Examples of areas that might pose environmental or health hazards, or restrict use and development, or drainage or flooding conditions, Superfund sites, toxic dumps, oil spills, garbage landfills, factories or improper waste disposal sites that have caused extensive air, water, groundwater or soil contamination.

The following is the Decision of the Court in the Commerce Holding case:

673 N.E.2d 127 Page 1
88 N.Y.2d 724, 673 N.E.2d 127, 649 N.Y.S.2d 932
(Cite as: 88 N.Y.2d 724, 673 N.E.2d 127, 649 N.Y.S.2d 932)

Yel Flg
CommerceHolding Corp. v. Board of Assessors of the Town of Babylon
N.Y.,1996.

Court of Appeals of New York.
In the Matter of COMMERCEHOLDING CORP., Respondent,
v.
BOARD OF ASSESSORS OF THE TOWN OF BABYLON et al., Appellants.

Oct. 22, 1996.

Taxpayer commenced tax certiorari proceedings, contending that assessed values of property should be reduced to account for environmental contamination. The Supreme Court, Suffolk County, Stark, J., granted relief. Town board of assessors and board of assessment review appealed. The Supreme Court, Appellate Division, affirmed, 216 A.D.2d 466, 628 N.Y.S.2d 186, and town boards appealed by permission. The Court of Appeals, Ciparick, J., held that: (1) environmental contamination had to be taken into account in determining property's value, and (2) proper valuation method was used.

Affirmed.

West Headnotes

[1] Taxation 371 k 2510

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2510 k. In General. Most Cited Cases (Formerly 371k347)

Ultimate purpose of property valuation is to arrive at fair and realistic value of property being taxed. McKinney's Const. Art. 16, s 2.

[2] Taxation 371 k 2510

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2510 k. In General. Most Cited Cases (Formerly 371k347)

Assessment of property value for tax purposes must take into account any factor affecting property's marketability. McKinney's RPTL s 302, subd. 1.

[3] Taxation 371 k 2514

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2512 Real Property in General

371k2514 k. Matters Considered and Methods of Valuation in General. Most Cited Cases (Formerly 371k348(2.1))

When environmental contamination is shown to depress property's value, contamination must be considered in property tax assessment. McKinney's Const. Art. 16, s 2; McKinney's RPTL s 302, subd. 1.

[4] Taxation 371 k 2515

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2512 Real Property in General

371k2515 k. Market Value and Sale Price; Comparable Sales. Most Cited Cases (Formerly 371k348(3))

Neither taxpayer's alleged responsibility for environmental contamination of property nor its agreement by consent order to pay cleanup costs even if it sold property would justify disregarding environmental contamination in determining property's full value, considering constitutional basis for full value requirement, penalties that taxpayer would face for any cleanup delay, and liability of purchaser for CERCLA cleanup costs. McKinney's Const. Art. 16, s 2; Comprehensive Environmental Response, Compensation, and Liability Act of 1980, s 107(a), (c)(3), as amended, 42 U.S.C.A. s 9607(a), (c)(3); McKinney's RPTL s 302, subd. 1.

[5] Taxation 371 k 2517

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2512 Real Property in General

371k2517 k. Capitalized Income. Most Cited Cases (Formerly 371k348(5))

Lower court properly valued income-producing, environmentally contaminated property by use of income capitalization approach to determine value in uncontaminated state, combined with downward environmental adjustment in amount of outstanding cleanup costs; court was not instead required to base downward adjustment on actual cleanup amount expended in each tax year at issue. McKinney's Const. Art. 16, s 2.

[6] Taxation 371 k 2515

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2512 Real Property in General

371k2515 k. Market Value and Sale Price; Comparable Sales. Most Cited Cases (Formerly 371k348(3))

While property must be assessed at market value, there is no fixed method for determining that value; any fair and nondiscriminating method that will achieve that result is acceptable. McKinney's Const. Art. 16, s 2.

