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In addition to all other powers granted to the Commissioner of Finance and set forth in these regulations, he is also authorized and empowered:
(a) To make, adopt and amend rules and regulations appropriate to the carrying out of the Real Property Transfer Tax and the purposes thereof;
(b) To extend, for cause shown, the time for filing any return for a period not exceeding thirty days; and to compromise disputed claims in connection with the taxes thereby imposed;
(c) To request information from the Tax Commission of the State of New York or the Treasury Department of the United States relative to any person; and to afford information to such Tax Commission or Treasury Department relative to any person, any other provision of the law to the contrary notwithstanding;
(d) To delegate his functions under the law to a deputy commissioner or any employee or employees of the Department of Finance;
(e) To prescribe the methods for determining the consideration and net consideration attributable to that portion of real property located partly within and partly without the City of New York which is located within the City of New York or any interest therein;
(f) To require any grantor or grantee to keep such records, and for such length of time as may be required for the proper administration of the law;
(g) To assess, determine, revise and adjust the taxes imposed under the law.
Affixed. "Affixed" includes attached or annexed by adhesion, stapling or otherwise, or a notation by stamp, imprint, or writing.
City. "City" means the City of New York.
Commissioner of Finance. "Commissioner of Finance" means the Commissioner of Finance of the City of New York.
Confirmation. "Confirmation" shall mean the document or electronic transmission that will be issued by the Commissioner of Finance on the date that the electronic format of the return is deemed received by the Department of Finance and indicates the date upon which the electronic return is so filed with the Department of Finance, and may be in the form of a number or other indication entered by the Department on a copy of the electronic return.
Consideration.
(1) General. The price actually paid or required to be paid for real property or an economic interest therein, without deduction for mortgages, liens or encumbrances, whether or not expressed in the deed or instrument and whether paid or required to be paid by money, property, or any other thing of value. The term includes the cancellation or discharge of an indebtedness or obligation. It shall also include the amount of any mortgage, lien or other encumbrance, whether or not the underlying indebtedness is assumed. Where an option to purchase real property or an economic interest therein is exercised, consideration shall include the amount paid or required to be paid to the grantor or his designee for the option. To illustrate:
Illustration (i): A parcel of real estate is sold for $50,000 cash subject to an existing mortgage of $30,000 which remains on the property after delivery of the deed. The consideration for the transfer is $80,000 and the tax applies to the deed.
Illustration (ii): A parcel of real estate is sold for $30,000. The deed recites that the consideration is $10 and other good and valuable consideration. The consideration for the transfer is $30,000 and the tax applies to the deed.
Illustration (iii): Separate deeds by which each of the tenants-in-common of realty conveys his own interest in the property to a common grantee for a consideration of less than $25,000 for each deed are not subject to tax, even though in total the consideration paid by the grantee is more than $25,000.
Illustration (iv): A owns real property worth $50,000. B owns real property which is also worth $50,000. A and B exchange their real property. The tax applies to the transfer of A's realty and the transfer of B's realty. The consideration in each case is the fair market value of the property received in exchange for the realty conveyed.
Illustration (v): A owns real property having a fair market value of $50,000, subject to a $30,000 mortgage. B owns unencumbered realty having a fair market value of $20,000. A and B exchange realty. The consideration for the transfer of A's property is the fair market value of the property received ($20,000) plus the amount of the mortgage upon the realty conveyed ($30,000), or $50,000. The consideration for the transfer of B's property is $20,000. Although B receives consideration having a fair market value of $50,000, only $20,000 of this is in exchange for B's property. The balance ($30,000) is deemed to be in exchange for B's taking A's property subject to the $30,000 mortgage. Since the consideration for B's property is less than $25,000, there is no tax on the transfer of B's property.
(2) Where a grantee agrees to pay the City and State transfer taxes due on a conveyance, as part of the consideration for the conveyance, the obligations so assumed are included in computing the tax as follows:
(i) Calculate the "tentative" City and State transfer taxes based on the consideration exclusive of the transfer tax liabilities which the grantee is assuming.
(ii) Add the sum of the "tentative" taxes to the consideration and calculate the City transfer tax (and State transfer tax) to be Paid on the total.
To Illustrate: Assume real property is sold for $300,000 with the purchase price being paid in cash (or purchase money mortgage) of $220,000 and by taking subject to a continuing mortgage lien of $80,000, and the grantee agrees to pay the City and State transfer taxes due on the sale. The tax due is computed as follows:
Tentative City Tax: | |
Consideration | $300,000 |
Tax Rate | × 1% |
Tentative Tax | $3,000 |
Tentative State Tax: | |
Consideration | $220,000 |
Tentative tax at $2 per $500 | $880 |
City Transfer Tax Due: | |
Consideration | $300,000 |
Add: Tentative Taxes | $3,880 |
Taxable Consideration | $303,880 |
Tax Rate | × 1% |
Tax Due | $3,038.80 |
(3) Consideration in the Case of Transfers of Controlling Economic Interests.
(i) In the case of the transfer of a controlling economic interest in real property, a proportionate share of the amount of any mortgage on the real property must be added to the amount paid for the stock in a corporation or the interest(s) in a trust, partnership, association, or other unincorporated entity.
To illustrate: X Corporation owns real property in New York City with a fair market value of $1,000,000 but encumbered by a $900,000 mortgage. X's stock is sold for $100,000 cash. The $900,000 mortgage is to be added to the $100,000 cash and the tax computation is based on $1,000,000 of consideration.
(ii) Where the entity whose stock or ownership interest is being transferred owns other assets in addition to real property, only the consideration attributable to the real property is subject to tax.
(iii) (A) An apportionment of the consideration between the real property (or an interest therein) and the other assets, which in the opinion of the Commissioner of Finance represents an apportionment made in good faith, will be accepted by the Department.
(B) If no apportionment of the consideration for the real property (or interest therein) and the other assets has been made, or if, in the opinion of the Commissioner of Finance, the apportionment of the consideration does not represent an apportionment made in good faith, then the consideration for the real property (or interest therein) shall be calculated by multiplying total consideration by the following ratio: Fair market value of the real property (or interest therein) owned by the entity being transferred. Fair market value of all assets owned by the entity, including the real property (or interest therein) To illustrate:
Illustration a: X Corporation owns real property in New York City with a fair market value of $500,000 and other assets valued at $1,000,000. All of X's stock is sold for $1,500,000 cash. The consideration subject to tax is $500,000.
Illustration b: X Corporation owns real property in New York City with a fair market value of $500,000, but encumbered with a $300,000 mortgage, and other assets valued at $1,000,000. All of X's stock is sold for $1,200,000 cash. The consideration subject to tax is $500,000 calculated as follows:
Value of real property | $500,000 | |
Less amount of mortgage | $300,000 | |
Reduced value of real property | $200,000 | |
Value of other assets | $1,000,000 | |
Total reduced value of assets | $1,200,000 | |
Cash paid | $1,200,000 | |
Cash paid attributable to real property | ||
200,000 × $1,200,000 = 1,200,000 | $200,000 | |
Add amount of mortgage | $300,000 | |
Total consideration attributable to real property | $500,000 | |
Illustration c: X Corporation owns real property in New York City with a fair market value of $500,000. Y Corporation owns 100% of the stock of Z Corporation. Z owns real property in New York City with a fair market value of $600,000 and personal property valued at $400,000. X deeds its realty to Y in exchange for 50% of the stock of Z. Two transfer taxes are due. First, the conveyance of X's real property by deed to Y is taxable. The consideration for this conveyance is the Z stock received by X which has a value of $500,000. The total consideration of $500,000 is subject to tax. Second, the transfer of 50% of Z's stock to X is a transfer of a controlling economic interest in real property and, thus, is subject to tax. The consideration for this transfer is the real property valued at $500,000 received by Y. This consideration, however, must be apportioned between Z's real property and its other assets. Accordingly, since the real property represents 60% of Z's total assets, 60% of the consideration, or $300,000, is subject to tax.
(iv) If the aggregation of related transfers results in the transfer of a controlling economic interest in an entity which owns real property (or an economic interest therein), the tax on such transfer shall be measured only by that part of the consideration for the controlling interest which is apportioned to such real property (or such economic interest therein) which was owned by the entity throughout the period during which the transfers were made.
To illustrate: X Corporation owns two parcels of realty in New York City, Parcel 1 and Parcel 2. Parcel 1 has a fair market value of $1 million and Parcel 2 has a fair market value of $500,000. X also owns other assets valued at $500,000. A owns all of X's outstanding stock. In year 1, A sells 40% of X to B for $800,000. In year 2, X sells Parcel 2 for $500,000. In year 3, A sells 10% of X to C for $200,000. If A's transfers are related, then a controlling economic interest in Parcel 1 has been conveyed. The consideration apportioned to Parcel 1 is calculated by multiplying the consideration for each separate transfer by the ratio of the fair market value of Parcel 1 to the fair market value of X's total Assets. Thus, in year 1 the consideration apportioned to Parcel 1 is calculated as follows:
$1,000,000 × $800,000 = $400,000
$2,000,000
$2,000,000
In year 3, the consideration is apportioned to Parcel 1 as follows:
$1,000,000 × $200,000 = $100,000
$2,000,000
$2,000,000
Therefore, the total consideration subject to tax is $500,000. (Note: X's transfer of Parcel 2 is also subject to tax.)
(4) Cross reference. For rules relating to the determination of consideration in the case of transfers of cooperative units, see 19 RCNY § 23-03(h).
Controlling interest. "Controlling interest" shall mean:
(1) General. In the case of a corporation, 50% or more of the total combined voting power of all classes of stock of such corporation, or 50% or more of the total fair market value of all classes of stock of such corporation; and in the case of a partnership, association, trust or other entity, 50% or more of the capital, profits or beneficial interest in such partnership, association, trust or other entity.
(2) Aggregation. A transfer of a controlling economic interest made by one or several persons, or in one or several related transfers, is subject to the transfer tax. Related transfers are aggregated in determining whether a controlling economic interest has been transferred. Related transfers include transfers made pursuant to a plan to either transfer or acquire a controlling economic interest in real property. Transfers made within a three year period are presumed to be related and are aggregated, unless the grantor(s) or grantee(s) can rebut this presumption by proving that the transfers are unrelated. (However, see paragraph (3) of this definition for aggregation of transfers made on recognized exchanges or over-the-counter markets subject to Securities and Exchange Commission regulation.) Transfers aggregated with respect to whether a controlling economic interest has been transferred will also be aggregated with respect to the $25,000 threshold for imposition of the tax and the applicable rate of tax. Transfers made prior to July 13, 1986, are not aggregated. To illustrate:
Illustration (i): X Corporation owns real property in New York City. A, B and C each own 1/3 of X's outstanding stock. A and B, acting in concert, each sell their entire interest in X Corporation to D. B's sale occurs four years after A's sale. The transfers made by A and B are related and, therefore, subject to the transfer tax, even though made more than three years apart.
Illustration (ii): X Corporation owns real property in New York City. A, B and C each own 1/3 of X's outstanding stock. A sells his entire 1/3 interest in X to D for $20,000. Within three years of A's sale, B sells his entire 1/3 interest in X to D for $20,000. The transfers made by A and B are presumed to be related because they were made within a three year period. Since the total consideration exceeds $25,000, the transfers are presumed to be related and the transfer tax will apply to the sales of stock by A and B.
Illustration (iii): X Corporation owns real property in New York City. A owns 100%- of the stock of X. On January 1, 1988, A sells 20% of X to B. On December 31, 1990, A sells 30% of X to C. Since A has transferred a controlling economic interest in real property within a three year period, the transfer tax will apply to both sales made by A.
Illustration (iv): X Corporation owns real property in New York City. A owns 100% of the stock of X. In year 1, A transfers 20% of X to B. In year 3, A transfers 30% of X to C. In year 5, A transfers 25% of X to D. In year 9, A transfers his remaining 25% interest in X to E.
(A) Since A's transfers to B and C (constituting 50% of the stock of X) have occurred within a three year period, they are presumed to be related. Therefore, these transfers are subject to the transfer tax.
(B) Since A's transfers to C and D (constituting 55% of the stock of X) have occurred within a three year period, they are also presumed to be related. Therefore, the transfer to D is also subject to the transfer tax. No additional tax is due on the transfer to C above what was already due on the transfer to C in year 3.
(C) The transfer to E has not occurred within three years of any other transfer of X stock. Accordingly, unless the transfer to E was part of a plan under which 50% or more of X was to be transferred or acquired, the transfer to E is not subject to the transfer tax.
Illustration (v): X Corporation owns real property in New York City. A owns 100% of the stock in X. In year 1, A transfers 20% of X to B. In year 3, A transfers 10% of X to C. In year 5, A transfers 20% of X to D. No transfer of a controlling economic interest in X has occurred within three years. Therefore, if A's transfers to B, C and D were each independent and not made pursuant to a plan, the transfers are not aggregated. No transfer tax will be due on A's transfers to B, C and D.
Illustration (vi): X Corporation owns real property in New York City. A owns 100% of X's stock. On January 1, 1986, A sells 20% of X to B. On April 1, 1986, A sells 25% of X to C. On September 1, 1986, A sells 25% of X to D. Since A has only transferred 25% of X on or after July 13, 1986, no taxable transfer of a controlling economic interest in real property has occurred and no transfer tax is due on A's transfers to B, C and D.
Illustration (vii): X Corporation owns real property in New York City. A owns 100% of the outstanding stock of X. A embarks on a five year plan to sell 75% of X. These sales are made to unrelated parties, none of whom will acquire 50% or more of X. All of A's transfers are related and, therefore, are aggregated. Once a 50% interest in X, in the aggregate, has been transferred, a transfer tax will be due and transfer tax returns will be required to be filed for every transfer which has been made pursuant to the plan. In addition, each subsequent transfer by A made after the 50% interest has been transferred will require the filing of a return and the payment of tax.
Illustration (viii): X Corporation owns real property in New York City. A owns 4% of the outstanding stock of X. B, C, D, E, F, G, H, and I each own 12% of the outstanding stock of X. J enters into agreements with A, B, C, D, and E to purchase their interests in X over a five year period. All of the transfers to J are related and, therefore, will be aggregated. A transfer tax will be due and transfer tax returns will be required to be filed for each transfer once a 50% interest in X, in the aggregate, has been transferred.
Illustration (ix): X Corporation owns realty in New York City. A has owned 40% of the outstanding stock of X for five years. B sells 20% of the outstanding stock of X to A. B's sale is not subject to the transfer tax because a controlling economic interest in real property has not been transferred.
Illustration (x): X Corporation owns real property in New York City. A and B each own 50% of X. On January 1, 1987, A sells 20% of X to C. On December 31, 1989, B sells 30% of X to C. Since these transfers occur within a three year period, they are presumed to be related and, thus, subject to the transfer tax.
Illustration (xi): X Corporation owns real property in New York City worth $3,000,000. A, B and C each own 1/3 of X and are unrelated. In 1987, A loses a lawsuit related to her business and transfers her 1/3 interest in X in satisfaction of a $1,000,000 judgment. In 1989, pursuant to a separation agreement, B transfers his 1/3 interest in X to his spouse. The transfers by A and B will not be aggregated because the transfers are not related. Thus, no tax is due.
Illustration (xii): A owns 100% of the stock of X Corporation. X owns real property in New York City. A sells 30% of X to B. One year after this sale, B sells this 30% interest in X to C. Resales of the same interests are not aggregated. Thus, no tax is due.
