Updating Your Flip Tax: How One Co-op Did It

I quickly discovered convincing shareholders wasn't the only challenge; some board members, considering a possible sale of their own apartments, did not want a larger tax in their personal future. The more I learned, the more concerned I became. But understanding how our flip-tax structure was harming our finances had persuaded me that we must make a change — and I was convinced that, presented with the right information, most of my fellow shareholders would back a change to a higher flip tax.

How to Gauge

With the help of real estate brokers and managing agents, a small board committee gathered information on the flip taxes in more than 100 Manhattan buildings, concentrating on co-ops in our neighborhood. We soon had evidence demonstrating that the vast majority of had flips expressed as a percentage of sales price, as opposed to our building's flat per-share tax. In comparable co-ops, it was between two and three percent.

When we presented this information at the next board meeting, the board agreed that increasing our flip was in the building's best interest. Pricing ourselves at the low end of comparable co-ops, we settled on 1.5 percent of a sales price. A minority of board members remained unconvinced, but agreed to go along with the majority. One member, dead set against the increased flip tax, recused herself from further participation.

Two Months Isn't Too Much

The next step was reaching out to shareholders. It was important to present our case in plain English and to be forthright about the financial challenges our building faced if the flip tax remained unchanged. Over the next two months, we put together a package of materials: a brief letter setting forth our recommendation; a chart showing flip taxes for comparable co-ops; and a list of "Frequently Asked Questions," including:

• What is a flip tax?
• How is it currently calculated?
• What is the money used for?
• Why make the change?
• What does my monthly maintenance cover?
• What do other buildings do?

We were confident that if people understood, they would overwhelmingly vote in favor, so our chief objective was to get everyone to vote. "The decision is yours," we wrote to the shareholders, "but we ask that everyone cast a vote."

To prevent shareholders from ignoring the material, each board member was given responsibility for about 15 shareholders. We:

• E-mailed, called and knocked on doors, gently reminding shareholders to vote, offering to answer questions and presenting our rationale for the higher flip tax.
• Hosted two information meetings, and finally,
• Mailed and re-mailed proxies to shareholders who had not been responsive.

Despite our persistence, ours was a soft sell. In each conversation we emphasized that we were not pressuring the shareholders, just explaining why we thought the change was for the good.

In federal elections, only about half the U.S. adult population turns out to vote. At our building, we're proud to say, a remarkable 90 percent of shareholders voted on this issue. The amendment was approved resoundingly, with 86 percent voting "yes."

That's not quite the end, however. The epilogue is that, in the two years under the new formula, the building's flip-tax revenue has been three times greater than it would have been under the old. What really counts, of course, is that we've put in place a much-needed financial cushion for our reserve fund. And that's the kind of news that every owner wants to hear.

Adapted from Habitat September 2008. For the complete article and more, join our Archive >>