February 23, 2021
Here’s news that is sure to find a cool reception on Billionaires’ Row and other expensive New York City neighborhoods: The pied-à-terre tax is back on the table in Albany. Originally proposed in 2013, the controversial, high-dollar luxury surcharge for non-primary, high-dollar New York state homes has been rejected on multiple occasions, in large part over how co-operatives that pay a single tax charge would handle the surcharge to be applied to certain owners.
The sponsors of the bill, now pending on state law – which was reintroduced as New York faces a huge tax cut due to the coronavirus pandemic – have come up with an answer that won’t make anyone happy: the burden is on co-drop-op boards to collect the extra money from absent shareholders and pass it on to the state. Meanwhile, the realtor community is in an uproar, arguing that the proposed tax will have a devastating impact on the city’s already volatile property market.
“The legislation is so absurd that I don’t know where to start,” says Stuart Saft, partner at Holland & Knight law firm, which co-founded the NYC Homeowners Coalition last November. The group’s first move was to oppose the bill that, starting July 1, 2021, would impose an annual fee of between 0.5% and 4% of market value over USD 5 million for single- to three-family members. Non-families – primary residences and 10% to 13.5% percent of the estimated value above $ 300,000 for condos and cooperative units, which is roughly a market value of $ 5 million, according to the complicated calculations the city uses to collect property taxes used.
“There are two problems here,” says Saft. “First, the estimated value for a cooperative is a guess as their taxes are based on comparable rental properties.” The second problem is how the city determines the unit value, since cooperative housing is not valued individually.
“It seems like they’re taking the total building value, dividing it by the number of shares, and multiplying each apartment by the assigned shares,” said Martha Stark, a former city finance commissioner who is one of the law’s most staunch opponents. Even so, the $ 300,000 figure is “completely arbitrary,” she adds, indicating that no one knows exactly what value the pied-à-terre tax would actually start at, given that property valuations are so high vary. “It could hit real estate worth as little as $ 1.5 million,” says Stark.
Indeed, the award could affect owners of cooperatives and condominiums, which are far less wealthy than the millionaires – and billionaires – it is supposedly targeting. “A longtime New Yorker whose home has grown in value over time and who is now retiring on a steady income and living in Florida for more than six months a year will be taxed,” said Saft. “It makes no sense.”
Proponents of the bill claim that the mechanism for determining residence is in place. “New York City already has information on whether a property is used as a primary residence, such as New York City income tax, cooperative and condominium tax breaks, STAR property tax exemptions, and senior homeowners exemptions,” said Senator Brad Hoylman, the Manhattan Democrat who first introduced the bill. Legislation leaves the details of setting up the main residence – defined as at least 184 days in the city – to the Ministry of Finance (DOF).
For pied-à-terre tax opponents, the forecast looks bleak. Legislation was weakened when Republicans took control of Albany, but now that the Democrats have taken over the Senate, Carl Cesarano, a director of accounting firm Cesarano & Khan, says the tax is more likely to pass: “You have one Majority who basically believe that people with high wealth should take the bill. “