We operate a famous oceanfront resort under New York's Innkeepers Law as a transient lodging facility, not a residence -- our rooms mostly lack kitchens, and we're contractually required to keep operating as a hotel for decades. We're selling 51-week annual time-share interests in the resort as cooperative shares to the public, with no single buyer ever acquiring a controlling interest. Since we're a hotel, not a residential cooperative, are these timeshare sales exempt from New York's Real Property Transfer Gains Tax?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1989 opinion is preserved here for historical and research value, not as current law.

Gurney's Inn Resort and Spa, Ltd. owned and operated the world-famous Gurney's Inn on the eastern end of Long Island, a transient lodging facility that had operated under New York's Innkeepers Law since 1982 and, under its own timeshare offering plan's "non-disturbance" provisions, was contractually bound to keep operating as an inn until 2032 or beyond. Most units lacked kitchens, and the property was zoned for hotel/motel use, not residential use. Rather than rely on unpredictable week-to-week bookings, the Inn decided in late 1982 to pre-sell its vacation inventory: it structured its 112 units into 5,712 annual one-week intervals (112 units × 51 weeks, with one week per unit reserved each year for maintenance) and sold 648,975 shares of stock in a cooperative corporation to the public, each block of shares coming with a proprietary lease granting a specific recurring one-week vacation stay for 50 or more years. Because shares were spread so widely -- averaging roughly 114 shares per interval week -- no single purchaser ever acquired or could acquire a "controlling interest" in the Inn.

The Inn argued it fell outside the gains tax entirely: it wasn't a residential cooperative housing corporation under federal tax law (IRC § 216 requires an unrestricted right to occupy units for DWELLING purposes, which the Inn's transient, no-kitchen, Innkeepers-Law-governed units couldn't satisfy), it functioned as a hotel/resort rather than a residence, and since no buyer ever got a controlling interest, the gains tax's controlling-interest trigger never applied. The Department rejected this framing. The statute's definition of a taxable "transfer of real property" doesn't rely SOLELY on controlling-interest acquisitions -- it separately and independently covers "transfers pursuant to a cooperative plan," expressly defined to include ALL transfers of stock in a cooperative corporation that owns real property, with no controlling-interest requirement built in at all. Whether or not Gurney's Inn qualified as a "cooperative housing corporation" for federal tax purposes, or whether it was legally a hotel under the Innkeepers Law, was simply irrelevant to this separate statutory category -- what mattered was that the Inn's OWN offering plan documents described the arrangement, in their own words, as a "cooperative time sharing corporation" selling "cooperative apartments" via stock plus proprietary leases. Since the combined anticipated consideration from all the weekly share sales exceeded $1 million, the Inn's cooperative-plan sales were subject to the gains tax.

What this means for you

Resort and hotel operators considering a timeshare or interval-ownership sales structure

Under this now-repealed tax, packaging vacation inventory as cooperative shares plus proprietary leases -- even at a property legally operated and zoned as a hotel, with no residential character -- triggered the gains tax's cooperative-plan transfer rules on their own terms, independent of the controlling-interest analysis used for ordinary corporate real estate.

Timeshare developers and their attorneys structuring interval-ownership offering plans

This opinion is a clear warning that calling your OWN offering plan a "cooperative" (even loosely, for marketing or structural reasons) can be taken at face value by the Department -- the label the sponsor itself used in its own documents was decisive here.

Accountants tracking gains-tax exposure for hospitality and timeshare properties

If you're researching whether a pre-1996 timeshare or interval-ownership sale at a hotel-zoned property triggered gains tax, this opinion confirms the cooperative-plan share-transfer category applied independently of both the federal cooperative-housing-corporation test and the property's Innkeepers Law status.

Common questions

Q: Does this cooperative-timeshare rule still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York real estate taxes have their own separate rules for timeshare and interval-ownership sales.

Q: Why didn't it matter that no single buyer ever got a controlling interest?
A: Because the gains tax's coverage of "transfers pursuant to a cooperative plan" (all stock transfers in a real-estate-owning cooperative corporation) is a SEPARATE statutory category from the controlling-interest rule -- it doesn't require any single buyer to cross the 50% threshold at all.

Q: Why didn't it matter that Gurney's Inn wasn't a "cooperative housing corporation" for federal tax purposes?
A: Because the state gains tax's definition of a cooperative-plan transfer doesn't hinge on qualifying under IRC § 216 -- it looks at whether the entity is a cooperative CORPORATION owning real property and selling STOCK, which the Inn's own offering plan confirmed it was, regardless of the federal residential-use test.

