I sold a mixed-use building (a tavern with apartments upstairs, six units total or fewer with separate kitchens) and took back a purchase money mortgage from the buyers. Do I, as the seller/mortgagee, or the buyers, as the mortgagors, owe the special additional mortgage recording tax?

Plain-English summary

Lawrence Harper sold real and personal property in the village of Greene, Chenango County, to Johnson C. Burrows and Donald F. Burrows under a contract dated April 22, 1980. The building was mixed-use: the ground floor held a tavern, an adjacent room with a pool table, a dining room, a kitchen, restrooms, and a one-car garage near the rear entrance; the two upper floors held two apartments with their own kitchens plus twelve additional rooms without cooking facilities. As part of the deal, Harper (the seller) took back a $60,000 purchase money mortgage from the buyers, recorded June 26, 1980.

The question was who owes the special additional mortgage tax under Tax Law § 253.1-a -- an extra 25 cents per $100 (and major fraction) of principal debt secured, layered on top of the regular mortgage recording tax, for every mortgage recorded on or after January 1, 1979. The statute specifically directs that for property "improved by a structure containing six residential dwelling units or less with separate cooking facilities," this tax "shall... be paid by the party making the loan secured by such mortgage," and "shall not be paid or payable, directly or indirectly by the borrower" (except in narrow release/discharge and corporate-trust-mortgage scenarios under §§ 258-259).

The wrinkle: a purchase money mortgage isn't really a "loan" in the conventional sense -- the seller isn't advancing cash, just deferring collection of part of the sale price. Taken literally, the statute's "party making the loan" language might not obviously apply to a seller who financed part of a sale rather than lending money outright. The Department resolved this by reading the statute purposively: it applies to every recorded mortgage, which by its terms includes purchase money mortgages, so within "the meaning and intent of the statute," the buyer (mortgagor) is treated as the "borrower" and the seller (mortgagee) is treated as "the party making the loan" -- a construction the Department said was necessary to give effect to the Legislature's underlying purpose.

Because the property here contained fewer than six residential dwelling units with separate cooking facilities (two apartments plus non-cooking rooms), the statute's payer-shifting rule applied, and the Department held the mortgagee (Harper, the seller) -- not the mortgagors (the Burrows buyers) -- was responsible for paying the special additional mortgage tax.

What this means for you

Sellers carrying back purchase money financing

If you're financing part of a sale yourself and the property has six or fewer residential dwelling units with separate cooking facilities, expect to be the one who owes the special additional mortgage tax (Tax Law § 253.1-a) on your own purchase money mortgage -- not the buyer, even though you might intuitively think of the buyer as the one "getting the loan."

Buyers negotiating seller-financed deals

Understand that the special additional mortgage tax's payer-shifting rule for small residential properties protects YOU (the borrower) from this particular tax component when the seller is carrying the financing -- factor this into your negotiations, since it affects who bears a real, quantifiable closing cost.

Accountants and real estate attorneys

The key trigger is the physical characteristics of the property (six or fewer residential dwelling units WITH separate cooking facilities), not who the parties are or the mortgage's formal structure. Confirm unit count and kitchen facilities carefully -- and remember the "borrower"/"party making the loan" labels get functionally reassigned to mortgagor/mortgagee even in a purchase-money context where no literal loan changed hands.

Common questions

Q: Does a purchase money mortgage count as a "loan" for purposes of the special additional mortgage tax's payer rule?
A: Not literally, but the Department treats it that way anyway -- the mortgagor is deemed the "borrower" and the mortgagee is deemed "the party making the loan," to carry out the statute's purpose across every recorded mortgage, including purchase money mortgages.

Q: What property characteristics trigger the payer-shifting rule?
A: A structure "containing six residential dwelling units or less with separate cooking facilities." Here, that was satisfied by two apartments with their own kitchens (the twelve rooms without cooking facilities didn't count as separate dwelling units for this purpose).

Q: Who pays the special additional mortgage tax on larger, non-qualifying properties?
A: This ruling addresses only the small-residential-property payer-shifting rule; larger or non-qualifying properties follow the tax's ordinary payer rules, which this ruling doesn't itself address.

Q: Can another seller carrying back financing rely on this specific ruling?
A: No. It binds the Department only as to Harper and these facts, though the underlying statutory-construction reasoning (purchase money mortgages ARE covered, with mortgagor/mortgagee treated as borrower/lender) is of general application.

Citations and references

Statutes:

• Tax Law § 253.1-a (special additional mortgage tax; payer-shifting rule for property with six or fewer residential dwelling units with separate cooking facilities)
• Tax Law § 258 (tax payments necessary for release or discharge of record)
• Tax Law § 259 (corporate trust mortgages)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a81_1m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81 (1) M
Mortgage Tax
October 7, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. M801222A

On December 17, 1980, a Petition for Advisory Opinion was received from Lawrence Harper,
16 Monell Street, Greene, New York 13778.
The issue raised is whether the mortgagor (purchaser) or the mortgagee (seller) is liable for
the special additional mortgage tax, under the circumstances described below. This tax is imposed,
under section 253.1-a of the Tax Law, upon the recording of a mortgage, at the rate of 25 cents for
each $100 and each remaining major fraction thereof of principal indebtedness secured by such
mortgage.
Under contract dated April 22, 1980, seller, Lawrence Harper, agreed to sell and convey to
Johnson C. Burrows and Donald F. Burrows as purchasers, certain real and personal property located
in the village of Greene, Chenango County, New York. The real property is improved with a
structure containing a tavern, an adjacent room with a pool table, a room with tables and some dining
facilities, a kitchen and rest rooms. Also on the ground floor level is a one car garage, near the rear
entrance. The two upper floors of the building consist of two apartments with kitchen facilities and
twelve rooms without cooking facilities. As part of the transaction, the seller took back from the
purchasers a purchase money mortgage in the amount of $60,000, on June 26, 1980.
Section 253.1-a of the Tax Law imposes the special additional mortgage tax on "each
mortgage of real property situated within the state recorded on or after the first day of January,
nineteen hundred seventy-nine, . . . "and provides that the ". . . tax imposed by this subdivision shall
in cases of real property improved by a structure containing six residential dwelling units or less with
separate cooking facilities be paid by the party making the loan secured by such mortgage, and such
tax shall not be paid or payable, directly or indirectly by the borrower except as otherwise provided
in sections two hundred fifty-eight and two hundred fifty-nine of this article . . . . " (emphasis added).
Section 258 of the Tax Law relates to tax payments necessary to obtain a release or discharge of
record, and section 259 relates to corporate trust mortgages.
In the present instance the special additional mortgage tax is due on the recording of a
mortgage of real property "improved by a structure containing six residential units or less with
separate cooking facilities . . . . " The statute provides that in such cases it is "the party making the
loan" who is obligated to pay the tax, rather than "the borrower." A purchase money mortgage does
not involve a "loan" in the usual sense of the word. However, the statute imposes a tax on every
recorded mortgage, which category includes purchase money mortgages. Within the meaning and
intent of the statute, thus, the mortgagor in a purchase money mortgage is the borrower, and the

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81 (1) M
Mortgage Tax
October 7, 1981

mortgagee is deemed to be "the party making the loan," for purposes of determining which party to
the mortgage is responsible for paying the tax. This construction of the applicable statutory language
is necessary in order to effective the legislative purposes underlying the statute.
Accordingly, in the present instance, since there are fewer than six residential dwellings with
separate cooking facilities located on the mortgaged property, the mortgagee is required to pay the
special additional mortgage tax.

DATED: March 10, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau