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August 15, 2013

Audit Finds New York City Property Owners Underreported $20 Million in Billboard Income

Hundreds of New York City property owners failed to report an estimated $20 million of taxable income from billboards according to an audit released today by New York State Comptroller Thomas P. DiNapoli which was coordinated with New York City Comptroller John C. Liu.  Auditors found the New York City Department of Finance failed to follow up on whether property owners were reporting income and did not impose penalties for late or inaccurate information. 

“New Yorkers see billboards all around the city, but taxpayers aren’t seeing the tax revenue they are owed because property owners are taking advantage of 24 years of lax oversight,” DiNapoli said. “Steps have been taken to improve operations, but the city has fallen short on enforcement of billboard income for far too long.” 

“The Department of Finance's tough talk about stronger collections is just that – talk,” City Comptroller John C. Liu said. “The agency continues to leave potentially millions of dollars on the table. They need to do a better job keeping their eye on the cash register and making sure that the companies they oversee pay New York City what they owe.

Auditors examined whether billboard income was being accurately reported on Real Property Income Expense Statements (RPIEs) filed with the Finance Department for a two year period. RPIEs are due each year on Sept. 1 and are used to develop the property tax assessments for the city tax year that begins the following July 1. The audit covered RPIEs for the 2010-11 and 2011-12 tax years.

Auditors found limited documentation to support that assessors were verifying RPIE billboard income. Finance records show that 749 property owners reported an average billboard income of $83,565 for 2009 and 2010. Auditors found 235 properties with billboards for which the owners did not report any billboard income in that time period. Auditors estimate that as much as $19.9 million in income may have been unreported by property owners to the city. 

Auditors found the Finance Department was not obtaining the New York City Building Department’s listing of properties with billboards, missing an opportunity to confirm that all known property owners with billboards were filing RPIEs. In examining this list of 871 properties, auditors found 717 properties (82.3 percent) had not reported any income to the Finance Department during the audit period. In 2012-13, the department used this listing to verify correct reporting and identified $9 million in additional billboard income. This additional income will generate $500,000 of tax revenue in the first year of its use and up to $2.9 million by the fifth year.   

Since 1986, the Finance Department has had the authority to assess penalties against property owners who did not file an RPIE, filed late or filed inaccurately.  However, the agency did not initiate penalties until September 2010, meaning that 24 years passed before Finance began to raise revenues through penalties. In October 2010, 14,000 notices were sent to property owners, of which 2,400 responded within 20 days to avoid a penalty. Another 8,400 owners that did not file an RPIE were assessed $3.4 million on property tax bills, of which $2.1 million has been collected. 

Additional findings include: 

  • A random sample of 112 properties for which owners reported income for either 2010-11 or 2011-12, or both, found that 109 properties had no documentation that an assessor verified reported billboard income. The assessor determined that the remaining three properties had inaccurately reported billboard income; 
  • Billboard income varied significantly from one year to the next. One property owner reported $115,148 of income that was used for the 2010-11 tax assessment and $9,384 in the following year. Finance was not verifying income to ensure there weren’t errors in reporting; 
  • Independent observation of 20 properties throughout the city showed seven were exempt from reporting for two years, one was exempt for one year and the remaining 12 were supposed to report income but nine of them did not; and 
  • Using the listing from the Buildings Department, auditors identified 159 billboard properties for which income could have been reported but was not. Assessors had prepared computer adjustments for two of these properties, but there was no evidence that the remaining 157 were verified by assessors. 

Auditors recommended that the Finance Department: 

  • Routinely examine the Buildings Department listing to ensure compliance with regulations; 
  • Document required assessor verification of property owner reporting of billboard income; 
  • Ensure that assessors verify the accuracy of billboard income when it varies significantly from year to year; 
  • Ensure that assessors follow the city administrative code and examine all taxable properties at least once every three years; and 
  • Impose penalties for late or inaccurate RPIEs and document any decision not to impose the required penalty 

City officials generally agreed with the findings and noted improvements that had been made since the original audit period. Their response is included in the audit. 

This is the third audit coordinated between the offices of the State and City Comptrollers.  Previous audits include examining service diversions at the MTA and tax collections from cell phone towers in New York City

For a copy of the complete report visit: http://www.osc.state.ny.us/audits/allaudits/093013/11n2.pdf 


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