STATE AND LOCAL TAXATION

THE NEW YORK STATE SCHOOL TAX RELIEF (STAR) PROGRAM

By Mark H. Levin, CPA, H.J. Behrman & Company, LLP

One of the major provisions of the 1997-1998 budget legislation is the School Tax Relief (STAR) program. The STAR program was designed to reduce residential school taxes. The legislature recognized the fact that the size of a homeowner's school tax has grown by multiples over the years and is, in fact, one of the homeowner's largest expenses, second only to mortgage interest. In order to provide some relief to New York State's homeowners, the STAR program was enacted.

When STAR becomes fully effective during the 2001­2001 school year, homeowners under age 65 will receive an exemption against their home's full value assessment of at least $30,000 (basic STAR) and homeowners with incomes of $60,000 or less will receive an exemption against their home's full value assessment of at least $50,000 (enhanced STAR). New York City residents should be aware that the school tax comprises approximately 50% of the total New York City real property tax. New York State will reimburse the school districts for any revenue lost due to these exemptions.

STAR is being phased-in over four years. The minimum base exemption amounts are shown in Exhibit 1.

The base exemption amounts will be greater in those counties where the median selling price of homes exceeds the statewide median. This increase will be equal to the percentage by which the county's median price exceeds the statewide median. In no case will the exemption be lower than the minimum amounts as indicated in Exhibit 1.

The STAR exemption only covers a homeowner's principal residence and not any second or vacation homes. In addition, where a homeowner owns and resides in a multiple dwelling consisting of two or three units and resides in one of the units, the property owner may claim a STAR exemption on the total value of the property. However, homeowners that own and reside in a multiple dwelling consisting of four or more units are not allowed to claim a STAR exemption for that property, not even for the portion used as the homeowner's residence.

In order to receive a STAR exemption, it is necessary to apply to the local taxing authority on Form RP-425 for both basic and enhanced STAR. Form RP-425 may be obtained from the New York State Board of Real Property Services. It should be noted, however, that several localities, including New York City, are issuing their own application, which must be used in lieu of the state-issued RP-425. Those who are age 65 and over must submit, along with the application, proof of age and a copy of the latest Federal or New York State income tax return, if filed. Any homeowner 65 or older who will be receiving the senior citizens' exemption authorized by section 467 of the Real Property Law will automatically qualify for enhanced STAR and does not need to apply. Homeowners applying for enhanced STAR must apply every year. Homeowners applying for basic STAR need apply only once and are eligible until they dispose of the property.

The STAR application form must be filed with the city or town assessor (in Nassau or Tompkins County, with the county assessor) on or before the applicable taxable status date. In addition, to qualify for enhanced STAR, the homeowner must be age 65 on or before the applicable taxable status date. In towns the taxable status date is generally March 1; however, certain cities and counties may have taxable status dates other than March 1. Exhibit 2 contains the taxable status dates for the initial STAR filing for various localities statewide. If a particular locality is not on the list, homeowners should contact the local accessor. The initial taxable status date for enhanced STAR applications statewide is March 1, 1998, except for those localities which have taxable status dates as listed in Exhibit 2.

New York City mailed STAR applications to all New York City homeowners. All persons applying for either the basic or enhanced STAR exemption should have applied by January 5, 1998. Applicants for the enhanced STAR exemption must have filed by January 5, 1998, to be eligible for the STAR exemption for the 1998­1999 school year. Applicants for the basic STAR exemption that file by January 5, 1999 will still be eligible for their initial basic STAR exemption for school year 1999­2000. Please note that New York City will not make another mailing of STAR applications during 1998. Those homeowners who need to obtain a blank New York City STAR application may do so by contacting the Property Division of New York City Department of Finance.

The other component consists of a reduction in the basic resident personal income tax rates (before the safe streets surcharge and the 14% additional tax). This rate reduction will begin in 1999 and be fully phased-in for 2001. The rate reductions will average between three and eight percent during its phase-in period. The safe streets surcharge and the 14% additional tax are extended through 1999. *

DESIGNATED DELIVERY SERVICES TO MAIL FOR NEW YORK STATE

Effective on and after September 10, 1997, taxpayers can use certain private directory services in addition to the U.S. Postal Service with the assurance that timely mailed returns, payments, etc., will be considered timely filed.