Illustration (xiii): X Corporation owns real property in New York City. A owns 30% of X. In year 1, A sells 20% of X to B. In year 2, A buys 30% of X from C. A's 20% sale is not aggregated with A's 30% purchase. Therefore, no tax is due.
Illustration (xiv): Y Partnership owns real property in New York City. Pursuant to a syndication, partnership interests are transferred. Such syndication is subject to aggregation, and thus taxable, if 50% or more of the capital, profits or beneficial interest in the partnership is transferred pursuant to the syndication.
Illustration (xv): X Corporation owns real property in New York City. A, pursuant to a tender offer plan, seeks to acquire a controlling economic interest in X. If 50% or more of the total combined voting power of all classes of stock or 50% or more of the total fair market value of all classes of stock are transferred to A, then all such transfers are subject to tax as soon as 50% of such stock is conveyed.
(3) In the case of transfers made on recognized exchanges or on over-the-counter markets subject to regulation by the Securities and Exchange Commission, the following rules will govern:
(i) All transfers made pursuant to a plan are aggregated without regard to amount sold or when sold.
(ii) All other sales made within a three year period are presumed to be related, and thus aggregated, except for sales or purchases of less than 5% of a corporation's outstanding stock.
(4) In the case of a transfer of an ownership interest in an entity which owns an economic interest in real property, where such ownership interest is itself considered an economic interest in real property in accordance with 19 RCNY § 23-02 "Economic interest in real property", the percentage of both interests must be considered to determine whether a controlling economic interest in real property has been transferred. To illustrate:
Illustration (i): A transfers 80% of the stock of X Corporation to B. X owns 70% of the stock of Y Corporation, which owns real property. Assume that A's interest in X is an economic interest in the real property. A has transferred a controlling economic interest in real property to B.
Illustration (ii): Assume the same facts as in illustration (i), except that X Corporation owns only 60% of the stock of Y Corporation. A has not transferred a controlling economic interest in real property to B.
(For rules on consideration in the cases of transfers of controlling economic interests, see 19 RCNY § 23-02 "Consideration" (3). For rules relating to the impact of the exemption for transactions constituting a mere change of identity or form of organization or ownership on transfers of controlling economic interests, see 19 RCNY § 23-05(b)(8).)
Deed. "Deed" shall mean any document or writing (other than a will), regardless of where made, executed or delivered, whereby any real property or interest therein is created, vested, granted, bargained, sold, transferred, assigned or otherwise conveyed, including, on and after February 1, 1982, any such document, instrument or writing whereby any leasehold interest in real property is granted, assigned or surrendered. To illustrate:
Illustration 1: The devise of an interest in real property under a will is not subject to tax.
Illustration 2: A deed given by an executor in accordance with the terms of a will is not subject to tax; however, if by reason of a consideration passing between devisees, one of them takes a greater share in the realty than that to which he is entitled under the will, the deed given by the executor to convey such greater share is subject to tax computed upon the amount of such consideration.
Illustration 3: A deed given by an executor in connection with the sale of an interest in real property is subject to tax.
Illustration 4: A collateral assignment of rents due under the terms of a leasehold, given as security for an indebtedness, is not a leasehold interest in real property and is not subject to tax.
Economic interest in real property. "Economic interest in real property" shall mean:
(1) The ownership of shares of stock in a corporation which owns real property; the ownership of an interest or interests in a partnership, association or other unincorporated entity which owns real property; and the ownership of a beneficial interest or interests in a trust which owns real property.
(2) For transfers occurring prior to April 24, 1995, the ownership of shares of stock in a corporation that owns an economic interest in real property, the ownership of an interest or interests in a partnership, association, or other unincorporated entity which owns an economic interest in real property, and the ownership of a beneficial interest or interests in a trust which owns an economic interest in real property, may also constitute an economic interest in real property. The factors to be weighed in determining whether such ownership constitutes an economic interest in real property include the nature of the activities, assets, and purposes of the above-described entities. To illustrate:
Illustration (i): X Corporation is a holding company whose sole asset is 100% of the stock of Y Corporation. Y owns real property located in New York City. Since X exists principally for the purpose of holding stock in a subsidiary which owns real property, the ownership of X stock constitutes an economic interest in real property and the sale prior to April 24, 1995, of all the stock of X Corporation is a transfer of a controlling economic interest in real property.
Illustration (ii): X Corporation is primarily engaged in manufacturing outside of New York City. X does not own real property in the City, but does own 100% of the stock of Y Corporation, which owns real property in the City. Since X does not exist principally for the purpose of holding stock in a subsidiary which owns real property, but rather is substantially engaged in other bona fide activities, the ownership of X stock does not constitute an economic interest in real property and the sale prior to April 24, 1995, of all the stock of X Corporation will not constitute a transfer of a controlling economic interest in real property.
(3) For transfers occurring on or after April 24, 1995, the ownership of shares of stock in a corporation that owns an economic interest in real property, the ownership of an interest or interests in a partnership, association, or other unincorporated entity which owns an economic interest in real property, and the ownership of a beneficial interest or interests in a trust which owns an economic interest in real property, also constitutes an economic interest in real property. To illustrate:
Illustration (iii): X Corporation is engaged in manufacturing outside New York City. X Corporation does not own real property in the City but owns 100% of the stock of Y Corporation, which owns real property located in New York City. The ownership of X Corporation stock constitutes an economic interest in real property and the sale on or after April 24, 1995, of all the stock of X Corporation is a transfer of a controlling economic interest in real property. The result would be the same if, instead of owning the property directly, Y Corporation owns 100% of the stock of Z Corporation, which owns the property.
Illustration (iv): X Corporation is engaged in manufacturing outside New York City. X Corporation does not own real property in the City but owns 49% of the stock of Y Corporation, which owns real property in the City. The ownership of X stock constitutes an economic interest in real property. However, a sale on or after April 24, 1995, of all the stock of X Corporation is not subject to tax as a transfer of a controlling economic interest in real property because there has been no transfer of a controlling interest in Y Corporation.
(4) For transfers occurring on or after April 24, 1995, of stock in a corporation that owns an economic interest in real property, an interest in a partnership, association, or other unincorporated entity that owns an economic interest in real property, or a beneficial interest in a trust that owns an economic interest in real property, if the transfer would not have constituted a transfer of an economic interest in real property had such transfer occurred prior to April 24, 1995, such transfer will not constitute a transfer of an economic interest in real property if the transfer is made pursuant to a binding written contract entered into prior to April 24, 1995, provided the date of execution of the contract is confirmed by independent evidence, such as the recording of the contract, payment of a deposit or other facts and circumstances determined to be applicable by the commissioner of finance. In addition, transfers occurring prior to April 24, 1995, or on or after April 24, 1995, pursuant to a binding written contract entered into prior to that date, as determined above, of stock in a corporation that owns an economic interest in real property, an interest in a partnership, association, or other unincorporated entity that owns an economic interest in real property, or a beneficial interest in a trust that owns an economic interest in real property that do not or would not constitute transfers of an economic interest in real property will not be aggregated with any other transfer occurring on or after April 24, 1995, in determining whether there has been a transfer of a controlling economic interest in real property. To illustrate:
Illustration (v): X Corporation is engaged in manufacturing outside New York City. X Corporation does not own real property in the City but does own 75% of the stock of Y Corporation, which owns real property in the City. In December, 1994, the sole shareholder of X Corporation entered into a binding written agreement to sell all her shares of X Corporation stock. At that time, the purchaser made the required down payment, which the shareholder deposited in her bank account. The closing took place on May 1, 1995 at which time the shares of X Corporation stock were delivered to the purchaser in exchange for the balance of the purchase price. The transfer of the X shares on May 1, 1995 is not subject to tax as a transfer of a controlling economic interest in real property because it took place pursuant to a binding written contract entered into prior to April 24, 1995.
Illustration (vi): X Corporation is engaged in manufacturing outside New York City. X Corporation does not own real property in the City but does own 75% of the stock of Y Corporation, which owns real property in the City. A, B and C each own 20% of X Corporation and D owns the remaining 40% of the stock. On March 30, 1995, A sold his 20% of the X Corporation stock to E, an unrelated party. On May 1, 1995, B and C transfer their X Corporation stock to E. Because A's transfer occurred prior to April 24, 1995, his transfer is not aggregated with the transfers by B and C. Therefore, because B's and C's transfers represent only 40% of the X Corporation stock, there has been no transfer of a controlling economic interest in Y Corporation.
Illustration (vii): X Corporation is engaged in manufacturing outside New York City. X Corporation does not own real property in the City but does own 100% of the stock of Y Corporation, which owns real property in the City. A, B and C each own 20% of X Corporation and D owns the remaining 40% of the stock. On March 30, 1995, A sold his 20% of the X Corporation stock to E, an unrelated party. On May 1, 1995, B and D transfer their X Corporation stock to E. Because B's and D's transfers represent 60% of the X Corporation stock, those transfers are subject to the tax as a transfer of a controlling economic interest in Y Corporation. However, because A's transfer occurred prior to April 24, 1995, his transfer is not aggregated with the transfers by B and D and is not subject to the tax.
(5) In the case of a transfer of an ownership interest in an entity owning an economic interest in real property, where such ownership interest, itself, constitutes an economic interest in real property under these rules, the percentage of both interests must be considered to determine whether a controlling economic interest in real property has been transferred. (See 19 RCNY § 23-02 "Controlling interest" (3))
Electronic return."Electronic return" shall mean the completed real property transfer tax return in the electronic format prescribed by and formatted by the Department of Finance and available through the internet website of the Department of Finance, and filed electronically through the Department of Finance website.
Filed electronically. "Filed electronically" shall mean submitted to the Department of Finance through, and in accordance with the instructions found on, the internet website of the Department of Finance.
Grantee. "Grantee" shall mean the person or persons accepting the deed or who obtain any of the real property which is the subject of the deed or any interest therein. The term "grantee" also includes the person or persons to whom an economic interest in real property is transferred.
Grantor. "Grantor" shall mean the person or persons making, executing or delivering a deed. The term "grantor" also includes the person or persons who transfer an economic interest in real property.
Instrument. "Instrument" shall mean any document or writing (other than a deed or a will), regardless of where made, executed or delivered, whereby any economic interest in real property is transferred.
Net Consideration. "Net Consideration" shall mean any consideration, exclusive of any mortgage or other lien or encumbrance on the real property or interest therein which existed before the delivery of the deed and remains thereon after the delivery of the deed. The term "net consideration", as a basis for computing the real property transfer tax, applies to conveyances made prior to February 1, 1982, or conveyances made after that date if made in performance of a contract executed prior thereto. It also applies to conveyances made on or after February 1, 1982 and before July 1, 1982 where the conveyance involves a 1, 2 or 3 family house or individual residential condominium unit or where the consideration for the conveyance is less than $500,000. (See 19 RCNY § 23-03.) In determining the amount of net consideration, only the amounts of liens and encumbrances on the property existing before the sale and not removed thereby may be deducted. Thus, for example, taxes or assessments which are liens on the property before the sale and are not paid at the time of sale are deductible. No deduction shall be made on account of any lien or encumbrance placed on the property in connection with the sale, or by reason of deferred payments of the purchase price whether represented by notes or otherwise. As used herein, the term "sale" refers to the delivery of the deed. To illustrate:
Illustration 1: A parcel of real property is sold for $50,000 subject to an existing mortgage of $35,000 which remains thereon after delivery of the deed. The mortgage is not treated as part of the net consideration for the conveyance. Consequently, the tax is to be computed upon the net consideration, viz: $15,000 ($50,000 – $35,000).
Illustration 2: A parcel of real estate is sold for $50,000, free and clear of mortgages, liens and encumbrances. The purchaser gives a purchase money mortgage to the seller or a third party in the amount of $35,000 to secure the payment of a portion of the purchase price. The mortgage was placed on the property as the result of the sale and cannot be deducted in determining the net consideration. Consequently, the tax is to be computed on the consideration of $50,000.
Illustration 3: A parcel of real property was sold on January 10, 1950, for $60,000 subject to a first mortgage of $30,000. On July 10, 1959 the property is sold for $80,000 subject to the balance of the mortgage remaining unpaid, viz: $10,000. The balance of the purchase price, viz: $70,000 is paid in cash. The tax is to be computed on the net consideration of $70, 000. Illustration 4: A parcel of real property is sold on July 15, 1959 for $75,000. Under the terms of the contract of sale, the grantor agrees to, and does, pay off an existing mortgage of $20,000, and agrees to take $45,000 in cash and a purchase money mortgage for $30,000. The tax is to be computed on the consideration of $75,000.
Paper return. "Paper return" shall mean the paper copy of the completed real property transfer tax return as it is printed after completion in electronic format or by other means as designated by the Commissioner of Finance, bearing the original signatures of the grantor or the grantor's agent and the grantee or the grantee's agent.
Person. "Person" shall mean an individual, partnership, society, association, joint stock company, corporation, estate, receiver, trustee, assignee, referee or any other person acting in a fiduciary or representative capacity, whether appointed by a court or otherwise, any combination of individuals, and any other form of unincorporated enterprise owned or conducted by two or more persons.
Real Property. "Real Property" shall mean every estate or right, legal or equitable, present or future, vested or contingent, in lands, tenements or hereditaments, which are located in whole or in part within the City of New York, including, on and after February 1, 1982, a leasehold interest in real property. To illustrate:
Illustration 1: The term includes an easement (including a negative easement) in real property, but not a license to use real estate in which a person confers upon another only a personal, revocable and unassignable privilege to make use of the property but grant no interest or estate therein.
Illustration 2: The term includes excess zoning rights in connection with zoning lot mergers and development rights relating to landmark-designated parcels.
Illustration 3: The term includes not only an estate in fee simple but also a life estate. The estate granted need not take effect immediately upon conveyance but may be postponed to a future time, as where a grantor grants a remainder to another to take effect upon the termination of a precedent life estate conveyed at the same time.
Illustration 4: The term includes an ownership interest in a condominium unit.
Illustration 5: The term does not include a mortgage, or a release of,mortgage.
Illustration 6: The term does not include rights to sepulture.
Register. "Register" includes the City Register and the County Clerk of the County of Richmond.
Return. "Return" shall mean the electronic return together with the paper return as they are defined in this section, and together with any other documents required by these rules to be attached to the paper return.
Transaction. "Transaction" shall mean any act or acts, regardless of where performed, and whether or not reduced to writing, unless evidenced by a deed or instrument, whereby any economic interest in real property is transferred (other than a transfer pursuant to a will or the laws of the intestate succession).
Transfer or transferred. When used in relation to an economic interest in real property, the terms "transfer" or "transferred" shall include the transfer or transfers or issuance of shares of stock in a corporation, interest or interests in a partnership, association or other unincorporated entity, or beneficial interests in a trust, whether made by one or several persons, or in one or several related transactions, which shares of stock or interest or interests constitute a controlling interest in such corporation, partnership, association, trust or other entity.
