You would be surprised at the responses I get when I ask about the flip tax, I get one lame excuse after another:

They say: They don't want a flip tax because they want to control where the money is going. I say: You don't control where the money goes now! What will change?

They say: They need ALL their profit for the next residence. I say: How about being grateful for the profit on this co-op's sale to be able to purchase the next residence. How about a "goodbye and thanks" present?

These greedy and selfish ones won't budge an inch! Any ideas on how to sell the flip tax to the apathetic and non caring? Threats of maintenance increases won't scare these folks. They just wanna sell and get out!

> Join the conversation Comments (4)

Good questions, V.

"They say: They don't want a flip tax because they want to control where the money is going. I say: You don't control where the money goes now! What will change?"

You're exactly right. That response is not about a flip tax, but about controlling expenditures, which, as you point out, is a non-issue because they don't control expenditures anyway (unless they're board members).

However, the next time someone gives you that reply, ask him/her this: "The proposal you would vote on requires that any flip tax money be spent only on capital improvement," such as a new boiler, elevator, windows, roof, sidewalk and so forth. That way the shareholders actually have MORE control over how the money is spent, as opposed to all the other income. (Of course, you would want to run this by the board first.)

"They say: They need ALL their profit for the next residence."

Then they're cheating their neighbors for their personal benefit. The purpose of co-operative housing (get it? "cooperate"?) is to work together in the long-term interests of the corporation. Not to withhold money so an individual can afford a nicer place when he/she leaves.

You could point out that with flip taxes, the building could be improved (nicer doors/lobby/light fixtures, new paint, new elevator, hire a doorman or another porter to help keep things clean) and that with any of these, the value of a shareholder's apartment will increase.

By the way, why do the shareholders think they will have to pay? Make sure they understand that they should make their buyers pay the flip tax! In our building, whenever there are competing bids, the flip tax is the first thing a bidder offers to pay (if one of them hasn't already).

If, on the other hand, people don't mind their home going to pot because they expect to move out soon, well, there's not much you can do, I'm afraid.

For other arguments, check the Habitat archives.

> Join the conversation

Ok, just make sure that flip tax do not go to the general reserve fund, but rather the restricted reserve funds. You can have more than one reserve fund account on the co-op's books. You can have a reserve fund each restricted for roof repairs, elevator replacement, boiler replacement, window replacements, emergency repairs. And a flip tax can be allocated to each fund on a set percentage.

> Join the conversation

V - "Selling" the flip tax to greedy, apathetic or uncaring Shs is no easy job. A few ideas. Tell them:

- Flip tax proceeds can enable you to do a key project more quickly (any maybe at lower cost) than if you have to delay it until you have adequate funds for it.

- Flip tax proceeds for projects you'll have to do in, say, 3 to 5 years can be invested and accrue additional money in interest or dividends.

- All Shs can benefit from a flip tax because improvements can be made that will enhance bldg value and make it a more desirable property which can help Shs get a higher price for their apts when they do sell.

- Along with notes in annual financial statements, the coop will inform Shs periodically on how flip tax proceeds are being used to improve the property and how this helps them.

- Flip tax reduces capital gains they'll pay on their sale profit. (I know bldgs that push this idea and I'm not sure if/how it works, so check it with your coop accountants!)

Don't try to win over Shs who may sell in a year. All they see is a flip tax cutting into their profit. Don't try to sell the idea in one meeting or memo. Keep a flow of info going. BTW, you don't necessarily have to get it voted in at one meeting. A Prop Lease can be amended with Sh written approval over a period of time (30 or 45 days), but don't make it too long or you'll lose Sh interest and momentum.

If it works for you, tell Shs in a letter what improvements cost since 2000 and what flip tax proceeds since 2000 would have brought in. They should be for capital projects, not paying bills, but here's another way to make your point. Do a little calculating and tell Shs what proceeds on sales in the last, say, 5 years could have paid for, for ex:
- 55% of the elevator upgrade, or
- 100% of whatever, or
- 80% of the coop's annual NYC taxes, or
- The super's salary for two years

In most bldgs, the seller pays the flip tax but a seller can stipulate in a sale contract that the buyer would pay the flip tax. Then the coop works this out with the seller so that the flip tax money goes to the coop and the seller doesn't just pocket it.

Also, you can have "a variable impact flip tax" for more fairness to some Shs. Business Corp Law (BCL) permits this.(I saw this in The Cooperator.) Your flip tax, for ex, can be a % of the sale price as long as that price is more than what the seller originally paid. Or a seller who makes no profit on his sale can pay a lower flip tax amount. But terms like this must be spelled out in the language of the amendment that incorporates a flip tax into the Prop Lease.

But the more fair you try to be to some, the more unfair it seems/is to others. Per the BCL, a coop must treat all Shs fairly and equally. Fairness has a way of working itself into knots, and the more disparity or accomodation Shs see the more resistance or complaints you may get. It's touchy.

Just a comment on something Anonymous said: "A coop is in the business of habitability." I know what you mean, Anon, but I think a coop is in the business of selling shares in its corporation and working to increase their value. Every corporation has products or services and wants to attract buyers who want to invest in the success of those products or services. A coop's "product" is a residential bldg. How habitable it is (i.e., how acceptable it is to live in it) is a big part of how good that product is. But there's a lot more to it - rules, management, board effectiveness, financial stability, good communication, Sh attitudes and willingness to cooperate and live as peaceably as possible with others - even bldg location, size, staffing, etc. I think a coop's business is value enhancement, in all the fair, legal, responsible, resourceful, and promising ways it can accomplish that. Just my opinion.

> Join the conversation

BP,

You mentioned,"- Flip tax reduces capital gains they'll pay on their sale profit. (I know bldgs that push this idea and I'm not sure if/how it works, so check it with your coop accountants!)"

Are you sure? I know that in a single family home, for example, one can add capital improvements to the basis of the house. Thereby, the sales profit is reduced and taxes are reduced. But, how can one do this from a flip tax which is supposedly used for capital improvements that have yet to come.

Also, how can a shareholder add his share of the capital improvements to his basis?

In all previous discussions on flip tax, passing it to the buyer is best. If you want to live in this building, contribute to the coffer. And then, it is the offer of the seller to pay it for the buyer, just like closing costs.

> Join the conversation

I have read all the replies regarding flip tax - however we have always had one - basic documents when the coop gives up the right to repurchase - we had to pay - however in the last 3 years our tax has gone from $7.50/share to $15/share, that does not includes all the assessments and raises that we have received every year - If you have a good board - fine - but if you don't all the flip tax is is another way to garner money that can disappear - and flip taxes really should not be used to supplement basic income for maintenance - put it in reserve fund for repairs and replacements otherwise it disappears and you still have to find the money to pay for the elevator, boiler, etc

> Join the conversation Comments (1)

"If you have a good board - fine - but if you don't all the flip tax is is another way to garner money that can disappear"

If you believe you have money disappearing, you need to spread the word and get a new board in power. Or call a special meeting of shareholders and address those concerns. This problem, after all, is not about income (be it from a flip tax, maintenance or tax rebate) but about impropriety on the board.

" - and flip taxes really should not be used to supplement basic income for maintenance"

Excellent point. In our building, the language that shareholders approved for the flip tax specifically stated that the income from flip taxes should go to reserves to pay for capital improvements. Again, this issue is not about a flip tax per se, but about how the money is spent.

> Join the conversation