We're financing an airport terminal expansion through the Port Authority. A leasehold mortgage we have to record is 'supplemental' to a governmental instrumentality's tax-exempt mortgage and secures the exact same bond debt -- does it get to piggyback on that exemption even though neither party to OUR mortgage is a government entity?

Plain-English summary

The Port Authority of New York and New Jersey planned to issue new Special Project Bonds to finance an expansion of JFK Airport's Terminal 4, on a parity basis with bonds issued for the original terminal project in 1996. The tenant leasing the terminal (the petitioner) would pay rent sufficient to cover the bond debt service. To secure the bonds, two mortgage-type instruments would be recorded in sequence: first, the Port Authority and a bond trustee would record a First Supplemental Assignment of Rents; then the petitioner (as tenant) and the trustee would record a Supplemental Leasehold Mortgage pledging the petitioner's leasehold interest, so the trustee could foreclose or take over operations if the bonds ran into trouble.

New York's mortgage recording tax (Tax Law § 253) applies broadly, and an assignment of rents on property in a city of a million-plus population (i.e., New York City) is itself treated as a mortgage (§ 250.2(a)). But mortgages recorded by government instrumentalities are exempt under long-standing case law immunity, independent of any statute — so the Port Authority's First Supplemental Assignment of Rents was exempt because the Port Authority is a governmental instrumentality of both New York and New Jersey.

The Supplemental Leasehold Mortgage was different: neither the petitioner (mortgagor) nor the trustee (mortgagee) is a government entity, so the instrumentality-immunity theory didn't apply directly. Instead, the Department looked to Tax Law § 255.1(a), which exempts a supplemental instrument from MRT if (1) it's recorded after a primary mortgage on which all taxes due, if any, have been paid, (2) it imposes a lien on property not covered by that primary mortgage, and (3) it doesn't create or secure any new or further indebtedness beyond what the primary mortgage already secures. All three were satisfied: the Assignment of Rents (no tax due, since exempt) came first; the Leasehold Mortgage added a lien on the petitioner's leasehold interest (not originally covered); and both instruments secured the identical Series 6/Series 8 bond debt with no increase. So the Supplemental Leasehold Mortgage could be recorded tax-free, provided the Assignment of Rents was recorded first.

What this means for you

Bond counsel and financial advisors structuring public-private lease financings

When a governmental authority's exempt security instrument is recorded first and a private party's supplemental instrument secures the same debt without adding new money, § 255.1(a) can extend MRT-free treatment to the private party's instrument even though neither party to it is tax-immune. Sequencing matters: record the exempt governmental instrument first.

Airport, port, and public-facility tenants financing improvements through an authority

Don't assume your own leasehold mortgage is taxable just because you (the tenant) aren't a government entity. If it's genuinely supplemental to an already-exempt governmental instrument and secures the same obligation, it may ride along exempt.

Common questions

Q: Does this exemption depend on the tenant or trustee being a government entity?
A: No. The exemption here comes from § 255.1(a)'s supplemental-instrument rule, not from governmental immunity — the Leasehold Mortgage's parties are private, but it qualifies because of its relationship (timing, scope, and non-increase of debt) to the already-exempt Assignment of Rents.

Q: What would break this exemption?
A: If the Supplemental Leasehold Mortgage secured MORE debt than the Assignment of Rents, or was recorded before it, § 255.1(a) would not apply and MRT would likely be due on the increase or on the full instrument.

Q: Can another taxpayer rely on this opinion for a similar financing structure?
A: No. It binds the Department only as to this petitioner and these facts.

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on real property mortgages)
• Tax Law § 250.2(a) (assignment of rents in a city of 1M+ population deemed a mortgage)
• Tax Law § 255.1(a) (exemption for supplemental instruments securing the same, non-increased indebtedness)
• 20 NYCRR § 641.6(b)(3) (a pledge of a leasehold interest as security for debt is a mortgage)
• Unconsolidated Laws § 6455 (Port Authority tax immunity as a political subdivision of NY and NJ)

Case law cited in the opinion:

• Matter of City of New York v. Tully, 88 A.D.2d 701 (assignment of rents by a government instrumentality exempt from MRT)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a10_4r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-10(4)R
Mortgage Recording Tax
September 27, 2010

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M100723A

Petitioner, name redacted a limited liability company, asks whether the recording of a First
Supplemental Agreement to Leasehold Mortgage (“Supplemental Leasehold Mortgage”), described in the
statement of facts, is exempt from the mortgage recording taxes (MRT) imposed by Article 11 of the Tax
Law.
We conclude that the recording of the Supplemental Leasehold Mortgage is exempt.
Facts
The Port Authority of New York and New Jersey (the “Port Authority”) is planning to issue a new
series of Special Project Bonds (“the Series 8 Bonds”) 1 to finance the expansion and improvement of
Terminal 4 at JFK International Airport in New York City (the “2010 Expansion Project”). The construction
of Terminal 4 (“the Original Project”) was financed in part by the issuance of Port Authority Special Project
Bonds (“the Series 6 Bonds”)2, authorized in 1996. Documents authorizing issuance of the Series 6 Bonds
provided that additional series of Special Project Bonds could be authorized and issued on a parity basis with
the Series 6 Bonds for purposes of the project, including expansions, and that the same pledges, mortgages,
security interests and assignments applicable to the Series 6 Bonds would be extended to such additional
series.3
As part of the 2010 Expansion Project, the terminal will be leased to Petitioner for an amount
sufficient to pay off the debt service on the bonds. A Trustee will be appointed for the bondholders. In order
to secure the payment of the principal amount of the bonds, the following agreements are expected to be
executed in 2010: The Port Authority will enter into a First Supplemental Trust Indenture with the Trustee
for the bondholders and, as provided in the Trust Indenture, the Port Authority and the Trustee will execute a
First Supplemental Assignment of Rents, securing the aggregate principal amount of the Port Authority
Series 6 and Series 8 Bonds. The Port Authority will record the First Supplemental Assignment of Rents.
Petitioner and the Trustee for the bondholders will enter into the Supplemental Leasehold Mortgage, and
Petitioner will record this document after the First Supplemental Assignment of Rents is recorded. The
purpose of the Supplemental Leasehold Mortgage is to allow the Trustee to address financial problems if
they arise by foreclosing on the assignment of rents and/or taking over the operations of the facility from
Petitioner, the tenant.