(a) General. The tax is imposed on:
(1) each deed at the time of delivery by a grantor to a grantee when the consideration for the real property and any improvement thereon (whether or not included in the same deed) exceeds $25,000,
(2) after July 12, 1986, when the consideration for the transfer exceeds $25,000,
(i) on each instrument or transaction (unless evidenced by a deed otherwise subject to tax) at the time of the transfer, whereby any controlling economic interest in real property is transferred by a grantor to a grantee,
(ii) on initial transfers of shares of stock in a cooperative housing corporation by the cooperative housing corporation or sponsor, and
(iii) on subsequent transfers (resales) of cooperative housing corporation stock (except that no subsequent transfer (resale) of shares of stock in a cooperative housing corporation made before August 1, 1989 shall be taxable unless the owner held the shares in connection with, incidental to or in furtherance of a trade, business, profession, occupation or commercial activity engaged in or conducted by him or it) and
(3) On or after August 1, 1989, when the consideration for the transfer exceeds $25,000, on each transfer of shares of stock in a corporation (other than a cooperative housing corporation), or interest in a partnership, association, trust or other entity, formed for the purpose of cooperative ownership of real property, in connection with the grant or transfer of a proprietary leasehold. The tax applies to each such deed, instrument or transaction evidencing the conveyance of real property, or an economic interest therein, which is situated in whole or in part within the City of New York, unless the deed, instrument or transaction is expressly exempt by the law. Anything to the contrary notwithstanding, after July 12, 1986, in the case of a transfer of real property or an economic interest therein in complete or partial liquidation of a corporation, partnership, association, trust or other entity, the tax imposed shall be measured by
(i) the consideration for such conveyance or transfer, or
(ii) the value of the real property or economic interest therein, whichever is greater. Conveyances or transfers of controlling economic interests in real property or transfers of shares of stock in a cooperative housing corporation made pursuant to a written contract (including option contracts, but not rights of first refusal) entered into prior to July 31, 1981, are not subject to tax.
(b) Rates of tax on deeds. The tax is computed:
(1) at the rate of 1/2 of 1% of the net consideration with respect to conveyances made before July 1, 1971, or made in performance of a contract therefor executed before such date;
(2) at the rate of 1% of the net consideration with respect to:
(i) conveyances made on or after July 1, 1971 and before February 1, 1982, or made in performance of a contract therefor executed during such period,
(ii) conveyances made on or after February 1, 1982 and before July 1, 1982 of 1-, 2- or 3-family houses and individual residential condominium units,
(iii) conveyances made on or after February 1, 1982 and before July 1, 1982 where the consideration is less than $500,000 (other than grants, assignments or surrenders of leasehold interests in real property taxable under paragraph (3) below);
(3) at the rate of 1% of the consideration with respect to grants, assignments or surrenders of leasehold interests in real property made on or after February 1, 1982 and before July 1, 1982 where the consideration is $500,000 or more, provided, however, that for purposes of this paragraph (3) the amount subject to tax in the case of a grant of a leasehold interest in real property shall be only such amount as is not considered rent for purposes of the New York City Commercial Rent or Occupancy Tax (Chapter 7 of Title 11 of the New York City Administrative Code);
(4) at the rate of 2% of the consideration with respect to all other conveyances made on or after February 1, 1982 and before July 1, 1982, except that for purposes of this paragraph, (4), where the consideration includes the amount of any mortgage or other lien or encumbrance on the real property or interest therein which existed before the delivery of the deed and remains thereon after the delivery of the deed, the portion of the consideration ascribable to such mortgage, lien or encumbrance shall be taxed at the rate of 1%, and only the balance of such consideration shall be taxed at the rate of 2%;
(5) at the rate of 1% of the consideration with respect to conveyances made on or after July 1, 1982 and before August 1, 1989 of 1-, 2- or 3-family houses and individual residential condominium units;
(6) at the rate of 1% of the consideration with respect to conveyances made on or after July 1, 1982 and before August 1, 1989 where the consideration is less than $500,000 (other than grants, assignments or surrenders of leasehold interests in real property taxable as hereafter provided);
(7) (i) at the rate of 1% of the consideration with respect to a grant, assignment or surrender, made on or after July 1, 1982 and before August 1, 1989 of a leasehold interest in a 1-, 2- or 3-family house or an individual dwelling unit in a dwelling which is to be occupied or is occupied as the residence or home of four or more families living independently of each other;
(ii) at the rate of 1% of the consideration with respect to all other grants, assignments or surrenders of leasehold interests in real property made on or after July 1, 1982 and before August 1, 1989 where the consideration is less than $500,000; or
(iii) at the rate of 2% of the consideration with respect to all other grants, assignments or surrenders of leasehold interests in real property made on or after July 1, 1982 and before August 1, 1989 where the consideration is $500,000 or more;
(iv) provided, however, that for purposes of subparagraphs (i), (ii) and (iii) of this paragraph (7), the amount subject to tax in the case of a grant of a leasehold interest shall be only such amount as is not considered rent for purposes of the New York City Commercial Rent or Occupancy Tax (Chapter 7 of Title 11 of the New York City Administrative Code);
(8) at the rate of 2% of the consideration with respect to all other conveyances made on or after July 1, 1982 and before August 1, 1989;
(9) at the rate of 1% of the consideration with respect to conveyances of 1-, 2- or 3-family houses or individual condominium units (other than grants, assignments or surrenders of leasehold interests as hereafter provided) made on or after August 1, 1989 where the consideration is $500,000 or less, and at the rate of 1.425% of the consideration with respect to such conveyances made on or after August 1, 1989 where the consideration is more than $500,000. For purposes of this paragraph (9), an individual condominium unit that is used for residential purposes shall be presumed to be a residential condominium unit, unless such residential use is de minimis; provided, however, an individual condominium unit that is required to be used in whole or part as a hotel room by the contract of sale or other document determining the conditions under which such condominium is transferred shall be presumed not to be a residential condominium unit. To illustrate:
Illustration (i): X owns an individual condominium unit in New York City. X leases the unit to Y, who uses the unit solely as a residence. During the term of the lease, X sells the unit to Z for $600,000. The unit is deemed a residential condominium unit, and the tax is calculated as follows: 1.425% of $600,000, for a tax due of $8,550. Although the unit produced income for X, the unit was used for residential purposes. Illustration (ii): An artist owns an individual condominium unit in New York City worth $600,000. The artist both resides and maintains a studio in the unit. When the artist sells the unit, the transfer tax will be calculated as follows: 1.425% of $600,000, for a tax due of $8,550. The unit is deemed a residential condominium unit because the unit was used for residential purposes.
(10) at the rate of 1.425% of the consideration with respect to all other conveyances (other than grants, assignments or surrenders of leasehold interests taxable as hereafter provided) made on or after August 1, 1989 where the consideration is $500,000 or less, and at the rate of 2.625% of the consideration with respect to such conveyances made on or after August 1, 1989 where the consideration is more than $500,000; To illustrate:
Illustration (i): An artist owns an individual condominium unit in New York City that is located in a building classified as class two property pursuant to section 1802 of the Real Property Tax Law, and which the artist uses as a studio. Although the artist maintains a separate residence, the artist keeps a bed in the studio and spends twelve nights per year in the studio. When the artist sells the unit for $300,000, the tax will be calculated as follows: 1.425% of $300,000, for a tax due of $4,275. Since the residential use of the unit is de minimis, the unit is not deemed a residential condominium unit.
Illustration (ii): A physician owns an individual condominium unit in New York City which is used only as the physician's office. When the physician sells the unit for $800,000, the tax will be calculated as follows: 2.625% of $800,000, for a tax due of $21,000. Since the unit is not used for residential purposes, it is not deemed a residential condominium unit.
Illustration (iii): X purchases a condominium unit in a building consisting of 150 separate condominium units. Each unit consists of bedroom(s), sitting areas or rooms and kitchen facilities. Under the terms of sale, X (or X's designee) is entitled to occupy the unit for their own purposes for a limited period in each calendar year. When not occupied by the purchaser (or their designee), the condominium unit must be made available for rental as a transient hotel accommodation. The Certificate of Occupancy for floors containing the condominium units will state "hotel." The cost of X's condominium unit is $1 million. The tax due will be calculated as follows: 2.65% of $1,000,000 for a tax due of $26,250. The unit is not considered an individual residential condominium unit for purposes of calculating the tax.
(11) at the rate of 1% of the consideration with respect to a grant, assignment or surrender made on or after August 1, 1989 of a leasehold interest in a 1-, 2- or 3-family house or an individual dwelling unit in a dwelling that is to be occupied or is occupied as the residence or home of four or more families living independently of each other where the consideration is $500,000 or less, and at the rate of 1.425% of the consideration with respect to a grant, assignment or surrender of such a leasehold interest made on or after August 1, 1989 where the consideration is more than $500,000;
(12) at the rate of 1.425% of the consideration with respect to a grant, assignment or surrender of a leasehold interest in any other real property made on or after August 1, 1989 where the consideration is $500,000 or less, and at the rate of 2.625% of the consideration with respect to a grant, assignment or surrender of such a leasehold interest made on or after August 1, 1989 where the consideration is more than $500,000;
(13) provided that for purposes of paragraphs (11) and (12) of this subdivision (b), the amount subject to tax in the case of a grant of a leasehold interest shall be only such amount as is not considered rent for purposes of the New York City Commercial Rent or Occupancy Tax (Chapter 7 of Title 11 of the Administrative Code).
(c) Rates of tax on transfers of economic interests. The tax is computed:
(1) at the rate of 1% of the consideration with respect to transfers of economic interests in real property made on or after July 13, 1986 and before August 1, 1989 where the real property the economic interest in which is transferred is a 1-, 2- or 3-family house, an individual cooperative apartment, an individual residential condominium unit or an individual dwelling unit in a dwelling which is to be occupied or is occupied as the residence or home of four or more families living independently of each other, or where the consideration for the transfer is less than $500,000;
(2) at the rate of 2% of the consideration with respect to all other transfers of economic interests in real property made on or after July 13, 1986 and before August 1, 1989;
(3) at the rate of 1% of the consideration with respect to transfers made on or after August 1, 1989 of economic interests in real property in which the economic interest that is transferred is a 1-, 2- or 3-family house, an individual cooperative apartment, an individual residential condominium unit or an individual dwelling unit in a dwelling that is to be occupied or is occupied as the residence or home of four or more families living independently of each other and where the consideration is $500,000 or less, and at the rate of 1.425% of the consideration with respect to such transfers made on or after August 1, 1989 where the consideration is more than $500,000; and
(4) at the rate of 1.425% of the consideration with respect to all other transfers of an economic interest in real property made on or after August 1, 1989 where the consideration is $500,000 or less, and at the rate of 2.625% of the consideration with respect to such transfers made on or after August 1, 1989 where the consideration is more than $500,000. Where the transfer of a controlling economic interest involves more than one parcel of real property, the applicable rate is determined based upon the consideration apportioned to each parcel.
Example: X Corporation owns two parcels of commercial property in New York City. Building A is worth $400,000 and Building B is worth $600,000. Y, X's sole shareholder, sells his X Corporation stock, which represents his entire interest in both parcels, to Z for $1,000,000. The tax is calculated as follows: 1.425% of $400,000 (Building A) 2.625% of $600,000 (Building B). The tax due is $21,450.
(d) Conveyances subject to tax. (General.) The following are examples of situations in which the tax applies: (Any reference made to a deed or conveyance includes a transfer of an economic interest in realty.)
(1) A conveyance by a defaulting mortgagor to the mortgagee. The tax is computed on the amount of the outstanding mortgage debt and unpaid accrued interest. The tax applies without regard to whether the mortgagor is personally liable for the mortgage debt or whether the mortgage is cancelled of record.
(2) Deeds given by referees, receivers, sheriffs, etc., for realty sold under foreclosure or execution. The tax is computed on the amount bid for the property, senior liens not canceled by the sale, and advertising expenses, taxes and other costs paid by the purchaser, whether the purchaser is the mortgagee, judgment creditor, or other person.
(3) A conveyance of realty from one spouse to the other pursuant to the terms of a separation agreement. In the absence of evidence establishing the consideration, it is presumed that the consideration for the conveyance, which includes the relinquishment of marital rights, is equal to the fair market value of the interest in the property conveyed.
(4) The assignment of a successful bid at a mortgage foreclosure sale. The consideration is the amount paid for the assignment.
(5) Realty distributed by a corporation in redemption for stock or by a partnership in return for the surrender of a partnership interest. Example:
Example (i): A, B, C and D are equal shareholders of X Corporation. X owns two buildings in New York City. In 1990, X redeems A's shares in exchange for one of the buildings, which is unencumbered and valued at $250,000 (Parcel 1). X's other building is also unencumbered and valued at $750,000 (Parcel 2). X has no other assets. The value of A's shares is $250,000. The consideration for this transfer is the X stock owned by A. Therefore, the amount of tax due is $3,562.50 (1.425% × $250,000). If the redemption occurs on or after June 9, 1994, the transfer would be exempt as a mere change of identity or form of ownership or organization to the extent the beneficial ownership of the real property remained the same. Because A had a 25% beneficial ownership interest in Parcel 1 before the redemption and a 100% beneficial interest afterwards, the transfer of Parcel 1 to A is exempt as a mere change of identity or form of ownership or organization to the extent of 25%. Therefore only 75% of the consideration or $187,500 ($250,000 × 75%) is subject to tax. The tax is calculated by multiplying $187,500 by the applicable tax rate of 1.425% for a tax due of $2,671.88. See 19 RCNY § 23-05(b)(8).
Example (ii): Assume the same facts as in example (i) above, except that, in 1990, instead of redeeming A's shares in exchange for Parcel 1, X redeems the shares of B, C, and D in exchange for Parcel 2. In this case, there are two taxable transfers. The first is the transfer by X of Parcel 2 to B, C, and D in exchange for consideration consisting of the X stock owned by B, C and D. The value of B, C, and D's shares is $750,000. The amount of tax due is $19,687.50 (2.625% × $750,000). If the transaction occurred on or after June 9, 1994, the transfer of Parcel 2 to B, C, and D in exchange for consideration consisting of the X stock owned by B, C and D would be exempt as a mere change of identity or form of ownership or organization to the extent the beneficial ownership of the real property remained the same. Because B, C and D collectively had a 75% beneficial ownership interest in Parcel 2 before the redemption (25% each) and 100% afterwards, the distribution of Parcel 2 is exempt from tax as a mere change of identity or form of ownership or organization to the extent of 75%. Therefore, only 25% of the $750,000 consideration is subject to the tax. The tax due is calculated by multiplying the taxable consideration of $187,500 (25% × $750,000) by the applicable tax rate (2.625%) for a tax due of $4,921.88. See 19 RCNY § 23-05(b)(8). The second taxable transfer is the transfer by B, C, and D of a 75% interest in Parcel 1 to A, the remaining shareholder. Since this constitutes a transfer of a controlling economic interest in Parcel 1, it is also taxable. The consideration for the transfer is a proportionate part of Parcel 2 received by B, C, and D in exchange for their X stock. B, C, and D's stock represented their 75% interest in all of the assets of X prior to the redemption. Since Parcel 1 constituted 25% of the assets of X, 25% of the consideration, or $187,500, must be apportioned to B, C, and D's interest in Parcel 1. Thus, the tax due is $2,671.88 (1.425% × $187,500).
(6) A conveyance of realty in exchange for other realty. Each transfer of realty is subject to tax. The consideration for each transfer is the fair market value of the realty and other property received in exchange for the realty conveyed.
(e) Conveyances to corporations and partnerships. (Any reference made to realty or property includes an economic interest in realty. For transfers on or after June 9, 1994, see 19 RCNY § 23-05(b)(8) for rules relating to the exemption for transactions constituting a mere change of identity or form of ownership or organization.)
(1) Corporations.
