October New York State Chief Fiscal Officers of Counties, Cities, Towns and Villages

Transcription

1 October 1995 TO: FROM: SUBJECT: New York State Chief Fiscal Officers of Counties, Cities, Towns and Villages New York State Office of the State Comptroller, Division of Municipal Affairs New Tax Enforcement Process The purpose of this release is to provide information on the accounting for the collection and enforcement of real property taxes necessitated by the recent comprehensive revisions to the Real Property Tax Law. Legal questions should be addressed to your municipal counsel, the Office of the State Comptroller, Division of Legal Services at (518) or the NYS Office of Real Property Services (formerly the State Board of Equalization and Assessment) at (518) If you have accounting questions, please call the Bureau of Municipal Accounting Systems at (518) SUMMARY OF LEGISLATIVE CHANGES Chapter 602 of the Laws of 1993 made comprehensive revisions to the Real Property Tax Law relating to the collection and enforcement of real property taxes. A series of technical and clarifying amendments were made to these revisions by Chapter 532 of the Laws of The changes made by Chapters 602 and 532 generally took effect on January 1, Further amendments were made to these revisions by Chapter 579 of the Laws of The following is a summary of some of the key provisions. We recommend that the entire text be consulted for further information. Judicial Foreclosure and the Elimination of Tax Lien Sales Chapter 602 eliminates administrative enforcement of unpaid taxes by repealing Real Property Tax Law, Article 10 (county and city tax lien sales) and Title 3 of Article 14 (village tax lien sale provisions). Article 11 of the Real Property Tax Law (In Rem Foreclosure), as amended by Chapters 602 and 532, sets forth the new tax enforcement system. Note: Certain counties, cities, and towns, which were authorized to enforce the collection of taxes pursuant to charter, administrative code or special law provisions, were authorized to adopt a local law to provide that the collection of taxes continue to be enforced pursuant to such charter, code or special law. In addition, villages which conducted a tax sale in 1993 were authorized to adopt a local law providing that the collection of taxes that become liens in 1995, 1996 and 1997 shall be enforced pursuant to Title 3 of Article 14 of the Real Property Tax Law as such Title shall have been in effect on December 31, Certain local governments have availed themselves of these provisions and are deemed to have "opted out" of the new process. The following is a general summary of some of the key steps in the new foreclosure process: Ten months after lien date, real property affected by delinquent tax liens is entered on a List of Delinquent Taxes which is then filed with the county clerk. Prior to the filing of the List of Unpaid Taxes the enforcing officer may mail and/or publish an advance notice of the List of Delinquent Taxes.

2 Twenty-one months after lien date, a Petition of Foreclosure for those properties remaining delinquent is executed and then filed with the county clerk (filing is deferred by one and two years respectively, for property subject to a 3 or 4 year redemption period). Once the Petition of Foreclosure is filed, a Notice of Foreclosure or, in certain cases, the Petition of Foreclosure, must be posted and published. In addition, Notice of Foreclosure must be mailed to parties having an interest in the property as a matter of public record. Two years after lien date, the redemption period (the time period during which delinquent taxes may be paid prior to foreclosure) expires; the tax district may act by local law without referendum to increase the redemption period for "residential property", "farm property", or both, to three or four years after lien date. Upon the expiration of the redemption period, a final judgment may be entered. The "reasonable and necessary cost" of title searches and legal services associated with the foreclosure proceeding may now be added to the unpaid tax; a total charge of up to $150 per parcel for title searches and legal expenses may be imposed without documentation, and if the actual expense exceeds $150, it may be imposed upon demonstration to the court's satisfaction that the expense was justified. Optional Installment Payment of Delinquent Taxes Tax districts are authorized to adopt a local law providing for the installment payment of "eligible delinquent taxes", consistent with the terms of new Section 1184 of the Real Property Tax Law. Such a program, if adopted locally, must be available to each eligible owner on a uniform basis, and the installment payments must begin upon the signing of an agreement between the enforcing officer and the eligible owners. ACCOUNTING TREATMENT For the purpose of understanding the accounting for the new process, the various "phases" of the tax enforcement process may be defined as follows: 1. Collection Phase - when taxes are payable to the collecting officer. 2. Redemption Phase - when delinquent taxes are payable to the enforcing officer. 3. Intermediate Phase - when the public is placed on notice that a judicial tax enforcement proceeding may be commenced. 4. Foreclosure Phase - when the proceeding is actually begun. Summary of Accounting The current accounting treatment for the levy and collection of taxes by the collecting officer (collection phase) remains the same. Taxes remaining unpaid after the expiration of the warrant will continue to be accounted for in A260 Taxes Receivable, Overdue. Enforcement under Article 11 will no longer use accounts A320 Tax Sale Certificates and A325 Tax Deeds. However, these accounts will remain available for those tax districts that have "opted-out" of the new procedures, and for accounting for unpaid taxes which became liens prior to January 1, 1995.

