We're building a new electric transmission line partly financed and secured by mortgages to the New York Power Authority (NYPA), a state agency. Is recording those mortgages subject to New York mortgage recording tax?

Plain-English summary

The petitioner planned to own and operate a 660-megawatt electric transmission system running under the Hudson River and through New York City, built in response to a New York Power Authority (NYPA) request for proposals to supply electricity to the New York City area amid a documented electricity shortage. NYPA, a state agency and political subdivision, would purchase 75% of the transmission capacity under a 20-year Firm Transmission Capacity Purchase Agreement (FTCPA), with an option to eventually acquire up to 100% ownership of the system.

To secure the developer's obligations and NYPA's rights under the FTCPA, the developer agreed to grant NYPA two mortgage liens on the transmission facilities: one with NYPA as sole mortgagee, and one with NYPA and a collateral agent for private lenders as co-mortgagees (ranking equally, governed by an inter-creditor agreement). NYPA presented both mortgages for recording.

New York's mortgage recording tax statute (Tax Law § 253) taxes the recording of mortgages on real property, and lists certain statutory exemptions (§§ 252, 252-a, 253(3)) that didn't apply here. But New York courts have separately recognized, independent of any statute, that state agencies enjoy common-law tax immunity for property used in the public interest — taxing a mortgage held by a state agency is treated as indirectly taxing the agency itself, which its immunity forbids. This principle, applied in cases like Hotel Waldorf-Astoria Corp. v. State Tax Commission (a $45 million mortgage held by the NYS Employees' Retirement System was MRT-exempt) and City of New York v. Tully, is codified in the mortgage recording tax regulations at 20 NYCRR § 644.1(a)(1): where the mortgagor OR mortgagee is a state agency, instrumentality, or political subdivision, recording is exempt to the extent that entity is immune from taxation. The Department had already reached the same conclusion for a similar NYPA transmission project in TSB-A-09(3)R. Because NYPA holds mortgagee rights on both instruments here (sole on one, co-mortgagee on the other), both are exempt from MRT.

What this means for you

Developers financing infrastructure projects involving a state authority

If a state agency like NYPA, the Port Authority, or a similar instrumentality is a mortgagee (or mortgagor) securing its own rights under a project agreement, the mortgage recording can be exempt from MRT even though private lenders are co-secured on the same instrument — the exemption travels with the state agency's presence and immunity, not with the private party's status.

Lenders co-secured alongside a state agency

Being a co-mortgagee alongside an immune state agency doesn't disqualify the instrument from exemption; what matters is that a tax-immune agency holds a real mortgagee interest being recorded.

Common questions

Q: Does the exemption depend on which party recorded the mortgage?
A: The regulation looks to whether the mortgagor OR mortgagee is a state agency/instrumentality/political subdivision, not who physically presents it for recording (NYPA presented both mortgages here).

Q: Would this apply if NYPA held no interest at all, just the private lenders?
A: No — the exemption in this opinion rests entirely on NYPA's presence as mortgagee (sole or co-) and its tax immunity; a purely private mortgage would be fully taxable.

Q: Can other utility developers rely on this specific opinion?
A: No. It binds the Department only as to this petitioner and the facts described, though the Department notes it reached the same result in the similar TSB-A-09(3)R.

Citations and references

Statutes and regulations:

• Tax Law § 253 (mortgage recording tax on real property mortgages)
• Tax Law §§ 252, 252-a, 253(3) (enumerated statutory exemptions, none applicable here)
• 20 NYCRR § 644.1(a)(1) (exemption to the extent a NY State agency/instrumentality/political subdivision mortgagor or mortgagee is immune from taxation)

Case law cited in the opinion:

• Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330 (3d Dep't 1982) (mortgage held by NYS Employees' Retirement System exempt from MRT under common-law state-agency immunity)
• City of New York v. Tully, 88 A.D.2d 701 (3d Dep't 1982) (companion case)
• TSB-A-93(4)R, TSB-A-2(6)R (NYS Urban Development Corporation); TSB-A-02(6) (Port Authority) — prior opinions applying the same immunity principle
• TSB-A-09(3)R (prior opinion reaching the same conclusion for a similar NYPA transmission project)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a11_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-11(1)R
Mortgage Recording Tax
August 18, 2011

