New York Law Review

City of New York v. Tully, 55 N.Y.2d 960 (1982): Supplemental Mortgage Tax Exemption

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The New York Law Review

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55 N.Y.2d 960 (1982)

A mortgage agreement that only changes the collateral securing an existing debt, without altering the creditor, maturity date, or interest rate, qualifies as a supplemental mortgage under Section 255 of the Tax Law and is not subject to additional mortgage tax.

Summary

This case concerns whether a mortgage agreement that altered the collateral securing a debt triggered additional mortgage tax. The State Tax Commission determined it was a supplemental mortgage exempt from additional tax under Section 255 of the Tax Law. The Appellate Division reversed, but the Court of Appeals reversed again, reinstating the Commission’s decision. The Court found that because the agreement only changed the collateral without altering the creditor, maturity date, or interest rate, it did not create a new or further indebtedness and therefore no additional mortgage tax was due. The release of the leasehold occurred after the fee was added to the security for the principal indebtedness.

Facts

  • 77 West 55th Street Associates (the taxpayer) entered into a mortgage agreement.
  • The mortgage agreement was later amended to change the collateral securing the debt.
  • The amended agreement did not change the creditor, the maturity date, or the interest rate.
  • The leasehold was released after the fee was added to the security for the principal indebtedness.

Procedural History

  • The State Tax Commission determined that the amended mortgage agreement was a supplemental mortgage and not subject to additional mortgage tax.
  • The Appellate Division reversed the Tax Commission’s determination.
  • The Court of Appeals reversed the Appellate Division’s decision, reinstating the Tax Commission’s original determination.

Issue(s)

Whether a mortgage agreement that changes only the collateral securing an existing debt, without altering the creditor, maturity date, or interest rate, constitutes a supplemental mortgage under Section 255 of the Tax Law, thereby exempting it from additional mortgage tax.

Holding

Yes, because the mortgage agreement did not create a new or further indebtedness or obligation. The commission found that the agreement did not change the creditor, the maturity or interest rate, but instead it changed only the collateral. Hence, no additional mortgage tax was due upon the recording of this agreement.

Court’s Reasoning

The Court of Appeals deferred to the State Tax Commission’s interpretation of Section 255 of the Tax Law, which governs supplemental mortgages. The court emphasized that the key factor in determining whether additional mortgage tax is due is whether the new agreement creates a new or further indebtedness or obligation. In this case, the court found that the amended mortgage agreement did not create any new debt; it merely changed the collateral securing the existing debt. The court highlighted that the creditor, maturity date, and interest rate remained unchanged. The court stated, “We find no error in the determination of the State Tax Commission that the mortgage agreement in question was a supplemental mortgage within the purview of section 255 of the Tax Law and did not create a new or further indebtedness or obligation.” The fact that the leasehold was released from the lien *after* the fee was added to the security further supported the conclusion that the change was supplemental and did not represent a new mortgage. The court also cited Matter of Brodsky v Murphy, 25 N.Y.2d 518, noting that the taxpayer was not entitled to interest on its refund from the time of payment of the tax.

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