3 We have renamed subsidiary revenue account A1235 from "Charges for Tax Advertising and Expenses" to "Charges for Tax Redemption" to account for all charges associated with the redemption of a delinquent tax such as cost of mailing, or publishing the List of Delinquent Taxes and, all other reasonable and necessary costs of title searches and legal services associated with the foreclosure proceeding. Illustrative Accounting Entries Collection Phase As indicated previously, accounting for collection of taxes by the collecting officer remains the same using existing general ledger and subsidiary ledger accounts. Redemption Phase 1) To record the collection of taxes by the enforcing officer during the first ten months of redemption phase: A200 Cash A260 Taxes Receivable, Overdue A980 Revenues A1090 Interest and Penalties on Real Property Taxes 2) To record the collection of taxes by the enforcing officer where a tax district has adopted a local law to allow taxpayers to enter into agreements to make installment payments of delinquent taxes: Same as 1) above. Subsidiary records will be necessary for the account Taxes Receivable, Overdue to keep track of those paying in installments. 3) To record the collection of taxes by the enforcing officer from a person who holds a partial interest in a tax delinquent parcel: Same as 1) above. As with installment payments subsidiary records will be necessary for Taxes Receivable, Overdue to keep track of such partial redemptions. Intermediate Phase 4) To record the collection of taxes by the enforcing officer after an advance notice of List of Unpaid Taxes has been mailed or published: A200 Cash A260 Taxes Receivable, Overdue A980 Revenue A1090 Interest and Penalties on Real Property Taxes A1235 Charges for Tax Redemption Foreclosure Phase 5) To record the collection of taxes by the enforcing officer during the foreclosure phase, including the collection of charges for mailing and title search: Same as 4) above.

4 6) To record reclassification of taxes if a parcel is withdrawn from foreclosure due to, for example, a legal impediment or bankruptcy proceeding (Real Property Tax Law Section 1138). General Ledger Debit Credit A300 Taxes Receivable, Pending A260 Taxes Receivable, Overdue Note, depending on later circumstances, the foreclosure proceeding may be reinstated or the tax lien canceled. In such case, the tax may either be reinstated to account A260, or written off, depending on the disposition. 7) To record reclassification of property upon final foreclosure: General Ledger Debit Credit A330 Property Acquired for Taxes A260 Taxes Receivable, Overdue DELINQUENT SCHOOL AND VILLAGE TAXES The amendments to Article 11 affect the handling of delinquent school (including city school taxes) and village taxes only to the extent that these taxes enter the enforcement process. Delinquent Non-City School and Village Taxes When these delinquent taxes are relevied by the enforcement entity, they would become liens of the enforcement entity and would be handled in the same manner as previously illustrated for the various phases of the enforcement process (collection, redemption, etc.). Also, the general ledger accounts Due to School Districts/Villages would continue to be utilized, until full settlement is made with these entities. Delinquent City School Taxes When a county or city enforces a city school district tax which is not relevied, and the lien date of the school district taxes differs from the lien date of the taxes of the tax district which are levied upon the same assessment roll, the later of the two dates shall be deemed to be the lien date. For example, in a county that enforces taxes of a City School District, the lien date of the county would apply. Because the time frame for settling with city school districts extends for longer periods, delinquent city school taxes will remain in account A290 - City School Taxes Receivable and contra account A661 - Due to City School Districts. The accounting treatment for the collection of these overdue taxes will for the most part continue as currently exists. The only departures being to collect the charges associated with the redemption of a delinquent tax when the tax is paid during the intermediate phase. The journal entry at that time will be: A200 Cash A290 City School Taxes Receivable A661 Due to School Districts (a) A980 Revenue A1090 Interest and Penalties (b) A1235 Charges for Tax Redemption (c)

5 (a) (b) (c) Interest due school district. 5% fee due tax enforcement district. Charges associated with the redemption of a delinquent tax such as cost of mailing, or publishing the List of Delinquent Taxes and, all other reasonable and necessary costs of title searches and legal services associated with the foreclosure proceeding.