[7] Taxation 371 k 2514

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2512 Real Property in General

371k2514 k. Matters Considered and Methods of Valuation in General. Most Cited Cases (Formerly 371k348(2.1))

Uniqueness of environmental contamination makes flexible approach to valuation of contaminated property appropriate, involving primarily use of traditional techniques adjusted for contamination. McKinney's Const. Art. 16, s 2.

[8] Taxation 371 k 2514

371 Taxation

371III Property Taxes

371III(H) Levy and Assessment

371III(H)5 Valuation of Property

371k2512 Real Property in General

371k2514 k. Matters Considered and Methods of Valuation in General. Most Cited Cases (Formerly 371k348(2.1))

While it is not possible to prescribe any one method to assess effects of environmental contamination on value of property for tax purposes, factors that should be considered include property's status as superfund site under CERCLA, extent of contamination, estimated cleanup costs, present use of property, ability to obtain financing and indemnification in connection with purchase of property, potential liability to third parties, and stigma remaining after cleanup. McKinney's Const. Art. 16, s 2; Comprehensive Environmental Response, Compensation, and Liability Act of 1980, s 101 et seq., as amended, 42 U.S.C.A. s 9601 et seq.

***933 *725 **128 John C. Bivona, Huntington, for appellants.

*726 Meyer, Suozzi, English & Klein, P.C., Mineola (Andrew J. Turro, Jeffrey G.Stark, Michael A. Ciaffa and Anne J. DelCasino, of counsel), for respondent.

Paul A. Crotty, Corporation Counsel of New York City (Robert P. Carver, Paul T. Rephen and Elizabeth Dvorkin, of counsel); Donna M.C. Giliberto, Albany; A. Kevin Crawford, Albany; Owen B. Walsh, County Attorney of Nassau County, Mineola (Robert T. Bloom and Robert N. Goldstein, of counsel); Edward D. Peace, Corporation Counsel of City of Buffalo (Joyce J. Manch, of counsel); and Joseph E. Lamendola, Corporation Counsel of City of Syracuse (Robert G. Stone, of counsel), for City of New York and others, amici curiae.

*727 OPINION OF THE COURT

CIPARICK, Judge.

In these consolidated tax certiorari proceedings, petitioner CommerceHolding Corp. seeks a reduction of the assessed value of its property by the Board of Assessors and the Board of Assessment Review of the Town of Babylon.FN1 The main point of contention is whether environmental contamination should be considered in valuing Commerce's property for tax purposes. Because environmental contamination can depress a parcel's true value, we hold that it must be considered in assessing real property tax. In addition, we review the methodology by which environmental contamination may be measured and uphold the valuation of Commerce's property by the reviewing court.

FN1. Appearing as amici curiae in support of the Town are the City of New
York, New York State Conference of Mayors and Municipal Officials,
Association of Towns of the State of New York, County of Nassau, City of
Buffalo, and City of Syracuse.

I.

Commerce owns a parcel of industrial property in the Town of Babylon in Suffolk County. The property, purchased by Commerce in 1984, consists of 2.7 acres of land improved with a one-story industrial building that is presently divided into 37 rental units. A former tenant of the property performed metal plating operations on the premises and discharged wastewater *728 containing copper, lead, cadmium, zinc and other metals into on-site leaching pools, ultimately resulting in severe subsurface contamination.

As a result of the contamination, the subject property was designated a Superfund site in 1986, pursuant to the provisions of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) ( 42 U.S.C. s 9601 et seq.), making the owner of the property strictly liable for the cleanup costs (42 U.S.C. s 9607[a] ). In 1988, Commerce entered into a consent order with the Environmental Protection Agency to remediate the site.

From 1986 to 1991, assessors for the Town valued Commerce's property at between $1.5 million and $2.6 million each year. Commerce filed timely challenges to each yearly assessment on the ground of excessive valuation, contending that the assessors should have reduced the assessed property value to account for environmental contamination. Commerce thereafter instituted timely annual tax certiorari proceedings pursuant to RPTL article 7, later consolidated, to review the assessments for tax years 1986-1987 through 1991-1992.

