New York Expands New York Real Estate Transfer Tax Liability Clauses – Tax

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United States: New York Expands New York Real Estate Transfer Tax Liability Clauses

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On April 19, Gov. Andrew Cuomo signed the New York State Budget Bill for Fiscal Year 2021-2022 (Senate Bill S2509C) (New Budget Bill). The new budget bill contains a significant change to the New York State Real Estate Transfer Tax (RETT) provisions.

Generally, RETT applies to all transfers of immovable property or rights to immovable property if the remuneration exceeds $ 500. New York State Tax Law. § 1402 (a). Responsibility for the RETT rests with the grantor, but if the grantor does not pay or is exempt from tax, the grant will be taxed. New York State Tax Law §1404 (a). For the purposes of RETT, the grantor is defined as “the person transferring the immovable property or rights to it”. New York State Tax Law, § 1401 (g).

The new budget bill expanded the definition of “person” to include any individual, corporation, partnership or limited liability company (LLC), or an officer or employee of any corporation (including a dissolved corporation), 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 required to act or has acted in this way on behalf of such corporation, partnership, LLC or sole proprietor in accordance with the laws of RETT. New York State Tax Law, § 1401 (a) (2); SB S2509C, Pt. O, § 1. Previously, this liability was limited to individuals, legal entities and others who acted as fiduciary or representative of the grantor. New York State Tax Law, § 1401 (a) (1).

The new budget bill also explicitly states that, unless the parties agree otherwise, the RETT is paid by the grantor and “is not payable, directly or indirectly, by the grantee.” SB S2509C, Pt. Oh, § 2. While the provisions of the RETT still state that the grant recipient may be liable for the RETT if the grantor fails to pay the RETT by the due date or if the grantor is exempt from tax, in such cases, however, the Law on the new budget will provide the grantee with a legitimate reason to sue the grantor to collect the RETT payment (including interest and penalties). SB S2509C, Pt. Oh, § 2.

These provisions of the new budget bill will apply to all shipments taking place on or after July 1, unless the shipments are subject to a mandatory written contract concluded on or before April 1.

The new budget bill increases the number and types of individuals who may be responsible for RETT, and thus raises many questions and potential concerns. For example, if a foreclosure occurs and the foreclosure bank pays RETT, can the creditor who transferred the foreclosure use his or her rights of claim to make the individual manager of the grantor insolvent personally liable for the RETT? Based on a strict reading of the new budget bill, the answer seems to be yes. It is also unclear how the new budget bill will apply to tiered ownership and management structures, and whether the new law will break the veil and place responsibility for RETT on individual managers of organizations several levels above the grantor. This issue is particularly acute for off-the-record transactions, such as certain top tier capital transfers or leased property leases, where paperwork is not recorded and where a RETT can be paid, but the transfer tax return is not filed due to parties’ failure to comply. on the submission of documents. In addition, while the City of New York has not enacted a similar expansion in its New York City Real Estate Transfer Tax (RPTT) liability laws, if the City of New York passes a similar set of laws, additional taxes will apply to those requirements. transfer of property. individuals falling under the New Budget Law.

However, the main concern with the new budget bill is that the new law expands personal liability without providing much-needed and long-awaited guidance on how to apply RETT in transactions that are more complex than a simple transfer of ownership. Real estate joint ventures will regularly involve a complex distribution of profits and losses between the parties, so when capital transfers at the upper levels it is not always clear whether RETT is payable. Affordable housing deals are particularly at risk as they typically involve complex waterfalls, but have limited economic resources to pay transfer taxes in the event that the paperwork is found to have been incorrectly filed. Moreover, title insurance is not available to protect against exposure risk if the RETT is ultimately found to be payable on a particular transaction. By not providing clearer guidance on how to apply RETT laws to these types of transactions, this increases the pressure on the parties involved to resolve any RETT ambiguities, which is likely to increase time and costs and could lead to a disincentive effect on real estate transactions. … …

Originally published May 26, 2021

The content of this article is intended to provide general guidance on the subject. You should seek professional advice regarding your specific circumstances.

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