In 2019, hedge fund manager Ken Griffin broke records when he purchased the 220 Central Park South Condominium for $238 million. According to The National Law Review, this spurred the New York Assembly into action. [1] The Pied-a-Terre Tax was introduced to the Assembly, vowing to increase taxation on purchases like Griffin’s “to help subsidize city services.” [2] The bill’s name derives from the colloquial French term for secondary residences, ‘pieds-a-terre.’ [3] The bill was struck down, beleaguered by concerns over its complex tax structure, difficulties in determining applicability and a concerted real estate industry effort against it. In 2021, the bill has returned to the assembly–which now has a “vetoproof” Democrat supermajority–amidst less hostile circumstances. [4] Namely, the COVID-19 pandemic has convinced some, if not many, of the utility of the Pied-a-Terre Tax.
Before any discussion of the likelihood of the bill’s implementation, it is important to have a solid understanding of what the Pied-a-Terre tax will do. The Pied-a-Terre Tax is a proposed annual property tax surcharge for second-home condos and co-ops with assessed values over $300,000. The bill, if passed, would also “apply to one-to-three second family residences worth $5 million or more.” [5]
The bill has garnered significant progressive and Democrat support inasmuch as its tax revenue promises to be both significant and redistributive. Though yearly tax revenue estimates appear unclear–an NYC Housing and Vacancy Survey puts it at $650 million [6], while the Independent Budget Office puts it at $390M [7]–it is clear that the tax revenue this will generate will be significant. Moreover, the bill is clearly intended to be redistributive, promising to direct these funds towards city projects that are now more necessary than ever (see: MTA Considers Austerity Plan Amid Budget Issues, Updates on Cuomo’s Rent Relief Program). In fact, the city’s budget crisis–brought on by the COVID-19 pandemic–has been repeatedly invoked by legislators as indicative of the urgency in instituting the Pied-a-Terre tax. [8]
Legislators have also been quick to note that the tax will primarily affect wealthy individuals who do not reside in NYC and only have these second residences for vacationing or doing business in the city. They have been quick to do so likely because taxing wealthy suburbanites to the benefit of “actual New Yorkers” (a term frequently brought up in discussions of the tax) further adds to the redistributive air that surrounds the bill. [9] In any case, the Pied-a-Terre Tax applies only to those wealthy enough to own two luxury dwellings, as is demonstrated in its tax structure.
Here is a breakdown: co-ops with an assessed value “attributable to an individual owner’s percentage interest on a per-unit basis of $300,000 or higher” and condos with an assessed value of $300,000 or more will be taxed at least 10% and up to 13.5% of the excess value above $3000,000. [10] One-to-three family residences with a five-year average market value of $5 million or higher will be taxed at least .5% and up to 4% of the excess value above $5 million. [11] To put it simply: second homes, condo or co-op owners will be taxed on the basis of how much their property’s assessed value exceeds minimums for applicability.
The New York State Assembly is set to vote on the Pied-a-Terre Tax soon. You can read the full bill here.
Sources:
[1] – Horowitz, Heather, “COVID-19: Real Estate – The Revival of the New York Pied-A-Terre Tax,” The National Law Review, 24 Aug. 2020, https://www.natlawreview.com/article/covid-19-real-estate-revival-new-york-pied-terre-tax, accessed 2 Feb. 2021.
[2] – Gerstein, Darcey, “Pied-a-Terre Tax Resurfaces,” The Cooperator, 14 Sep. 2020, https://cooperator.com/article/pied-a-terre-tax-resurfaces/full#cut, accessed 2 Feb. 2021.
[3] – Ibid.
[4] – Andrews, Jeff, “The ‘Pied-a-Terre Tax’ Has a Messaging Problem,” Curbed, 10 Dec. 2020, https://www.curbed.com/2020/12/nycs-pied-a-terre-tax-has-a-messaging-problem.html#:~:text=The%20’Pied%2D%C3%A0%2DTerre%20Tax’%20Has%20a%20Messaging%20Problem,-By%20Jeff%20Andrews&text=The%20proposed%20annual%20tax%20on,to%20the%20Independent%20Budget%20Office., accessed 2 Feb. 2021.
[5] – Op. Cit. n2.
[6] – Ibid.
[7] – Op. Cit. n3.
[8] – Op. Cit. n2.
[9] – Ibid.
[10] – Ibid.
[11] – Ibid.