In a hearing before Supreme Court, real estate experts for both Commerce and the Town primarily used the income capitalization method to determine the value of the property as if unaffected by contamination, and then subtracted a cost to cure from that value. Specifically, Commerce's expert valued the property by using an income capitalization approach, with a sales approach for the land only, and then subtracted from the property's value in each year the total remaining cost to cure all the contamination. ***934 **129 The outstanding cost to cure was calculated in 1991 dollars, tendered back to account for inflation in each of the prior years, and reduced by any sums actually spent on remediation that particular year.FN2 By contrast, the Town's expert valued the property in an uncontaminated state based on comparable sales data "blended" with an income capitalization approach, and then subtracted from the property's value only the amount actually expended by Commerce in the year the costs were incurred.

FN2. Commerce's expert estimated that the total cost of remediation in
then current 1991 dollars would be $925,365, and projected that the cleanup
would be completed in 8 to 10 years.

Supreme Court adopted Commerce's analysis in its entirety. The court concluded that Commerce's base value was more accurate in view of the "weakness of comparable sales in the *729 area" and subtracted from that value the total remaining cost to cure the contamination in each year. The Appellate Division affirmed (see, Matter of CommerceHolding Corp. v. Board of Assessors, 216 A.D.2d 466, 628 N.Y.S.2d 186). This Court granted the Town's motion for leave to appeal and we now affirm.

II.

[1] The cardinal principle of property valuation for tax purposes, set forth in the State Constitution, is that property "[a]ssessments shall in no case exceed full value" (N.Y. Const., art. XVI, s 2; see, W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 512, 438 N.Y.S.2d 761, 420 N.E.2d 953). As this Court has stated, the "ultimate purpose of valuation * * * is to arrive at a fair and realistic value of the property involved"(Matter of Great Atl. & Pac. Tea Co. v. Kiernan, 42 N.Y.2d 236, 242, 397 N.Y.S.2d 718, 366 N.E.2d 808).

[2][3] The concept of "full value" is typically equated with market value, or what "a seller under no compulsion to sell and a buyer under no compulsion to buy" would agree to as the subject property's price (Matter of Allied Corp. v. Town of Camillus, 80 N.Y.2d 351, 356, 590 N.Y.S.2d 417, 604 N.E.2d 1348). In view of this market-oriented definition of full value, the assessment of property value for tax purposes must take into account any factor affecting a property's marketability (accord,RPTL 302[1] ["The taxable status of real property * * * shall be determined annually according to its condition "] [emphasis added] ). It follows that when environmental contamination is shown to depress a property's value, the contamination must be considered in property tax assessment (see, Lee and LeForestier, Review and Reduction of Real Property Assessments in New York s 8.11, at 73 [3d ed 1996 Cum Supp] ).

[4] The Town nevertheless asks this Court to adopt a per se rule barring any assessment reduction for environmental contamination. Otherwise, the Town contends, polluters would succeed in shifting the cost of environmental cleanup to the innocent taxpaying public in contravention of the public policy of imposing remediation costs on polluting property owners and their successors in title.FN3

FN3. Although the Town attempts to frame its policy argument in terms of
environmental culpability-the guilty polluter versus the innocent
taxpaying public-it should be recognized that CERCLA is a strict liability statute
that imposes liability on property owners such as Commerce without regard
to fault (see,42 U.S.C. s 9607[a] [responsible party and owner are liable] ).

Whatever the merits of the Town's argument, the "full value" requirement is a constitutional mandate that cannot be *730 swept aside in favor of the asserted environmental policy. As the State Board of Equalization and Assessment has recognized, the public policy "argument, while possessing superficial appeal, runs afoul of the requirement found in * * * New York's Constitution, that real property may not be assessed at more than its full (fair market) value" (9 Opns Counsel SBEA No. 58, at 113 [citing N.Y. Const., art. XVI, s 2] ). The high courts of Massachusetts and New Jersey have ruled likewise, concluding that statutory and constitutional full value requirements cannot be subordinated to environmental policy concerns (see, Reliable Elec. Finishing Co. v. Board of Assessors, 410 Mass. 381, 382-383, 573 N.E.2d 959, 960-961; ***935**130Inmar Assocs. v. Borough of Carlstadt, 112 N.J. 593, 600-601, 549 A.2d 38, 41-42; see also, Firestone Tire & Rubber Co. v. County of Monterey, 223 Cal.App.3d 382, 391-392, 272 Cal.Rptr. 745, 750-751).

