NEW YORK STATE SUPREME COURT To be Argued APPELLATE DIVISION FIRST DEPARTMENT By David M. Wise _____________________________________ Time Requested: 15 minutes In the Matter of the Application of Index No.: 11-105286 RCN TELECOM SERVICES OF NEW YORK, LP (F/K/A RCN TELECOM New York County Clerk SERVICES, INC.); SIDERA NETWORKS LLC (F/K/A RCN NEW YORK COMMUNICATIONS LLC); Petitioners, against

DAVID M. FRANKEL as THE NEW YORK CITY COMMISSIONER OF FINANCE; THE NEW YORK CITY DEPARTMENT OF FINANCE; THE NEW YORK CITY TAX COMMISSION; GLENN NEWMAN as PRESIDENT OF THE NEW YORK CITY TAX COMMISSION; and JOHN DOE, ON BEHALF OF THE CLASS OF ALL NEW YORK CITY LESSEES WHOSE LEASEHOLD IMPROVEMENTS INCLUDE RPTL § 102(12)(f) APPARATUS, INCLUDING STEAM, VENTILATING, PLUMBING, HEATING, LIGHTING, and POWER GENERATING APPARATUS Respondents

APPELLANTS-PETITIONERS’ REPLY DAVID M. WISE Law Offices of David M. Wise, P.A. 11 Commerce Drive Cranford, NJ 07016 (908) 653-1700 (V) (908) 276-6260 (F) (179 East Little Neck Road North P.O. Box 818 Babylon, N.Y. 11702)

TABLE OF CONTENTS OVERVIEW ................................................................................................... 1 ARGUMENT .................................................................................................. 3 A. The Con Edison and City of Lackawanna Decisions Do Not Make Movable Backup Power Equipment Installed by Lessees in Support of the Business They Conduct in the Leased Premises Assessable Real Property ....................................................................................................... 3 B. The Unchallenged Rule in New York State is that Installations of Movable Equipment by Tenants Within Multi-Tenant Buildings are NonAssessable Personal Property ...................................................................... 6 C. RPTL § 102(12)(f) Is Purely a Statute of Exemption, and Cannot Make The Equipment at Issue Assessable In the First Instance ............... 11 D. The City’s Reading of 102(12)(f) Would Require Radical and Untenable Changes to Existing Assessment Practice and Is Contrary to the Legislature’s Intent in Enacting 102(12)(f)............................................... 16 E. The Equipment at Issue is Non-Taxable in Any Event Because Ch. 416, L. 1987 Repealed the Real Property Tax on Central Office Equipment and Telecommunications Equipment ..................................... 20 F. The City’s Failure to Provide Petitioners and All Others Similarly Situated With Statutory or Other Notice of the Surprise 2010-11 Assessments Either Invalidated the Assessments or Tolled Applicable Statutes of Limitations............................................................................... 24 CONCLUSION............................................................................................. 26

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TABLE OF AUTHORITIES Cases Ames # 82 v. Board of Review Village of Tupper Lake, 173 A.D. 943 (3rd Dep’t 1991 ......................................................................................... 7, 9, 10 Capri Marina & Pool Club v. Board of Assessors, 84 Misc. 2d 1096, 1099 (Sup. Ct. Nassau Cty. 1976) ........................................................................ 9 City of Lackawanna v. State Board, 21 A.D.2d 318, 322 (3rd Dep’t 1964.) .. 4 City of Lackawanna v. State Board of Equalization & Assessment 16 N.Y.2d 222 (1965)....................................................................................... passim Herkimer County Light and Power Co. v. Johnson, 37 A.D.2d 257 (4th Dep’t 1899 ............................................................................................................. 9 Interstate Lien Corp. v. Schmidt, 180 Misc. 910 (Sup. Ct. Erie Cty. 1943 .... 9 Matter of Orange and Rockland Utilities v. City of Middletown Assessor, 269 A.D.2d 451 (2nd Dep’t 2000), mot. for leave to appeal den’d 95 N.Y.2d 763 (2000)..................................................................................... 15 Matter of Application of VGR Associates v. Town of New Windsor, 13 Misc. 3rd 1218A (Sup.Ct. Orange Cty. 2006); aff’d 51 A.D.3rd 678 (2nd Dep’t 2008 ......................................................................................................... 7, 9 Matter of Honeoye Storage Corp. v. Board of Assessors of the Town of Bristol, 77 A.D.2d 468 (4th Dep’t 1980), mot. for leave to appeal den’d 53 N.Y.2d 601 (1981)..................................................................................... 15 Matter of New York State Telephone v. Ferris, 257 A.D. 415 (4th Dep’t 1939) aff’d 282 N.Y. 667 (1940. ............................................................... 21 Merrick Holding Corp. v. Board of Assessors, 45 N.Y.2d 538, 543-544 (1978.)........................................................................................................ 10 Metromedia Inc. v. Tax Commission, 60 N.Y.2d 85, 90 (1983)..................... 6 People ex rel 100 Park Avenue v. Boyland, 144 N.Y.S.2d 88 (N.Y.Cty. 1953), rev’d 284 App. Div. 1033; reinstated 309 N.Y. 685 (1955......... 7, 9 Tifft v. Horton, 53 N.Y. 377............................................................................ 7 Statutes RPTL § 102(12)(f) ........................................................................................... i Other Authorities 19 RCNY 33-01(b)(2)(i) ............................................................................... 19 Matter of the Petition of Level 3 Communications, LLC, 2006 N.Y. Tax LEXIS 241 (2006) ..................................................................................... 21 N.Y.C Admin. Code 11-208.1 to .................................................................. 18

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THE APPRAISAL OF REAL ESTATE, ELEVENTH EDITION, Appraisal Institute, Chicago, Ill. (1996)...................................................................................... 8

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OVERVIEW The City advances six arguments to salvage the legality of the assessments at issue: 1. City Argument One: That the Court of Appeals decisions in Con Edison v. New York (barge mounted generator case) and City of Lackawanna supposedly stand for the proposition that movable backup power equipment installed by tenants solely to support trade activities performed in the leased premises is per se assessable. To the contrary, these decisions lend no support to this proposition. 2. City Argument Two: That there is no body of law in New York State holding that movable tenant trade fixtures are non-assessable personal property. To the contrary, there is such a body of law and it stands unchallenged. 3. City Argument Three: That RPTL § 102(12)(f) is an assessment statute per se making all tenant trade installations of lighting, electrical generation and distribution apparatus, HVAC, plumbing, and gas and liquid piping real property separately assessable to the tenants. To the contrary, RPTL § 102(12)(f), is a pure exemption statute that (a) exempts movable equipment to support trade or manufacturing owned by corporations paying the Article 9A income tax from the real property tax, but (b) excludes otherwise assessable equipment of the sort used primarily to support buildings (rather than trade activities) from the exemption. Most critically for our purposes,

102(12)(f) does not by itself make any equipment assessable in the first instance. 4. City Argument Four: That it is not the standard practice of the New York City Department of Finance (“DOF”) to treat movable tenant trade installations in multi-tenant premises of lighting, electrical generating and distribution apparatus, HVAC, plumbing and piping as non-assessable personal property. To the contrary, this obviously is the standard practice of the DOF. 5. City Argument Five: That telecommunications equipment performing central office functions can be assessed as real property under the RPTL. To the contrary, Ch. 416, L. 1987 expressly repealed all real property taxes on central-office-type telecommunications equipment, including the backup power components of this equipment. 6. City Argument Six: That, notwithstanding the DOF’s disregard of City Charter 1511 and failure to give timely notice of the surprise assessments at issue, the petitioners should be denied a reasonable opportunity to challenge the validity of these assessments. To the contrary, both due process and City Charter 1511 require that the assessments either be deemed null and void, or that the petitioners’ Article 78 petition challenging these assessments be deemed timely. The fallacies underlying the City’s arguments are detailed below.

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ARGUMENT A. The Con Edison and City of Lackawanna Decisions Do Not Make Movable Backup Power Equipment Installed by Lessees in Support of the Business They Conduct in the Leased Premises Assessable Real Property The City begins its argument (Resp. Br. p. 6) by erroneously claiming that two Court of Appeals decisions, Lackawanna v. State Board of Equalization & Assessment 16 N.Y.2d 222 (1965) and Consolidated Edison v. New York, 44 N.Y.2d 536 (1978), stand for the proposition that movable tenant installed backup power equipment used in support of the trade or business performed in the leased premises is assessable as a matter of law. According to the City, “[i]n Lackawanna … the Court of Appeals ruled that power generating apparatus is defined as assessable real property under the statute.” Resp. Br. p. 6. Elsewhere the City states that in Lackawanna the Court of Appeals “examined the assessability of power generating apparatus…and determined that electrical generators used to supply power for the petitioner’s steel rolling mills were taxable real property.” Resp. Br. p. 7. In fact, the Court of Appeals decision in Lackawanna had nothing to do with “power generating apparatus” or “electrical generators.” The

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decision itself describes the referenced property, not as “electrical generators,” but as “electrical and steam properties,” and then classified the equipment, not as “power generating apparatus,” but as "equipment for the distribution of heat, light, power, gases and liquids." 16 N.Y.2d 231; emphasis supplied. Moreover, the underlying 3rd Department decision reviewed in Lackawanna had specifically rejected the claim that a particular item involved “the generation of power,” finding, instead, that it was used to “transform AC to DC current.”1 In sum, contrary to the City’s claim, City of Lackawanna had nothing to do with “power generating apparatus” or “electrical generators.” City of Lackawanna v. State Board, 21 A.D.2d 318, 322 (3rd Dep’t 1964.) Next, the City erroneously suggests that Consolidated Edison v. New York, 44 N.Y.2d 536 (1978) also stands for the proposition that the tenant installed movable backup power equipment at issue here is per se assessable under 102(12)(f). First, Con Edison involved, not tenant installed backup power equipment intended to protect the tenant’s business against power grid outages, but utility constructed and owned power plants supplying power directly to the power grid. Second, Con Edison’s holding of assessability was founded, not on the power generating function of the six 1

Units that convert the AC current delivered by the electric grid to DC current are known as “rectifiers.” R83, para. 5. 4

barge mounted power plants at issue, but on their physical immensity: “215 feet long, 79 feet wide and 12 feet deep with a superstructure rising at least 56 feet above the water line.” Id. 44 N.Y. 2d at 539. By contrast, each of the tenant owned and installed backup generators at issue here can easily be removed by a single crane and carted away on a single flatbed truck. R8991.2 Finally, the Court of Appeals decision in Con Edison expressly rejected the lower courts’ reliance on RPTL § 102(12)(f) as grounds for assessing these utility owned generators, and based its holding of assessability instead entirely on RPTL 102(12)(b) (defining “buildings and other articles and structures, substructures and superstructures erected upon, under or above the land” as assessable real property.) In sum, neither City of Lackawanna nor Con Edison stands for the proposition ascribed to it by the City. Moreover, as discussed below, City of Lackawanna expressly refutes the City’s mischaracterization of Section 102(12)(f) as an assessment, rather than exemption, provision.

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The City repeatedly attempts to draw the misfounded inference that because a few cases have held that large power plants supplying the grid are assessable real property, then all items of backup power equipment must be per se assessable real property. 5

B. The Unchallenged Rule in New York State is that Installations of Movable Equipment by Tenants Within Multi-Tenant Buildings are Non-Assessable Personal Property Under the common law, equipment affixed to a building is classified as real property if it is intended to be a permanent “accession to the freehold,” i.e. is an installation of the sort whose ownership would normally pass to a purchaser of the building. Matter of City of New York (Kaiser Woodcraft Corp.), 11 N.Y.3rd 353, 360 (2008.) While the City is correct that common law designations of property as personal or real property are not necessarily controlling under the RPTL, these designations are commonly used to provide guidance in the RPTL context (Metromedia Inc. v. Tax Commission, 60 N.Y.2d 85, 90 (1983)), and have, in fact, governed the proper classification of movable tenant trade installations such as are at issue here under the RPTL. In interpreting and applying the RPTL, both the Courts and assessors have uniformly accepted the common law principle that movable tenant installations in multi-tenant buildings3 dedicated to the trades or businesses the tenants perform in the leased premises are non-assessable personal 3

As we noted in at footnote 10 of our prior brief, this rule does not necessarily apply where (a) the lessee installations are themselves buildings or the structural equivalents of buildings attached to land or the equivalent of land; and/or (b) the lease is not a “true lease,” but the equivalent of an ownership interest (i.e. very long-term and with an option to purchase.) 6

property. People ex rel 100 Park Avenue v. Boyland, 144 N.Y.S.2d 88 (N.Y.Cty. 1953), rev’d 284 App. Div. 1033; reinstated 309 N.Y. 685 (1955); Ames # 82 v. Board of Review Village of Tupper Lake, 173 A.D. 943 (3rd Dep’t 1991); Matter of Application of VGR Associates v. Town of New Windsor, 13 Misc. 3rd 1218A (Sup.Ct. Orange Cty. 2006); aff’d 51 A.D.3rd 678 (2nd Dep’t 2008.) In a decision and holding reversed by the Appellate Division but then reinstated by the Court of Appeals, the trial court in 100 Park Avenue, supra, 144 N.Y.S. at 93, stated as follows. Unless a contrary intention is expressed, the Law will presume that where installations are made for the purposes of conducting the business for which the premises are leased, such installations are not permanent annexations to the freehold, but are made for the sole use and enjoyment of the tenant during the term of his lease, and not for the purpose of enhancing the value of the landlord's estate, Tifft v. Horton, 53 N.Y. 377.4 ***

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In holding that movable tenant installations were personal property and not subject to a mortgage on the host real estate, Tifft stated: The law presumes that because the interest of a tenant in the land is temporary, that he affixes for himself, with a view to his own enjoyment during his term, and not to enhance the value of the estate; hence, it permits annexations made by him to be detached during his term, if done without injury to the freehold, and in agreement with known usages. This logic is perfectly applicable in the real property tax context.

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The Court holds that such of the tenants' installations as were installed for the purpose of carrying on the business of the tenants in the leased premises and could readily be removed without serious injury to the building are not permanent annexations to the freehold and should not be assessed as real property. This rule not only stands unchallenged in the Courts, but is, as discussed below, (a) consistent with normal assessment practice, including that of the New York City DOF; 5 and (b) a practical necessity, because local property tax assessors simply lack the legal means and resources to locate, inventory, value, and separately assess movable tenant trade installations with any modicum of consistency. Moreover, the case-law makes clear that the general rule excluding movable tenant trade installations from assessability specifically applies to installations of the classes of equipment enumerated at the beginning of 102(12)(f) such as lighting, electrical, HVAC, plumbing and other ductwork and piping.6 Hence, the non-assessable tenant improvements in 100 Park 5

It is also consistent with standard real estate appraisal practice. Hence, THE APPRAISAL Institute, Chicago, Ill. (1996) states as follows regarding “trade fixtures:” OF REAL ESTATE, ELEVENTH EDITION, Appraisal

Although fixtures are real estate, trade fixtures are not. A trade fixture, also called a chattel fixture, is an article that is owned and attached to a rented space or building by a tenant and used in conduction a business. Trade fixtures are not real estate endowed with the rights of real property ownership. They are personal property regardless of how they are affixed. (p. 9.) 6 Needless to say, virtually every significant tenant build-out would include equipment within these classes. 8

Avenue, supra, specifically included electrical wiring; the non-assessable tenant improvements in Ames # 82 specifically included plumbing and heating; and the non-assessable tenant improvements in VGR Associates encompassed the entirety of $2.8 million of the “‘fit up’ costs undertaken…to convert” a supermarket “from the ‘shell space delivered…to the modern grocery store present at the subject property.” 13 Misc. 3rd 1218A (p. 17.) There is no merit to the City’s creative claim that the unchallenged rule against assessing movable tenant trade installations within multi-tenant premises7 as real property articulated in these decisions only bars including their value within the assessments of the landlords’ premises, but does not preclude separately assessing their value directly to the tenants. (City Br., 14-15.) To begin with, the holdings in these decisions that the tenant installations were not assessable real estate are unqualified, and contain no 7

As we stated at note 10 of our prior brief, there are exceptions to this rule (a) where a tenant under has installed buildings or the structural equivalent of buildings to the land under a ground-lease or its equivalent; or (b) where the leasehold interest in the building is the practical equivalent of fee ownership. All the decisions involving assessments against tenant trade installations cited by the City fall within these two categories. Herkimer County Light and Power Co. v. Johnson, 37 A.D.2d 257 (4th Dep’t 1899) (power plant supplying grid installed by utility in single tenant power house under a 30year lease with option to purchase); Interstate Lien Corp. v. Schmidt, 180 Misc. 910 (Sup. Ct. Erie Cty. 1943) (gas station, including tanks and pump installed under a ground-lease is subject to tax lien); Capri Marina & Pool Club v. Board of Assessors, 84 Misc. 2d 1096, 1099 (Sup. Ct. Nassau Cty. 1976) (barge mounted restaurant moored to a pier for over eleven years was assessable real property.) By contrast, all the equipment at issue here was installed in premises within multi-tenant buildings occupied under leases with relatively short terms. R75-76. 9

suggestion that the installations were indeed assessable real property, but only to the tenants. E.g. 100 Park Street (“the tenants’ installation… should not be assessed as real property.”)8 Moreover, under the “bundle of rights” doctrine, the tax assessment of a leased parcel already encompasses the entire value of all the assessable real property physically located within the parcel, and without the need for any allocation between the respective interests of landlord and tenants. Merrick Holding Corp. v. Board of Assessors, 45 N.Y.2d 538, 543-544 (1978.)

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In sum, the accepted rule in New York State is that movable tenant trade installations in multi-tenant environments, including installations of equipment within the classes enumerated in the beginning 102(12)(f), are personal property, and are not assessable as real property to the tenant or anyone else.

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In this regard, it bears noting that the tax review petition in Ames # 82 was brought, not by the landlord, but by the tenants of the strip mall at issue who paid a pro rata share of the taxes. Given the general prevalence of triple net leases which pass property taxes through to the tenants, the entire issue of assessors allocating assessable value between landlord and tenant is a moot point. 9 Under the City’s claim that the tenants’ interests in real property must be assessed separately from the landlord’s interests will needlessly burden assessors with this additional concern. 10

