I'm the sponsor of a luxury Manhattan condo-hotel, where buyers own their units in fee simple but are legally restricted (by NYC zoning and a Restrictive Declaration) to using them as transient hotel rooms for no more than 120 days a year, with the hotel operator controlling access, furnishing, and rental the rest of the time. When I sell a unit for $1 million or more, does New York's additional 'Mansion Tax' apply, the way it would to an ordinary condo?

Plain-English summary

The sponsor of a roughly 400-unit luxury condo-hotel in downtown Manhattan asked whether selling individual hotel-suite condominium units for $1 million or more triggers New York's additional "Mansion Tax" (Tax Law §1402-a), which applies on top of the basic Real Estate Transfer Tax to conveyances of "residential real property" — defined to include any premises used or usable in whole or in part as a personal residence, including an individual condominium unit.

The building sits in an M1-6 zoning district, designated for light manufacturing, where new residential dwelling units are generally prohibited but a "transient hotel" is expressly permitted. The building's Certificate of Occupancy accordingly lists zero dwelling units, and its hotel classification was upheld in a related NYC court proceeding. As a condition of getting a building permit, the sponsor recorded a permanent Restrictive Declaration — incorporated into the Condominium Declaration, Unit Management Agreement, By-Laws, and Purchase Agreement — locking the property into transient-hotel use. Under that framework, each unit owner must sign a Unit Management Agreement giving the hotel operator exclusive control over reservations, access, and furnishing; owners cannot personalize or rearrange the furniture; owner occupancy is capped at 29 consecutive days per 36-day period and 120 days per year, with no guarantee of availability; owners don't get a key and must check in/out daily at the front desk like any transient guest, registering at least 5 days in advance; violations trigger fines under NYC Administrative Code §27-217; and owners pay the same sales tax and hotel occupancy tax on personal use that any hotel guest would pay. The units are assessed as Tax Class 4 (commercial) property.

The Department applied the "economic reality" test from Sacks v. Tax Appeals Tribunal, 99 A.D.3d 1120 (2012) — the Mansion Tax turns on substance, not the transaction's form. It acknowledged that an individual condominium unit usable as even an occasional or seasonal residence, or rented out as an investment, generally still counts as residential real property (citing 20 NYCRR §575.3's Example 1, which taxes a house even though the seller never lived there). But here, the zoning restrictions, the Restrictive Declaration's binding legal limits on occupancy and owner control, the Certificate of Occupancy's zero-dwelling-units designation, and the commercial property tax classification together showed that, at the time of conveyance, each unit is used primarily for commercial purposes, not as a personal residence. On those facts, the Department concluded the units don't qualify as "residential real property" under §1402-a, so the Mansion Tax doesn't apply to their conveyance (ordinary RETT under Tax Law §1402 still applies, which the sponsor conceded).

What this means for you

A condo-hotel avoids the Mansion Tax only with real, binding restrictions -- not just marketing as a "hotel"

The exemption here rested on hard legal facts: a recorded, permanent, non-waivable Restrictive Declaration required by the city as a permit condition; a Certificate of Occupancy showing zero dwelling units; zoning that affirmatively prohibits residential use; and a Unit Management Agreement stripping owners of a key, of input on furnishings, and of unrestricted access. A development that merely brands itself a "condo-hotel" without these binding restrictions would likely be analyzed differently.

Capping and policing owner occupancy is central to the analysis

The Department leaned on the specific 29-day/120-day occupancy caps, mandatory front-desk check-in, no-key policy, and financial penalties for exceeding usage limits. A structure that lets owners occupy their units more freely, or that doesn't actively enforce transient-use limits, risks looking more like a traditional residential condominium subject to the Mansion Tax.

The commercial property tax classification and zoning status are independent supporting evidence

Beyond the contractual restrictions, the Department also pointed to the units' Tax Class 4 (commercial) assessment and the underlying M1-6 zoning (which affirmatively bars new residential dwelling units) as corroborating that the units are commercial, not residential, property.

Ordinary RETT still applies -- only the additional Mansion Tax is avoided

This ruling doesn't exempt condo-hotel unit sales from the basic Real Estate Transfer Tax under Tax Law §1402, which the sponsor wasn't disputing -- it only addresses whether the additional 1% Mansion Tax on $1 million-plus residential conveyances applies.