Thus, in response to the Town's contention that assessment reductions for environmental contamination will encourage landowners to delay remediating their property, this policy argument cannot eviscerate the constitutional directive. Moreover, the Town's concern appears to be overstated; whatever tax benefit Commerce might obtain by deferring implementation of remedial measures pales in comparison to Commerce's potential liability for failure to take appropriate remedial action, including severe penalties under CERCLA (see,42 U.S.C. s 9607[c][3] ) and $2,000 in daily penalties for noncompliance with the consent order.

We also reject the Town's argument that because Commerce, by consent order, has agreed to pay the cleanup costs even if it sells the property, the property's market value would be unaffected by the presence of contamination. This contention is belied by the reality that a purchaser of the site, on notice of the environmental contamination, nevertheless would be liable for the cleanup costs under CERCLA (see,42 U.S.C. s 9607[a] ). Moreover, that Commerce has agreed to remediate the property does not resolve the question of whether, and to what extent, the contamination in fact affects the value of the land (see, Firestone Tire & Rubber Co., 223 Cal.App.3d, at 392, 272 Cal.Rptr., at 750-751, supra). As Commerce's expert opined, a buyer of the property would have demanded an abatement in the purchase price to account for the contamination notwithstanding the existence of the consent order (see, Matter of Northville Indus. Corp. v. Board of Assessors, 143 A.D.2d 135, 138, 531 N.Y.S.2d 592). Whether a property owner's agreement to pay the cleanup costs would affect the property's value in a given case is a *731 factual matter for the assessment board (cf., Fjetland v. Brown, 1990 WL 311252, at *5 [Wash Bd Tax App] ), but it cannot be said, as a matter of law, that the existence of the consent order in this case precluded an assessment reduction.

III.

[5] We next consider the methodology by which the value of Commerce's contaminated property was assessed. The Town argues that it was legal error to deduct from the value of the property in an uncontaminated state the total remaining cleanup costs in each year, as compared with the actual amount expended in each year. Based on the record in this case, we disagree.

[6][7] In reviewing an assessment of property value, we are guided by the precept that "while property must be assessed at market value, there is no fixed method for determining that value * * *. Any fair and nondiscriminating method that will achieve that result is acceptable"(Matter of Allied Corp. v. Town of Camillus, 80 N.Y.2d 351, 356, 590 N.Y.S.2d 417, 604 N.E.2d 1348, supra ). Flexibility is especially important in the valuation of contaminated properties, for which there has yet to emerge any single generally accepted valuation methodology.

The difficulty in assessing a polluted parcel of property stems from the uniqueness of environmental contamination (see, Wilson, The Environmental Opinion: Basis for an Impaired Value Opinion, Appraisal J, July 1994, at 411 ["Each environmental impairment to value is as unique as a fingerprint"]). Regardless of the traditional valuation technique selected by the assessor-comparable sales, capitalization of income, or reproduction cost-each is inevitably hampered to some extent by the lack of available market data. Recognizing the unsuitability of the strict application of traditional valuation techniques to contaminated properties, the prevailing trend in this field has been one of experimentation and adaptation, marked by the use of traditional techniques adjusted for environmental contamination (see generally, Lewandrowski, Toxic Blackacre: Appraisal Techniques & Current Trends in Valuation, 5 Alb LJ Sci & Tech 55; see also, Westling v. County of Mille Lacs, 512 N.W.2d 863, 867 [Minn] [Keith, Ch. J., concurring]). We endorse this flexible approach (see, G.R.F., Inc. v. Board of Assessors, 41 N.Y.2d 512, 515, 393 N.Y.S.2d 965, 362 N.E.2d 597 ["Pragmatism * * * requires adjustment when the economic realities prevent***936 **131 placing * * * properties in neat logical valuation boxes"] ), but caution that a challenge to a property tax assessment must be *732 supported by sound theory and objective data (see, Matter of Katz v. Assessor and Bd. of Assessment Review of Village/Town of Mount Kisco, 82 A.D.2d 654, 656-657, 442 N.Y.S.2d 795).FN4

