NYC's New Pied-à-Terre Tax: What Owners, Boards, and Advisors Need to Know

Sarah Adkisson:Thank you. So before we get into the full meat of the peditary tax, we wanted to start off with the current status of enforcement of the tax, because that is the biggest headline that people have been seeing and really one of the biggest questions we're getting. There was a little bit of a period where it was enforcement was on, people were getting letters, enforcement was halted under a court case, a court order, enforcement was back on. There was actually a hearing on August 31st, so we're just going to talk a little bit about that status, what's going on, why you should care, but also why it's not as impactful as some people might think. So what ended up happening was people started getting these letters notifying them that they might be subject to the surcharge. I believe beginning that first week of August, they were given a very short deadline of either August 21st or 24th to file for an exemption from the tax.

Homeowners sued saying that the notices that they received weren't proper notices. The burden was placed on them to prove that the use of these supplemental roles that are still in fact posted on the New York Department of Finance website were invasions of privacy and that they couldn't enforce these mailed notices without a more proper determination being done if the properties were actually going to be subject to the tax. So a Staten Island judge in New York put out an order halting enforcement basically saying that the homeowners were likely to succeed on the merits of their case and that he was putting an injunction in an order. That was then stayed. So the halt was halted on August 10th and really that halt of the halt is continuing now. So the enforcement is allowed to be continued. What has changed is that some of the deadlines, New York extended the deadline to September 18th of 2026 and then further extended that to October 6th of 2026.

But they have not sent out new letters to anybody who received those original letters telling them that the deadline has been extended.

They have also sent out letters to about, I think 1200 people who had previously received letters telling them that actually they've gone through and determined that they aren't subject to the tax. So there's a lot of kind of confusion going on, but right now the enforcement does continue. Homeowners have until October 6th right now to file for an exemption saying that it's a primary residence, it's a productive property. And one really kind of important thing to point out is that this court case, the one that has been making these headlines, this is not seeking to strike down this tax. It's not challenging the legality of the tax itself. So even if the homeowners are successful in their challenge, they are challenging this on administrative rollout. They are not challenging the legality of the tax. That's really probably the biggest thing you need to remember when you see anything or hear anything about the case is no matter who wins in the case, the law itself will continue.

The rollout may change.

So we're going to actually get into it now, right? So going back to the beginning of why was this law enacted? So this has actually been something that has played around in the New York legislature since around, I believe 2014 was the first year that somebody introduced a tax similar to this. There wasn't at that time the political will to have this become law on a statewide level. So it's been introduced back and forth. It's never really gained much momentum. This year's changed, the calculus changed, the political will was there. So the issue that the legislature, the stated purpose that they're trying to address is that all of these homes in New York, these apartments, single family homes worth millions, tens of millions of dollars potentially, but they're not being used by residents of the city. Either they're just lying vacant, they're being used a few weeks out of the year.

They're places for people to really use as an investment. They're parking their cash essentially in a penthouse in New York. The concern is that these owners, when they come and they visit, they get all of the benefits of New York, but they're not paying New York income tax. So that is the issue that the legislature wanted to address was how do we create revenue from these individuals who are not currently paying income tax, but who are benefiting from New York City services? Thus, they passed this petition tax. The surcharge is supposed to target those very valuable homes. So it does not apply to a second home or a non-primary residence property that's valued at less than five million if it's what's considered a class one home or property or a million dollars if it's a class two property, which is a co-op condo apartment. And I believe Nick will get into that in much greater detail a little later on.

There are some rules that are going to end up going into effect in the middle of 2028 that will bring the valuation of co-ops, condominiums and apartments into parity with how those class one properties are valued as well. So for the first couple years, there's kind of this weird distinction, two different tax rates that will be transitioned out as well. And the intent is for all of the tax revenue that's raised to fund further city services that might otherwise be facing hardships without revenue from residents paying income tax. Little technical issue here. So in terms of how the annual primary residence determination works, I believe Nick is going to discuss this.

Gary Bingle:I think I was. So there's a couple things about how the annual primary residence determination works, and we're already seeing some questions on this, which is actually one of the issues we're going to get to in a second. So first, the Department of Finance identifies covered property near those thresholds of a million dollars, $5 million, et cetera, depending upon if you're class one or class two. And then using whatever information they have, they determine whether or not the property is a "primary residence." Some of the things they'll look at are your tax returns. If you're filing as a New York City resident using this as your primary address on your tax return, et cetera, that's one of the things they'll look at. They may be looking at other things as well, but I think that's one of the main things they're going to look at.

