Tax Reprieve Insignificant for Westchester Homeowners

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January 2, 2018

by Barrett Seaman –

However else they might feel about the recently enacted federal tax package, homeowners in Westchester County, where property taxes are the highest in the nation, are decidedly unhappy about the law’s sharp curtailment of the deduction for state and local taxes (SALT). With the new limit of $10,000 of deductible property taxes, Greenburgh Township homeowners, 87% of whom pay more than $10,000-a-year in property taxes, went into the holidays with a sense of foreboding about the measure’s impact on the value of their homes going forward, not to mention their net incomes in the years ahead. A consensus among tax experts and economists is that the reduction of the SALT deduction could lead to a 10% downward correction of local home values.

But then just before Christmas, there was a ray of hope: New York Governor Andrew Cuomo signed an executive order intended to permit the pre-payment in 2017 of at least some portion of 2018 property taxes, while a deduction is still applicable.

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Cuomo’s action set off a frenzy of meetings between local officials and the governor’s office to determine if and to what extent Cuomo’s reprieve applied to them—and if they had the resources to accept what almost certainly would be a deluge of pre-paid taxes. Town Supervisor Paul Feiner, an advocate for the prepayment plan before the governor issued his order, gave the New York Times its “Quote of the Day” after he told a reporter: “I’m getting swamped with many, many calls, usually one an hour, from people who want to prepay their taxes.”

Hugely complicating matters is the fact that SALT is made up of at least five components, each determined by a different governmental entity. State income taxes are determined by total personal income yet to be determined and aren’t even in the picture. Westchester County taxes are about 15% of the total property tax. Town and individual village taxes make up roughly 7% each, while school taxes represent about two-thirds of a homeowner’s total local tax bill. With only days left before the year-end deadline for capturing deductions, local internet sites were alive with questions and rumors about what was happening.

At Greenburgh Town Hall, normally understaffed and sleepy in the week between Christmas and New Year’s Day, long lines snaked through the corridors leading up to the Tax Office as hopeful homeowners tried to pay as much as they could. In the end, however, the only taxes legally warranted for pre-payment were those levied by the Town and individual fire districts—a mere fraction of Westchester’s typical five-figure property tax bill.

The big issue facing local officials as they explored ways they could deliver on the governor’s sweeping edict was getting a warrant to authorize prepayment. County Executive Rob Astorino, in his final days in office, said through a spokesman that “for a whole host of legal, operational and practical reasons,” the county didn’t have enough time. Individual village mayors and administrators spent the holidays in search of a reason to say “yes” but came up short, unable to get around the fact that their 2018 budgets had not been approved. Sleepy Hollow Mayor Ken Wray concluded that Cuomo’s order applied only to counties and towns, which did have pre-approved 2018 budgets, but not villages or school districts. Irvington Mayor Brian C. Smith explored issuing some sort of interim warrant but concluded that the village could not. “We have finally received definitive advice from the governor’s office that the [Executive Order] does not apply to Villages with a fiscal year beginning of June 1,” he advised. “So we cannot accept prepayments.”

School districts, far and away the largest taxing entity, cannot authorize prepayments without first going to the voters. What was still possible was to pay the second-half of the 2017 school tax bill, traditionally due in late January, before January 1 and deduct it from 2017 income. Indeed, in a clarification issued only three business days before year’s end, the IRS confirmed that since these second-half school taxes were based on a legitimate budget, they could be deducted. Without a voter-approved budget (which typically takes place in the spring), 2018 school taxes could not be pre-paid. The IRS ruling applied to county, town and fire district taxes—but only if warranted by the governing body.

Homeowners in Sleepy Hollow, Tarrytown and Irvington who scrambled in time to pre-pay their 2018 Greenburgh Town taxes will be able to save only several hundred dollars at maximum on their 2018 tax returns. That is not likely to be enough to assuage fears of a larger impact down the road. “The likelihood is that there is going to be an enormous flow of money out of Westchester County into other parts of the country,” predicted Tarrytown Mayor Drew Fixell. The threat may not be immediate, but as the overall impact of the Trump tax package plays out, it will certainly not favor residents of the rivertowns.

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