(i) A conveyance of realty to a corporation in exchange for shares of its capital stock is subject to tax. The consideration for the realty is deemed to be equal in value to the greater of the fair market value of the realty conveyed or the amount of any mortgage, lien or other encumbrance on the realty.
(ii) A conveyance of realty to an existing corporation by a sole shareholder as a contribution to capital, where no additional shares of capital stock are issued in exchange, and no cash or other consideration is given, is deemed to be without consideration. However, where the realty is conveyed subject to an existing mortgage, lien or other encumbrance, there is consideration to the extent of the unpaid mortgage, lien or other encumbrance.
(iii) Notwithstanding subparagraph (ii) of this paragraph (1), a conveyance of realty to a corporation organized by the grantor for the purpose of holding or holding and operating the property is subject to tax, even where the conveyance is made some time after the issuance of the capital stock. In such event, the issuance of the stock and the conveyance of the realty are considered elements of a single transaction. The consideration for the realty is deemed to be equal in value to the greater of the fair market value of the realty conveyed or the amount of any mortgage, lien or other encumbrance on the realty.
(iv) On or after June 9, 1994, a conveyance of realty or an economic interest in realty to a corporation is exempt as a mere change of identity or form of ownership or organization to the extent the beneficial ownership of the real property remains the same, whether or not shares of stock are issued in exchange. See 19 RCNY § 23-05(b)(8).
(2) Corporate mergers. A transfer of real property in a statutory merger or consolidation from a constituent corporation to the continuing or new corporation is not subject to tax. However, the related transfer of shares of stock in a statutory merger or consolidation may be subject to tax. For statutory mergers or consolidations occurring on or after June 9, 1994, the related transfer of shares of stock is exempt from tax to the extent the beneficial ownership in the real property or economic interest in real property remains the same. See 19 RCNY § 23-05(b)(8). To illustrate:
Illustration (i): X Corporation owns real property in New York City with a fair market value of $300,000 and has cash of $100,000. X is to be merged into Y Corporation under Article 9 of the New York Business Corporation Law. Prior to the merger, Y Corporation owns no real property in New York City. Under the plan of merger, shareholders of X will receive consideration valued at $400,000 consisting of 25% of the stock of Y and cash. The shares of X exchanged or converted under the merger plan for the cash and stock of Y represent a controlling economic interest in real property and the transfer of such shares constitutes a taxable transfer. The shareholders of X, therefore, are subject to tax as a result of the statutory merger. If the transaction occurs prior to June 9, 1994, the tax would be measured by that portion of the value of X's stock which is attributable to the real property ($300,000). A deed confirming title to property vested in the surviving Y Corporation pursuant to section 906(b)(2) of the New York Business Corporation Law will not be subject to the transfer tax. If the transaction occurs on or after June 9, 1994, the tax on the transfer of a controlling economic interest in X would be exempt to the extent that the beneficial ownership in the real property remains the same. In that event, because the X shareholders receive 25% of the stock of Y and therefore retain a 25% beneficial interest in the real property previously owned by X, the transaction would be exempt to the extent of 25% and the tax would be imposed on 75% of the value of the consideration attributable to the real property (75% of $300,000 or $225,000). See 19 RCNY § 23-05(b)(8).
Illustration (ii): X Corporation owns 100% of the stock of Y Corporation. Y owns real property in New York City. Pursuant to the statutory merger provisions of state law, Y is merged into X on January 1, 1995. Because X was the 100% beneficial owner of the property before the transaction and remains the 100% beneficial owner of the property afterwards, the transaction is exempt as a mere change of identity or form of ownership or organization. Because the issuance of shares of X in exchange for the Y shares would not affect X's beneficial interest in Y's real property, the result would be the same regardless of whether under applicable state law the Y shares are deemed exchanged for X shares pursuant to the merger.
Illustration (iii): X Corporation owns 100% of the stock of corporations Y and Z. Y owns real property in New York City. Pursuant to the statutory merger provisions of state law, Y is to be merged into Z on January 1, 1995. Because X was the 100% beneficial owner of the property before the transaction and remains the 100% beneficial owner of the property afterwards, the transaction is exempt as a mere change of identity or form of ownership or organization. Because the issuance of Z shares in exchange for the Y shares would not affect X's beneficial interest in Y's real property, the result would be the same regardless of whether under applicable state law the Y shares are deemed exchanged for Z shares pursuant to the merger.
Illustration (iv): X Corporation owns unencumbered real property in New York City with a fair market value of $300,000 and has cash of $150.000. Z Corporation owns real property in New York City with a fair market value of $450,000 and has no other assets. On January 1, 1995, X is merged into Z pursuant to the statutory merger provisions of state law. The shareholders of X Corporation will receive a 40% interest in Z and the $150,000 cash. Because the exchange or conversion of 100% of the X stock into shares of Z by the shareholders of X is effected pursuant to the plan of merger approved by them, the exchanges by the X shareholders are aggregated. Therefore, the merger results in a taxable transfer of a controlling economic interest in the real property owned by X. The tax will be measured by the consideration for that portion of X's stock attributable to the real property ($300,000). The transfer is exempt as a mere change of identity or form of ownership or organization to the extent the beneficial ownership of the real property remains the same. Because the former shareholders of X will receive a 40% interest in Z Corporation, each receiving a proportionate share of Z stock and cash, the beneficial ownership of the property owned by X will remain the same to the extent of 40% Therefore, $180,000 (60% × $300,000) of the consideration is subject to tax. The tax due as a result of the merger is $2,565 (1.425% × $180,000). The transfer of the 40% interest in Z Corporation to the former shareholders of X Corporation is not a transfer of a controlling economic interest in Z Corporation and is not subject to tax. A deed confirming title to property vested in Z Corporation pursuant to the merger will not be subject to the transfer tax.
(3) Partnerships.
(i) A conveyance of realty to a partnership as a contribution of partnership assets in exchange for a partnership interest is subject to tax. The consideration is deemed to be equal in value to the greater of the fair market value of the realty conveyed or the amount of any mortgage, lien or other encumbrance on the realty.
(ii) A conveyance of realty by a partner to an existing partnership as a contribution of capital is deemed to be without consideration. However, where the realty is conveyed subject to an existing mortgage, lien or other encumbrance, there is consideration to the extent of the unpaid mortgage, lien or other encumbrance.
(iii) Notwithstanding subparagraph (ii) of this paragraph (3), a conveyance of realty to a partnership organized by the grantor(s) for the purpose of holding or holding and operating the property is subject to tax, even where the conveyance is made some time after the acquisition of the partnership interest. In such event, the acquisition of the partnership interest and the conveyance of the realty are considered elements of a single transaction. The consideration for the realty is deemed to be equal in value to the greater of the fair market value of the realty conveyed or the amount of any mortgage, lien or other encumbrance on the realty.
(iv) On or after June 9, 1994, a conveyance of realty or an economic interest in realty to a partnership, regardless of whether the partnership is an existing partnership or whether interests in the partnership are issued in exchange for the realty or economic interest therein, is exempt as a mere change of identity or form of ownership or organization to the extent the beneficial ownership of the real property remains the same. See 19 RCNY § 23-05(b)(8).
(v) The term "partnership" shall include a subchapter K limited liability company, as defined in § 11-126 of the Administrative Code and the term "partner" or the term "member" when used in relation to a limited liability company shall include a member of a subchapter K limited liability company, unless the context requires otherwise.
(4) Limited partnership mergers. A conveyance of real property or a transfer of a controlling economic interest in real property in a merger or consolidation of two or more limited partnerships from a constituent limited partnership to the continuing or new limited partnership is not subject to tax if the merger or consolidation is pursuant to Article 8-A of the New York Partnership Law or pursuant to comparable provisions of the partnership laws of another state, territory, possession of the United States, the District of Columbia, or the Commonwealth of Puerto Rico. However, the related transfer of partnership interests in the merger or consolidation may be subject to tax.
To illustrate: A owns a 90% limited partnership interest in capital and profits in each of limited partnerships X and Y. B is a general partner of both partnerships and owns the remaining 10% partnership interest in capital and profits in each limited partnership. X owns real property in New York City. Pursuant to Article 8-A of the New York Partnership Law, X will merge into Y. Following the merger A will have a 90% limited partnership interest in capital and profits in Y, and B will be the general partner with a 10% partnership interest in capital and profits in Y. Because A and B were the 100% beneficial owners of the property before the transaction and retain the same beneficial ownership interests in the property afterwards, the transaction is exempt as a mere change of identity or form of ownership or organization. The vesting of X's assets in Y, by operation of law, is also not subject to tax.
(f) Multi-step conveyances. For transactions occurring prior to June 9, 1994, a series of transfers pursuant to a plan to reorganize an ownership network of real property in New York City will be treated as a direct transfer from the entity originally owning the real property or economic interest therein to the entity ultimately owning the real property or economic interest therein, and the tax will apply to the deemed direct transfer if the following factors are present:
(1) the series of transfers under the plan has a fixed beginning and end;
(2) the final transfer under the plan is completed within thirty days of the first transfer under the plan;
(3) the plan will not result in a change in the respective percentage interests of the individuals or entities which were the owners of the network at the beginning of the plan (for this purpose, changes in the ownership of the owners themselves will not be taken into account, although such changes may be subject to tax on their own facts); and
(4) the plan requires each interim holder of the real property or economic interest therein to hold such interest solely to pass on to another individual or entity. Under such a plan, each of the interim transfers will be presumed to be transfers to or from conduits. The determination of whether a conveyance falls within this subdivision (e) will be made by the Commissioner of Finance on a case by case basis after a review of all the documentation supporting such treatment.
To illustrate: X Corporation owns unencumbered real property in New York City. X is owned 50% by A and 50% by B. Pursuant to a plan to be completed within 10 days, X is liquidated and its realty is distributed to A and B on January 1, 1990. The realty is then immediately conveyed to newly formed Y Partnership, in which A and B each take a 50% partnership interest. The two steps will be treated as a direct transfer of the realty from X to Y. The consideration for the realty (the partnership interests received by A and B) is presumed to be equal to the fair market value of the realty conveyed.
See § 23-05(b)(8) of these rules for rules governing the exemption from tax of transactions on or after June 9, 1994 qualifying as mere changes of identity or form of ownership or organization.
(g) Liquidations.
(1) General.
(i) A conveyance or transfer of real property or any economic interest therein in complete or partial liquidation of a corporation, partnership, association, trust or other entity prior to June 9, 1994, is subject to tax. (For liquidations on or after June 9, 1994, see subparagraph (iii) of this paragraph.) The tax imposed shall be measured by
(A) the consideration for each such conveyance or transfer, or
(B) the value of the real property or economic interest therein, whichever is greater. The consideration is the amount of any outstanding mortgage debt or other lien upon the realty conveyed (or upon the underlying realty if an economic interest is being transferred) and the amount of other liabilities assumed, canceled or forgiven as a result of the liquidation or dissolution which are attributable to the realty or economic interest therein. The value of the real property or economic interest therein is its fair market value at the time of the conveyance or transfer, without reduction due to any mortgage, lien or other encumbrance thereon.
(ii) Where the total of mortgages or other liens upon a parcel of realty plus other liabilities assumed, cancelled, or forgiven which are attributable to such parcel exceeds the fair market value of such parcel, that portion of other liabilities which when added to mortgages or liens on the realty exceeds the fair market value of the realty will not be attributed to the realty. Therefore, the tax imposed on the conveyance of each parcel of realty or economic interest therein will be measured by the fair market value of the realty unless there is an outstanding mortgage, lien or other encumbrance on the realty greater in amount than the fair market value of the realty. To illustrate:
Illustration A: X Corporation owns real property in New York City with a fair market value of $1,000,000, encumbered by a mortgage of $900,000. X also owns other assets having a fair market value of $500,000. X is in the process of complete liquidation and has transferred all of its assets to its stockholders in complete cancellation of its outstanding stock. The tax is measured by the fair market value of the realty transferred ($1,000,000). Illustration B: Assume the same facts as in illustration (A) above, except that the mortgage on the realty is $1,100,000. The tax is measured by consideration of $1,100,000. Illustration C: X Corporation owns two parcels of real property in New York City, Parcel A and Parcel B. Parcel A has a fair market value of $1,000,000 and is encumbered by a mortgage of $1,300,000. Parcel B has a fair market value of $700,000 and is encumbered by a mortgage of $600,000. X liquidates. The tax on the transfer of Parcel A is measured by consideration of $1,300,000. The tax on the transfer of Parcel B is measured by its fair market value of $700,000.
(iii) For liquidations on or after June 9, 1994, the tax is measured by the greater of the fair market value or the consideration as defined in subparagraph B of subparagraph (i) of this paragraph. However, the liquidation may be wholly or partially exempt as a mere change of identity or form of ownership or organization. See 19 RCNY § 23-05(b)(8).
Illustration A: X Corporation owns real property in New York City with a fair market value of $1,000,000, encumbered by a mortgage of $900,000. X has no other assets. X is owned equally by two stockholders, A and B. On January 1, 1995, X distributes all of its assets to its stockholders in complete liquidation. A and B each receive a 50% interest in the property. Because A and B each had a 50% beneficial ownership interest in the real property prior to the liquidation and have retained the same interest after the liquidation, the transfer is exempt from tax as a mere change of identity or form of ownership or organization.
Illustration B: X Corporation is owned 60% by A and 40% by B. X owns an office building in New York City with a value of $1,000,000 subject to a mortgage of $700,000 and has cash of $500,000. X distributes the real property, subject to the mortgage, and $180,000 of cash to A and $320,000 of cash to B in complete liquidation on January 1, 1995. The measure of tax for the distribution of the real property is $1,000,000. However, because A had a 60% interest in the real property prior to the distribution and a 100% interest in the real property following the distribution, the distribution is exempt from tax as a mere change of identity or form of ownership or organization to the extent of 60%. Therefore only 40% of the measure of tax, $400,000, is subject to tax. The tax is $10,500 ($400,000 × .02625). The higher tax rate applies because the total measure of tax for the distribution exceeded $500,000.
(2) Economic interests.
(i) When a liquidating entity transfers an economic interest in real property, the tax on the transfer of that portion of the interest representing a given parcel is measured by the greater of a proportionate share of the fair market value of the parcel or a proportionate share of the amount of any mortgage, lien or other encumbrance upon the parcel. This rule applies whether the total value of the economic interest in the entity owning the real property is greater or less than the value of the realty. (For liquidations on or after June 9, 1994, see subparagraph (ii) of this paragraph.) To illustrate:
Illustration A: X Corporation transfers all of its assets to its stockholders in complete liquidation. X owns 100% of the stock of Y Corporation. Y owns real property in New York City with a fair market value of $1,000,000. Y has other assets valued at $500,000. Y's stock has a fair market value of $1,500,000. The measure of the tax on the transfer of the stock in Y is the fair market value of Y's real property ($1,000,000).
Illustration B: Assume the same facts as in illustration (i) above, except that Y has liabilities of $850,000 and its stock has a fair market value of $650,000. The measure of the tax on the transfer of the stock in Y is $1,000,000.
Illustration C: Assume the same facts as in illustration (i) above, except that Y's real property is encumbered by a mortgage of $1,200,000 and the stock in Y has a fair market value of $300,000. The measure of the tax on the transfer of the stock in Y is the consideration for the real property ($1,200,000).
