentative assessment roll to be released in January 2014.” The Commissioner also said that of the 308 vacant lots, 253 will be reclassified, 18 have not yet been inspected, and the remaining 37 lots will stay as Class 1 vacant land.
DOF’s Commissioner further stated that DOF “does not agree that if the lots had been classified as the Comptroller recommends that an additional $1.7 million would be billed in real estate taxes. . . Since at least 37 lots and the lots currently classified as unlicensed parking lots may return to Class 1 if DOF eliminates the building class, the Comptroller’s figure is overstated…. Nonetheless, we agree with the auditors that all property should be accurately described and classified.”