Q: Can another timeshare or resort operator with a similar structure rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and this result depended heavily on how Gurney's Inn's own offering plan documents described the transaction.

Citations and references

Statutes and regulations:

• former Tax Law § 1440.7 (definition of "transfer of real property," including the transfer or acquisition of a controlling interest, AND, separately, transfers pursuant to a cooperative plan -- which includes ALL transfers of stock in a cooperative corporation that owns real property)
• former Tax Law § 1442 (special timing and apportionment rules for cooperative/condominium plan transfers; the transferor must establish the anticipated consideration and original purchase price under the plan)
• former 20 NYCRR § 590.35(1) (gains tax must be paid when cooperative shares are transferred to tenant stockholders who buy shares and are granted proprietary leases)
• former 20 NYCRR § 590.35(2) (gains tax must be paid when shares are transferred to investors unrelated to the realty transferor, for investment or resale)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a89_3r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (3)R
Real Property
Transfer Gains Tax
September 5, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M890503A

On May 3, 1989, a Petition of Advisory opinion was received on behalf of Gurney's Inn
Resort and Spa, Ltd., c/o James L. Tenzer, Esq., Margolin, Winer, and Evans, 600 Old Country
Road, Garden City, New York 11530.
The issues raised by Petitioner, Gurney's Inn Resort and Spa, Ltd., concern the application
of the Real Property Transfer Gains Tax imposed by Article 31-B of the Tax Law (hereinafter the
"Gains Tax") to the sale of weekly time sharing cooperative interests in Petitioner.
Petitioner owns and operates a transient lodging facility known worldwide as Gurney's Inn
on property zoned for hotel/motel use on the eastern end of Long Island, New York.
Petitioner has operated Gurney's Inn under the New York State "Innkeepers Law" (i.e.,
General Business Law Section 200 et. seq.) from its inception in late November, 1982 to the present
and must continue to do so until the year 2032 or beyond according to the "non-disturbance" and
other provisions of its 51 week time sharing cooperative offering plan.
Petitioner states that the Innkeepers Law is designed to set forth certain rules affecting the
relationship between the innkeeper and the lodger during the lodger's temporary and transient stay
at the inn. In addition, the Innkeepers Law requires Gurney's Inn to post plaques in conspicuous
places at Gurney's Inn giving testimony to the fact that Gurney's Inn is a transient lodging facility in
the nature of a hotel or motel and, therefore, is not a residence. Since the real property occupied by
Gurney's Inn is zoned locally for hotel/motel use and occupancy and the Gurney's Inn facility is
subject to the New York State Innkeeper's Law, Gurney's Inn cannot be and is not used or occupied
as a residence.
Petitioner contends that the word "residence" connotes permanency with no present intention
of definite and early removal. Residence usually and customarily indicates a person's intent to remain
in a dwelling place for an undetermined period of time and not to remain for a determined
preconceived period of time such as the case when one plans a vacation at a resort. The difference
between a residence on the one hand and a spa, resort, health club and vacation paradise (i.e., a
transient lodging facility) on the other is the difference, respectively, between owning a single-family
home, a cooperative apartment or a condominium apartment (the American dream) versus owning
a one week's vacation stay at a world renowned vacation hotel or resort.
Petitioner also contends that the Innkeepers Law is not applicable nor available to protect the
owners or residents of apartment houses or single-family homes because these facilities are not, by
definition, transient lodging facilities (i.e., inns, hotels and/or motels).

TP-9 (9/88)

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Real Property
Transfer Gains Tax
September 5, 1989