With that, we have seen some issues where we have business owners that maybe use their business address as their mailing address or tax returns for whatever reason, or use their PO box or use their accountants or their family office address or tax returns. And that's causing some of these people to get notices even though they may be using the address as their primary residence. That's one of the things we're seeing the types of people that are going to need to respond and appeal this. So you're getting that letter when they make that initial determination, they're mailing out these letters saying that we consider you potentially subject to this tax. That's when the owner needs to respond that they need to certify it's their primary residence and provide various types of documentation that's listed out on the website, things like your driver's license, utility bills, if it's leased out, a lease.

There's a whole list of things depending upon your specific facts and circumstances.

And then the department makes its final determination as to whether or not you're subject, looking at all the facts, circumstances, information they have. One of the issues we're seeing, they're only mailing these notices out to people who they believe are subject to it, which is leaving a lot of people alerts. We've seen some people already asking, "Well, what do I do if I think I'm over the threshold and I don't get a notice?" Unfortunately, in order to appeal it, you need that notice because that has a special pin number on it that you're going to need to submit your appeal and such. I'm sure they're mailing these things out. They're not putting it as far as we know yet on the property tax statement or website. So there will be some group of people who at least will claim correctly or not that they never received a notice.

And there will be people who say, "Well, I never received it. I didn't know it was going to be subject to it. How was I supposed to know I was supposed to appeal?" Which is obviously making other people who don't get notices a bit anxious because they're saying, "Well, okay, how do I proactively appeal if I never received the notice? I don't have the pin." And to me, that's one of the major issues what we're having here, what's creating a lot of anxiety for people because people are kind of being left in the lurch. It's not like they're mailing out a notice saying, "Yes, we don't think you're applicable to this." And so if you say, "Well, I didn't receive a notice one way or the other, I need to contact someone." So there's going to be a lot of people kind of left in the lurch there, and unfortunately that's the way the law is written and there's going to be some issues that the city's going to have to deal with because if your notice does get lost in the mail or whatnot, or let's say you even live in a co-op, the letters are going to the head of the co-op and they have to trickle it down to the individual units and such.

Maybe they never get it or they get it and forget to notify some of the co-op owners or something. If the owner doesn't submit that proof, then that initial determination of you being subject to it essentially becomes written in stone, at least for this year, and becomes an issue and is going to be put on there. And there's going to be some people, I'm sure that fall into that for one reason or another and end up having to pay the tax at least initially and are going to be getting the short end of the stick there because they're not going to have any recourse the way the law is written once those final determinations come through.

Now, as far as the timing of how it works, the surcharge is going to be added to the statement of account. And so at some point it's not on there yet. At some point it'll be noted on there, so you should be able to log into your property tax account with the city and see it added on there. For a co-op unit, it is done aggregated at the overall property level, and then it's up to the co-op managers, co-op agents to end up allocating it down and say which units it applies to and such. You could have a co-op with 20 units and maybe only five of them are subject to this. So that's going to be one of the other issues, making sure it gets allocated correctly. We have seen some instances where the city's records of, let's say the co-op shares and such don't really match what the owner has.

They've been off just by small amounts, but that's something else to check where if you're right around the thresholds, you want to make sure that the city has the right co-op shares and the right ownership shares and such. As far as the payment timing, surcharge is generally payable the same time as the real property taxes for this first current year. It's going to be due with the second property tax installment, which is going to be in January of 2027.

So that's coming up in the next few months, next three or four months or four months. Again, for the cooperative, the bill is going to the cooperative overall, and then they have to apply the surcharge down to each unit. If that co-op agent doesn't or manager doesn't apply it down or doesn't forward the notices, I think there's going to be issues there. Some of the things to keep in mind, the ordinary real property tax abatements, the credits, the exemptions, all those things for your regular real property taxes, those are separate from the surcharge and those do not apply to the surcharge. So we've had some people ask, "Well, geez, I get this property tax abatement. Doesn't it get me out of this surcharge as well?" And the answer is no, it does not. So those are some of the basic, I'll say, issues that we're seeing just with the timing and the initial rollout.

As far as who is covered, there's really two types of properties. The condos and co-ops are kind of together. We've got the class one properties, which are the one to three family properties. We've got the condos and co-ops, which are deemed to be class two properties. Now, from all of these, there are excluded vacant land, and there is also an exclusion for properties that lack a certificate of occupancy or on unsold units, things like that. So if it's a unit that can't be occupied because it's still under construction, obviously it doesn't apply to this.

The condominiums and dwelling units, again, for the condominiums and co-ops, the valuations for these first couple years are going to be different, and that's why we've had a lot of questions about the thresholds and how those values are calculated. New York City has a very unique way of valuing condominiums and co-ops for its regular property taxes, where for all practical purposes, because it's not truly based on fair market value, it's based on income streams and things like that, those tend to be true fair market value is, and that's why we're seeing those class two valuations for condominiums and co-ops. The threshold is a million dollars instead of $5 million for these first couple years, and we're going to get into that when that switches over and the impact that has. So for now, just know that you've got the class one and class two, and class two consists of the co-ops and condominiums.