C. RPTL § 102(12)(f) Is Purely a Statute of Exemption, and Cannot Make The Equipment at Issue Assessable In the First Instance In addressing 102(12)(f) it is important to clarify that the threshold question before this Court is not whether the movable tenant trade installations at issue here are exempted by virtue of RPTL § 102(12)(f). 10 Rather, the question is whether 102(12)(f) makes these movable tenant installations assessable in the first instance. This analysis revolves around the question of whether 102(12)(f) is: A. (as asserted by petitioners) merely an exemption statute that might contain language excluding certain items from the exemption, but contains no language making anything assessable to begin with; or B. (as asserted by the City) an assessment provision making items assessable in the first instance. The Court of Appeals answered this question in City of Lackawanna, stating that (as required by RPTL 2002, subd. 5), in analyzing 102(12)(f), “we deal, unquestionably, with a statute of exemption,” and that “we may not forget that its language was derived from former section 3 and was intended to exclude from exemption the same property as was excluded from 10

The petitioners have claimed that it the equipment at issue were assessable as a threshold matter, it would be exempt under 102(12)(f) for the 2010-11 assessments and, hence, non-taxable, but did not brief this issue for purposes of the motion under review. 11

the earlier statute.” Supra 16 N.Y.2d at 230; emphasis supplied. In other words, the purpose of the reiteration at the beginning of 102(12)(f) of the classes of equipment (i.e. “boilers, ventilating apparatus…etc.”) that had been excluded from exemption by former Tax Law 3 was merely to continue excluding these classes of equipment from the 102(12)(f) exemption. The reiteration of these items was not intended (as the City would have it) to make them assessable in the first instance. Because the City has no cogent argument why the tenant installations at issue here should be assessable independently of 102(12)(f), the Court of Appeals analysis in City of Lackawanna conclusively establishes that the installations at issue are nonassessable.

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The City would, however, turn all this on its head based, it seems, on nothing more than the sentence near the end of the Court of Appeals decision in City Lackawanna holding that certain “piping and pumps” and “electrical and steam properties” within the steel mill at issue were ineligible for the 102(12)(f) exemption because “on the record before us” they “appear[ed] to fall within the taxable category of ‘equipment for the 11

As we have previously mentioned, the petitioners have preserved the claim that, even if otherwise assessable, the equipment at issue is exempt under 102(12)(f) at least for 2010-11 assessments, but did not brief the issue below. If this Court concludes that the equipment is assessable in the first instance, it should reverse the portion of the trial court decision holding that, as a matter of law, the equipment is ineligible for the 102(12)(f) exemption, and remand for further proceedings.

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distribution of heat, light, power, gases and liquids.’” (City Br. 9-10.) (Emphasis supplied.) The City would have us believe that these few words somehow convert 102(12)(f) from an exemption statute into an assessment statute making all equipment, including movable tenant trade installations, within the classes of equipment enumerated at the beginning of 102(12)(f) per se assessable in the first instance. In other words, by virtue of this language, every tenant installation of lighting, HVAC, plumbing, piping and electrical wiring is real property per se that must necessarily be separately assessed as real property to the tenant. This language at the end of City of Lackawanna, in fact, means nothing of the sort. To begin with, City of Lackawanna was not concerned with the threshold assessability of any part of the mammoth Bethlehem steel mill at issue there, let alone with the threshold assessability of any movable tenant trade installations such as at issue here. The entire steel mill in Lackawanna had been installed, and was owned, by the landowner and all the improvements addressed in the decision were indisputably assessable in the first instance. The only question before the Court of Appeals was whether any of these provisionally assessable improvements were eligible for the 102(12)(f) tax exemption. Hence, Lackawanna was only concerned with

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questions of tax exemption, and has no conceivable relevance to the question of threshold assessability before this Court. Second, as discussed at note 15 of our prior brief, the language at the end of the Court of Appeals’ decision in City of Lackawanna relied upon by the City addressed the dichotomy between the exempt and non-exempt categories of equipment within the classes enumerated at the beginning of 102(12)(f) as identified by the Third Department. The exempt, or “nontaxable category” of this equipment consists of that movable equipment that, in the words of the Third Department, is solely “present because of the particular manufacturing process” and is eligible for the 102(12)(f) exemption. The non-exempt, or “taxable category,” by contrast, consists of the sort of building support equipment that is generally common to real estate used in manufacturing such as “the usual plumbing, sewerage and heating facilities.” Supra, 21 A.D.2d at 321. The Court of Appeals language at the end of City of Lackawanna merely enunciated the factual determination (i.e. “on the record before us”) that the particular “piping and pumps” and “electrical and steam properties” at issue there were not exempt under 102(12)(f), and were, hence, within the “taxable category” rather than “non-taxable category” of “equipment for the distribution of heat, light, power, gases and liquids.” The City’s quibbles