Illustration D: X Corporation owns real property in New York City (Parcel A) with a fair market value of $1,000,000, encumbered by a mortgage of $1,200,000. X also owns 100% of the stock in Y Corporation. Y owns two parcels of realty in New York City, Parcel B and Parcel C. Parcel B has a fair market value of $1,000,000, and is encumbered by a mortgage of $900,000. Parcel C has a fair market value of $500,000 and is unencumbered. Y has other liabilities of $500,000. The fair market value of the stock in Y is $100,000. X liquidates. The tax on the transfer of Parcel A is measured by consideration of $1,200,000. The tax on the transfer of the stock in Y representing Parcel B is measured by the fair market value of Parcel B ($1,000,000). The tax on the transfer of the stock in Y representing Parcel C is measured by the fair market value of Parcel C ($500,000).
(ii) For liquidations on or after June 9, 1994, when a liquidating entity transfers an economic interest in real property, the tax on the transfer of that portion of the interest representing a given parcel is measured by the greater of a proportionate share of the fair market value of the parcel or a proportionate share of the amount of any mortgage, lien or other encumbrance upon the parcel, reduced to the extent the beneficial ownership of the real property remains the same after the liquidation. See 19 RCNY § 23-05(b)(8).
Illustration A: The sole asset of X Corporation is 100% of the stock of Y Corporation. Y owns unencumbered real property in New York City with a fair market value of $1,000,000. On January 1, 1995, X Corporation transfers all of its assets to its two stockholders, A and B, in complete liquidation. A and B each own 50% of X Corporation stock and receive equal shares of X's assets upon liquidation. The measure of the tax on the distribution of the Y stock is the fair market value of Y's real property ($1,000,000). However, because A and B each had a 50% beneficial interest in the Y stock prior to the liquidation and each retained that interest, the transfer of the stock is fully exempt from tax as a mere change of identity or form of ownership or organization.
Illustration B: Same facts as above except that X Corporation also has cash of $500,000 and A receives this cash and 25% of the Y stock in the liquidation. B receives the other 75% interest in Y stock. The distribution of 100% of the Y stock to A and B represents a transfer of a 100% economic interest in real property. The measure of tax for the distribution of 100% of the Y stock is $1,000,000. Because A owned a 50% interest in Y stock prior to the distribution and retains a 25% interest while B owned a 50% interest in the Y stock prior to the distribution and has a 75% interest following the distribution, the distribution of the Y stock is exempt from tax as a mere change of identity or form of ownership or organization to the extent of 75% (25% + 50%) and only 25% of the measure of tax for the distribution, or $250,000, is subject to tax. The tax due is $6,562.50 (2.625% × $250,000). The higher tax rate applies because the total measure of tax for the distribution exceeded $500,000.
(3) A distribution of realty or an economic interest therein within 12 months of the liquidation of the distributing entity will be presumed to be a distribution in liquidation.
(4) Credit. If a grantee(s) acquires a controlling economic interest in a corporation, partnership, association, trust or other entity owning real property in a transaction which is taxable under these regulations and, within 24 months of such acquisition, the entity owning the real property is liquidated and the real property is conveyed to the grantee(s) of the controlling economic interest, a credit is available against the transfer tax due on the liquidation in the amount of the transfer tax paid with respect to the original acquisition of the controlling economic interest. In no event shall this credit be greater than the tax payable upon the conveyance in liquidation. To illustrate (assume that all transfers are made on or after August 1, 1989):
Example 1: A owns 100% of the stock of X Corporation. X owns unencumbered New York City real property with a fair market value of $1,000,000. A sells all of the stock of X to C on January 1, 1992. A $26,250 transfer tax is paid. One year after the sale, C liquidates X and receives the real property. At that time, the fair market value of X's real property is $1,200,000. The measure of the transfer tax will be based on the fair market value of the real property ($1,200,000). The transfer tax, therefore, is 2.625% of $1,200,000, or $31,500. Since this liquidation has occurred within 24 months of the transfer of the stock of X to C, a credit will be available against the $31,500 tax. The amount of the credit may not exceed the amount of tax paid upon the prior transfer of the economic interest in X's real property. Accordingly, a credit of $26,250 will be available against the $31,500 transfer tax due on the liquidation of X. The transfer tax due is $31,500 minus $26,250, or $5,250.
Example 2: Assume the same facts as in illustration (1) above, except that C sells 40% of X to D prior to the liquidation of X. Upon X's liquidation, C receives 60% of X's realty and D receives the remaining 40%. The transfer tax due is $31,500. The amount of credit available, however, is limited to the percentage of X's realty received by C (60%). Thus, the credit available is $15,750 (60% × $26,250), and the transfer tax due is $15,750 ($31,500 - $15,750).
Example 3: A owns 100% of the stock of X Corporation. X owns an unencumbered parcel of New York City real property with a fair market value of $1,000,000. A sells all of the stock of X to C on January 1, 1990. A $26,250 transfer tax is paid. One year after the sale to C, X acquires a second unencumbered parcel of New York City real property with a fair market value of $1,200,000. A $31,500 transfer tax is paid on this transfer. Eighteen months after the sale by A to C of X stock, C decides to liquidate X and receives both parcels of real property. At this time, X's first parcel of property is worth $800,000. The measure of the tax on the transfer of each parcel will be based on the fair market value of each parcel. Since the fair market value of the first parcel is $800,000, the tax on the transfer of this parcel is $21,000. Since the fair market value of the second parcel is $1,200,000, the tax on the transfer of this parcel is $31,500. A $21,000 credit will be available against the tax on the transfer of the first parcel. The tax on the transfer of the second parcel must be paid in full. No credit is available for the prior tax of $31,500 paid when X acquired the second parcel.
Example 4: A Corporation owns an unencumbered office building in New York City with a value of $1,000,000. On January 15, 1993, X and Y each purchase 50% of the stock of A for $1,000,000. A transfer tax of $26,250 is paid. On July 1, 1994, A liquidates. At that time the building is worth $1,200,000 and is subject to a mortgage of $600,000 and A also has $400,000 of cash. A distributes a 25% interest in the building and $350,000 of cash to X and a 75% interest in the building and $50,000 in cash to Y. The measure of tax for the distribution of the building is $1,200,000. Because X had a 50% interest in the building before the distribution and retains a 25% interest afterwards while Y had a 50% interest in the building before the distribution and owns a 75% interest afterwards, the distribution of the building is exempt as a mere change of identity or form of ownership or organization to the extent of 75% (25% + 50%) of the measure of tax. The tax is $7,875 ($300,000 × .02625). A is entitled to a credit against that tax of $7,875.
(h) Transfers relating to cooperatives.
(1) A conveyance of realty (or an economic interest therein) by a sponsor or other party to an entity formed for the purpose of cooperative ownership of real property (including a cooperative housing corporation) is subject to the tax. The consideration includes the amount of cash paid or required to be paid, the amount of any mortgages, liens or encumbrances on the realty and the fair market value of interests in the cooperative entity received by the sponsor. Consideration shall not be reduced by the amount of any expenses incurred by the sponsor, including payments made to a reserve fund or working capital fund.
(2) Notwithstanding the definition of "controlling interest" contained in 19 RCNY § 23-01 or anything to the contrary contained in these rules, the transfer of shares of stock in a cooperative housing corporation in connection with the grant or transfer of a proprietary leasehold is subject to tax in the following situations:
(i) In the case of the original transfer of cooperative housing corporation stock by the cooperative corporation or cooperative plan sponsor;
(ii) In the case of any subsequent transfer of the cooperative housing corporation stock by the owner thereof made before August 1, 1989, if the owner held these shares in connection with, incidental to or in furtherance of a trade, business, profession, occupation or commercial activity engaged in or conducted by the owner; and
(iii) In the case of any subsequent transfer of the cooperative corporation stock by the owner thereof made on or after August 1, 1989. Where such a transfer relates to an individual residential unit, the consideration for such a transfer shall not include any portion of the unpaid principal of any mortgage on the real property of the cooperative housing corporation. For the purposes of this paragraph (2), in the case of transfers made on or after August 1, 1989, the term "cooperative housing corporation" shall not include a housing company organized and operating pursuant to the provisions of Article 2, 4, 5 or 11 of the Private Housing Finance Law.
(3) Notwithstanding the definition of "controlling interest" contained in 19 RCNY § 23-01 or anything to the contrary contained in these rules, in the case of a corporation (other than a cooperative housing corporation), partnership, association, trust or other entity formed for the purpose of cooperative ownership of real property, the transfer tax shall apply to each transfer made on or after August 1, 1989 of shares of stock in such corporation, interests in such partnership, association or other entity or beneficial interests in such trust, in connection with the grant or transfer of a proprietary leasehold. Where such a transfer relates to an individual residential unit (other than the original transfer of such a unit by the cooperative entity or cooperative plan sponsor), the consideration for such transfer shall not include any portion of the unpaid principal of any mortgage on the real property of such corporation, partnership, association, trust or other entity.
(4) For purposes of paragraphs (2) and (3) of this subdivision, a transfer shall not be deemed made on or after August 1, 1989 if such a transfer was made pursuant to a written contract entered into before July 25, 1989, provided that the date of execution of such contract is confirmed by independent evidence, such as recording of the contract, payment of a deposit or other facts and circumstances as determined by the Commissioner of Finance.
(5) For purposes of paragraphs (2) and (3) of this subdivision, an individual unit that is used for residential purposes shall be presumed to be an individual residential unit, unless such residential use is de minimis.
(6) In the case of the original transfer of shares or interests in a corporation or other entity formed for the purpose of cooperative ownership of real property by the cooperative or the plan sponsor, or in the case of the subsequent transfer of such shares or interests that are not attributable to an individual residential unit, the proportionate amount of any underlying building mortgage attributable to the shares is includible in consideration.
(7) The following examples illustrate the application of paragraph (2) of this subdivision only to transfers made before August 1, 1989:
Example 1: An individual purchases stock from a cooperative housing corporation or cooperative plan sponsor which is allocated to an occupied apartment. Thereafter the individual sells this stock together with his proprietary leasehold. The transfer tax applies to each transfer. The initial transfer by the cooperative housing corporation or sponsor is subject to the transfer tax. In addition, the subsequent transfer by the individual who has subleased the apartment is a transfer of stock held in connection with a commercial activity and is, therefore, also subject to the transfer tax.
Example 2: An individual purchases stock from a cooperative housing cooperation or sponsor as an "insider" and occupies the apartment unit allocated to the stock for residential purposes. The individual then transfers the stock along with the proprietary leasehold to another. The initial transfer from the cooperative housing corporation or sponsor to the individual "insider" is subject to the transfer tax. The sale by the resident individual "insider" to another is not subject to the transfer tax.
Example 3: A commercial artist owns stock in a cooperative housing corporation and holds a proprietary leasehold on an apartment therein. The artist both resides and maintains a studio in this apartment. The sale of this stock is subject to the transfer tax. Although the artist resides in the apartment, the stock was nevertheless held in connection with his business. The tax is based on the total amount paid for the stock. No apportionment of the consideration for the portion of the apartment used for residential purposes is permitted.
For transfers made before August 1, 1989, in determining whether a cooperative apartment used for residential purposes is also used for business purposes, the Commissioner of Finance will consider, among other factors, whether a home office expense deduction has been claimed for federal income tax purposes and whether the premises have been held out to clients or customers as a place of business within the 24 months preceding the sale.
Example 4:
(A) An individual owns stock in a cooperative housing corporation and holds the proprietary lease for an apartment which he rents to a residential tenant. The sale of this stock is subject to the transfer tax. The renting of an apartment is a commercial activity and the stock is considered to be held in connection with that commercial activity.
(B) An individual owns stock in a cooperative housing corporation and holds the proprietary lease for an apartment which is occupied rent-free by a close family member. The sale of the stock is not subject to the transfer tax.
Example 5: A subleased his residential cooperative apartment for 3 weeks while he was on vacation. Later that same year the apartment was sold. The transfer tax is applicable to the sale of this cooperative apartment. Temporary rentals for 15 days or more during any 12 month period within the 24 months preceding the transfer will be deemed to be a commercial activity.
Example 6: A wishes to sell his cooperative apartment. A subleases the apartment for 6 months until a sale is made. This sale is subject to the transfer tax. Since the apartment has been rented for 15 or more days, this rental constitutes commercial activity.
Example 7: A allows B, a family member, to reside in his cooperative apartment. B pays all of the maintenance charges attributable to the apartment but does not pay any additional amounts to A. The sale of this apartment is subject to the transfer tax. B's occupancy of the apartment in return for payment of the maintenance charges constitutes a rental of the apartment. Therefore, the stock representing the apartment is held in connection with a commercial activity.
Example 8: A sells his stock in a cooperative housing corporation on December 21, 1988. A had subleased his apartment until December 20, 1986. A has not subleased his cooperative apartment nor has A conducted any business activity in his apartment within the 24 months preceding the sale. This sale of stock is not subject to the transfer tax. A cooperative residential apartment which had in the past been subleased by the current owner-tenant loses its commercial status after 24 months have passed during which the apartment has not been subleased for 15 or more days. Similarly, a cooperative apartment in which business activity has been conducted by the current owner-tenant loses its commercial status after 24 months have passed during which no commercial activity has been conducted in the apartment. Accordingly, the transfer would not be subject to the transfer tax.
Example 9: A, B, C and D each own 25% of the stock of X Corporation, a cooperative housing corporation with four apartments. These four individuals each use their apartments solely for residential purposes. E purchases from A and B 50% of the cooperative housing corporation stock representing two of these apartments. The sales by A and B are not subject to the transfer tax. Cooperative apartment sales are to be taxed only in the case of original sales by the cooperative corporation or sponsor or in the case of resales of apartments which had been used or held in connection with a commercial activity. Thus, even though a controlling interest in real property has been transferred, the transfer tax does not apply to these sales.
Example 10: A misrepresents to B that A's cooperative apartment had not been held or used in connection with a commercial activity. B purchases A's cooperative apartment believing it is not subject to the transfer tax based on A's misrepresentations. A prescribed affidavit of non commercial use is filed with the Department of Finance. As the grantee, B will be liable for the appropriate transfer tax if A does not pay it.
Example 11: A purchases stock from a cooperative housing corporation incorrectly believing that a transfer tax credit would be available against the transfer tax due. A return is filed claiming such credit. As the grantee, A will be liable for the appropriate transfer tax if the cooperative housing corporation does not pay it.
Example 12: A corporation owns stock in a cooperative housing corporation and holds the proprietary lease for a residential apartment in the building. The apartment is used solely as the residence of its chief executive officer. The sale of this stock by the corporation is subject to the transfer tax. The corporation is deemed to maintain the apartment in the City in connection with, incidental to or in furtherance of its business or commercial activity. The result would be the same if the apartment was used to house out-of-town employees or customers of the corporation.
Example 13: B, an attorney, owns stock in a cooperative housing corporation and resides in his cooperative apartment. B does not hold himself out as doing business in his apartment, does not meet with clients in his apartment and takes no business deductions relating to his apartment. B occasionally brings work home on weekends for his own convenience. B's occasional work at home will not render the sale of his apartment subject to tax.