Common questions

Q: Does selling any condominium unit for $1 million or more automatically trigger New York's Mansion Tax?
A: Not necessarily. The Mansion Tax applies to "residential real property" -- if a unit is legally and functionally restricted to commercial transient-hotel use (not usable as a personal residence), it can fall outside that definition regardless of price.

Q: If an individual condo could theoretically be used as a seasonal or occasional residence, does that make it "residential"?
A: Generally yes -- the Department confirmed that an occasional-residence or investment-rental condo unit typically retains its residential character. This ruling is an exception because binding zoning and contractual restrictions affirmatively prohibited residential-style use here.

Q: What kind of evidence would push a condo-hotel unit toward being treated as "residential" and subject to the Mansion Tax?
A: Anything showing the unit can actually function as a personal residence -- e.g., no enforced occupancy caps, owner control over furnishing/access, a Certificate of Occupancy listing dwelling units, or a residential (not commercial) property tax classification.

Citations and references

Statutes, guidance, and case law:

• Tax Law §1402-a(a)
• Tax Law §1402-a(b)
• Tax Law §1402-a(c)
• Tax Law §1402
• 20 NYCRR §575.3
• Sacks v. Tax Appeals Tribunal, 99 A.D.3d 1120 (App. Div., 3d Dept. 2012)
• Soho Alliance v. NYC Department of Buildings, Index No. 108064/2008 (N.Y. Sup. Ct., Dec. 19, 2008)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a13_4r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(4)R
Real Estate Transfer Tax
August 30, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M110714A

The Department of Taxation and Finance received a Petition for Advisory Opinion from name
redacted (“Petitioner”). Petitioner asks whether the sale of a specified hotel suite condominium unit or units
(“condo unit”, “condo units” or “Units”) are subject to tax imposed by Tax Law §1402-a (“Mansion Tax”) as
a conveyance of residential real property or interest therein when the consideration for the entire conveyance
is one million dollars or more. We conclude that the Mansion Tax is not due on the conveyances.
Facts
Petitioner is the sponsor of the name redacted Hotel Condominium NY (“Hotel”). The Hotel is a
high-rise luxury hotel condominium located in downtown Manhattan, consisting of approximately 400 hotel
condo units. The Sponsor began offering condo units for sale in late 2007.
The Zoning Resolution of the City of New York controls permitted uses of real property located in
the City. The Zoning Resolution is implemented by the New York City Department of Buildings. The Hotel
is located in an area zoned as M1-6. According to Article IV of the City of New York Zoning Resolution, an
M1-6 district is designated for light manufacturing. Paragraph 41-11 of the Zoning Resolution defines the
purpose of the M1 designation as follows:
M1 Light Manufacturing Districts (High Performance)
These districts are designed for a wide range of manufacturing and related uses
which can conform to a high level of performance standards. Manufacturing establishments
of this type, within completely enclosed buildings, provide a buffer between Residence (or
Commercial) Districts and other industrial uses which involve more objectionable
influences. New residential development is excluded from these districts, except for joint
living-work quarters for artists in M1-5A and M1-5B Districts, dwelling units in M1-5M and
M1-6M Districts, and dwelling units in M1-1D, M1-2D, M1-3D, M1-4D and M1-5D
Districts, where authorized by the City Planning Commission, both to protect residences
from an undesirable environment and to ensure the reservation of adequate areas for
industrial development.
Pursuant to the Zoning Resolution, a “transient hotel” is allowed to be constructed in an area zoned
as M1-6. Pursuant to Section 12-10 of the Zoning Resolution, a “transient hotel” is defined as a “building” or
part of a building in which (a) living or sleeping accommodations are used principally for transient
occupancy, and may be rented on a daily basis; (b) one or more common entities serve all such living or
sleeping units; and (c) twenty-four hour desk service is provided, in addition to one or more of the following
services: housekeeping, telephone or bellhop service, or the furnishing or laundry of linens.
Residential construction expressly is not permitted in a M1-6 district. As defined by the Zoning
Resolution, the term “residences” specifically excludes “such transient accommodations as transient hotels.”
By contrast, an “apartment hotel” is defined in the zoning rules as a building with “dwelling units” in a

