22 N.Y.3d 453 (2013)

A residential housing cooperative corporation’s termination of participation in the Mitchell-Lama program and amendment of its certificate of incorporation as part of its voluntary dissolution and reconstitution as a cooperative corporation governed by the Business Corporation Law does not constitute a taxable transfer under Tax Law § 1201 (b) and section 11-2102 (a) of the Administrative Code of the City of New York.

Summary

Trump Village, a Mitchell-Lama cooperative, sought a declaratory judgment that its exit from the Mitchell-Lama program and reconstitution as a Business Corporation Law (BCL) corporation did not trigger the New York City Real Property Transfer Tax (RPTT). The Department of Finance argued that the reconstitution was effectively a conveyance of real property. The Court of Appeals held that amending the certificate of incorporation was not a taxable event because it did not constitute a conveyance of real property from one entity to another. The RPTT applies to deeds transferring real property interests, and the amendment did not meet this definition.

Facts

Trump Village Section 3, Inc. was incorporated in 1961 as a Mitchell-Lama cooperative. In 2007, Trump Village, with shareholder approval and state permission, terminated its participation in the Mitchell-Lama program. It amended its certificate of incorporation to reconstitute itself as a corporation under the Business Corporation Law (BCL), removing itself from the restrictions of the Private Housing Finance Law.

Procedural History

The New York City Department of Finance issued a Notice of Determination to Trump Village for a tax deficiency exceeding $21 million, asserting that the exit from the Mitchell-Lama program constituted a conveyance subject to RPTT. Trump Village sued, seeking a declaration that the RPTT was inapplicable. The Supreme Court ruled for the Department of Finance. The Appellate Division reversed, granting summary judgment to Trump Village. The Court of Appeals affirmed the Appellate Division.

Issue(s)

Whether a taxable transfer pursuant to Tax Law § 1201 (b) and section 11-2102 (a) of the Administrative Code of the City of New York occurs when a residential housing cooperative corporation terminates its participation in the Mitchell-Lama program and amends its certificate of incorporation as part of its voluntary dissolution and reconstitution as a cooperative corporation governed by the Business Corporation Law?

Holding

No, because the amendment of the certificate of incorporation to reconstitute the corporation under the Business Corporation Law does not constitute a conveyance or transfer of real property as required to trigger the Real Property Transfer Tax.

Court’s Reasoning

The Court of Appeals determined that the RPTT, under section 11-2102 (a) of the Administrative Code, is imposed on each “deed” at the time of delivery. A deed is defined as a document conveying real property or an interest therein. The Court rejected the Department of Finance’s argument that the amendment to the certificate of incorporation qualified as a “deed.” The court emphasized the plain language of the statute requires a conveyance from one entity to another. The court stated that doubts concerning a taxing statute’s scope and application are to be resolved in favor of the taxpayer, citing Debevoise & Plimpton v New York State Dept. of Taxation & Fin., 80 NY2d 657, 661 (1993).

Further, the Court reasoned that Trump Village remained the same corporation, merely amending its certificate of incorporation rather than forming a new entity. The Court highlighted that the Private Housing Finance Law provides two options for privatization: conveyance of title or reconstitution via amendment. Trump Village chose the latter. The court dismissed the argument that the amendment radically altered the business, clarifying that the RPTT taxes conveyances, not changes in the corporation’s purpose. The court emphasized that the RPTT would still be collected on the sale of individual apartment shares.

Finally, the Court distinguished East Midtown Plaza Hous. Co., Inc. v Cuomo, 20 NY3d 161 (2012), noting that it concerned Martin Act disclosure requirements related to shareholder rights and did not support imposing the RPTT in a Mitchell-Lama privatization.