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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.

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A Two Percent Property Tax Cap But No Pied-A-Terre Tax in New York: Gov. Andrew Cuomo's Recently Released Fiscal Year 2020 Budget

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Governor Cuomo announced that New York lawmakers passed the $175.5 billion FY 2020 Budget (the “Final Bill”) on April 1, 2019.  There’s a lengthy list of spending packages in the budget as described here but I’m circling back to two real property tax issues. Although Gov. Cuomo floated the idea of a pied-a terre tax on large mansions which I wrote about here, and an increased real estate transfer tax on conveyances where the consideration “for the entire conveyance” is $5 million or more, which my colleagues wrote about here, neither of these items made the final cut. Instead, the budget features: a permanent property tax increase cap of 2% and a “mansion tax,” a variation of the proposed pied-a terre tax. The State Assembly and State Senate on March 31 approved the budget’s revenue bill (S. 1509-C/A. 2009-C) soon after legislative leaders and Gov. Andrew Cuomo reached an eleventh-hour agreement on the state budget, one day before the start of the fiscal year.

Permanent Property Tax Cap of 2%

The budget’s revenue bill includes a permanent cap of 2%  on property tax increases, an issue championed especially down state by Cuomo to mitigate the effects of the $10,000 cap on the state and local tax deduction under the federal Tax Cuts and Jobs Act. The Governor had pledged not to sign a budget without a permanent property tax cap. “The permanent property tax cap, because that is directly related to SALT and the instability of New York citizens, and taxpayers and homeowners that was a top priority, still is a top priority,” Cuomo said in his remarks regarding the budget March 29. The Senate had endorsed the Governor’s proposal for a permanent property tax cap in its fiscal 2020 plan, but until that final vote, the Assembly had stopped short of agreeing with a permanent cap.

No Pied-à-Terre Tax

As originally proposed, Senate Bill S.44, would have created a sliding scale pied-a-terre tax surcharge: For properties valued between $5 million and $6 million, a 0.5% surcharge would be added on the value over $5 million. Fees and a higher surcharge would apply to homes that sold for more than $6 million, topping out at a $370,000 fee and a 4% surcharge for homes valued at more than $25 million. Stressing that this is an additional tax, the bill  excluded vacant land, but covered real property that has a market value of $5 million dollars or higher and [that] is not the primary residence of the owner or owners of such property, or not the primary residence of the parent or child of such owner or owners.  However, the pied-a-terre tax proposal is dead.

In its place is a progressive “mansion tax” on luxury real estate that is usually paid by the purchaser. The new rates go into effect on July 1, 2019. The mansion tax establishes a new scale of graduated levies. The Final Bill imposes additional real property transfer taxes, at $1.50 per $500 of sales price, applicable to residential properties valued at more than $3 million and non-residential properties valued at more than $2 million in New York City.  The budget also imposes an additional supplemental real property transfer tax on residential properties in New York City valued at over $2 million, which tops out at 2.9% for properties sold for more than $25 million.  While Robert Mujica, Gov. Cuomo’s budget director, recently floated with WMAC radio the idea of a pied-à-terre tax to pay for the Big Apple’s public transportation system, apparently “This structure promotes tax administration efficiency, raising $365 million from high-end property transfers that will be deposited into the MTA's Central Business District tolling capital lockbox and will be used to support up to $5 billion in financing for MTA projects,” according to Cuomo’s remarks in his budget press release.  

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