Pied-à-Terre Tax Is Back on the Table

State Sen. Brad Hoylman, a Manhattan Democrat, has reintroduced legislation to pass a pied-à-terre tax in New York, an added levy on high-dollar secondary homes. Hoylman claims the tax will invigorate the slumping city economy. Detractors disagree.

“First of all, I think it’s a little confusing,” says Helene Hartig, principal at Law Offices of Helene W. Hartig. And it is. There’s a discrepancy between how individual homes and co-op and condo units are to be taxed under the proposed legislation. If a one- to three-family home has a five-year average market value of $5 million or higher, it will be taxed on a sliding scale – at least 0.5% and no more than 4% on the excess market value above $5 million.

On the other hand, condo units and co-op stock will be evaluated based on their assessed value. If the assessed value is $300,000 or more, the unit will be taxed at least 10% and no more than 13.5% of the excess assessed value above $300,000. In New York City, it is historically far more likely that a co-op or condo unit will be assessed at that price than that a one- to three-family home will maintain an average market value of $5 million.

“The factor you’re using is not consistent,” says Carl Cesarano, a principal at the accounting firm Cesarano & Khan. “And I think that was one of the reasons, when this has come up in the past, it’s always been a problem. Co-ops and condos again would be unfairly taxed. There’s a whole different tax system for them – and they would continue to be unfairly taxed.”

Deborah Koplovitz, a shareholder at the law firm Anderson Kill, predicts a chilly reception for the proposed tax. “It is not going to be something co-op and condo boards are going to be in favor of,” she says. “It’s going to decrease market values, which will in turn lower flip taxes” – a vital source of revenue for many co-ops.

“Adding a luxury tax, which this comes down to, kills value,” Cesarano adds. “The more these things cost in a falling market, the more people would say, ‘I don’t have as much interest in purchasing.’”

The legislation offers no method for determining what makes a home a pied-à-terre. Should it be based on who applies for the co-op or condo tax abatement? Is the property manager responsible for keeping a list of who’s in residence and who is not?

“I just feel that given everything that’s going on,” Hartig says, “if you want to chase even more people out of New York and make New York even less desirable than it’s been in the past year, they could pass this. But if they don’t want to do that, I think they’re going to think a lot about this rule. It’s a ridiculous tax.”