§ 23-03 Imposition of Tax.
(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
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
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.