The Taxpayer Bill of Rights Act of 1997 provides that a private delivery service that is designated by the U.S. Secretary of the Treasury will be treated as the United States mail, and dates recorded or marked in the manner prescribed in 26 USC section 7502 are included within the meaning of postmark for purposes of these rules.

Currently, the U.S. Secretary of the Treasury has designated four private delivery companies that filers can use. The four private delivery companies and the specific type(s) of delivery service offered by each that qualify under IRC section 7502 are as follows:

1. Airborne Express (Airborne): Overnight Air Express Service; Next Afternoon Service, and Second Day Service

2. DHL Worldwide Express (DHL): DHL "Same-Day" Service and DHL USA Overnight

3. Federal Express (FedEx): FedEx Priority Overnight; FedEx Standard Overnight; and FedEx 2 Day

4. United Parcel Service (UPS): UPS Next Day Air; UPS Next Day Air Saver; UPS 2nd Day Air; and UPS 2nd Day Air A.M.

The timely mailing as timely filing and/or timely paying" rule of section 7502 does not apply to any other type of delivery service offered by these designated private delivery services.

Special Rules for Determining Postmark Date

IRC section 7502 (f)(2)(C) requires a private delivery service to either (1) record electronically to its data base, the date on which an item was given to the private delivery service for delivery, or (2) mark that date on the cover of the item. Under section 7502(f)(1), the date recorded or the date marked under section 7502(f)(2)(C) is treated as the postmark date for purposes of section 7502.

Note that there is one set of rules for the designated private delivery services whose "postmark dates" are recorded electronically to their data bases and another set of rules for the designated private delivery service whose "postmark dates" are marked on the cover of an item.

Airborne, DHL, and UPS

The date on which an item is given
to Airborne, DHL, or UPS is recorded electronically to the data base of these delivery services. That date is treated
as the postmark date for purposes of
section 7502.

For items that are delivered after their due dates, the postmark date is presumed to be the day that precedes the delivery date by an amount of time that equals the amount of time it would normally take for an item to be delivered under the terms of the specific type of delivery service used (e.g., two days before the actual delivery date for a two-day delivery service).

Taxpayers who wish to prove otherwise will need to show that the date recorded in the electronic data base is on or before the due date. For example, a taxpayer could obtain written confirmation, produced and issued by the designated private delivery service, before the expiration of the period for storing the date recorded in its electronic data base. Taxpayers who wish to maintain this type of proof for their records should request it from the designated private delivery service before the expiration of that service's data storage period, which is generally at least six months.

FedEx

FedEx applies an electronically generated label to the cover of all items it delivers, including those items that already have an air bill attached. The date on which an item is given to FedEx for delivery is marked on the label. There are two types of distinguishable labels. One is generated and applied to an item by a FedEx employee; the other is generated (using computer software and/or hardware provided by FedEx) and applied to an item by a customer. Generally, the date applied by the customer will be accepted as long as the package is delivered within the normal delivery period.

Effective Date

These rules are effective for documents and payments that are given as a designated private delivery service on or after September 10, 1997. Designation is not effective for documents and payments that are given by taxpayers to a designated private delivery service before September 10, 1997, even if the document and payments are delivered by the designated private delivery service on or after September 10, 1997.

The full details of the new rules are presented in TSB-M-97 and are available on LUCA.com. *

State and Local Editor:
Marshall L. Fineman, CPA
David Berdon & Co. LLP

Interstate Editor:

Alan J. Preis

Own Account

Contributing Editors:
Henry Goldwasser, CPA
M.R. Weiser & Co. LLP

Leonard DiMeglio, CPA
Coopers & Lybrand L.L.P.

Steven M. Kaplan, CPA
Konigsberg Wolf & Co., PC

John J. Fielding, CPA
Price Waterhouse LLP

Warren Weinstock, CPA
Paneth Haber & Zimmerman LLP