And for the first two years, there are different thresholds and different rates for them. And then in 2028, those things equalize, and so there's one set of rates, one set of valuations, et cetera. Again, keep in mind that the vacant land isn't covered by this and items that don't have a certificate of occupancy. I'm not sure how the city is going to apply that. I don't know what they're going to do. I'm sure there'll be some folks who say, "Well, my condo suddenly is undergoing major renovations, and so I don't have certificate of occupancy," and try to get out of it that way, and that may be an opportunity for some folks if they're doing renovations and such, so it's something to keep in mind. And now I'm going to turn it over to Nick for getting into the valuation phases and the thresholds and such.

Nick Montorio:Yep. Hey, everyone. Yeah, so this is one of the more confusing parts about the taxes both Sarah and Gary have alluded to. There's this phase one and phase two. There's different valuation methodologies and tax rates applied to different types of properties. But at the end of the day, what the city was trying to do, it was trying to impose a surcharge on properties with a fair market value of $5 million or more. Granted that the taxable threshold or the market value for condos and co-ops is one million, but it's really, again, tying back to a property that has a fair market value of approximately $5 million. So what is this phase one and phase two? Phase one is this first year starting July one, 2026, as well as July one, 2027, the first two years, and the next three years are the phase two. We'll explain exactly what the differences are there, but that's the line of demarcation of the phase one and phase two.

I think this slide kind of tries to bring it home. So during the phase one, the 26 and 27 property tax years, you have the tax rates for class one for shorthand single family homes of about 1%. And that tax rates, to be clear, applies to the full market value. So if your property is valued at 15.1 million, it's not that the first. The threshold exceeding five to 15 million is only taxed at the 0.8%, and the difference is taxed at the higher rate. The entire amount, the whole 15.1 would be subject to tax at the 1.05% tax rate. Condos and co-ops have a much higher tax rate, and that jumps off the page 4% up to as high as 6.5%. But again, because the valuation used for condos and co-ops is approximately 20% of what the actual fair market value is, the tax rate has to balance that out.

So the tax rate is five times larger than the tax rate for single family homes or class one properties. When we transition to phase two for the last three years of the tax. As of now, the last three years of this tax, but who knows if it'll be extended, that same tax rate will apply to all property types, the 0.8, the 1.05, and the 1.3%.

So as I mentioned, the class one properties, the value that the city has for its property tax purposes is approximately the fair market value of the property. So they're able to use that as the market value for the purposes of this surcharge. But for condominiums and co-ops, they don't have that data, at least they don't track it. Not yet at least. They're going to start tracking that during phase two where they start looking at comparable sales value for similarly situated apartments. But for this phase one, again, not to be a dead horse, the market value, that's a term of art, is $1 million for co-ops and condominiums.

For a cooperative, it gets more, I guess, complicated or convoluted. There's a whole bunch of issues with how this tax applies to co-ops, mainly because the tax, as Gary mentioned, actually is. The notice actually goes to the co-op and the co-op is responsible for divvying up that tax to the various units based on percentage interest. And what's going to be particularly confusing for the co-op board is keeping track of each of its shareholders and their appeal process and figuring out what the tax is for each person. And really, it's an administrative burden for that board to keep track of all of this and make sure that every single unit is properly assessed. Effectively, the burden is on the board to make sure that this surcharge is paid properly.

And just to drive home the math for you real quick, so for a class one property with a fair market value of $10 million, you have the 0.8 tax rate to get an $80,000 surcharge tax liability. And then a co-op or a condo with a $2 million "market value," which has, again, approximately a $10 million fair market value will be subject to the tax at 4% and you arrive at the same $80,000 surcharge amount. And then once we go to phase two, that the taxable base for each of these properties will be the $10 million fair market value times the same 0.8%. You again arrive at that $80,000 surcharge liability. And now with that, I think Sarah, I think you're going to take over from here.

Sarah Adkisson:Yeah. Thank you, Nick. So the main exemption that people are going to have in terms of being subject to this tax is whether or not the property is being used as a primary residence. There's been some confusion. I think some people think, well, as long as you are living in New York, it doesn't matter if you have other properties. If you're in New York paying New York taxes, none of your properties will be subject to it, and that's not accurate. The property itself is what has to be used as a primary residence. It does not necessarily need to be used as a primary residence by the owner, but it does need to be used as a primary residence. It has to be in use as a primary residence as of what is called the taxable status date, which is January 5th of the immediately proceeding fiscal year.

So that is when either you need to be living there, a family member needs to be living there, or a tenant needs to be living there. It applies for a covered owner. So the covered owner can be a person or it could potentially be a limited liability company or a partnership, a qualifying immediate family member of the covered owner or a qualifying leasee or subleasee of the property.

