The Update Desk: Vending Machine Tax Breaks

On a couple of occasions, I've written about a nefarious tax break referred to as the 485-a. The first time was in this Meanwhile Back in Albany post from August of 2018, in which I noted

According to reporting by Tim Knauss of the Post-Standard and Syracuse.com, here's what vending machines have to do with anything.

Three vending machines at a Syracuse apartment building dispense candy, chips and soda. And they serve another purpose. They have helped the building owner avoid more than $3 million in property taxes. 

The vending machines are the only visible sign of commercial activity at Copper Beech Commons, a sprawling apartment complex for college students.

Here's why that matters: the property owner gets a lavish tax break that is available only to renovated buildings that have both commercial and residential space.  

That's right -  vending machines can be considered 'commercial space' under this really tasty tax break. And not only that, but vacant lots can be considered historic buildings. Honest, I couldn't make this stuff up if I tried.

A few of them, though, are brand new buildings, placed on lots where older structures were bulldozed, which is clearly (to anyone other than a lawyer or developer) not the type of projects the law was intended to help. There are others, in addition to Copper Beech Commons, that are student apartments, including the largest one, Theory Syracuse, which stands to save over $9 million over the 12 year term of the exemption.

The second time I talked about this, it was to report that the assessors in Syracuse were inspecting the properties to ensure that there really is a commercial operation in the building, or to tell the developers to get one.

For Copper Beech Commons, however, it seems the leaves have fallen, or something. In an article last week on Syracuse.com, Tim Knauss followed up on his original story and let us know that  Syracuse city assessors have been out inspecting properties claiming the 485-a tax break "where commercial operations were not readily evident from the street."

A small office at the property has been cleaned up, with new doors added, to try and entice a small business to lease the space and preserve the tax break. Why? Well, as city assessment commissioner David Clifford noted,

Vending machines are not a commercial use, especially when they're owned and operated by the building owner. As far as I'm concerned, that's just like having a washing machine in the basement.

The assessors last warned the developer that the vending machines did not count for the exemption four or five years ago, so there should have been no surprise that there could be problems once the last (and only) tenant of the space moved out in 2015.

I'm happy to do another update on this one: The NY State Assembly has passed a law designed to reign in abuses under section 485-a, as Bill Magnarelli, one of our local Assembly members (but not mine) announced on his Facebook page. Take a look:

Property Tax §485-a Property Tax Exemption Reform

Legislation passed the NYS Assembly today to stop abuses of the §485-a Property Tax Exemption Program. Assemblyman William Magnarelli, 129th District (D- Syracuse, Van Buren, Geddes) sponsored this legislation along with Assemblyman Sean Ryan, 149th District (D-Buffalo). Both Syracuse and Buffalo have seen some of the worst abuses under this program.

§485-a of the Real Property Tax Law allows municipalities to offer a 12-year exemption on property taxes to developers that renovate old buildings that include a mixture of commercial and residential space. However, localities have been granting exemptions to projects that should not receive them under the program. Examples of abuse include: projects with minimal or no commercial or residential uses, buildings that are nearly totally demolished and rebuilt, and projects built on vacant lots. These exemptions are costing participating localities millions of dollars each year and placing a heavier burden on other property taxpayers.

As the assessors have mentioned in the past, the law was so loosely written that they had very little guidance to go on, and at times felt their hands were tied. Going forward (assuming passage in the Senate and a signature by our Sonofa Gov), things will be different, according to Magnarelli.

The abuses under this program are egregious. §485-a exemptions should not be going to projects where the only commercial uses in the building are vending machines or storage units, or where the developer essentially demolishes the underlying structure for new construction. Local governments and assessors say the current law does not give them the authority to deny these applications. This bill gives them that authority. This program was developed to help our downtowns redevelop old buildings into useful mixed use structures. The bill passed today will return the §485-a program to this purpose. I also want to thank Assemblyman Sean Ryan for working with me to get this bill done this session.

Assemblyman Ryan echoed Magnarelli's thoughts.

Unfortunately, too often we've seen large development corporations take advantage of taxpayers by exploiting this program with facilities that clearly violate the intent of the original bill. The changes we've made will be instrumental in ensuring the redevelopment of our cities can continue, while protecting taxpayers from footing the bill for large developers who willingly misuse the program.

So, what's going to be different? Generally,

• there will be limits on the commercial purposes and uses that can quality, and they must be publicly accessible;
• at least 50% of an eligible building must be for residential units, and at least 15% of the space must have a commercial use;
• no 485-a exemptions will be given on land that was vacant prior to construction;
• at least 75% of the floor area of an eligible building must be a pure-existing structure;
• requiring the commercial portion of the building to be currently used as commercial, or to be 'in good faith contemplated' which would exclude the three vending machines in a room;
• annual certification of properties to ensure the developer is in compliance; and
• revoking the tax benefits of non-compliant properties, as well as penalties if someone makes a material misstatement on their application for the tax break.

These are common-sense changes that are needed to protect property owners in our aging cities, where local government economic development agencies and departments are too quick to offer huge property tax breaks with little regard to how that impacts residents.

Particularly here in Syracuse, where nearly 50% of our property is not taxable because the owners are eds, meds, and non-profits, we need all the help - and restraint - we can get.