A New Type of Pied-à-Terre Tax: A Surcharge for Non-Main House owners Hodgson Russ LLP

Late last year, we discussed the latest pied-à-terre tax proposal introduced in New York law, Senate Bill S44B, and how it compares with previous versions posted on this blog over the past six years. (As you may recall, New York State Senator Brad Holyman backed the original proposal to impose property tax on non-primary homes in 2014.) Last weekend, the New York Congregation released its budget proposals for taxes and revenue for 2021 -22, Bill 3009-B (the “Assembly Proposal”), which contains a new type of pied-à-terre tax, a surcharge on the owners! (The Senate declined to include this tax in its budget proposal.)

In short, as explained in the executive summary attached to the Assembly’s proposal, the legislation would “introduce a progressive state tax on owners of certain high quality second homes in New York City, consisting of a sliding tax rate based on the type of property and value of the property House. “For one, two, or three family homes, the tax would be between 0.5% and 4% of the property’s market value over $ 5 million. For condominiums and cooperatives, the rate would be between 10% and 13.5% of the estimated value of the properties (or for cooperative-owned properties with an estimated value based on the tenant / shareholder percentage per unit). more than $ 300,000. Unlike the previous tax proposals reviewed on this blog, the tax would be levied on the owner of the property rather than the property itself. The tax would apply to fiscal years beginning in a few months on or after July 1, 2021! For example, if Blake owns a single family home in Queens that has an average market value of $ 6 million over five years and is not Blake’s (or Blake’s parent or child) primary residence, then Blake would owe a surcharge of at least 0.5% and no more than 4% on the excess market value over USD 5 million (i.e. USD 1 million), such that the annual premium is a minimum of USD 5,000 (USD 1 million x 0.05%) and a maximum of USD 80,000 (USD 1 million x 0.05%) would be USD 1 million x 4%) depending on the tariff structure chosen after the legislation came into force. If Blake owns a Manhattan condominium that is not his primary residence (or Blake’s parent or child), with an estimated value of $ 490,000 (purchased for approximately $ 6 million in 2019), Blake would owe a surcharge of at least 10% and no more than 13.5% of the market surplus over $ 300,000 (i.e. $ 190,000) so the annual premium would be a minimum of $ 19,000 ($ 190,000 x 10%) and a maximum of $ 25,650 ($ 190,000 x 13.5%). If Blake owns shares in a Manhattan cooperative housing company that is not his primary residence (or Blake’s parent or child), Blake must understand his total equity interest in the company in relation to the total outstanding shares of the company, including the company. For example, let’s say Blake owns 960 shares out of a total of 111,640 shares outstanding, meaning that his fractional total ownership is 0.00860 and the estimated value of the cooperative housing company’s building is $ 52,540,000, so the estimated value attributable to Blake is As a tenant of shareholders $ 451,844. In these circumstances, Blake would owe an annual markup of at least 10% and no more than 13.5% on the market surplus above $ 300,000 (i.e., $ 151,844) such that the markup would be at least $ 15,184 ($ 151,844 x 10%) and no more would be $ 20,499 ($ ​​151,844 x 13.5%).

In February of this year, Senator Holyman presented Senate Draft S 4199 (the “Proposal for Property Tax Pied-à-Terre”) in the current legislative period, which is essentially identical to the Senate’s Draft S44B. If you compare the Pied-à-Terre property tax proposal to the Congregation proposal, you can see how different the two proposals are. As the Assembly’s proposal introduces a tax on the owner, a new article on the Tax Act, Article 30-C, entitled “Additional Surcharge for Owners of Certain Non-Primary Residential Properties” will be created. In contrast, the Pied-à-Terre property tax proposal merely changes the property tax law to impose an additional property tax. One might think that it would be easier to collect a tax on the property itself than trying to impose a surcharge on owners who are not primarily resident. In this regard, the collection, levy, and lien provisions proposed as part of Article 30-C contain specific rules for issuing tax orders to non-New York State taxpayers that are dramatically different from other procedural rules according to the tax law and seem to be problematic. In addition, it is not clear how the tax would apply if there were multiple owners or layers of ownership of a property, or even if there was one “owner”, as this term is not defined.

What else has changed? The Congregation proposal removes some of the exceptions contained in the current Pied-à-Terre proposal on property tax. For example, the Pied-à-Terre property tax proposal exempts residential properties or units that: (1) are the primary residence of at least one owner of the property or unit; (2) the primary residence of a parent or child of at least one owner of the property or housing unit; (3) if the owner has received an appraisal report within the previous three year period that the home or unit has an estimated value of less than $ 5 million; and (4) rented on a full-time basis to one or more tenants who have the property or unit as their primary residence. Conversely, if the residence is not the primary residence of the owner or the owner of the property (which means, if there are multiple owners, the residence must be the primary residence of each owner) or the primary residence of the parent or child, the Assembly’s proposal applies any such owner or owners, and any non-primary condominium and cooperative homeowner whose estimated value is greater than $ 300,000.

Out of state buyers buying high quality New York City real estate that they seldom occupy or absent, who do not live and work in New York City and who do not pay New York City personal income taxes have been cited as such. à Terre proposal on property tax. However, as we have explained in the past, there are many individuals who own second homes in New York City and these individuals pay income taxes to New York City either because the individual is legally resident in New York City or because the individual possesses multiple properties . (As many of the readers of this blog know, a person will be taxed as a “legal resident” of New York City if they have permanent residence in New York City for essentially all year and present in New York City for more than 183 days. ) While the Pied-à-Terre property tax proposal was structured to create legislation that empowered municipalities to enact local law to implement the tax, the Assembly proposal, by contrast, is a state proposal with the Tax to New York State (not New York City). This makes it even more difficult from a political point of view to justify the introduction of the law. Additionally, there are many homes owned by people currently paying New York State income tax who own second homes in New York City. As already mentioned, taking into account recent case law on residence, which often does not favor the taxpayer, it can be significantly cheaper for owners to pay the new supplement for their second home than to be subject to income tax on all their income, especially those in the Assembly proposal proposed higher rates!