The department rules are kind of interesting. They may consider the occupancy for a majority of days. They may use other available information. One of the gaps that we have noted is if somebody sells the property in the middle of the year or if there's a gap in you have a property on the market and you're looking for a rental for a while, maybe it's not rented during that period of time. So it's not been entirely clear. We're very early stages in it how they will deal with some of those potential occupancy issues for determining if something's a primary residence.

So under the law, there are particular definitions of who is considered a covered owner, potentially subject to the tax. So you can have a direct real property owner that would be no level of entity or other ownership in between one owner or maybe two owners of a covered class one real property or one of the condominiums or co-ops. There's a cooperative interest that Nick went over how some of that works. With the cooperative, it's the tenant stockholder whose interest is going to be subject to the tax essentially through owning the shares in the cooperative corporation. Trust ownership is a very interesting wrinkle one. If the property is owned in a trust, the beneficial owners will qualify for an exemption, but only if they are the sole current beneficiaries. So that could mean in certain trusts, some individuals can qualify collectively. Trust ownership, and Nick, you can jump in and correct me if I'm wrong, but trust ownership seems to be one of the biggest wrinkles in terms of qualifying for an exemption in a lot of ways.

Nick Montorio:Absolutely, because a lot of trusts have multiple beneficiaries and according to the law, the way it's written, all of those current beneficiaries must live at the property and use it as their primary residence. And that is exceedingly rare we're finding.

Sarah Adkisson:Siblings don't tend to get along that well, to be honest. And then finally, the property being owned through an entity, depending on how it is owned and what entity owns it, it may still be exempt. You may still be able to qualify for an exemption, but the entity has to hold the property wholly or hold all of the shares of the property. There are instances where some interests can be aggregated, but the majority interest holder is the one who must be using it as a primary residence or whose family member is using it as a primary residence. The definition is really important. We've had some confusion with this. If you are a covered owner, then a qualifying family member or qualifying lease can support it, but there are some wrinkles with the trust ownership and the entity ownership.

So the tenancy exemption is probably one of. It may be one of the hardest exemption to claim because there's two Two people who are claiming it, essentially. So under the statute, the lease has to be to a natural person. You cannot be leasing it to an entity. So if you're leasing it to a business, it's not being used as a primary residence, so it does not get an exemption. It has to be an arm's length transaction. So you can't be renting it to your buddy for $100 a month. That would not be considered a bonafide lease. The lease term has to be at least one year, and that tenant has to use the property as a primary residence. Now, it's New York, they know that people sublease apartments, so you are allowed to have a sublease in there provided that the full lease term is of the lease one year within that sublease.

New York is definitely going to be looking at this very closely with these leases. One of the documents that you need to provide is the lease agreement. We do think that they're going to really look to this to see if it's a bonafide lease or if you're trying to game the system to avoid the surcharge. And like I said, if the lease where there's the tenant has some type of relationship with the owner, that's going to be really scrutinized and could be at risk for an audit. Nick, you're going to cover this? Yeah, sure.

Nick Montorio:So providing the documentation is not particularly difficult so that the first and foremost type of information that the city is looking for is an income tax return. As Gary mentioned, there are sometimes logistical issues where the return has an address of a business or a PO box, et cetera, doesn't have the address where you're actually residing. And I think one of the reasons why the city has extended the deadline now till October 6th is to provide people with sufficient time to complete their 2025 personal income tax returns so they can get them in the system or at least part of the application to challenge the initial appeal with the proper address on it. That's the tier one type of information where either the tenant or the covered owner can submit to the city to prove that they're using the property as a primary residence. The tier two other documents that we're referring to asks the covered owner to provide two or more of the following, driver's license, photo identification or other documentation, kind of a catchall.

The driver's license has been somewhat problematic, particularly on the tenancy side because a lot of times if a tenant only intends to be in New York City for a year or so, they might not necessarily update their driver's license and they might not necessarily use that address on their tax return and they might not update their photo identification. So in the tenant exemption, it's been pretty hard to generate and provide substantiating information even when the tenant absolutely lives there and absolutely uses it as their primary residence. It really becomes a problem of proof. One of the documents that can be provided is utility bills, but will that be sufficient? We just don't know. So I guess that's maybe all I have to say about that. Sarah, you have anything to add on this point?

Sarah Adkisson:I guess the only thing I was going to add is I suspect that using your own return showing that property listed as a income producing property may at least be some evidence that it's actually truly rented out. I don't think people want to pay income tax on something if they're not actually renting it out.