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about the merits of this factual determination, and efforts to convert it into a broad pronouncement overturning long settled law, are without substance.12 In sum, City of Lackawanna’s holding that the extensive infrastructure of piping, pumps, and electrical and steam infrastructure installed by the owner of the Bethlehem steel plant was ineligible for the 102(12)(f) exemption has no bearing on the question of the threshold assessability of the tenant installed backup power equipment at issue here. Finally, the City’s misreading of City of Lackawanna is flatly contradicted by two significant appellate decisions issued since City of Lackawanna, both of which the Court of Appeals declined to review. Matter of Honeoye Storage Corp. v. Board of Assessors of the Town of Bristol, 77 A.D.2d 468 (4th Dep’t 1980), mot. for leave to appeal den’d 53 N.Y.2d 601 (1981) (gas compressor unit was eligible for 102(12)(f) exemption and non-assessable even though it was equipment for the distribution of gas); Matter of Orange and Rockland Utilities v. City of Middletown Assessor, 269 A.D.2d 451 (2nd Dep’t 2000), mot. for leave to appeal den’d 95 N.Y.2d 763 (2000) (utility owned lines and mains on 12

The City’s logic seems to be that this particular electric distribution infrastructure could not be akin to the “usual” infrastructure found at manufacturing properties because this infrastructure was necessary to particular manufacturing processes that occurred at the steel plant. Virtually all manufacturing processes depend, however, to some extent upon the availability of the “usual” electric, gas, plumbing, water, sewerage, heating, etc., infrastructure. The 102(12)(f) exemption is only available to unusual infrastructure installed solely for the benefit of the particular trade or manufacturing activity. 15

customer property were non-assessable even though they were used to distribute gas and electricity.) In sum, 102(12)(f) is purely a statute of exemption, makes nothing assessable in the first instance, and has no relevance to the threshold question of assessability before this Court. Moreover, even if the backup power equipment at issue were assessable in the first instance, 102(12)(f) would exempt it because this movable equipment was installed solely to support petitioners’ business, not the host real estate. D. The City’s Reading of 102(12)(f) Would Require Radical and Untenable Changes to Existing Assessment Practice and Is Contrary to the Legislature’s Intent in Enacting 102(12)(f) The record below establishes that the City is not presently implementing the interpretation of 102(12)(f) set forth in the 2009 SAP with any modicum of uniformity. In an unrebutted affidavit (R334-342),13 business appraiser J. Mark Penny testified that it is normal practice for businesses, such as restaurants, health care businesses, and small manufacturers, that typically operate within leased premises (a) to install within the leased premises movable equipment in the categories enumerated

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The Petitioners submitted Mr. Penny’s affidavit in their reply papers in response to arguments made by the City, but gave the City an opportunity to submit surreply papers. R476-518. 16

at the beginning of 102(12)(f) at their own expense, (b) to retain ownership of this equipment following installation, and (c) to book the cost of this equipment as an asset on their balance sheets. In light of the many thousands of premises leased by restaurant, health care, and manufacturing businesses operating in the City14, the DOF would have had to place thousands of new separate assessments against tenant owned equipment on the 2010 and 2011 assessment rolls if the DOF had implemented the 2009 SAP in a uniform fashion.15 Based on the unrebutted affirmation of petitioners’ undersigned attorney, however, the DOF placed only a grand total 56 assessments against tenant owned equipment under the 2009 SAP on the 2010 and 2011 assessment rolls (R106, para. 14), all against backup power equipment owned by large corporations, and all for equipment located in the borough of Manhattan. R106-108; R151-153. The City has never rebutted the above-stated facts, or the necessary inference from these facts that the DOF implemented the 2009 SAP in a highly selective and unequal manner. Instead, the City implicitly seeks to blame this on New York City’s thousands of businesses operating within 14

According to the web-site of the New York City Department of Health, “Restaurant Inspection Information,” the City inspects more than 24,000 restaurants. The 2010 and 2011 assessments rolls do not contain even one assessment on equipment enumerated at the beginning 102(12)(f) against a restaurant business operating within leased premises. 15 Under the 2009 SAP, assessments against tenant owned equipment were to be made by the Real Estate of Utility Corporations (REUC) office of the DOF. REUC assessments are segregated from ordinary assessments on the New York City assessment roll. 17

leased premises for allegedly flouting their supposed obligation under N.Y.C Admin. Code 11-208.1 to submit Real Property Income and Expenses forms (RPIE’s) to the DOF inventorying their movable tenant trade installations. City Br. 16-17. There are two fatal problems with the City’s argument. The first is that none of these thousands of businesses operating in leased premises has ever had any obligation to file RPIE’s (or any other forms) inventorying their lessee trade installations. As noted on the first page of the RPIE form (R291), only “owners of income-producing properties that have an actual assessed value of more than $40,000” are required to file RPIE’s. N.Y.C. Admin. Code 11-208.1(a) defines “income producing properties” as properties “owned for the purpose of securing an income from the property itself.” Tenant trade installations such as the backup power equipment at issue here are, by definition, used, not to secure “an income from the property itself,” but to support the income producing trades or businesses the tenants conduct within the leased premises. Aside from the referenced owners of the 56 backup power units assessed by the City under the 2009 SAP, all of these lessees are further excused from having to file RPIE’s because their leasehold improvements are not even on