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“residential building.” As a consequence, no construction of new dwelling units is permitted in the district.
The Hotel’s classification for zoning purposes as a hotel was upheld by the New York State Supreme Court
in Soho Alliance v. NYC Department of Buildings, Judge Payne, Index No. 108064/2008, 12/19/2008.
Consistent with the qualification of the Hotel as a transient hotel, the Certificate of Occupancy for
the Hotel shows zero as the number of dwelling units. As a prerequisite to the issuance of a building permit
by the New York City Department of Buildings, the sponsor of the Hotel entered into a Restrictive
Declaration with the New York City Department of Buildings regarding the continuing use of the property.
The purpose of the Restrictive Declaration was to ensure strict compliance with the transient usage zoning
rules. The Restrictive Declaration imposes strict non-waivable restrictions on the use of the property to
ensure that it will continue to qualify as a transient hotel. These restrictions are incorporated by reference in
the Condominium Declaration, the Unit Management Agreement, the By-Laws of the condominium
association, and the Purchase Agreement. Additionally, the restrictions imposed are permanent and create a
covenant recorded against the property and running with the land.
The Restrictive Declaration requires each Unit Owner of the condo units to enter into a Unit
Management Agreement. Pursuant to the Agreement, the operator of the Hotel provides all the services of a
luxury hotel to the Unit and its occupants. The Unit Owner is required to allow the hotel operator to furnish
and maintain the Unit pursuant to uniform standards set by the Hotel operator that are consistent with
transient hotel Units in the Hotel and with the Units’ intended use by transient guests in a luxury hotel for the
majority of the year. The Unit Management Agreement delegates to the hotel operator exclusive control over
acceptance and management of reservations, enforcement of registration procedures and management of
access to the Units. Unit Owners are not allowed to participate in any of those functions. Under the terms of
the Restrictive Declaration and the Unit Management Agreement, the Unit must be made available for
occupancy on a daily or weekly basis by Hotel guests through the Hotel operator as part of the hotel
operating within the building. A Unit Owner is permitted only a limited use of his or her own Units.
Conditioned upon availability, occupancy by a Unit Owner is strictly limited to a maximum of 29
consecutive days per 36 day period and to no more than 120 days in the aggregate per calendar year. Usage
by non-owner guests is similarly restricted to ensure transient occupancy only. Owner access is strictly
controlled by the Hotel Management Company. A Unit Owner is required to give the Hotel Management
Company at least five days’ notice of intent to occupy his or her Unit. An Owner does not receive a key to
his or her own Unit. Each Unit Owner is required to check in and out on a daily basis at the front desk of the
Hotel just like any transient guest that rents a Unit. An Owner may access his or her Unit only when
properly registered by the Hotel. During a period that the Unit is rented or otherwise occupied by a nonowner guest in accordance with the requirements for transient rentals, an Owner is absolutely prohibited
from entering his or her Unit.
Unit Owners are not guaranteed availability of their Units. It is quite possible that the Units may
have been rented to guests of the Hotel. As a consequence, the Hotel may not be able to accommodate a Unit
Owner, and as a practical matter, the Owner may never be able to achieve a 29 day stay or 120 day annual
usage, as the case may be. The Owner may not opt to keep his or her Unit vacant and available for his or her
personal use as would the owner of a residential property.
Under the Restrictive Declaration and the Unit Management Agreement, the Hotel Management
Company is required to keep careful accounting records of actual usage of Units by Owners and guests for
the purpose of avoiding excessive stays, defined as an “exceedence.” Any exceedence of the Occupancy
Restriction by a Unit Owner or guest is a violation of §27-217 of the New York City Administrative Code.
Owners and guests are warned when they approach a usage limitation. An overextended stay, or exceedence,

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subjects the occupant to monetary fines, part of which is payable to the City, equal to twice the daily rental
rate. The NYC Department of Buildings can audit the usage and impose additional sanctions.
The Units are sold fully furnished with items typically found in a luxury transient hotel room. Under
the terms of the Unit Management Agreement, all Units must be similarly furnished. Unit Owners have no
input on style of furnishings or décor for the Unit. Unit Owners are prohibited from making any alterations
or adding personal decorations. The existing furniture cannot even be moved, and any personal touch, such
as a photo of the Owner’s family, is prohibited.
Just like a guest of a hotel, the Unit Owner is liable for both the sales tax and hotel room occupancy
tax for personal use of his or her Unit. In addition, the Unit Owner must pay a Unit Management Fee for
each night he or she uses the Unit. Additional daily “Per Use” charges apply. A permitted sale of a condo
unit by a Unit Owner is conditioned upon the purchaser entering into the Unit Management Agreement. The
purchaser must honor any pre-existing reservations and rental agreements.
According to the Commercial Condominium Offering Plan, dated August 3, 2007, there are 413
condo units located on Floor 8 through Floor 45 of the Building. The condo units offered for sale vary in
size from studios with approximately 422 square feet to a presidential suite with approximately 10,065
square feet. Each condominium is listed on the New York City Final Assessment roll for 2011-2012 in Tax
Class 4 (commercial).