Nick Montorio:Right. And then in terms of, I guess proving it out or substantiating the representations made through the documentation, there are a variety of affidavits that are required to be submitted when you're challenging the initial appeal. Starting, I guess, top left, the entity owned property. So in the case of a property owned by an LLC or a corporation, the majority owner or owners collectively have to submit this affidavit attesting to the facts and that someone is using it as their primary residence. And the trust owned property. Similarly, there's another affidavit where the representation is that the current beneficiary or beneficiaries are using the property as their primary residence. Tenant and subtenant owner affidavits, those will be submitted in conjunction with additional documentation such as utility bill, proof of rental payments, or a renter's insurance policy. And what's interesting about this, as Sarah mentioned, both the landlord and the tenant need to submit an affidavit in most cases, or at least in some cases.

And there could be issues with getting the landlord getting the tenant to cooperate and be fully forthcoming with all the information actually attesting to something that they don't necessarily want to. An immediate family member exemption. So if a covered owner, let's say mother and father own the property, but their child, son, or daughter live at the property, in order to prove that out and to claim the exemption as if the covered owner lives at that property, there's an affidavit to attest that the person living at the property is their immediate family member. And if you don't want to submit that, you could submit other documentation such as a birth certificate or a marriage certificate as the case may be. Gary, you want to handle slide 20?

Gary Bingle:Sure. So six-year authority, this is all getting into some of the risk and record retention issues. Department may establish a process to audit the submitted primary residence certification documentation in six years of submission. So if you're submitting it now, just be aware that they've got six years to come back and audit that. So even if they make a preliminary determination that it is a primary residence, they can come back if they get other information or whatnot and audit that for some length of time. So you're going to want to make sure you're keeping whatever you're submitting. This is going to be kind of onerous for some of these exemptions that you may have to keep your leases, keep utility bills, whatever you're using to prove primary residence for up to six years. Penalty, there are negligent and bad faith penalties. So those include 50% of the surcharge where the submission would've eliminated plus reinstatement and 300% of the surcharge difference where it would've understated the value, capped at 50%.

So you can see that they're really serious about implementing this and imposing penalties to keep people from just drafting leases with somebody and saying they're at arm's length, but never collecting money, let's say. "Yeah, I'm going to rent it out to my best friend for $50 a month or I'm going to run out to my best friend at an arm's length rate, but I'm never going to actually collect that rent. "Things like that, they're going to really be cracking down on any sort of avoidance issues. As far as information sharing, the city and the state do exchange records on request. So the city will provide records used to determine the primary residence. The state will provide personal income tax return records. So you can see if you're saying," Well, this is my primary residence, "they can reach out to the state. The state will say," Well, no, it's not.

We have them as a Connecticut resident or whatnot. "So you're going to want to make sure that you're consistent between the city and the state. You're not trying to play one off the other.

The Department of Finance has stated that information provided by a property owner to support that the residence claim is not subject to the statutory tax secrecy protection. That's because the Freedom of Information Act and such all those exemptions only cover what the two agencies automatically get and exchange doesn't cover what you submit. So there will be some issues with that. The real practical takeaway is you want to make sure that you have a colorable argument and good faith argument and that you retain all the records that you submit for at least six years and that you're consistent between your federal or city and state filings and retain a complete supporting package, any correspondence, all of those sorts of things, because those are going to be important. You don't want to be scrambling. It's like any audit. You don't want to be scrambling in five, six years to find stuff that you submitted, especially when these submissions are online, you're going to want to make sure you print out, submit it and keep them accordingly just like you do with your regular income tax records and such.

And now we're going to get into some of the FAQs, but before we do, we're getting a ton of questions here and I'm kind of monitoring them a little bit. And a lot of the questions are falling into a few different, I'll say, classes so far. One is what happens if there's a change in ownership sometime during the year? Who's responsible? And there really isn't a lot of guidance or any guidance on that. I think it's going to fall just like it'll be something negotiated in the sales contract where you're going to want to split it up somehow by who occupied it, just like you do with regular real estate taxes. But the law doesn't really address that. So if you sold it in May or you sold it in July, the law doesn't really say who's responsible for it. Is it the person who occupied it on January 5th?

What if you were not a primary resident on January 5th and you sold to somebody who now is? Those are all things that really need to be addressed. I think the way the city's going to treat that, absent any other guidance that may come out with, is that January 5th of the previous year, so right now January 5th, 2026 is kind of the what I'll call the measurement date. So to the extent it was not a primary residence, then it's going to be subject to the tax. And the fact that you sell it to somebody in May, June, July who now is a primary resident, I don't think that's going to really have any impact. And so it's going to be due at least for this current year. You should be able to submit and appeal that, and I would appeal that right away as far as the new tenant who is going to use the primary residence to make sure that they get the documentation in.

Some of the other questions we've seen, what if you normally do rent it out and you're between leases as of January 5th? I think some of these, or what if the property's been for sale for several years and it was a primary residence now it's for sale? I think a lot of these are going to be very fact sensitive. I think these are all things the courts are going to have to come up with because I think it's going to look at asking price, things like that. How long was it vacant for? I know when they look at things like residence determination in general or change in domicile, we've had people say, "Well, I moved out three years ago, only come up so often to keep my home in a good shape because it's been for sale for five years." And the city will look at it and say, "Well, but you're asking three times the asking price, so you're not really seriously looking to sell this." I think that the same sort of analysis is going to go here.