(8) The application of paragraphs (2), (5) and (6) of this subdivision to transfers made on or after August 1, 1989 is illustrated by the following examples:
Example 1: A, as an "insider," purchases 2% of the stock of a cooperative housing corporation that is allocated to one of fifty apartments in the building. The sales price is $200,000, and there is an unpaid mortgage principal balance of $5,000,000 on the real property. The transfer is taxable and a proportionate share of the mortgage is included in the consideration for the transfer, regardless of the use of the apartment. The tax is calculated as follows:
Amount paid for the apartment | $200,000 |
2% of the $5,000,000 mortgage | $100.000 |
Total consideration | $300,000 |
Compute 1% of $300,000, for a tax due of $3,000. A then subleases the apartment to B, who uses the apartment as a residence. Subsequently, A transfers the stock to C for $600,000. Since the apartment was used as a residence, no portion of the underlying mortgage on the real property is included in the consideration for the subsequent transfer to C. The tax is calculated as follows: 1.425% of $600,000, for a tax due of $8,550.
Example 2: An accountant owns stock in a cooperative housing corporation and holds a proprietary leasehold on one of the fifty apartments located on the real property of the housing corporation. The apartment is used both as the accountant's residence and as an office for an accounting practice, and the accountant is eligible for a home office deduction for federal income tax purposes. There is an unpaid mortgage balance of $2,000,000 on the real property. If the accountant sells the stock for $800,000, the tax will be calculated as follows: 1.425% of $800,000, for a tax due of $11,400. Since the apartment is used for residential purposes, it is deemed an individual residential unit and no portion of the unpaid principal of any mortgage on the real property of the housing corporation is included in the consideration for the transfer.
Example 3: A owns 80 shares in a cooperative housing corporation attributable to four separate apartments in the building. The apartments are leased to tenants for residential use. A's 80 shares constitute 20% of the cooperative housing corporation stock, and the building is encumbered by a $1,000,000 mortgage. If A sells the 80 shares in the cooperative housing corporation to B for $800,000, the tax is calculated as follows:
Cash consideration received for shares | $800,000 |
20% of $1,000,000 mortgage | $200,000 |
Total consideration | $1,000,000 |
Tax rate = 2.625%; tax is | $26,250 |
The consideration received for the transfer of stock attributable to each of the four apartments is combined to determine the tax base. Because the consideration exceeded $500,000 and the transaction does not constitute the sale of an individual cooperative apartment, the underlying mortgage is included in the consideration, and the tax rate is 2.625%. Example 4: Assume the same facts as in example 3 except that A owns 100% of the stock of X Corporation whose sole asset is the 80 shares of co-op stock. X Corp. has no liabilities. A sells the X Corp. stock to B for $800,000. The tax is the same as in example 3 and is calculated in the same manner. Example 5: Assume the same facts as in example 4 except that the 80 shares are attributable to one apartment. If A sells the X Corp. stock to B for $800,000, the tax is calculated as follows:
Cash consideration received for stock | $800,000 |
Total consideration | $800,000 |
Tax rate = 1.425%; tax is | $11,400 |
The tax is calculated at the rate applicable to a sale of an individual cooperative apartment for consideration in excess of $500,000. The underlying mortgage is not included in the consideration. Example 6: Assume the same facts as in example 5 except that A does not sell the X stock to B. Instead, X Corp. sells the 80 shares in the cooperative corporation to B. The tax is the same as in example 5 and is calculated in the same manner.
(9) Credit. In the case of the original transfer of cooperative housing corporation stock by a cooperative corporation or cooperative plan sponsor in connection with the grant or transfer of a proprietary leasehold, a credit is allowed for a proportionate part of the amount of any tax paid upon the conveyance to the cooperative housing corporation of the land and building or buildings comprising the cooperative dwelling or dwellings. This credit is calculated as follows:
Credit = A × N
T
T
Where:
A = Amount of tax paid upon the conveyance to the cooperative housing corporation.
N = Number of shares transferred in this transaction.
T = Total number of outstanding shares of the cooperative housing corporation, as well as any shares held by the corporation.
To illustrate: X, the owner of a ten unit apartment building, sells the property to Y Cooperative Corporation for $1,000,000. A transfer tax of $20,000 is paid in connection with this transfer. Y is authorized to issue 100 shares of stock. Each of the 10 apartments is allocated 10 shares. Y sells 10 shares to Z for $300,000 within 24 months of payment by X of the $20,000 transfer tax. A credit is allowed against the $3,000 transfer tax due on this subsequent sale from Y to Z, computed as follows:
Credit = $20,000 × 10 = $2,000
100
100
This credit shall not reduce the transfer tax due on the stock sale from the cooperative housing corporation or sponsor below zero. This credit applies only for original transfers of stock by the cooperative housing corporation or cooperative plan sponsor. It does not apply to taxable resales of cooperative housing corporation stock. No credit is allowed for any tax paid more than 24 months prior to the date on which occurs the first in a series of transfers of shares of stock in the offering of cooperative housing corporation shares. Thus, if the first of the original transfers of shares from the cooperative housing corporation or sponsor is made within 24 months of the payment of the tax imposed on the conveyance of the property to the cooperative housing corporation, then all original transfers from the cooperative housing corporation or plan sponsor, regardless of when made, will be entitled to an appropriate credit. If the first transfer is made more than 24 months after payment of the tax imposed on the conveyance of the property to the cooperative housing corporation, then no credit is allowed.
(i) Leaseholds.
(1) After February 1, 1982, the granting of a leasehold interest in exchange for a consideration which is not rent for purposes of the New York City Commercial Rent or Occupancy Tax (Chapter 7 of Title 11 of the New York City Administrative Code) is subject to tax. The granting of a leasehold interest solely for a consideration which is considered rent for purposes of the New York City Commercial Rent or Occupancy Tax is not subject to tax.
(2) After February 1, 1982, the surrender or assignment of a leasehold interest by a lessee before the end of the term in exchange for the payment of a sum of money or other consideration other than the release of the lessee from the lease obligation is subject to tax. However, the surrender or assignment of a leasehold interest by the lessee solely in exchange for a release of the lessee from the lease obligation is not subject to tax. To illustrate:
Illustration (i): A, a lessee, assigns to B in exchange for $20,000 a five-year commercial leasehold with $100,000 in rent to be paid over the remaining lease term. No transfer tax is imposed because the consideration is less than $25,000.
Illustration (ii): A, a lessee, surrenders to B, a lessor, in exchange for $75,000 a two-year rent-stabilized residential leasehold with $10,000 in rent to be paid over the remaining lease. A transfer tax of $750 (1% of $75,000) applies to the surrender.
(j) Conveyances not subject to tax. The following are examples of situations in which the tax does not apply: (Any reference made to a deed or conveyance includes a transfer of an economic interest in realty.)
(1) A conveyance of realty without consideration, as defined in 19 RCNY § 23-02 "Consideration", and otherwise than in connection with a liquidation. This includes a deed conveying realty as a bona fide gift. A conveyance of realty subject to any indebtedness is not a gift to the extent of the indebtedness.
(2) A deed to confirm title already vested in the grantee, such as a quitclaim deed to correct a flaw in title.
(3) An option for the purchase of real property or a contract for the sale of real property, if the contract does not vest legal or equitable title. For this purpose equitable title will be deemed to vest where the benefits and burdens of ownership have shifted to the optionee or vendee including, for example, where possession or the right to receive rent or depreciate the realty is given to the contract vendee or optionee. (See, however, 19 RCNY § 23-02 "Consideration" for calculation of consideration when option rights are exercised.)
(4) Partition deeds, unless, for a consideration, some of the parties take shares greater in value than their undivided interests, in which event the tax attaches to each deed conveying such greater share, computed upon the consideration for the excess.
(5) A deed executed by a debtor conveying real property to an assignee for the benefit of his creditors; however, when the assignee conveys such property to a creditor or sells it to any other person, the deed by him is taxable if the consideration exceeds $25,000.
(6) Conveyance to a receiver of realty included in the receivership assets, and reconveyance of such realty upon termination of the receivership.
(7) New stock certificates issued to replace old stock certificates because of a mere change of name under section 801(b)(1) of the New York Business Corporation Law (or under comparable provisions of the laws of the United States or other states).
(8) Transfers made pursuant to a confirmed plan of reorganization as provided under 11 U.S.C. § 1146(c).
(9) [Repealed.]
(k) Excludible liens.
(1) In the case of a deed, instrument or transaction conveying or transferring on or after August 28, 1997, a one, two, or three family house, an individual residential condominium unit, or an individual residential cooperative apartment, or an economic interest in any such property, the consideration for the conveyance or transfer shall not include the amount of any excludible lien on the property conveyed or interest transferred, as defined in paragraph (3) below, to the extent otherwise included in the consideration for the conveyance or transfer.
(2) Paragraph (1) shall not apply to a conveyance or transfer:
(i) to a mortgagee, lienor, or encumbrancer, whether or not (A) the grantor or transferor is or was liable for the indebtedness secured by the mortgage lien or encumbrance or (B) the mortgage, lien, or encumbrance is canceled of record; or
(ii) that qualifies as a "real estate investment trust transfer" as defined in subdivision E of § 11-2102 of the New York City Administrative Code.
(3) For purposes of this subdivision (k), the term "excludible lien" means a mortgage, lien, or other encumbrance that was placed on the real property or economic interest before the delivery of the deed or the transfer and remains thereon after the date of the delivery of the deed or the transfer, unless any of the following applies:
(i) The mortgage, lien, or other encumbrance was originally placed on the real property or interest therein in connection with, or in anticipation of, the conveyance or transfer, or was increased in amount in connection with, or in anticipation of, the conveyance or transfer, to the extent of that increase in amount. A mortgage, lien, or other encumbrance will be considered to have been originally placed on the property, or increased in amount, in connection with or in anticipation of the conveyance or transfer if: (A) the documents relating to the mortgage, lien, encumbrance, the underlying indebtedness, or the conveyance or transfer indicate that the mortgage, lien, encumbrance or underlying indebtedness is part of a plan to eventually transfer or convey the property or interest therein, or (B) in the case of a mortgage, lien or other encumbrance placed on the property within six months prior to the conveyance or transfer, if all of the relevant facts and circumstances indicate that the mortgage, lien, or other encumbrance has been placed on the property in connection with, or in anticipation of, the conveyance or transfer.
(ii) The mortgage, lien, or other encumbrance was placed on the real property or interest therein by reason of deferred payments of the purchase price whether represented by notes or otherwise.
(iii) The mortgage, lien, or other encumbrance is discharged, canceled, or reduced in amount, to the extent of the reduction in amount, in connection with the conveyance or transfer following delivery of the deed or transfer. A mortgage, lien, or other encumbrance will be considered to be discharged, canceled, or reduced in amount in connection with the conveyance or transfer if: (A) the documents relating to the mortgage, lien, encumbrance, the underlying indebtedness or the conveyance or transfer indicated that the discharge, cancellation, or reduction in amount is in connection with the conveyance or transfer, or (B) in the case of a discharge, cancellation, or reduction in amount within three months following delivery of the deed or the transfer, all of the relevant facts and circumstances indicate that the discharge, cancellation, or reduction in amount is in connection with the conveyance or transfer.
(iv) The terms of the mortgage, lien, or other encumbrance are materially altered in connection with, or in anticipation of, the conveyance or transfer.
(A) For purposes of this subparagraph (iv), the terms of a mortgage, lien, or other encumbrance on the property or interest therein will be considered to be materially altered in connection with, or in anticipation of, the conveyance or transfer if within six months prior to, or within three months following, the conveyance or transfer (a) the identity of the mortgagee or holder of the lien or encumbrance has changed, and (b) there has been a change of ten percent or more in the interest rate, or repayment term remaining as of the date of the alteration with respect to the mortgage, lien, or other encumbrance, and the facts and circumstances indicate that the alteration is in connection with, or in anticipation of, the conveyance or transfer.
(B) For purposes of this subparagraph (iv), any alteration in the terms of a mortgage, lien, or other encumbrance more than six months prior to or more than three months following the delivery of the deed or the transfer will be conclusively presumed not to be in connection with, or in anticipation of, the conveyance or transfer.
(C) This subparagraph (iv) will not apply to a conveyance or transfer from one spouse to the other pursuant to the terms of a separation agreement or divorce decree or to a conveyance or transfer that would qualify as a bona fide gift under 19 RCNY § 23-03(j)(1) but for the presence of a mortgage, lien, or other encumbrance that qualifies as an "excludible lien" without regard to this subparagraph (iv).
(D) Increases and decreases in the amount of a mortgage, lien, or other encumbrance will not be considered material alterations. Subparagraphs (i) and (iii) of this paragraph (3) apply to increases and decreases, respectively, in the amount of any mortgage, lien, or other encumbrance.
(4) This subdivision (k) will apply to any portion of any unpaid principal of any mortgage on real property of a cooperative housing corporation that otherwise would be included in consideration in the case of an original transfer of shares in the corporation by the cooperative corporation or cooperative plan sponsor under § 11-2102 b(2)(i) of the New York City Administrative Code.
(5) The taxpayer shall bear the burden of proving that a lien or encumbrance qualifies as an excludible lien under paragraph (3) of these rules, and shall bear the burden of proving the amount of such lien or encumbrance at the time of the transfer or other conveyance. Section 11-2103 of the New York City Administrative Code.
(6) To illustrate:
Illustration (i): Individual A owns a one-family house subject to a mortgage held by Bank X that is due and payable upon the sale of the house. The mortgage loan has a remaining principal balance of $250,000, bears interest at seven percent and has a remaining repayment term of ten years. A sells the house to individual B for $350,000. B pays $100,000 in cash and obtains a mortgage loan from Bank Y for $250,000. At the closing, Bank X assigns the mortgage on the property to Bank Y. The interest rate on the mortgage loan from Bank Y is nine percent and the repayment term is ten years. The terms of the mortgage on the property after the conveyance have been materially altered from the terms on the mortgage on the property before the conveyance; the mortgagee is different and the increase in the interest rate, from seven percent to nine percent, represents a greater than ten percent change. Based on the facts and circumstances, the material alteration of the mortgage is considered to be in connection with the transfer and the mortgage is not an excludible lien under 19 RCNY § 23-03(k)(3)(iv). The taxable consideration for the conveyance is $350,000.
Illustration (ii): The facts are the same as illustration (i) except that the interest on the mortgage loan remains at seven percent after the assignment but the term is increased from ten to 15 years. The mortgage is not an excludible lien because the increase in the repayment term is greater than ten percent. If the interest rate and repayment term remain unchanged, or those changes are less than ten percent, the terms will not be considered to be materially altered and the mortgage will be an excludible lien.
Illustration (iii): The facts are the same as in illustration (i) except that individual A is the father of individual B and gives the house to B as a gift. B does not make a cash payment and refinances the mortgage loan with Bank Y. The mortgage is assigned as in illustration (i). The conveyance is a bona fide gift under 19 RCNY § 23-03(j)(1) but for the presence of the mortgage. None of the exceptions in subparagraphs (i), (ii) and (iii) of paragraph (3) of this subdivision (k) applies to the mortgage. Subparagraph (iv) of paragraph (3) of this subdivision does not apply to bona fide gift transfers. Therefore the mortgage is an excludible lien and there is no taxable consideration for the conveyance.
Illustration (iv): The facts are the same as illustration (i) except that the deed is delivered in January of 1998 and B acquires the house subject to the existing mortgage. B refinances the Bank X loan with Bank Y in June, 1998 and the assignment of the mortgage takes place at that time. Under subparagraph (iv)(B) of paragraph (3) of this subdivision, any alterations in the terms of the mortgage more than three months following the conveyance are conclusively presumed not to be in connection with, or in anticipation, of the conveyance. Thus, the mortgage is an excludible lien regardless of alterations to its terms. The taxable consideration for the conveyance is $100,000.
