In an effort to expand a tax on New York businesses, lawmakers wrote a bill that would triple or quadruple a tax on cooperatives and increase owner fees by thousands of dollars a year.
The mistake set off alarm bells for the real estate industry and apartment owners. Legislators are now committed to correcting the mistake before it becomes law.
“We messed up,” said Manhattan Senator Liz Krueger, chairwoman of the Senate Finance Committee.
She spent Friday reaching out to cooperative members who “bombarded” her with emails from the Upper East Side, Midtown, Murray Hill and Kips Bay.
“I write it back and say, ‘We never wanted that. I’m so sorry. We don’t do that, ”she explained.
Here’s how it happened.
The legislature was looking for sources of income in order to close what it believed to be a pandemic budget gap. They came across an expiring tax on the capital base of companies and proposed that it be extended.
But their bill dropped a major spin-off for co-operatives – a provision that kept their rate at 0.04 percent, a fraction of what all other companies pay. Without the spin-off, the extension would have increased the rate to 0.15 percent (in the Assembly’s bill) or 0.12 percent (in the Senate version).
“The cooperative tax was in the language of corporation tax because cooperatives are defined as corporations,” said Krueger. “But nobody really noticed it there.”
The proposal blinded the residential real estate industry, but was quick to mobilize after setting up lobby groups and building support for months to fight off a pied-à-terre tax. The groups tried to register their opposition and outrage.
The NYC Homeowners Coalition sent a warning to its members Wednesday that the proposal “could add hundreds or thousands of dollars to your upkeep each year”.
“Don’t let your Senator and Congregation member add this harmful tax to your budget proposal at the 11th hour!” it read.
Capital property tax was due to expire this year – a change made long ago under the 2015 budget. The extension, including the cooperative tax increase, would generate approximately $ 150 million over the next fiscal year. (The Cuomo administration has since stated that there is no budget gap to close for the next fiscal year, which begins April 1st.)
Prior to Kruger’s statement, property leaders said they were unable to understand the proposal, which might not have made it to the state budget anyway, as the governor largely controls the process.
Stuart Saft, a partner at Holland & Knight, founder of the NYC Homeowners Coalition and chairman of the New York Cooperatives and Condominium Council, said they only became aware of the tax revival proposal last week.
“It just doesn’t make sense,” he said on Thursday. “This is not necessarily a tax that affects wealthy people. It will affect everyone who lives in a cooperative, ”he said.
James Whelan, President of REBNY, described the proposed taxes as “confusing”.
The Homeowners Coalition calculated that annual maintenance for an Upper East Side co-op shareholder could increase by $ 1,600 to $ 2,000 and between $ 125 and $ 157 for one in Sheepshead Bay.
Crain’s first report on the problem and Kruger Mea Culpa on behalf of the legislature.
“Neither of us actually understood that this was included in the corporate tax we changed, and it was an unintended consequence,” she told the newspaper. “Nobody is following it, so I don’t think anyone needs to be concerned that we are actually going to raise the capital property tax.”
The coalition of homeowners said in a statement it was encouraged to hear that lawmakers were not really motivated to raise cooperative taxes.
However, Whelan expressed doubts that lawmakers would correct the mistake.
“While at least one lawmaker has now stated that this proposal was ‘an unintended consequence’, it should be remembered that negative impact on cooperatives was also an ‘unintended consequence’ of the 2019 HSTPA,” he said in a statement. with reference to the Law on Housing Stability and Tenant Protection, which owners of rent-stabilized apartments have described as a disaster.
“This problem has still not been resolved by civil servants,” he noted.
Krueger is co-sponsoring a law introduced in late 2019 to clarify that the HSTPA does not apply to cooperatives or condominiums. The bill is still in committee.
The Senator declined to respond directly to Whelan’s comment, but said, “Nobody wanted to make this mistake, trust me. But [the] Tax code is complicated. Tax law is complicated. “
Contact Erin Hudson