If you're really looking to sell it but you're asking three times the fair market value, they're probably going to look at that and say that's not really a valid reason. Same thing with leases. Well, if you really leased it out for a length of time and now you're just between leases for a month or two, I think you're going to have a better argument than if it sat vacant for three years because you are asking too high a lease price. And I think there's going to be a lot of issues like that that are going to have to be addressed by the courts, by the city going forward. People are going to have to fight them because there's so many things, just the way the law is written, that it's really not, in my mind anyway, addressed adequately how a lot of these things are going to be addressed.

So getting into FAQs, why is January 5th significant? And that's because that is the annual status date, what I'll call the measurement date. And it's the January 5th prior to the fiscal year end. So the city's fiscal year end is June 30th. So June 30th, 2026, the measurement date is the prior January 5th, 2026. For next year, the measurement date will be January 5th, 2027. And so that's the date the primary residence status is measured of that date. It's like some other property taxes and such. It's as of a date specific. So if that property's not actually occupied as a primary residence on January 5th, that's what they're going to look at. And that's the type of evidence you're going to be looking at.

You're going to want to establish during that period, during that January 5th, December and January, it was used as a primary residence, that there was a fair market value lease in place, let's say, et cetera. Primary residency is deemed to continue for one year following an occupant's death or during continuous hospitalization or nursing home, et cetera. So there are some provisions for that. Items that you can submit for after January 5th, like your driver's license. Well, if you get your driver's license renewed, in February, I think they're going to look and say, well, were the address the same on your driver's license before and after you got it renewed or did it change, et cetera. Nick, Sarah, do you have anything else to add on these on this one?

Nick Montorio:Yeah, I think, and someone asked this question in the chat. So the law was enacted, I think it was May 28th of 2026. And of course it's looking back to January 5th of 2026 as the taxable status date. So there's a retroactive aspect to this, which could be challenged. That's one of the grounds that potentially could be challenging this law. But putting that aside for a second, obviously that sequence of events means that there was absolutely no planning possibility for a homeowner to engage in, but this January 5th deadline comes around every year. So the next taxable status date is January 5th, 2027, then 28, 29, and so on and so forth. So by the next taxable status date, there's plenty of opportunity, although the clock might be running a little bit short at this point, to get your documents in order, get leases in place, et cetera, to try to mitigate against the next surcharge amount if you're not able to get out of it this first time around.

Sarah Adkisson:I was just going to add, I think this is one of the most important things for us to hit because honestly, this is, I think, one of the more confusing things for a lot of people and not just people who are subject to the tax. I think even practitioners were so used to things not being retroactive, like you just said. And so the January 5th date for 2026, I think has been very confusing. A lot of people think that as long as they have either they move in during 2026 or they have a resident move in during 2026, that they will be okay not realizing that it had to have been from January 5th of 2026. You had to have either been a primary residence or have a tenant in place. So even if, like you said, May 28th, you moved in or had a tenant move in that it doesn't qualify, that would still potentially be subject to tax.

Gary Bingle:Okay. Can the surcharge and the New York City resident tax both apply? Nick, you want to handle that? I mean, short answer is yes, because there are different tasks.

Nick Montorio:Absolutely. And this is one of, I think, not to apply too much, but one of the failings of the tax is there are so many instances where you could be a resident of New York City and paying city tax, which is one of the stated policy goals of the whole reason for the surcharge, and also be subject to the surcharge. So for example, if an individual has multiple properties that are exceed that five million / $1 million threshold, a person can only have one primary residence. So property one, primary residence exempt, property two cannot be a primary residence. It will be subject to the surcharge. Statutory resident. So just to back up for a second, there's an individual who spends more than 183 days in the city and has a place of a boat, a house and an apartment. They would be a statutory resident of the city and be subject to the city's personal income tax, but at the same time, they may not actually use their property as a primary residence.

That's another example in which, again, both the personal income tax of New York City applies, which only applies to residents, and the surcharge applies to the same person. It's a double whammy. And this one is probably the most troubling, and we don't know. Again, it's all the first year, so we don't know exactly how it's going to shake out, but perhaps it's theoretical, but an individual who tried to leave New York City, who was a domiciliary of New York City, went to Florida, Texas, wherever, but for one reason or another, the city says that individual did not establish their domicile somewhere else. Then on a residency audit, for instance, they could be considered a New York City resident as if they never left, and that they also did not use their property in the city as a primary residence. So there are other examples we can think of, but these are sort of three buckets that we try to categorize this issue into.