1

Port Authority of New York and New Jersey Special Project Bonds, Series 8 and 9, JFK International Air Terminal
LLC in the total aggregate principal amount of up to $1.2 billion
2
Port Authority of New York and New Jersey Special Project Bonds, Series 6 and 7, JFK International Air Terminal
LLC in the total aggregate principal amount of $935,100,000
3
See First Supplemental Agreement to Leasehold Mortgage, page 2 and First Supplemental Assignment of Rents, page
2.

-2-

TSB-A-10(4)R
Mortgage Recording Tax
September 27, 2010

Analysis
Petitioner has asked whether the recording of the Supplemental Leasehold Mortgage is exempt from
the MRT. Section 253 of the Tax Law imposes a tax on the recording of a mortgage of real property in New
York State measured by the principal debt or obligation which is, or under any contingency may be secured
at the date of the execution thereof or at any time thereafter. Section 250 of the Tax Law provides that an
assignment of rents to accrue from tenancies, subtenancies, leases or subleases of real property, within any
city in the state having a population of one million or more, given as security for an indebtedness, shall be
deemed a mortgage of real property for purposes of Tax Law Article 11.4 Although section 252 of the Tax
Law rules out any exemption from MRT given in any other law, an MRT exemption for mortgages recorded
by government instrumentalities has long been recognized in case law, independent of section 252.5 Under
this principle, the recording of the First Supplemental Assignment of Rents was exempt from the MRT.
An instrument pledging Petitioner’s interest in a lease is also a mortgage when the instrument is
given as security for a debt.6 The Supplemental Leasehold Mortgage, like the First Supplemental
Assignment of Rents, secures payment of the Special Project Bonds. The exemption for governmental
instrumentalities, however, does not extend to the Supplemental Leasehold Mortgage, because neither the
mortgagor/Petitioner nor the mortgagee/Trustee is a governmental instrumentality. However, the recording
of the Supplemental Leasehold Mortgage may be exempt under section 255.1(a) of the Tax Law, which
provides:
If subsequent to the recording of a mortgage on which all taxes, if any, accrued under this
article have been paid, a supplemental instrument or mortgage is recorded for the purpose
of…imposing the lien thereof upon property not originally covered by or not described in
such recorded primary mortgage for the purpose of securing the principal indebtedness
which is or under any contingency may be secured by such recorded primary
mortgage,…such additional instrument or mortgage shall not be subject to taxation under
this article…unless it creates or secures a new or further indebtedness or obligation….
As applied to Petitioner's situation, the First Supplemental Assignment of Rents recorded by the Port
Authority is the primary mortgage, which assigns the Port Authority's right to receive rents from Petitioner to
the Trustee in order to secure the Port Authority's obligations with respect to the Series 6 and Series 8 Bonds.
The First Supplemental Assignment of Rents will be recorded prior to the recording of the Supplemental
Leasehold Mortgage. No MRT will be required to be paid in connection with the recording of the First
Supplemental Assignment of Rents because the Port Authority is considered a political subdivision of New
York State and New Jersey.7 The Supplemental Leasehold Mortgage recorded by the Petitioner imposes a
lien upon property not originally covered by the First Supplemental Assignment of Rents -- e.g., Petitioner's
rights as lessee of the premises pursuant to a lease from the Port Authority. The same indebtedness that is
secured by the First Supplemental Assignment of Rents recorded by the Port Authority is the same
indebtedness secured by the Supplement Leasehold Mortgage, and the purpose of each of those documents is
to secure the indebtedness of the Port Authority with respect to the Series 6 and Series 8 Bonds.
Consequently, the Supplemental Leasehold Mortgage is covered by section 255.1(a) because (i) the
Supplemental Leasehold Mortgage will be recorded subsequent to the First Supplemental Assignment of
Rents, upon which no taxes were due, (ii) the Supplemental Leasehold Mortgage is an additional mortgage
imposing a lien upon property not originally covered by the First Supplemental Assignment of Rents and (iii)
4

Tax Law §250.2(a).
Matter of City of New York v. Tully, 88 A.D.2d 701, lv to app denied 57 N.Y.2d 606.
6
20 NYCRR §641.6(b)(3).
7
See Unconsolidated Laws §6455.
5

-3-

TSB-A-10(4)R
Mortgage Recording Tax
September 27, 2010

the Supplemental Leasehold Mortgage secures the same principal indebtedness as the First Supplemental
Assignment of Rents. Thus, the Supplemental Leasehold Mortgage can be recorded without payment of the
MRT, provided that the First Supplemental Assignment of Rents to which it is supplemental, pursuant to its
terms, has already been recorded.

DATED:

September 27, 2010

/S/
DANIEL SMIRLOCK
Deputy Commissioner and Counsel

NOTE:

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set
forth therein and is binding on the Department only with respect to the person or entity to whom
it is issued and only if the person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department policies in effect as of the
date the Opinion is issued or for the specific time period at issue in the Opinion.