FN4. New valuation techniques are being developed that hold promise for
the valuation of contaminated properties (see, e.g., Chalmers and Roehr,
Issues in the Valuation of Contaminated Property, Appraisal J, Jan. 1993, at
36-38 [discussing regression analysis and contingent valuation methodology]).

[8] While it is not possible to prescribe any one method to assess the effects of environmental contamination, there are certain factors that should be considered. These include the property's status as a Superfund site, the extent of the contamination, the estimated cleanup costs, the present use of the property, the ability to obtain financing and indemnification in connection with the purchase of the property, potential liability to third parties, and the stigma remaining after cleanup (see generally, Patchin, Valuation of Contaminated Properties, Appraisal J, Jan. 1988, at 7; Wilson, op. cit.; Chalmers and Roehr, op. cit. ).

Against this backdrop, we cannot say that the methodology here employed was erroneous as a matter of law. The valuation of Commerce's property was accomplished by the use of the income capitalization approach to determine the value in an uncontaminated state of this income-producing property, combined with a downward environmental adjustment in the amount of outstanding cleanup costs. While cognizant of the potential of this valuation method to overstate the effects of environmental contamination,FN5 we nevertheless conclude that cleanup costs are an acceptable, if imperfect, surrogate to quantify environmental damage and provide a sound measure of the reduced amount a buyer would be willing to pay for the contaminated property (see, Westling v. County of Mille Lacs, 543 N.W.2d 91 [Minn] [affirming assessment where value of property reduced by remaining cleanup costs and amount attributable to stigma]; Wilson, op. cit., at 413; cf., Matter of Northville Indus. Corp. v. Board of Assessors, 143 A.D.2d 135, 138, 531 N.Y.S.2d 592,supra [deducting total cost of compliance with Sanitary Code from each annual tax assessment]; Matter of Bass v. Tax Commn., 179 A.D.2d 387, 388, 578 N.Y.S.2d 158 [affirming deduction for "foreseeable*733 cost of curing the building's deficiencies," including asbestos contamination] ).

FN5. The use of this method would be disfavored, for example, when the
property is capable of productive use, but the high cleanup costs yield a
negative property value. In such a case, the cleanup costs could be more
appropriately accounted for by adjustments to the projected income stream
(see, e.g., Mundy, The Impact of Hazardous and Toxic Material on Property
Value: Revisited, Appraisal J, Oct. 1992, at 463).

The Town next argues that even if the entire remaining cost to cure was properly deducted in connection with each yearly assessment, this amount should have been discounted to its present value. However, Commerce's expert testified that the estimated cleanup costs were present value estimates, which he described as the present financial impact of the cleanup on the property's value. The Town failed to introduce any controverting evidence and its challenge is thus precluded.

In conclusion, we hold that based on the record in this case, the reviewing court properly considered the effects of environmental contamination in assessing the value of Commerce's property and applied an acceptable valuation technique.

Accordingly, the order of the Appellate Division should be affirmed, with costs.

KAYE, C.J., and SIMONS, TITONE, BELLACOSA, SMITH and LEVINE, JJ., concur.

Order affirmed, with costs.

N.Y.,1996.

Commerce Holding Corp. v. Board of Assessors of the Town of Babylon

88 N.Y.2d 724, 673 N.E.2d 127, 649 N.Y.S.2d 932

END OF DOCUMENT

2008 Thomson/West. No Claim to Orig. U.S. Govt. Works.