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M110610A

The Department of Taxation and Finance received a petition for Advisory Opinion from
name redacted. Petitioner asks whether the taxes imposed by Article 11 of the Tax Law and
Chapter 26 of the New York City Administrative Code are due upon the recording of mortgages
of certain property that is part of a new 660 megawatt electric transmission system (the
“Transmission System”).
We conclude that mortgage recording taxes are not due in the situation presented.
Facts
The facts as presented in the Petition are as follows: Petitioner will be the owner of a 660
megawatt electric transmission system (“Transmission System”) that will be located partially in
the State of New Jersey and partially in the State of New York. The New York portion of the
Transmission System will include cables under the Hudson River in an easement granted by the
New York State Office of General Services and in New York City in public property in which
Petitioner will be granted rights by the City of New York and the New York State Department of
Transportation. The Transmission System will be owned and operated by the Petitioner. The
Transmission System was proposed in response to a Request for Proposals to supply electricity
to the New York Power Authority (“NYPA”). Seventy-five percent of the transmission capacity
of the Transmission System will be sold by the Petitioner to NYPA under the 20-year Firm
Transmission Capacity Purchase Agreement (“FTCPA”) under which NYPA has the option to
acquire ownership of 75% percent of the Transmission System at the end of the initial term of
the FTCPA and 100% percent ownership of the Transmission System at any time prior to the
second anniversary of the Date of Initial Commercial Operation.
NYPA is “a body corporate and politic, a political subdivision of the state of New York,
exercising governmental and public powers...” (See Section 1002 of Chapter 43-A, Article 5,
Title 1 of the New York Consolidated Laws.) As such, NYPA is generally exempt from state and
local taxes. When the New York Legislature found that there was a severe shortage of electricity
in New York City, NYPA’s mandate was expanded to include the provision of electricity in the
New York City area to governmental bodies. Id. NYPA will use its transmission capacity to
meet the electrical needs of the governmental bodies and agencies it serves in the New York
City area. In 2005, NYPA issued a Request for Proposals (“RFP”) to supply it with access to
new electricity supplies in order to meet the growing needs of its New York City area
customers. Petitioner proposed to develop, build and operate the Transmission System and to
enter into the FTCPA in response to the NYPA RFP.

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TSB-A-11(1)R
Mortgage Recording Tax
August 18, 2011

The FTCPA provides that the Petitioner will grant NYPA two mortgage liens on the
Transmission System to secure the Petitioner’s obligations and NYPA’s rights under the FTCPA.
One of the mortgages is in favor of NYPA as sole mortgagee and one of the mortgages is in
favor of NYPA and a collateral agent for Petitioner’s lenders, as co-mortgagees, to secure
obligations to NYPA and obligations to private lenders funding a portion of the cost to develop
and construct the Transmission System. NYPA and the lenders are secured on a pari passu basis
and there is an inter-creditor agreement between the parties governing their respective rights
under the mortgage. NYPA is the party who presented the mortgages for recording.
Analysis
Article 11 of the Tax Law imposes taxes on the recording of mortgages on real property,
based on the principal debt or obligation secured by the mortgage being recorded (Tax Law
§253). The mortgage recording tax statute enumerates certain exemptions (Tax Law §§252,
252-a, 253(3)), none of which is applicable here, but some other exemptions arise under the
common law. It is well established that State agencies enjoy immunity from taxation,
independent of the statutory exemptions, for property used in the public interest. The imposition
of a tax on the recording of a mortgage held by a State agency is tantamount to a tax on the
agency itself in violation of its immunity from taxation1. This principle has been applied in
exempting from the mortgage recording tax the recording of mortgages on property for which the
legal title is held by an industrial development agency and the beneficial ownership is held by a
non-exempt private party. See 1982 Opinion of the State Comptroller No. 82-188, p 240. In
Hotel Waldorf-Astoria Corp. v. State Tax Commission 2, the Court concluded that a $45 million
mortgage secured by the Waldorf-Astoria hotel was exempt from the mortgage recording tax
because the mortgagee (the New York State Employees’ Retirement System) was a New York
State agency (Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330, 334; 451
N.Y.S.2d 261 (1982)). The Court stated: “as a State agency, the Retirement System enjoys an
immunity from taxation independent of the statutory exemptions listed in Section 252 of the Tax
Law.” The mortgage recording tax regulations follow this principle: Where the mortgagor or
mortgagee is New York State or any of its agencies, instrumentalities, or political subdivisions,
the recording of a mortgage is exempt to the extent the New York State entity is immune from
such taxation. See 20 NYCRR §644.1(a)(1).
In a 2009 Advisory Opinion, this Department affirmed NYPA’s exemption from State
and New York City mortgage recording taxes (TSB-A-09(3)R). The facts in this petition
concerning the transmission project are similar to those in the project that was the subject of the
earlier advisory opinion.

1

See also, City of New York v. Tully, 88 A.D.2d 701, 451 N.Y.S.2d 265 (3d Dept. 1982) (companion case to Hotel
Waldorf Astoria Corp), TSB-A-93(4)R (NYS Urban Development Corporation); TSB-A-2(6)R (NYS Urban
Development Corporation); TSB-A-02(6) (Port Authority).
2
86 A.D.2d 330, 334; 451 N.Y.S.2d 261 (1982).

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TSB-A-11(1)R
Mortgage Recording Tax
August 18, 2011

Based upon the foregoing, we conclude that the recording of a mortgage on Petitioner’s
transmission facilities, given to private lenders and NYPA as co-mortgagees, or to NYPA as the
sole mortgagee, is exempt from the mortgage recording tax.

DATED: August 18, 2011

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

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.