And another thing to think about, we've talked to clients saying, "Well, I'll just come back and I'll file as a New York City resident for 25 or 26 to get out of the surcharge." And mathematically, that may make sense depending on income levels and the value of the property. But the problem would be for an individual who left New York City, say in 2022 and tried to establish residency in somewhere else, Florida, if they show up in 2025 and say, "I'm back," the years in between the tax years 23 and 24 are open for audit. And it would be a very damaging fact during a residency audit for an individual to say they only left for two years and they changed your domicile for two years. Now, it's not saying that's obviously not determinative, but you're not starting from a position of strength because the whole point of changing your domicile is saying you're going to be in that new place forever, indefinitely.

And a two-year window usually does not establish that absent some mitigating facts. So it's another thing to think about. You have to think sort of big picture and comprehensively see if you have any exposure on the personal income tax side going back during the years while the statute of limitations for assessment remains open.

Sarah Adkisson:Nick, I had some people ask me about that last one, if you're domiciled in New York, but you're spending, say you travel a lot for work, maybe you're a traveling nurse or something, you spend maybe only five months out of the year actually in New York, you're traveling to different places throughout the rest of the year. There have been people who are concerned, will I still qualify for the primary residence if I'm not spending 183 days in New York, even if I otherwise would consider myself domiciled in New York? I'm just curious how you think that's going to shake out. Do you think as long as you have continued to file, continue to have a driver's license or registration that there won't be an issue there?

Nick Montorio:Yeah, this is another one of those disconnects where an individual who actually doesn't use the New York City Place as a primary residence could actually provide the proof necessary to get out of the surcharge because they have the tax return because they have a driver's license or registration. So I think that person probably could submit information to get themselves out of the surcharge while still actually not using the property as their primary residence. So it's one of the many quirks of the way the law is written.

Gary Bingle:And I think part of that too, I hope the city will differentiate in that instance between someone, let's say, who is a IT consultant for a big four company or something for Accenture and is on the road five, six days a week. They've got one apartment or one condo in New York City, they just travel for work five days a week. So yeah, they're not in the city, but is the city going to say, "Well, no, the Marriott in all these different locations is your primary residence. I hope they don't and differentiate that from, well, yeah, they're living here, but they're really at their beach house all the time where they've got another property." Hopefully the city will be able to distinguish between those, I hope. One of the more confusing things, at least for me, are these two appeal processes. You've got one appeal to the Department of Finance, another one to New York City Tax Commission.

Each one has different nuances and different things you can appeal. So Nick, why don't you talk about

Nick Montorio:These little bit? So maybe starting with the conclusion and working from there, in general, it makes sense for a taxpayer to start their appeal process with the Department of Finance. So responding to that letter by October 6th, that gives you maybe two bites at the apple. You're able to prove that the property's used as a primary residence or as a proper tenant exemption applicable to that property. If that fails, then you have the fallback plan of appealing to the tax commission, and you can actually appeal the Department of Finance determination to the tax commission and get a second bite at the apple, maybe provide additional documentation, additional explanation, et cetera. If you want to go straight to the tax commission, let's say you don't really have that strong of an argument on the use of the property, whether it be personal use or tenant use, you could appeal directly to the tax commission before March 1st or March 15th, depending on the type of property.

If you go straight to the tax commission, you have to challenge both the use of the property and the market value of the property. So you'd have to get an appraisal or at least sort of challenge the actual value that the city came up with for the market value of the surcharge. Long story short, it probably makes sense to start with the Department of Finance and go from there.

Gary Bingle:Yep. I think that's a really important thing. And from the New York City, let's say you start with Department of Finance, you go and then you appeal again to the New York City Tax Commission. There isn't really an appeal from the New York City Tax Commission, right? Once they make their determination, that's pretty much it. So I think that's going to be one of the other things that

I see people challenging this law on potentially. And this is one, I think this is probably one of the key takeaways in looking at a lot of the FAQs here, because we've got a lot of instances where taxpayers, potential taxpayers do not clearly fall within one of the exemptions, but I think potentially fall into outside the spirit of who it was supposed to attach to. And I think one of the bigger things is these multi-tier ownership. Nick, we've had, I don't know how many questions from people who they own their property through two or three tiers of a partnership, disregarded entities and such. And those disregarded entities are really a tax fiction. It's got nothing, an income tax fiction, got nothing to do with property taxes. And to me, that's one of the major issues here that they only allow you to look through one tier of ownership.

So if you own it through a partnership that's got two or three left tiers or two or three levels of single member LLCs, technically you're out of luck as far as being a primary resident, right?