Analysis
Tax Law §1402-a, commonly known as the "mansion tax", was enacted in 1989 (L.1989, Ch. 61).
Tax Law §1402-a(a) provides that in addition to the basic real estate transfer tax imposed by Tax Law §1402,
a tax is imposed on each conveyance of residential real property or interest therein "when the consideration
for the entire conveyance is one million dollars or more." Such additional tax is to be paid by the grantee
(Tax Law §1402-a(b)).
For mansion tax purposes, residential real property includes “any premises that is or may be used in
whole or in part as a personal residence, and shall include a one, two, or three-family house, an individual
condominium unit, or a cooperative apartment unit” (see Tax Law §1402-a(a); see also 20 NYCRR §575.3
(the “Transfer Tax Regulations”)).1
The Petitioner acknowledges that the conveyance of each of the 413 condo units is a conveyance of
an interest in real property subject to real estate transfer tax under §1402. The issue to be determined here is
whether each conveyance of a condo unit is subject to the mansion tax as a conveyance of residential real
property or interest therein when the consideration for the entire conveyance is one million dollars or more.
The application of the mansion tax is not dependent on the form of the underlying transactions but
on the economic reality that characterizes the entire conveyance. See Sacks v. Tax Appeals Tribunal,
1

Section 1402-a(c) of the Tax Law provides, in part, that:
[e]xcept as otherwise provided in this section, all the provisions of this article relating to or applicable to the
administration, collection, determination and distribution of the tax imposed by section fourteen hundred two of this
article shall apply to the tax imposed under the authority of this section with such modifications as may be necessary
to adapt such language to the tax so authorized.

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99 AD3d 1120 (App. Div., 3rd Dept., 2012). Generally, an individual condominium unit that may be used as
a seasonal or occasional residence or rented to another person retains its character as residential real property.
Conveyance of a traditional residential condominium held for income or investment purposes is subject to
the mansion tax. For mansion tax purposes, the personal residence need not be the condo unit purchaser’s
primary or principal personal residence. As illustrated by Example 1 of section 575.3 of the Transfer Tax
Regulations2, the mansion tax applies to premises that may be used as a residence regardless of whether the
dwelling unit was occupied by the seller.
In the present case, each Unit Owner owns his or her condo unit and an undivided interest in the
common elements in fee simple. Each Unit Owner has the right to use his or her condo unit on an occasional
basis. Each condo unit is made available for rental by the Hotel when the Unit Owner does not require its
use. Each condo unit is furnished and equipped to allow for use on an extended basis by the Hotel.
The condominium hotel units are sold to individuals who will be entitled to occupy the units for a
limited duration of time each year. Pursuant to the New York City Department of Building requirements and
zoning restrictions, the condominium units must be made available for rental as transient hotel
accommodations. The certificate of occupancy is in conformance with this requirement, stating that the
building has zero dwelling units. Further, for sales and hotel occupancy tax purposes, the Units are treated as
hotel units.
We conclude that the zoning approval and Restrictive Declaration from the New York City
Department of Buildings imposes restrictions on the use of the property to ensure that it will qualify as a
transient hotel. The information outlined above supports the conclusion that, at the time of conveyance, due
to the real property tax assessment classification and the Department of Building conditions, zoning
restrictions and court orders, each condo unit is primarily used for commercial purposes. Accordingly, we do
not believe that the Units in question qualify as personal residences for purposes of the tax imposed by
section 1402-a of the Tax Law, and the conveyances of those Units are not subject to the mansion tax.

DATED: August 30, 2013

NOTE:

2

/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. The
information provided in this document does not cover every situation and is not intended to
replace the law or change its meaning.

Subdivision (b) of section 575.3 of the Transfer Tax Regulations provides, in part:
Example 1: A three - family house is sold for $1,200,000. The grantor did not occupy any portion of the house. The
grantee is required to pay the additional tax of $12,000 ($1,200,000 x .01). The result would have been the same if the grantor had
occupied any portion of the house.