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the assessment roll to begin with, let alone on the assessment roll at “actual assessed value[s] of more than $40,000.” 16 In sum, the DOF’s highly selective and unequal implementation of the 2009 SAP results, not from an imagined wholesale disregard of RPIE reporting requirements by the ten of thousands of businesses that have made movable tenant trade installations within leased premises in New York City. Instead, it results from the DOF’s lack of the legal tools, and failure to devote the assessor resources, necessary to discover, quantify, value, and assess these tens of thousands of movable tenant trade installations in a uniform fashion. The second fatal flaw with the City’s rationalization for the DOF’s lack of uniformity in implementing the 2009 SAP is that it misses petitioners’ point. Petitioner’s point at this juncture of the proceedings17 is not that the City’s existing assessment practices are unconstitutionally flawed. Rather, petitioners’ point at this juncture is that uniformly assessing all tenant installations of equipment in the classes at the beginning of 102(12)(f) would require (a) the radical revamping of normative real property tax assessment practices across the state, (b) the imposition of 16

As stated by 19 RCNY 33-01(b)(2)(i), “property with a final actual assessed valuation of $40,000 or less” is not “income producing” for purposes of the RPIE filing obligation. 17 If the petitioners do not prevail on appeal, they will, however, present proofs to this effect to the trial court on remand. 19

highly burdensome disclosure requirements on businesses, and (c) a highly wasteful redirection of scarce assessor resources. This clearly was not the Legislature’s purpose in enacting 102(12)(f). E. The Equipment at Issue is Non-Taxable in Any Event Because Ch. 416, L. 1987 Repealed the Real Property Tax on Central Office Equipment and Telecommunications Equipment Even if the backup power installations at issue had been assessable in the first instance, they were made non-assessable by Ch. 416, L. 1987 (R183 –184.) Ch. 416 fully repealed, effective 1992, the real property tax and certain related partial exemptions on both (a) the “central office equipment” owned by local telephone companies, and (b) “similar equipment”18 owned by competitive telecommunications providers, i.e. “telecommunication equipment.” 19 The specific repeal provision at Section 6 Ch. 416 is cross-referenced to Ch. 71, L. 1985 (R164-170), which had classified both “central office 18

See, e.g., the 10-day budget report on Ch. 416, L. 1987 stating that Ch. 71, L. 1985 provided for “continuation of the tax on central office equipment owned by local exchange companies [and] extension of the tax to similar equipment and property owned by long distance carriers, other providers of telecommunications services….” (Emphasis supplied.) R173. 19 In pertinent part, Ch. 416, L.1987 defined “telecommunications equipment” as “equipment used to provide transmission or switching of electromagnetic voice, video and data signals between different entities separated by air, street or other public domain and related equipment necessary to the operation of such equipment or the modification of such equipment required by such equipment.” (Emphasis supplied.) R183.

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equipment” and “telecommunications equipment” as assessable real property, but then exempted 25% of the value of this equipment from the real property tax. Section 1 of Ch. 71, “Legislative intent,” had specified that the term “central office equipment” as used in the legislation “encompass[ed] the same types of property which were subject to real property taxation prior to [the AT&T] divestiture in accordance to the public service commission’s system of accounts, regulations and rulings, and applicable judicial decisions.” R165. At pages 43 through 45 of our prior memorandum, we showed that backup power equipment of the sort at issue here (a) has always been a core component of central offices and telecommunications hubs;20 (b) has always been specifically classified as “central office equipment” under the PSC’s uniform system of accounts (R195-196); and (c) was specifically held subject to the real property tax as “central office equipment” in the “judicial decision” holding that central office equipment was assessable “real property” under the statutory definition then in effect, Matter of New York State Telephone v. Ferris, 257 A.D. 415 (4th Dep’t 1939) aff’d 282 N.Y. 667 (1940.) Hence, Ch. 416, L. 1987’s repeal of the tax on central office

