Rather Than Target The Superrich, New York Opted To Tax The Somewhat Rich

The cry for the pied-à-terre tax was triggered by what many New Yorkers viewed as an obscene $238 million purchase of a penthouse by billionaire hedge fund owner Ken Griffin, who plans to use the home part-time.

But rather than tax ultra-wealthy property buyers who do not pay local income tax, state legislators over the weekend agreed instead to pass a tax plan that will spread the costs across a much broader range of buyers.

The new plan—which will apply a mansion tax surcharge for purchases over $2 million and levy a higher transfer tax on homes selling over $3 million—would have affected about 25.5 percent of the Manhattan housing sales market based on 2018 data, according to Jonathan Miller, a real estate appraiser.

“It’s a larger footprint,” he said, adding that the new tax is less “draconian” for the top end of the market.

Moses Gates, a vice president of housing and neighborhood planning for the Regional Plan Association, said that what the state wound up approving "definitely affects a much broader range of buildings and developers than the pied-à-terre tax would have.”

In other words, what was being billed as a victory for the city’s real estate industry now seems like merely (another) win for the .01 percent.

State Senator Brad Hoylman, who has sponsored a bill proposing a pied-à-terre tax every year since 2014, said the effort by the real estate industry to defeat the measure was based on a belief that it would hurt new development. He said while the new plan will tax those who have a greater ability to absorb additional real estate feels, the issue remains of "individuals who buy luxury second and third homes who aren't residents and still aren’t paying their fair share."

He added that while the legislature didn't pass a pied-à-terre tax this time around, "I consider it a win because we do have a new set of taxes on luxury real estate that will fund basic infrastructure and save our mass transit system from crumbling out beneath us."

On Monday, many brokers expressed relief at the pied-à-terre bill's failure, arguing that wealthy buyers were more willing to swallow a one-time fee as opposed to an ongoing pied-à-terre tax.

But some homed in on the how the new plan reallocates the tax burden.

“What’s pretty unbelievable is the only message that has been broadcast from Albany is that people who buy $25 million and more will be paying,” Leonard Steinberg, a broker at Compass, told The Real Deal on Monday. “There’s been very little mention that everyone between $2 million and $25 million will be paying more taxes, as well.”

In the same story, Sheila Trichter, a broker with Warburg Realty, said, “These buyers, in most cases, are financing their purchase and are on pretty tight budgets. It seems that these tax increases are once again hurting the middle class and helping the 1 percent.”

Under the pied-à-terre tax plan, only a “single digit” percentage of buyers in the market would have been affected, according to Miller. That plan proposed levying an annual fee on wealthy part-time owners a graduated tax, starting at a 0.5 percent of the value of residences over $5 million and reaching as high as a 4 percent marginal rate for homes over $25 million. Griffin, for example, would have had to pay just under $9 million a year in added taxes on his unit at 220 Central Park South.

An analysis by the Wall Street Journal found that the pied-à-terre tax would have had the biggest impact on part-time homes worth $25 million and up—roughly 280 homes. This top slice of the market would have generated half of all the revenues from the pied-à-terre tax plan, which the WSJ projected would have been $471 million.

On Tuesday, during an interview on The Brian Lehrer Show, Governor Andrew Cuomo denied that the new tax plan moved the burden away from owners at the super high end of the market.

“It certainly includes the properties of $5 million and then some,” Cuomo said. “It doesn’t exclude, it includes more units.”

Ironically, however, because the mansion tax and transfer tax surcharges, which go into effect in July, will only apply to new sales, they will not include Griffin's $238 million unit, the very purchase that stoked the outrage that drove the pied-à-terre tax to the brink of approval.

Hoylman, for one, is not giving up, saying he plans to reintroduce his tax bill again as early as this legislative session. From the beginning, he has focused his ire on foreign oligarchs who use New York real estate as a safe haven for their money. He said he plans to do research so as to refute the arguments used by real estate lobbyists to kill the bill, ranging from the difficulty of determining part-time and primary owners to the very legality of the measure.

"We didn’t win the pied-à-terre this round, but it’s not over," Hoylman said. "The reasons that the global superrich want to come here is the exact reason we need to impose these taxes."