Lawyers Scramble to Avoid NYC’s Misapplied Pied-à-terre Tax

Politicians can make a reasonable case for a pied-à-terre tax, but not for imposing it on people who don’t own one, then dare them to prove otherwise.

That’s what the Mamdani administration is doing. And even though a judge ruled as much, owners must still file for an exemption in case the city ultimately wins the case.

One lawyer I spoke with Saturday was scrambling to get his clients’ appeals filed by the city’s Tuesday deadline.

Benjamin Williams of Rosenberg & Estis told me some of his clients are facing tax surcharges of $40,000 or $50,000 a year despite having full-time tenants in their alleged pied-à-terre, which should spare them from the tax. But the city has put the burden on owners to prove that. A lease is not sufficient.

Owners typically don’t have the documentation they need because no one knew they’d need it. The tax was announced without warning in mid-April and made retroactive to Jan. 5.

“Owners with full-time tenants have to collect information from tenants to prove they are [living] there, or were there, full time,” Williams said. “Some tenants are gone.”

Remaining tenants are being asked to give their landlords a copy of their New York state tax return and driver’s license, among other documents. Those with out-of-state licenses are being asked to replace them at the Department of Motor Vehicles, which is the bureaucratic equivalent of getting your wisdom teeth pulled.

One owner told Williams he was resigned to paying the tax because his townhouse is empty. “Didn’t you have a tenant last year?” the lawyer asked. “Yes,” the client said, “but he moved out and I don’t know where he is.”

Williams is appealing anyway, because the completed tenancy should still exempt the home from the tax. If the city’s Department of Finance disagrees, the lawyer must take the case to the Tax Commission, and if he loses there, to sue in state court. Mamdani won’t be reimbursing the legal fees of owners who win.

Another client rents a townhouse to a woman who spends most of her time overseas. That makes the home a pied-à-terre and subject to the tax, which is tens of thousands of dollars a year.

The tax didn’t exist when the lease was signed. Had the landlord known it was coming, he would have rented the home to someone else, or added language to the lease to cover the pied-à-terre surcharge. Leases are now being written to account for the tax, but landlords can’t go back in time in response to the retroactivity of the law.

Why did Gov. Kathy Hochul and the state legislature make the law retroactive? They were trying to generate $500 million for the city budget that began July 1. In exchange, Mamdani is supposed to help Hochul get re-elected in November.

The alternative, from the mayor’s point of view, was to cut $500 million in spending, or 0.4 percent of the budget. Including the tax, the city increased its budget by 10.3 percent (from $115.9 billion to $127.8 billion).

A third option was to raise revenue projections and to achieve them by promoting, rather than discouraging, investment in the city. Instead, Mamdani froze the rent of nearly 1 million apartments, launched inspection sweeps to run up building violations and announced plans to undercut privately owned supermarkets.

He also tried to reduce the price of a rent-stabilized building sale, arguing that $88,000 per unit was too much. And he’s trying to remove buildings from the property tax rolls by transferring them to nonprofits.

Mamdani is creating a housing court fast track, but only for tenants to bring cases against landlords. There will be no fast track for landlords to evict nonpaying or nuisance tenants.

He has been refreshingly pro-development and (like all mayors) is trying to cut red tape for small businesses, but overall his revenue strategy has been to increase tax rates rather than economic activity.

The mayor justified the pied-à-terre tax at an unrelated press conference to announce a NYCHA renovation project costing $529,000 per unit. “We’re standing here talking about a legacy of disinvestment,” he said.

But I haven’t heard him justify its implementation, which includes taxing homes worth less than the $5 million specified in the state law. Even co-ops and condos that recently sold for $4 million are being taxed based on an assessed value that no one understands.

Well-off New Yorkers have generally stayed in the city despite one of the highest tax burdens in the nation, because of all the city has to offer. They have proven willing to pay taxes that are fair and straightforward. This one isn’t.

Estates will be hit with the pied-à-terre tax if they don’t sell homes rendered vacant by an owner’s death within 12 months. Luxury homes often take more than a year to sell, and longer when the need to sell is unexpected, such as when the owner dies.

Even owners renovating their units are being hit with the pied-à-terre tax on the grounds that they are vacant.

“I have at least four clients with apartments stripped naked — no kitchen, no toilet, no walls, no finishes,” Williams said. The law makes no exception for them.

The attorney can hardly be blamed for viewing the law as something other than a mechanism to get the wealthy to pay more for luxury homes used part-time. “It’s a revenue-generator,” he said.