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See Matter of the Petition of Level 3 Communications, LLC, 2006 N.Y. Tax LEXIS 241 (2006) (the backup power components of central offices are eligible for the sales tax exemption on “central office equipment.”) (R520-543.) 21

equipment and telecommunications equipment necessarily also repealed the tax on the backup power (and other electrical) components of this equipment. The City astonishingly responds to this by denying that Ch. 416, L. 1987 ever repealed the real property tax on central office equipment or telecommunications equipment in the first place, and claims that the designation of equipment as “central office equipment” under the PSC’s USOA is, hence, “irrelevant to the determination of assessable real property status under the Tax Law.” (Resp. Br. 15.) Nothing could be further from the truth. Section 6 of Ch. 416 (R183-184) provides that on the 1989 assessment rolls, the assessable valuations of “central office equipment” and “telecommunications equipment” were to be at 75% of the 1986 assessable valuations of this equipment; valuations on the 1990 assessment rolls were to be at 50% of the 1986 valuations; on the 1991 assessment rolls at 25% of the 1986 assessable valuations, and that the real property tax on this equipment was to expire in its entirety on December 31, 1991. The 10-Day Budget Report on Bills for Ch. 416, L. 1987 summarized this provision as “provid[ing] for a phased repeal of the right of local governments and school districts to levy a real property tax on certain

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telecommunications equipment.” R. 172. The preamble to the accompanying legislative memorandum described the “purpose” of Ch. 416 as follows: “the legislation would eventually phase-out the taxation of telecommunications equipment and the taxation of central office equipment…as proposed in a report recently issued by the Temporary State Commission on the Real Property Tax.” R. 178. The memorandum then quoted the Tax Commission as follows: The Commission recommends that the taxes on central office equipment and switching and transmission equipment be repealed. However, given the fact that revenue from these taxes is significant in some taxing units, the Commission further recommends that the taxes be maintained for this year and then phased out proportionately over the four succeeding years. (R179.) The memorandum then concluded that the bill “provides for a freeze of assessments on central office and switching/transmission equipment on 1987 and 1988 assessment rolls at a level that does not exceed the 1986 assessment and a four-year phase-out of the assessments on this property thereafter.” R179-180. In sum, Ch. 416, L. 1987 “repeal[ed] the right of local governments …to levy a real property tax” on telecommunications related central-officetype equipment regardless of ownership, and this repeal applies to the backup power components of central-office-type equipment with the same

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force as all other components of central office equipment. This repeal has never been retracted, remains in effect, and governs the proper tax treatment of the equipment at issue. F. The City’s Failure to Provide Petitioners and All Others Similarly Situated With Statutory or Other Notice of the Surprise 2010-11 Assessments Either Invalidated the Assessments or Tolled Applicable Statutes of Limitations The City does not dispute (a) that the DOF did not assess the backup power equipment at issue here on the 2006, 2007, 2008 and 2009 assessment rolls, and (b) that the DOF then did assess this equipment on the 2010 assessment, but failed to provide petitioners (and the other 54 similarly situated owners of backup power equipment) with written notice of the assessments by the end of January 2010 as required by City Charter 1511, or, indeed, any notice at all. The 2010 assessments were under different block and lot numbers from those used prior to 2006, and were not searchable by property address or owner name. The petitioners had duly provided the DOF with their current tax billing address in 2008 and the DOF was using this to bill numerous properties, but never mailed any notices of, or even bills on, the assessments at issue to this address. (R51-55; R345349.)

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As a result of this, the petitioners only first discovered these assessments at the end of January 2011, long after the applicable deadlines for challenging these assessments under the RPTL. (R69-72.) The City does not attempt to excuse of justify any of the DOF’s wholesale disregard for the statutorily required procedure. Rather, shrugging off these statutorily mandated notification duties, the City would impose a wholly imaginary duty on petitioners to have scrolled through the 2010 assessment roll, item by item, affirmatively searching out the possibility of new assessments. Because the petitioners did not engage in this “wild goose chase” and discover the “surprise” 2010 assessments in time to challenge them in the normal manner, the City would deny petitioners any opportunity to establish the substantive illegality of these assessments. This is nonsense. As discussed in our prior memorandum (Pet. Main Br. p. 48), unlike the notice requirement of RPTL 510, the notice requirement of City Charter 1511 is jurisdictional, and the City’s failure to comply with it nullifies the 2010-11 assessments at issue. In any event, as discussed in our prior brief (see Pet. Main Br. 49-50), the City’s bizarre claims that plaintiffs should be deemed constructively aware of the contents of the 2010 assessment roll fly in the face of contemporary procedural due process. Hence, this Court should either deem the 2010-11 assessments

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jurisdictionally void, or else hold that the instant Article 78 proceeding (filed and served May 4, 2011) is timely as of law. CONCLUSION For the reasons above, this Court should reverse the Decision and Order below, adjudge the assessments at issue here null and void, and grant petitioners a judgment for the refund of all taxes paid on these assessments with interest as provided by law, together with attorneys fees pursuant to 42 U.S.C. 1988. Dated:

Babylon, New York August 7, 2012

____________________________________ DAVID M. WISE Law Offices of David M. Wise, P.A. 11 Commerce Drive Cranford, N.J. 07016 (908) 653-1700 (V) (908) 276-6260 (F) [email protected] (179 East Little Neck Road North P.O. Box 818 Babylon, N.Y. 11702)

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