New York Expands Liability Provisions for Land Transfer Tax to New York | Katten Muchin Rosenman LLP

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On April 19, Governor Andrew Cuomo enacted the New York Budget Bill for fiscal year 2021-2022 (Senate Bill S2509C) (the New Budget Bill). The new budget bill contains a major change in New York State’s land transfer tax (RETT) liability provisions.

Typically, RETT is imposed on all disposals of real estate or interests in real estate when the consideration exceeds $ 500. New York tax law. § 1402 (a). The responsibility of RETT is imposed on the grantor, but if the grantor does not pay or is exempt from tax, the tax is levied on the concessionaire. New York Tax Law §1404 (a). For the purposes of the RETT, the grantor is defined as “the person carrying out the transfer of real estate or of an interest in it”. New York Tax Law § 1401 (g).

The new budget bill broadened the definition of “person” to include any individual, corporation, partnership or limited liability company (LLC), or an officer or employee of any company (including a dissolved company), or a member or employee of any partnership, or a member, manager or employee of an LLC, who as such an officer, employee, manager or member is under a duty or has done so for such a company , partnership, LLC or sole proprietorship by complying with RETT laws. New York Tax Law § 1401 (a) (2); SB S2509C, Pt. O, §1. Previously, this liability was limited to individuals, entities and others who acted as trustee or representative of the settlor. New York Tax Law § 1401 (a) (1).

The new budget bill also explicitly states that unless the parties contractually agree otherwise, the RETT is paid by the grantor and “shall not be payable, directly or indirectly, by the concessionaire”. SB S2509C, Pt. O, §2. Although the provisions of the RETT still maintain that the concessionaire may be held liable for the RETT, if the grantor has not paid the RETT when due, or if the grantor is exempt from paying the tax, in such cases, however, the new budget bill will provide the concessionaire with a legal cause of action against the grantor for the recovery of the RETT payment (including interest and penalties). SB S2509C, Pt. O, §2.

These provisions of the new budget bill will apply to all transfers made on or after July 1, unless the transfers made are under an enforceable written contract entered into no later than April 1.

The new budget bill expands the number and type of people who can be held accountable for the RETT and thus raises many potential questions and concerns. For example, if there is a foreclosure of property and the foreclosed bank pays the RETT, can the foreclosed lender use its rights of action to hold an individual manager of the insolvent granting entity personally liable for the RETT? Based on a strict reading of the new budget bill, the answer appears to be ‘yes’. It is also unclear how the new budget bill would apply to multi-level ownership and management structures, and whether the new law can “pierce the veil” and keep individual managers of multi-level entities at the same time. above the granting entity responsible for the RETT. This issue is particularly acute in relation to “off record” transactions such as certain higher tier equity transfers or leasehold transfers, where no documents are recorded and where the RETT may be due, but a transfer tax return is not filed due to parties’ failure to comply with the filing requirement. Additionally, although New York City has not passed a similar extension of its New York City Real Estate Property Transfer Tax (RPTT) liability laws, if New York City passes a similar set of laws, there will be additional exposure to transfer tax for those same people subject to the new budget bill.

The main concern with the new budget bill, however, is that the new law extends personal liability without providing much needed and long-sought advice on how to apply the RETT in transactions that are more complicated than one. simple transfer of ownership. Real estate joint ventures will regularly involve complex allocations of profit and loss between the parties, so if there are transfers of capital to higher levels, it is not always clear that the RETT is due. Affordable housing transactions are particularly at risk as they usually involve complicated waterfalls but have limited economic resources to pay transfer taxes if it is determined that the declarations were made incorrectly. In addition, title insurance coverage is not available to insure against exposure risk, if it turns out that the RETT was due on a certain transaction. Without providing clearer guidance on how to apply RETT laws to these types of transactions, it adds additional pressure on the parties involved to resolve any RETT ambiguity, which is likely to add time and costs and may have a deterrent effect on real estate transactions. .

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