New York Law Review

Tag: Real Property Transfer Tax

  • Trump Village Section 3, Inc. v. New York City Department of Finance, 22 N.Y.3d 453 (2013): Real Property Transfer Tax and Mitchell-Lama Cooperative Privatization

    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.

  • 10 West 66th Street Corp. v. Finance Administration, 73 N.Y.2d 19 (1988): Defining ‘In Connection With the Sale’ for Real Property Transfer Tax Deductions

    10 West 66th Street Corp. v. Finance Administration, 73 N.Y.2d 19 (1988)

    A mortgage placed on real property as an integral part of financing a contemplated sale, such as a cooperative conversion, is considered to be placed “in connection with the sale,” and therefore is not deductible from the net consideration subject to the real property transfer tax, regardless of the time elapsed between the placement of the lien and the taxable sale.

    Summary

    10 West 66th Street Corp. challenged a determination by the Finance Administration of the City of New York disallowing deductions for two mortgages from the net consideration subject to real property transfer tax. The mortgages were placed on an apartment building in anticipation of its conversion to a cooperative. The Court of Appeals held that these mortgages were placed “in connection with the sale” to the cooperative corporation, and thus were not deductible. The court reasoned that the mortgages were integral to the financing of the cooperative conversion and the building’s ultimate sale, regardless of the time between the mortgage placement and the sale.

    Facts

    In 1979, 10 West 66th Street Corp. obtained a loan from Chemical Bank, secured by a mortgage, to purchase an apartment building, with the express intention of converting it into a cooperative. The loan agreement required the corporation to submit a proposed offering plan to the Attorney-General. The mortgage terms allowed for its transition into permanent financing upon the building’s resale to a cooperative corporation. Later, a portion of the mortgage was assigned to Connecticut General Life Insurance Co. (CGLIC). In 1980, the corporation contracted to sell the building to a cooperative corporation, which would assume the CGLIC mortgage. At the closing in 1981, a series of complex financing transactions resulted in the consolidation and splitting of the mortgages, with the Chemical Bank mortgage assigned to the grantee (cooperative corporation). The grantee then assumed the CGLIC mortgage.

    Procedural History

    The 10 West 66th Street Corp. deducted the amounts outstanding under both the Chemical and CGLIC mortgages from the total consideration paid when computing the real property transfer tax. The Finance Administration disallowed these deductions. The corporation initiated an Article 78 proceeding to challenge the determination. The Appellate Division initially concluded that there was not substantial evidence to support the finding that the mortgages had been placed on the property “in connection with the sale.” The Court of Appeals reversed the Appellate Division’s ruling, reinstating the Finance Administration’s original determination.

    Issue(s)

    Whether mortgages placed on real property in anticipation of a future sale, as part of a cooperative conversion plan, are considered to be placed “in connection with the sale” under the Real Property Transfer Tax Regulations, thereby precluding their deduction from the net consideration subject to the tax.

    Holding

    No, because the mortgages were an integral part of the financing for the cooperative conversion and the ultimate sale to the cooperative corporation, regardless of the time elapsed between the placement of the lien and the sale. Therefore, the regulation disallowing deductions for encumbrances placed “in connection with the sale” applies.

    Court’s Reasoning

    The Court of Appeals found that the Finance Administration’s interpretation of the regulation was rational, as it does not impose a temporal proximity requirement between the placement of the lien and the sale. The explicit terms of the mortgages and their modifications demonstrated that they were intended to be an integral part of the financing for the cooperative conversion and the building’s ultimate sale. The court emphasized that it was clear that a cooperative conversion involving a sale to some corporate entity was contemplated from the outset. The Court distinguished this situation from ordinary assumable mortgages, stating that the mortgages in this case “required petitioner to exert its best efforts to effect a resale and expressly provided for conversion to permanent financing upon completion of that resale.”

    The court further reasoned that the regulation was a reasonable measure to prevent the circumvention of the transfer tax through manipulation of the timing of mortgage and sale closings. The court supported this interpretation by noting that similar regulations exist under similar State and Federal transfer tax statutes. As the Court stated, respondents’ interpretation of the regulation “permits its application without regard to the amount of time elapsed between the placement of the lien and the taxable sale.”