Why REBNY Opposes Pied-à-Terre Tax
REBNY President John H. Banks says the trade association disputes the projected revenue and states how the policy would hurt New York City.
NEW YORK CITY—Gov. Andrew M. Cuomo and state legislative leaders have agreed that the pied-à-terre tax levied on the non-primary residence, owners’ second homes worth more than $5 million, would be a good way to address the sharp decrease in state tax revenue, according to The New York Times. The newspaper’s March 11 article by Jeffery C. Mays and Jesse McKinley also reported that the tax is expected to be included in the state senate and assembly budget proposals. The state budget deadline is April 1.
New York City comptroller Scott Stringer projected the tax would raise $650 million. Supporters of the tax say this could be used to raise $9 billion in bonds to help fix the MTA.
The Real Estate Board of New York president John H. Banks said his trade association will continue to reach out to the senate and assembly leadership, individual members and the governor to try to stop the tax.
Speaking to journalists at REBNY’s spring luncheon, Banks said, “First and foremost we dispute the amount of revenue that is going to be generated from it.” REBNY’s analysis suggests the pied-à-terre tax would raise about $350 million, less than half the amount of revenue calculated by the comptroller and the Fiscal Policy Institute.
Banks said the revenue would not be able to support the MTA as planned, because the tax would be variable in nature. As it’s implemented, sales would be expected to decrease. There would not be a consistent revenue stream. Thus, there would not be the level of stability required to bond at the MTA.
The proposal interferes with how property tax is calculated, according to Banks. “It changes the way property is going to be taxed from an assessment base which is the current system to a sales base which is not part of the city’s property tax system,” Thus, REBNY questions whether the tax would even be legal.
New York City already has an over abundance of high-end condominiums on the market and this will contribute to that situation. REBNY predicts that the tax will discourage sales which could interfere with generating the necessary revenue to support the underlying financing of buildings. “We’re concerned there will be bankruptcies and defaults, which will have a significant negative impact on the economy,” Banks said.
As a recurring tax, it differs from various stamp taxes around the globe. For example, in the UK, buyers must pay a stamp duty land tax on property costing more than £125,000. Banks differentiated those taxes stating, “Most of them are a one-time transaction tax. So you know going into the purchase decision what your liability is going to be.” People can adjust their offer on the sales prices to compensate for the tax. He further pointed out the value of property can rise subjecting people to taxes they never anticipated with their initial decision to purchase.
“This is not something that was well thought-out and put before the public with months to chew on and to analyze,” said Banks. He noted the tax came about when the revenue from marijuana legalization was pulled from the table, and “they needed to fill a hole in the budget.”