Our testimony on the pied-à-terre tax

Under the current law, the City bills the building and the building bills the individual. If the individual does not pay, the building bears the consequences. This is backwards. The surcharge is a tax on an individual's non-primary use of a specific apartment, and the individual who made that choice owes it.

One unpaid surcharge attaches as a lien on the entire building, not on the shareholder's shares. Interest accrues at 18% against the building's tax account while the co-op may only charge its shareholder 8%, so the innocent building absorbs the difference. The Department of Finance has the expertise, the investigative authority, and the enforcement tools to collect this tax from the individual taxpayer. Volunteer boards have none of them. DOF should bill co-op shareholders directly, just as it bills condominium owners.

The roll DOF published July 25 is a preliminary list, yet notices are already going out from it. Units below the $1 million threshold are on it. Apartments receiving the co-op/condo abatement, which DOF's own rules treat as a primary-residence indicator, are flagged as non-primary. Combined apartments and homes under gut renovation are being charged.

The errors have a cause. A co-op unit's value is the building's DOF value multiplied by the unit's share of the stock, and that share data exists only in each building's stock ledger. DOF never collected it, so it estimated. Those estimates are wrong for a significant number of units. No co-op should bill a shareholder from this roll, and DOF should say so publicly.

DOF publishes the final corrected roll on December 31, 2026. The first payment is due January 1, 2027. That is one day. In that day, every co-op in the city is expected to receive the roll, match each unit to the right shareholder against the stock ledger, calculate the surcharge, bill, collect, and remit. That cycle takes 60 to 90 days under ideal conditions, and these are not ideal conditions. Condos are billed directly and do not have this problem. We asked for a co-op payment deadline of July 1, 2027, and for no interest or penalties against any building that pays within 90 days of the final report.

Liability was fixed on January 5, 2026, the taxable status date. The law was not enacted until May 28. Thousands of closings happened in between, with no notice that January 5 mattered and no statute to read. The seller took the proceeds and left. The buyer, a primary resident who owes nothing going forward, now owns a home carrying a lien for the prior owner's use of it.

DOF's answer is that parties may allocate the risk in their contracts. That advice is meaningless for contracts signed before the law existed. We asked the Council to support legislation shielding good-faith purchasers and the co-op corporation from pre-enactment liabilities, and to require a procedure for a new primary resident to certify occupancy and clear the charge.

The threshold has nothing to do with what an apartment is actually worth. For a co-op it is the unit's share of the building's DOF value, and DOF values co-op buildings as if they were rentals, typically 4 to 10 times below market. Most co-op apartments worth $1 million to $4 million will not be touched by Phase 1 at all. The tax largely misses the property type it most prominently advertised as its target.

The real tax is Phase 2. In July 2028 the threshold rises to $5 million and DOF switches to valuing co-op units against comparable condo sales. No such valuation system has ever existed in New York City, the first notices must go out February 15, 2028, and DOF has published no methodology, calling the question premature. It is not premature. We asked for the methodology, sample calculations, and stakeholder consultation by July 1, 2027.

A board that agreed to serve before this law existed is now expected to forward DOF notices in time to protect each shareholder's 30-day appeal window, determine when liability is final, bill, collect, advance building funds when a shareholder does not pay, and keep records for a six-year audit. Most proprietary leases authorize none of it, and amending one takes a supermajority vote and months. We asked for statutory safe harbors for boards and agents acting in good faith, an explicit right to recover the surcharge directly from the shareholder who owes it, authority to condition transfer consent on payment without a lease amendment, and immediate DOF guidance on what managing agents may do right now.

The State has confirmed it is using the City's preliminary roll to pick income tax audit targets, before owners have had any opportunity to appeal or correct the underlying determination. An owner who appears on the roll because DOF estimated the share count wrong has not committed fraud. They were caught in a net cast too wide. We asked the Council to formally request that the State suspend enforcement built on this roll until final determinations are issued and the appeal period has closed.

The Mayor and the Governor both said the surcharge was directed at billionaires who pay no New York City or State taxes. The law they passed contains no exemption for anyone filing New York returns and paying New York taxes. People who made an investment in this city are being handed another tax for it. The Council should insist that the law be amended so it does not tax NYC taxpayers.