Comptroller Stringer: DOF Mismanagement of Real Property Related Taxes and Collection Potentially Shortchanging Key Revenue Stream for the MTA

(New York, NY) — New York City Comptroller Scott M. Stringer has released a new audit that found the New York City Department of Finance (DOF) performed lackluster oversight of its Real Property Transfer Tax (RPTT) review processes and its tax collections in Fiscal Years 2016 and 2017 — significantly increasing the probability that the MTA and other critical priorities were denied a much-needed revenue stream. When a commercial transaction greater than $500,000 takes place, approximately 38 percent of the RPTT collected goes to the Metropolitan Transportation Authority (MTA). A review of a sample of just 179 RPTT returns demonstrated the potential consequences of the breakdowns identified in the audit, finding approximately $620,000 in RPTT revenue may have not been collected for the City due to DOF’s haphazard collection and review of required RPTT related documents.

Comptroller Stringer’s audit found that the examination process for RPTT at DOF failed to adhere to governing rules and regulations, including the agency’s own procedures. These failures increased the risk that the full amount of taxes owed was not collected by the City and sent to the MTA as well as other places where tax dollars are sorely needed. Importantly, it also found DOF staff were inadequately trained to handle RPTT-related documents to ensure they were appropriately reviewed.

“We always hear how the MTA is ‘cash-strapped’ – which is why what this audit found boggles the mind. Revenue that the City should ensure goes toward public transit isn’t being accounted for by the Department of Finance. That’s wrong, plain and simple,” said New York City Comptroller Scott M. Stringer. “Our subways and buses are the lifeblood of this city. But our audit found that DOF failed to do its job of reviewing tax returns, and its failures cut into a critical revenue stream for the MTA. At a time when our transit system is teetering, the City must get its act together by properly monitoring property transactions. Updating our aging transit system and improving services depend, in part, on the City getting this process right.”

Comptroller Stringer’s audit of DOF’s RPTT and Real Estate Tax (RET) review procedures found that:

• The agency failed to institute sufficient controls of its RPTT and RET collection operations, significantly increasing the probability that an insufficient amount of tax revenue was collected for the City, including funds for the MTA.
• In a sample of 179 RPTT returns, approximately $620,000 in RPTT revenue may have not been collected for the City due to inadequate control of these operations and errors in the system the agency used to determine the RPTT amount due.
• Of the sample of RPTT returns examined in the audit, 40 percent were missing one or more key documents required by DOF to be filed, which restricted the agency’s ability to verify whether the appropriate tax owed to the City as part of the property transaction was applied.
• The agency did not provide clear guidance to its staff tasked with reviewing RPTT-related documents on how to review documents provided to ensure RPTT returns were filed correctly.
• Of the sampled returns, the audit found that DOF’s computer system — Automated City Register Information System (ACRIS) — did not function as intended, resulting in zero tax owed on some occasions when, in fact, taxes were owed to the City.
• DOF did not promptly apply the RET in situations where a property was transferred from a full or partial not-for-profit exemption to being taxable, which resulted in $2,096,701 of underbilled RET in the 90 returns sampled.Comptroller Stringer’s audit included a series of recommendations to ensure DOF institutes sufficient controls of its handling of RPTT and RET review and collection procedures to protect critical City revenues, including funding for the MTA at a time when it is needed the most. The recommendations included:
• DOF should revise its written procedures for examiners to follow, including providing staff with specific instructions on how to review RPTT-related documents.
• DOF should adequately train agency staff to ensure that documents related to the RPTT and RET are reviewed and processed thoroughly to account for all taxes owed to the City.

To read Comptroller Stringer’s audit of DOF’s RPTT and RET collection procedures, click here.

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