TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, March 14, 2019

NY Times: How A $238 Million Penthouse Turned A Long-Shot Tax On The Rich Into Reality

New York Times, How a $238 Million Penthouse Turned a Long-Shot Tax on the Rich Into Reality:

The road to the nation’s first tax on superluxury second homes may well have begun at 220 Central Park South, where a four-story, 24,000 square-foot penthouse, unfinished and unfurnished, recently sold for $238 million.

That deal — the most expensive residential sale in United States history — seemingly set the stage for New York’s sudden embrace of a so-called pied-à-terre tax, a potential windfall for the city’s subway system and a small, subtle victory for those who believe Manhattan has become an unfettered playground for the rich.

If the measure is passed and signed into law, New York would join cosmopolitan hubs like Paris, Singapore and Vancouver, which already charge fees on secondary or part-time homes. It would also be a prime example of how headlines and hard times can sometimes intersect with a political moment, giving an outre idea a chance to become policy.

“When over six million New Yorkers are dealing with a crumbling and dysfunctional subway and the crisis in public housing, to see this opulence in the sky by someone who doesn’t even live here, struck a chord,” the City Council speaker, Corey Johnson, said.

The tax seems to be riding on a unique crest and confluence of several factors, including shaky tax revenue, uncertainty over the prospects for legal marijuana, and a general anti-rich, anti-corporate mood exemplified by the recent collapse of the Amazon deal in Queens.

The outlook for the tax is good: Both houses of the State Legislature and Gov. Andrew M. Cuomo support the proposal. Under the proposal, owners of second homes worth more than $5 million would be subject to a sliding tax surcharge and fees; homes that are valued more will incur higher fees and taxes.

The financial impact could be significant. New York City has about 75,000 pieds-à-terre, according to a city estimate in 2017. Of those, about 5,400 residences were sold for $5 million or more, the threshold where the proposed pied-à-terre tax would begin to kick in.

Mr. Cuomo estimated on Monday that the state could raise $9 billion in bonds off that revenue that would help fund repairs for the city’s troubled subway system. But the philosophical and psychological impact might be even more profound, offering a concrete, almost classist, rebuke to ultra-wealthy apartment buyers who sojourn in the city, enjoying its services and amenities, but often pay few taxes.

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A windfall for the first year. Then it will get baked into the cake that is NYC mismanagement, poor financial planning, and waste ... and little if anything will improve regarding the services and facilities for the average NYC resident. It doesn't matter how many sources of additional taxation they come up with, if they keep misusing it. How many more times can they generate a "windfall" if they don't make their systems pay for themselves, including maintenance as well as operations. And given the real property taxes of NYC, I sincerely doubt that these"ultra-wealthy apartment buyers" aren't paying taxes through their noses.

Posted by: ruralcounsel | Mar 14, 2019 3:35:01 AM

Who knew local governments can commit suicide?

Posted by: Dale Spradling | Mar 14, 2019 10:26:16 AM

The moral of the story is, "Pride cometh before the fall."

Posted by: Pride | Mar 14, 2019 4:29:58 PM

Pros: more revenue, and maybe this will help lessen the distortive effects on the housing market for those who make Manhattan their full time home (doubtful).

Cons: the owners already pay property taxes on their apartments, and consume a fraction of city services compared to full time residents, so the city is already getting a windfall from their current property taxes.

I think the cons have it, another shameless money grab by the NYC liberals who as always refuse to consider the spending half of the budget equation.

Posted by: Todd | Mar 15, 2019 8:29:39 AM