Illustration (v): Individual A is the sole owner of a cooperative apartment valued at $400,000 and subject to a cooperative loan secured by the stock and proprietary lease and held by Bank X. The loan has a remaining principal balance of $250,000, bears interest at seven percent and has a remaining repayment term of ten years. Pursuant to a divorce decree, A transfers the apartment to his spouse, B. Two months after the transfer of the apartment, B refinances the loan with Bank Y with no change in the principal amount. The cooperative loan from Bank Y bears interest at seven percent and has a repayment term of 30 years. Subparagraph (iv) of paragraph (3) of this subdivision does not apply to transfers between spouses pursuant to a divorce decree. Therefore, the lien securing the loan is an excludible lien. The taxable consideration for the transfer is $150,000, the excess of the value of the apartment over the amount of the excludible lien.
Illustration (vi): The facts are the same as in illustration (v) except that A refinances the loan two months prior to the transfer but after the issuance of the divorce decree and A borrows an additional $50,000. Subparagraph (iv) of paragraph (3) of this subdivision does not apply to increases or decreases in the amount of any mortgage, lien, or other encumbrance. Because the facts and circumstances indicate that increase of $50,000 in the amount of the loan is in connection with or in anticipation of the transfer, $50,000 of the amount of the lien securing the loan is not an excludible lien.
Illustration (vii): XYZ Corporation purchases a one-family house in poor condition in 1998 for $50,000 intending to renovate the house and offer it for sale. To pay for the renovation expenses, XYZ obtains a loan of $300,000 secured by a mortgage on the house. The mortgage loan agreement requires XYZ Corporation to use its best efforts to sell the house following its renovation. In 2002, XYZ Corporation sells the house for $500,000 to B, and B assumes the mortgage loan obligation at the same interest rate and for the same repayment term. Because the documents relating to the conveyance indicate that the mortgage is placed on the property as part of a plan to eventually transfer the property, the mortgage is considered to have been placed on the property in anticipation of the conveyance and is not excludible from consideration as an excludible lien. The taxable consideration for the conveyance is $500,000.
Illustration (viii): Individual A owns a one-family house subject to a $300,000 mortgage held by Bank X. The mortgage loan bears interest at seven percent with a remaining term of 15 years. A agrees to sell the house to individual B for $400,000. A's contract of sale with B provides for a cash payment at closing of $100,000 and installment payments over 15 years totaling $300,000 plus seven percent interest secured by a mortgage on the property. A repays Bank X in full and the mortgage held by Bank X is removed from the property and A records a new mortgage on the property. The $300,000 mortgage held by A is not excludible from taxable consideration as an excludible lien because it did not exist on the property prior to the conveyance.
Illustration (ix): Individuals A and B own a three-family house as tenants in common subject to a $300,000 mortgage held by Bank X. The mortgage loan bears interest at 13 percent. In January, 1998 A sells his interest in the house to B for a cash payment of $125,000 and subject to the existing mortgage. A and B also enter into a written agreement that requires B to have the mortgage discharged by June, 1998. In June, 1998, B pays Bank X the remaining amount due on the mortgage loan and the mortgage is discharged. Because the documents relating to the conveyance indicate that the discharge of the mortgage is part of a plan to convey the property, under subparagraph (iii) of paragraph (3) of this subdivision, the mortgage is considered to have been discharged in connection with the conveyance and is not excludible from consideration as an excludible lien. The taxable consideration for the conveyance is $275,000.
Illustration (x): The facts are the same as in illustration (ix) except that A and B have no agreement regarding the discharge of the mortgage. Five months following the sale, B inherits $1,000,000 and B decides to repay the balance due on the mortgage loan. Under the facts and circumstances, the mortgage is not considered to have been discharged in connection with the conveyance and, therefore, is considered to be an excludible lien.
Illustration (xi): Individual A owns a one-family house subject to a mortgage held by Bank X. The mortgage loan has a principal amount of $300,000 and bears interest at seven percent with a remaining term of 20 years. A sells the house to B for $500,000. Bank X agrees to let B assume the $300,000 mortgage on the house with no changes to the repayment term or interest rate. Bank X also agrees to lend B an additional $100,000 for the same 20 year term and at the same seven percent interest rate. Bank X increases the amount secured by its mortgage to $400,000. The total consideration for the sale is $500,000. The original $300,000 mortgage is excluded from the taxable consideration as an excludible lien. The additional $100,000 mortgage is not excludible from taxable consideration as an excludible lien because it did not exist on the property prior to the transfer. The taxable consideration for the conveyance is $200,000.
Illustration (xii): The facts are the same as in illustration (xi) except that Bank X does not lend B additional funds. Instead, five months prior to the sale, Bank X agrees to lend A an additional $100,000. A uses the funds to make improvements to the house that make it more marketable and the house is listed for sale immediately following completion of the improvements. The facts and circumstances indicate that the additional mortgage was placed on the property in anticipation of the sale. Therefore, the taxable consideration is $200,000 consisting of the $500,000 purchase price less all but $100,000 of the mortgage.
Illustration (xiii): XYZ Corp. acquires a residential apartment building in 1998 for $2 million cash. In 2002, XYZ obtains a mortgage loan from Bank A for $1,750,000 to renovate the apartments pending a conversion of the building to cooperative ownership. The terms of the $1,750,000 loan agreement require XYZ to use its best efforts to file an offering plan by the end of 2003. XYZ transfers the building to a cooperative housing corporation, C, and the offering plan becomes effective December 1, 2003. On January 15, 2004, pursuant to the offering, XYZ sells the stock and proprietary lease representing an apartment in the building for $120,000. The proportionate amount of the $1,750,000 mortgage on the building attributable to that apartment is $70,000. The $70,000 is not excludible from the consideration for the apartment because the documents relating to the loan indicate that the loan was placed on the property in anticipation of the conversion of the building to cooperative ownership and the sale of apartments.
Where real property is situated partly within and partly without the boundaries of the City of New York the consideration subject to tax shall be such part of the total consideration as is attributable to the portion of such real property situated within the City of New York or to the economic interest in such portion. For the purpose of determining the consideration attributable to property situated within the City of New York, that part of the consideration shall be deemed subject to tax which the assessed valuation of the property situated within the territorial limits of the City of New York bears to the total assessed valuation of the entire property conveyed situated within and without the City. The assessed valuations to be used shall be those in effect at the time of the conveyance of the property. In lieu of the foregoing, the equalized assessed valuation based on the state equalization tables may be used, provided they are applied to the property situated both within and without the City of New York.
To illustrate: A parcel of land situated partly within Westchester County and partly within Bronx County is conveyed by deed, dated July 15, 1983. The purchase price of the property is $200,000, subject to a first mortgage of $90,000. The assessed valuations of the property in effect at the time of the conveyance are as follows:
Property situated within Bronx County | $120,000 |
Property situated in Westchester County | $40,000 |
The following shows the computation of the consideration subject to tax:
Item No. | ||
1. | Assessed valuation of property partly situated in Westchester County | $40,000 |
2. | Assessed valuation of property partly situated in Bronx County | $120,000 |
3. | Total assessed valuation | $160,000 |
4. | Ratio of assessed valuation of property partly situated in Bronx County to total assessed valuation of property situated within and without the City of New York (Item 2 ÷ Item 3) | 75% |
5. | Total consideration | $200,000 |
6. | Total consideration subject to tax (Item 5 × Item 4) | $150,000 |
(a) The following persons are exempt from the payment of tax and from filing a return:
(1) The State of New York, or any public corporation (including a public corporation created pursuant to agreement or compact with another state or the Dominion of Canada), improvement district or other political subdivision of the state.
(2) The United States of America, and any of its agencies and instrumentalities insofar as they are immune from taxation.
(3) A foreign government, a person acting on behalf of a foreign government, or the head of a foreign government's diplomatic mission, with respect to premises used exclusively for diplomatic or consular purposes, or as the residence of the head of the diplomatic mission or consular post, to the extent exempt from the payment of tax pursuant to the Vienna Convention on Consular Relations (21 UST 77; TIAS 6820) or the Vienna Convention on Diplomatic Relations (23 UST 3227; TIAS 7502).
(4) A foreign government or a person acting on behalf of a foreign government to the extent exempt from the payment of tax pursuant to a treaty or convention to which the United States and the foreign government are parties, other than as provided under paragraph (3), above. The exemption of such governmental bodies or persons shall not, however, relieve a grantee from them of liability for the tax or from filing a return.
(b) The tax does not apply to any of the following deeds, instruments, or transactions: (1) A deed, instrument, or transaction conveying or transferring real property or an economic interest therein by or to the United Nations or other world-wide international organizations of which the United States of America is a member.
(2) A deed, instrument, or transaction conveying or transferring real property or an economic interest therein by or to any corporation, or association, or trust, or community chest, fund or foundation, organized and operated exclusively for religious, charitable or educational purposes or for the prevention of cruelty to children or animals, and no part of the net earnings of which inures to the benefit of any private shareholder or individual and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation, provided, however, that nothing in this paragraph shall include an organization operated for the primary purpose of carrying on a trade or business for profit, whether or not all of its profits are payable to one or more organizations described in this paragraph.
(3) A deed, instrument, or transaction conveying or transferring real property or an economic interest therein to any governmental body or person exempt from payment of the tax pursuant to paragraph (1) or (2) of subdivision (a) of 19 RCNY § 23-05.
(4) A deed delivered pursuant to a contract made prior to May 1, 1959.
(5) A deed delivered by any governmental body or person exempt from payment of the tax pursuant to 19 RCNY § 23-05(a) as a result of a sale at a public auction held in accordance with the provisions of a contract made prior to May 1, 1959.
(6) A deed or instrument given solely as security for, or a transaction the sole purpose of which is to secure, a debt or obligation or a deed or instrument given, or a transaction entered into, solely for the purpose of returning such security.
(7) A deed, instrument, or transaction conveying or transferring real property or an economic interest therein from a mere agent, dummy, straw man or conduit to a principal, or a deed, instrument or transaction conveying or transferring real property or an economic interest therein from the principal to his agent, dummy, straw man or conduit. The following are examples of deeds, instruments and transactions in which this exemption applies:
(i) The conveyance of realty by an individual to a corporation solely for the purpose of obtaining mortgage financing, followed by the immediate reconveyance of the realty by the corporation to the individual after such mortgage financing is obtained.
(ii) A deed transferring real property to an existing corporation solely for the purpose of effectuating the terms of a mortgage spreader agreement. The deed returning the mortgaged realty to its true owner is also exempt from the tax.
(iii) A conveyance between a principal and its agent where
(A) a written agreement is entered into at the time of the transaction establishing such a relationship with respect to the realty or economic interest therein,
(B) the purported agent functions as an agent with respect to the realty or economic interest therein for all purposes, and
(C) the purported agent is held out as the agent and not the principal in all dealings with third parties relating to the realty or economic interest therein. Since the tax does not apply to any deed, instrument, or transaction described in 19 RCNY § 23-05(b), neither the grantor nor the grantee is required to pay the tax. However, a return relating to the deed, instrument, or transaction must be filed.
(8) A deed, instrument or transaction conveying or transferring real property or an economic interest in real property to another person or entity, otherwise subject to tax, that effects a mere change of identity or form of ownership or organization to the extent the beneficial ownership of such real property or economic interest remains the same. A sale of real property or an economic interest therein for cash or other valuable consideration will be exempt to the extent the beneficial ownership remains the same, provided the transaction represents a mere change of identity or form of ownership or organization.
(i) Applicable tax rate. Where this exemption applies, the consideration subject to tax is reduced proportionately to the extent the beneficial ownership of the real property or economic interest in the real property remains the same. However, for transfers or transactions occurring on or after January 1, 1999, the determination of the applicable tax rate will be made prior to the application of this exemption. The tax rate applicable to transfers for consideration of more than $500,000 will apply even though the portion of the consideration taxable after applying the exemption provided for in this paragraph is $500,000 or less.
(ii) Controlling interests. For transactions involving economic interests, the determination of whether a controlling economic interest has been transferred is made prior to the application of this exemption. Thus, the transfer of a controlling economic interest will be taxable to the extent the beneficial ownership does not remain the same, even though the portion of the interest subject to tax represents, in the case of a corporation, less than 50 percent of the total combined voting power of all classes of stock of such corporation; and, in the case of a partnership, association, trust or other entity, less than 50 percent of the capital, profits, or beneficial interest in such partnership, association, trust or other entity. The exemption is not applicable to a conveyance to a cooperative housing corporation of the land and building or buildings comprising the cooperative dwelling or dwellings. For purpose of this paragraph a cooperative housing corporation does not include a housing company organized and operating pursuant to the provision of article two, four, five or eleven of the private housing finance law. To illustrate:
Example A: A and B, two equal tenants-in-common of Parcel 1, transfer their interests in Parcel 1 to X Corporation on January 1, 1995, each receiving 50% of the outstanding stock of X. The transfer is wholly exempt from tax as a mere change in identity or form of ownership or organization because the beneficial ownership of the real property remains 100%, the same as before the transfer.
Example B: A and B are equal partners in AB Partnership. AB Partnership owns two properties. Parcel 1 is unencumbered commercial real property with a fair market value of $1,000,000. Parcel 2 is unencumbered commercial real property with a fair market value of $2,000,000. AB has other assets valued at $1,000,000. On January 1, 1995, AB Partnership distributes all of its assets to A and B in complete liquidation. B receives Parcel 2. A receives Parcel 1 and all the other assets. The tax on the distribution of Parcel 1 to A is measured by the fair market value of Parcel 1 of $1,000,000 reduced by 50% because A had a 50% beneficial interest in the parcel prior to the liquidation and has retained that interest after the distribution. Therefore, $500,000 (50% × $1,000,000) of the measure of the tax is subject to tax. The tax due on the distribution is $13,125 (2.625% × $500,000). Similarly, the distribution of Parcel 2 to B is exempt from tax as a mere change of identity or form of ownership or organization to the extent of 50% because B owned a 50% beneficial interest in the property prior to the liquidation and has retained that beneficial interest. Therefore, the taxable amount is $1,000,000 (50% × $2,000,000) and the tax due on the distribution of Parcel 2 is $26,250 (2.625% × $1,000,000).
Example C: X Company is a New York general partnership composed of two equal partners, A and B. X Company owns unencumbered real property located in New York City with a fair market value of $1,000,000. On January 1, 1995, X Company is converted to a limited liability company through the filing of articles of organization under applicable state law. After the conversion, B sells a 49% interest in X Company to A so that A owns a 99% interest and B owns a 1% interest. If under the applicable state law, X Company is considered to be the same entity as before the conversion, the conversion will not be considered a transfer of real property or an economic interest in real property. Immediately after the conversion, the beneficial ownership of X Company is deemed identical to the beneficial ownership of the old general partnership and no transfer of an economic interest has occurred. B's transfer of a 49% interest in X Company to A will not constitute a controlling economic interest transfer subject to tax. However, the transfer of the 49% interest may be aggregated with a subsequent related transfer within three years so as to constitute a transfer of a controlling economic interest. See 19 RCNY § 23-02(2) definition of "Controlling interest" governing aggregation of related transfers.