Nick Montorio:Yeah, exactly right. And that is not at all what the spirit of the law was. Just simple example, title to the properties owned by a single member LLC, which is also owned by a single member LLC, which is owned by a family or by the owner and the owner's family lives at the property. That is the type of property that should not be subject to the surcharge because someone's actually living there. A family is living there using that as their primary residence. But merely based on how the property is owned structurally, the surcharge could apply at least based on how New York City has sort of issued some guidance. So we are encouraging and recommending that our clients go through the appeal process even though they technically don't maybe fall under the rules or at least as the rules as interpreted by the city. Because again, when you think about the stated policy goals and you think about actually what's happening, the underlying substance, putting the technical jargon aside, this property should not be subject to the surcharge.

Now, will that argument win? Of course, we have no idea. We haven't done this before. It's the first year, but it's a very strong argument. And even if the Department of Finance were disagreeing, maybe the tax commission would be more reasonable.

Sarah Adkisson:So one thing that I just wanted to point out here in terms of should you file for an exemption versus maybe not file for an exemption, in one of the filings that the city provided for the August 31st hearing, they cited something around 5,000 exemptions had already been filed and of those over 3,000 had already been approved. So it does seem like you are better off going ahead and filing for an exemption because they do seem to be approving the exemptions at least right now at about a 60% rate. It's pretty good odds. Yeah.

Gary Bingle:And it never hurts to file, and if nothing else, you're preserving your rights while the city is trying to figure a lot of this out. I think we addressed this largely with this LLC entity trust. Nick address that a little bit.

Nick Montorio:And sorry to button, but yeah, there's one common question we've been seeing in the comments over and over again. We just got another one. Can you appeal without receiving the letter? And I think as Gary mentioned at the top, but it's worth reiterating. No, you can't. You really need that letter because that letter has a specific PIN or identification number that you need in order to go through the appeal process. There actually is a new feature on the New York City website. If you just do a Google search New York City surcharge tax, property tax, you'll get to it pretty quickly. Should be the first thing that pops up. At the bottom of that page will be, do you need a new PIN or do you need help getting a new PIN? And just follow the prompts there and you can hopefully navigate your way to the right person and get that letter that you need.

But another thing, as Gary mentioned, you may not have received the letter because the property's not subject to the tax, or maybe you didn't receive a letter because it got lost in the mail. You really don't know. You only have instances where someone received the letter because they are subject to the tax. But if you don't receive it, you can only draw inferences as to what that may or may not mean.

Gary Bingle:Yeah. Now, one thing New York City did have up for a while on its website, it's since taken it down, a listing of all the properties and the valuations and such. So there was a time period where if you had your property tax bill, you could go online and see what New York City had as your valuation and such for both class one and class two properties to see if, okay, they've got me at 850,000 evaluation. I know I'm below it. I should be. Okay. I didn't receive a notice. Versus, hey, they've got me at $3 million and maybe I should be worried about it. Unfortunately, because of the lawsuits, they took that down, which unfortunately leaves people in the lurch a little bit.

What if the property is bought or sold mid-year? Again, this is some of the things it's imposed on the property, not the owner. It does have a January 5th kind of hard testing date, and it's something that I think It still needs to be worked out and that is going to be worked out between the buyer and the seller. Just like allocating normal property taxes, that's usually done when people are buying and selling real property. They don't prorate the tax. So any sort of transaction documents need to address this and need to try and split it up or make sure at least who's going to be responsible for it.

Any other points? We're right at one o'clock here. The five points to remember, it is a new surcharge. It's got a five-year life. As of right now, I'm going to say it's set to expire 2031. A lot of taxes are set to expire and be temporary. And anybody who lives in the Northeast, the Gordon State Parkway tolls were supposed to be temporary and they become permanent quite a while, pretty soon thereafter. So we'll have to wait and see what happens with this. And it's an annual surcharge. These are kind of the key takeaways. Sarah, Nick, do you have anything else to add here? Here's our contact information.

Nick Montorio:No, but yeah, this comes up from time to time. Think about challenging of the tax on other grounds besides just the rollout. Obviously this tax applies to wealthy individuals who are well-resourced and they'd be able to afford the wealthiest tax attorneys in the land to challenge this. We haven't seen that yet other than the ongoing one, which is again based on rollout rather than the actual substance of the law. But we would certainly anticipate and expect continued litigation on multiple fronts regarding how these provisions work, which I can't state enough. It applies when it shouldn't and it doesn't apply when arguably it should. There's too many disconnects between the stated policy goal and what actually is happening on the ground.

Gary Bingle:Yeah. I think that's one of the biggest issues with this tax is that it really doesn't achieve the goals it's supposed to. It's just, in my opinion, very poorly written in many ways. And I think that's it. We're at 103, so we don't want to keep people longer than we need to. Thank you. We are going to try and get to some of the questions here. We'll try and address them separately and reach out to certain folks. The webinar is going to be, we do have a separate webpage on our website for this tax and there is going to be a link up. It'll take a few days, I'm sure to get it up for this. So if you want to come back and view it again for your viewing pleasure, it'll be up there. And with that, that is it. Thank you everybody.

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