Example D: Limited Partnership X has four equal limited partners A, B, C, and D, each with a 24% interest and one general partner, E with a 4% partnership interest. X owns an unencumbered office building with a fair market value of $1,000,000 and $100,000 of other assets. A, B, C, D and E form a new limited partnership, Y, in which A, B, C, and D have respective interests in capital and profits as follows: A owns 29%, B owns 29%, C owns 24% and D owns 14%. E is the general partner and has a 4% interest in capital and profits. Pursuant to an agreement of merger approved on January 4, 1999, under Article 8-A of the New York Partnership Law, the partners merge Limited Partnership X into Y. The transfer of the assets of X to Y is not a taxable transfer of real property, however, the resulting transfers of interests in X may be. See 19 RCNY § 23-03(e)(4). Pursuant to the merger, 100% of the interests in X are deemed exchanged for interests in Y. The transaction is exempt as a mere change of identity or form of ownership or organization to the extent the partners retain the same beneficial interest in the property following the merger as they held before the merger. In this case, A, B and C each retain a 24% interest in the property, D retains a 14% interest in the property and E retains a 4% interest in the property. Therefore, the merger is exempt as a mere change of identity or form of ownership or organization to the extent of 90%. The tax is imposed on $100,000 (10% × $1,000,000). The tax due is $2,625 ($100,000 × 2.625%). The tax rate is based on the full value of the consideration, $560,000, rather than the amount subject to tax.
Example E: Corporation X has five shareholders (col. 1 of table below) and owns real property in New York City. Pursuant to a plan of merger agreed upon and adopted by shareholders of Corporation X on January 4, 1999, Corporation X is to be merged under Article 9 of the New York Business Corporation Law into Corporation Y, which owns no real property in New York City. Four of the five shareholders of Corporation X also own stock in Corporation Y prior to the merger (col. 3 of table below). Corporation Y has 30,000 outstanding shares but will increase that number to 50,000. Pursuant to the merger, the Corporation X shares will be converted into Corporation Y shares in a ratio of four Corporation Y shares for every five Corporation X shares. The mere change exemption is computed as follows:
1. X shares owned | 2. % held in X | 3. Y shares owned (before) | 4. Y stock issued | 5. Y shares owned (after) | 6. % held in Y | 7. % interest retained | |
A | 4,000 shares | 16% | 10,000 shares | 3,200 shares | 13,200 shares | 26.4% | 16% |
B | 2,000 shares | 8% | 1,000 shares | 1,600 shares | 2,600 shares | 5.2% | 5.2% |
C | 3,000 shares | 12% | 1,000 shares | 2,400 shares | 3,400 shares | 6.8% | 6.8% |
D | 5,000 shares | 20% | 3,000 shares | 4,000 shares | 7,000 shares | 14% | 14% |
E | 11,000 shares | 44% | 0 shares | 8,800 shares | 8,800 shares | 17.6% | 17.6% |
Total | 25,000 shares | 100% | 15,000 shares (out of 30,000) | 20,000 shares | 35,000 shares (out of 50,000) | 70% | 59.6% |
The transfer of the City real property from Corporation X to Corporation Y pursuant to the merger would be exempt from tax. See 19 RCNY § 23-03(e)(2). Pursuant to the merger, 100 percent of the Corporation X shares are deemed exchanged for Corporation Y stock, which constitutes a transfer of a controlling economic interest in New York City real property. Because the transfers by the shareholders were made pursuant to the approved plan of merger they are aggregated in determining whether the transaction constitutes a transfer of a controlling economic interest. However, the transaction is exempt to the extent that each of the Corporation X shareholders retains its beneficial interest in the real property formerly held by Corporation X. Column 7 reflects the percentage interest in the property retained by each shareholder, which is the lesser of the amounts in Columns 2 and 6. The transfer is exempt as a mere change of identity or form of ownership or organization to that extent, i.e., 59.6 percent. Shareholders A, B, C, D and E are the grantors and pursuant to the merger, are considered to have transferred their shares in X to Corporation Y in exchange for Y shares.
Example F: T, an individual, owns 20 shares in a cooperative housing corporation attributable to an apartment in the building. The apartment is leased to a tenant for residential use. T transfers the shares attributable to the apartment to Y Corporation, her wholly owned corporation. Because T retains a 100% beneficial ownership of the apartment, the transfer is exempt from tax as a mere change of identity or form of ownership or organization.
Example G: J owns 70% of the stock of X Corp., whose sole asset is 80% of the stock of Y Corp. Y Corp.'s sole asset is an unencumbered parcel of commercial real property in New York City with a fair market value of $1,000,000. On February 1, 1999, J transfers all of her stock in X Corp. to a newly formed corporation, Z Corp. in return for 60% of Z Corp.'s stock. (The other 40% of Z Corp.'s stock is owned by shareholders who have no independent interest in X Corp., Y Corp. or Y Corp.'s parcel of real property.) J's transfer of the X stock is a transfer of a 56% interest (70% × 80%) in the real property and is, therefore, subject to tax as a transfer of a controlling economic interest. The value of the consideration received in exchange, the Z Corp. stock, is $560,000 ($1,000,000 × 56%). The transaction is exempt as a mere change of identity or form of ownership or organization to the extent that A retains a beneficial interest in the property following the merger. In this case, J retains a 33.6% interest in the property (56% × 60%). Therefore, the merger is exempt as a mere change of identity or form of ownership or organization to that extent. The tax is imposed on $224,000 (.224/.56 × $560,000). The tax due is $5,936 ($224,000 × 2.625%). The tax rate is based on the full value of the consideration, $560,000, rather than the amount subject to tax.
(iii) Transfers to and from trusts. [Reserved.]
(iv) For purposes of determining whether and to what extent the mere change of identity or form of ownership or organization exemption applies, the determination of the beneficial ownership of the real property or economic interest therein prior to a transaction and the extent to which the beneficial interest therein remains the same following the transaction will be based on the facts and circumstances.
(c) Cross reference. For the rule concerning transfers of interests in housing companies organized and operating pursuant to Article 2, 4, 5 or 11 of the Private Housing Finance Law, see subparagraph (2) of 19 RCNY § 23-03(h).
A person or organization claiming exemption from the tax under 19 RCNY § 23-05(b)(2) is required to submit a properly executed application for exemption and in connection therewith to submit such information to the Commissioner of Finance as will enable him to rule upon its status. The application is required to be submitted in the form of affidavit setting forth:
(a) the type of organization,
(b) the purpose for which it is organized,
(c) its actual activities,
(d) the source and disposition of its income,
(e) whether or not any of its income is credited to surplus or may inure to any private stockholder or individual, and
(f) such other facts which may affect its right to exemption. The affidavit must be supplemented by a copy of the articles of incorporation, or articles of association, as the case may be, a copy of the by-laws of the organization, a financial statement showing its assets and liabilities, a statement of its receipts and disbursements for the most recent year, a copy of the letter from the United States Treasury Department granting the organization exemption from federal income taxation and a copy of its federal income tax return for the most recent year. The Commissioner of Finance, after reviewing the application, and if satisfied that the applicant is entitled to an exemption, will issue a letter of exemption to the applicant. Upon the receipt of such letter of exemption, the applicant shall attach a true copy thereof to any return required to be filed under the law.
The law presumes that all deeds and transfers of controlling economic interests in real property are taxable. Where the consideration includes property other than money, it is presumed that the consideration is the value of the real property or interest therein. Where the consideration is measured by the fair market value of realty, it is presumed that the fair market value is not less than twice the assessed valuation of the realty on the assessment roll of the City at the time of delivery of the deed, or the transfer of the controlling economic interest. These presumptions prevail until the contrary is established and the burden of proving the contrary is on the party seeking to rebut the presumption. The burden of proving that a lien or encumbrance existed on the real property or interest therein before the deed was delivered and remained thereon thereafter and the amount of such lien or encumbrance at the time of delivery of the deed is on the taxpayer.
(a) The tax shall be paid by the grantor to the Commissioner of Finance at the office of the Register in the county where the deed is or would be recorded within thirty days after the delivery of the deed by the grantor to the grantee but before the recording of such deed or, in the case of a tax on the transfer of a controlling economic interest in real property, within thirty days after such transfer by the grantor at Department of Finance, Operations Division, Real Property Transfer Tax Group, at the address provided on the return. In the absence of satisfactory proof as to the date of delivery of a deed, the date of the deed shall be deemed to be the date of delivery thereof. In case the tax due is not paid by the grantor, or if the grantor is exempt from tax under 19 RCNY § 23-05(a), the grantee shall also be liable for payment of the tax to the Commissioner of Finance. Payment of the tax may be made in cash, or by certified check, money order or draft drawn to the order of the Commissioner of Finance.
(b) Electronic payment. Pursuant to 19 RCNY § 17-03, the Commissioner may authorize the electronic payment of any tax required to be paid by this section.
(a) A joint return shall be filed by both the grantor and the grantee, both electronically and in paper format for each deed, instrument, or transaction, whether or not a tax is due thereon. Thus, a return must be filed although the consideration for the deed, instrument, or transaction is $25,000 or less. The actual amount of the consideration for each deed, instrument, or transaction must be set forth on the return at the place provided therefor, regardless of the amount of the consideration. Where the consideration is $400,000 or more, a copy of the contract of sale or closing statement, if any, must be attached to the paper return. A return need not be filed for the grant of a leasehold interest in a 1, 2 or 3 family house or an individual dwelling unit except where tax is owed or the lease is to be recorded. In the case of a transfer of stock in a cooperative housing corporation made before August 1, 1989, other than the initial transfer of stock by the corporation or sponsor, if the owner did not hold the shares in connection with, incidental to or in furtherance of a trade, business, profession, occupation or commercial activity, the grantor and grantee may jointly file an affidavit of non-commercial use in lieu of a return. The return must be filed with the Commissioner of Finance, both electronically and by delivering a paper form of the return with an original signature as prescribed by this chapter to the Register for transmittal to the Commissioner of Finance, except as provided in subdivision (c) of this section with respect to transfers of property in Staten Island. The return must be so filed at the time of payment of the tax, or, in the case of a deed not subject to tax, before the recording of such deed. In the case where a transfer of an economic interest in real property is not subject to tax or the tax is zero (because of available credits), the return must be filed within 30 days after such transfer. The form of return shall be prescribed by the Commissioner of Finance and shall contain such information as the Commissioner deems necessary for the proper administration of the law. The electronic return shall be submitted in the format prepared by the Department of Finance and located on the Department of Finance Internet website. A confirmation will be issued by the Commissioner of Finance upon receipt of an electronic return. The paper return must be signed under oath by both the grantor or his agent and the grantee or his agent. Upon the filing of such return in the case of a deed, evidence thereof shall be affixed to the deed by the Register to indicate that a tax return has been filed. The Commissioner of Finance may provide for the use of stamps as evidence of payment and that they shall be affixed to the deed before it is recorded. If no tax is paid at the time of the recording of the deed, the Register may indicate on the deed that no tax was paid. Where no return is filed at the time of the recording of the deed, the Register may indicate on the deed that no return was filed. Where a deed, instrument, or transaction has more than one grantor or more than one grantee, the paper return may be signed by any one of the grantors and by any one of the grantees provided, however, that those not signing shall not be relieved of any liability for the tax imposed by the law.
(b) (1) Pursuant to subdivision (g) of § 11-2105 of the Administrative Code as added by Local Law 58 of 1989, every cooperative housing corporation must file an information return with the Commissioner of Finance by July 15 of each year covering the preceding period of January 1 through June 30 and by January 15 of each year covering the preceding period of July 1 through December 31. Provided, however, that for the period from January 1 through June 30, 1989, such information return shall have been filed by July 31, 1989.
(2) The Commissioner shall prescribe such forms as are necessary for the information return. Information regarding the transfer of stock in the cooperative housing corporation required to be provided on the return shall include but not be limited to the names, addresses and employer identification numbers or social security numbers of the grantor and the grantee, the number of shares transferred, the date of the transfer and the consideration paid for such transfer.
(c) The Register shall accept a return offered for filing provided the paper return is signed under oath by the grantor or his agent or by the grantee or his agent, unless it appears that the return is insufficient on its face, as where the return shows that the amount of the consideration paid or required to be paid without deductions is less than the amount of mortgages or other liens or encumbrances. If either the grantor or grantee has failed to sign the paper return, it shall be accepted as a return, but the party who has failed to sign the paper return or to file and sign a separate paper return shall be subject to the penalties applicable to a person who has failed to file a return and the period of limitations for assessment of tax or of additional tax shall not apply to such party. The Register is also authorized to reject a return that states that there was no consideration for the deed unless there is attached to such return a statement setting forth the grounds upon which it is claimed that there was no consideration. The acceptance by the Register of a return for filing shall in no way indicate the propriety or correctness of the return. The issuance of a confirmation by the Commissioner of Finance upon receipt of an electronic return shall in no way indicate the propriety or correctness of the electronic return and is not evidence of a completed return nor evidence that the paper return has been completed, filed or received by the Department of Finance. If a return or affidavit required by the law is not filed or if a return or affidavit when filed is incorrect or insufficient on its face the Commissioner of Finance shall take the necessary steps to enforce the filing of such a return or affidavit or of a corrected return or affidavit. The Commissioner of Finance may require amended returns to be filed within twenty days after notice and to contain the information specified in the notice.
The electronic return is required to be filed electronically, and the paper return is required to be filed at the office of the Register in the county where the deed is or would be recorded, except that with respect to a transfer relating to a property in Staten Island, (i) the paper return must be filed in the office of the Richmond County Clerk, or (ii) where a return is not filed at the time of the recording of a deed, or the deed is not recorded, the paper return may instead be filed in any office of the City Register. In the case of transfers of controlling economic interests in real property or transfers of shares or interests in a corporation or other entity formed for the purpose of cooperative ownership of real property, returns or affidavits, whichever are applicable, must be filed electronically, and the paper return must be filed at the office of the City Register in the county in which the affected property is located, except that for such a transfer relating to property in Staten Island, the paper return must be filed in any office of the City Register. The locations of the Register's offices are as follows:
Manhattan | (New York County) 66 John Street, 13th Floor, New York, NY 10038 |
Bronx | Bronx Business Center 3030 Third Avenue, 2nd Floor, Bronx, NY 10455 |
Brooklyn | (Kings County) Municipal Building 210 Joralemon Street, Room 2, Brooklyn, NY 11201 |
Queens | (Queens County) 144-06 94th Street Jamaica, NY 11435 |
(d) Request for waiver of the electronic filing requirement. The Commissioner of Finance, may, for good cause and in his or her discretion, waive the requirement that the real property transfer tax return be filed electronically and permit the real property transfer tax return to be filed by means of a paper form or in such other manner as the Commissioner of Finance may designate. A request for waiver of the electronic filing requirement must be made in writing no later than ten days prior to the last day permitted by law for the filing of such return. Any return filed in paper format or by any other designated means must be filed in accordance with the provisions of these rules, with the New York City Department of Finance at such address and in the form and manner as may be designated by the Commissioner.
(e) Mailing the return. In the event that the Commissioner has waived the electronic filing requirement pursuant to 19 RCNY § 23-09(d) and will accept a real property transfer tax return filed in paper format, any return required to be filed within a prescribed period or on or before a prescribed date under authority of any provision of § 11-2105 of the Administrative Code, or any rule enacted relating to the administration of such provision, shall when mailed, be deemed delivered as provided in § 11-2116 of the Administrative Code. The receipt of the mailed return by the Department of Finance shall in no way indicate the propriety or the correctness of the return.
(Amended City Record 11/13/2017, eff. 12/13/2017)
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