Petitioner further contends that another factor which distinguishes a temporary lodging
facility from a residence is that the temporary lodging facility customarily and usually does not
contain many of the permanent essential living accommodations present in a single-family home,
apartment unit or other type of residence. For example, temporary lodging facilities, for the most
part, will not contain kitchens, dining rooms, dinettes, etc. Although, depending on location and/or
type of temporary lodging facility, some may contain "hot plates," kitchenettes, etc. Most of the units
at Gurney's Inn are not equipped with kitchens or even "hot plates". These units are configured as
the typical room or suite of rooms a vacationer would expect to occupy while on vacation.
Therefore, Petitioner concludes that based in part on the fact that the units at Gurney's Inn
do not contain kitchens and based, in part, on the fact that Petitioner operates the Gurney's Inn
facility as a hotel, motel, etc., it does not now qualify and has never qualified as a cooperative
housing corporation under Section 216 of the Internal Revenue Code. In order to qualify as a
cooperative housing corporation under Section 216, each shareholder of such corporation must have
the unlimited and unrestricted right to occupy an apartment for dwelling purposes. If the apartments
in the building are incapable of being occupied for dwelling purposes because the right to occupy
is limited and restricted as in the case of Gurney's Inn or they do not contain essential minimum
amenities such as kitchens, the corporation owning the building is not and cannot be a cooperative
housing corporation for purposes of Section 216.
Further, Petitioner states that during the last calendar quarter of 1982, Petitioner decided to
market its vacation paradise in a most unusual and unique way. Instead of waiting, week-in and
week-out, for prospective guests to decide whether to take a vacation or stay home or visit for a few
days or be motivated by weather conditions, etc., Petitioner decided to sell 5,712 interval vacation
weeks to the general public each for a period of 50 years or more. The 5,712 interval vacation weeks
is computed by multiplying the then 112 available units by 51 weeks in every calendar year (one
week each year for each unit is devoted to maintenance for that unit) to arrive at the total number of
weekly vacations available for sale. In this way, Petitioner states it could pre-sell all the vacation
time available and could go about its business of operating one of the world's most famous,
glamorous and luxurious spas without worrying about a vacancy rate. On the other hand, each
transferee simply reserved one interval vacation week a year for a 50 year or more period by making
vacation reservations and paying in advance.
The sales vehicle chosen to accomplish Petitioner's objective was the offering of 51 weekly
time sharing interests in the then 112 units and related amenities at Gurney's Inn, as shown in the
offering plan submitted with the Petition. Petitioner as the owner of the facility sold shares in the
cooperative corporation to the general public with the proceeds of sale being utilized by Petitioner
to pay its costs and expenses. With 648,975 shares then being offered for the sale of 5,712 interval
vacation weeks (an average of approximately 114 shares per interval vacation week) no single
purchaser acquired or can presently acquire a controlling interest in Petitioner. It is for this reason
and for the reason that Petitioner states that it is not a residential cooperative housing corporation
within the meaning of the Gains Tax and that Petitioner believes it is not liable for Gains Tax due

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at this time although Petitioner like any other entity owning real property located in New York is
subject to tax albeit in its case, with no present tax liability.
The Gains Tax is a ten percent tax on the gain derived from the transfer of real property,
which includes the transfer or acquisition of a controlling interest in any entity with an interest in
real property, where the property is located in New York State and where the consideration for the
transfer is one million dollars or more.
The term "transfer of real property" is defined, in pertinent part, by section 1440.7 of the Tax
Law to include the transfer or acquisition of a controlling interest and transfers pursuant to
cooperative plans. For purposes of the Gains Tax, the statute provides that transfers pursuant to a
cooperative plan shall include all transfers of stock in a cooperative corporation which owns real
property.
Section 590.35 of the Gains Tax Regulation concerning the transfer of shares which require
the payment of tax provides, in pertinent part, the following examples of transfers of shares in a
cooperative housing corporation which may be subject to the Gains Tax:
1.

Transfers to tenant stockholders?

A.

Yes, gains tax must be paid when the shares are transferred to
persons who buy shares and are granted proprietary leases
with respect to units.

2.

Transfers to investors unrelated to the realty transferor?

A.

Yes, gains tax must be paid when the shares are transferred to
persons who are unrelated to the realty transferor who
purchase the shares for investment or resale.

Transfers pursuant to a cooperative plan are subject to the Gains Tax if the aggregate
consideration for all transfers pursuant to the plan is $1 million or more. For purposes of determining
if a Gains Tax will be due, the consideration and the original purchase price anticipated pursuant to
the plan must be established by the transferor pursuant to Section 1442 of the Tax Law. If the
anticipated consideration (the anticipated gross consideration less the anticipated brokerage fees) is
one million dollars or more, the anticipated gain is subject to tax.
Since the statute specifically imposes the Gains Tax on the transfer of shares of stock sold
pursuant to a cooperative plan, the fact that no single purchaser acquired a controlling interest in
Gurney's Inn and that Gurney's Inn is operated under the New York State "Innkeepers Law" and has
not qualified as a cooperative housing corporation under section 216 of the Internal Revenue Code
is irrelevant when ascertaining the application of the Gains Tax to the time sharing cooperative sales.
Gurney's Inn has been operated under the Innkeepers Law from its inception and must continue to

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do so until the year 2032 or beyond according to the non-disturbance and other provisions of its 51
week time sharing cooperative offering plan.
Pursuant to the offering plan of Petitioner it is a New York corporation formed for the
purpose of cooperative time share ownership. Moreover, section "A-3 Introduction" of the offering
plan states that "the Gurney's Inn Resort and Spa, Ltd. (the "Sponsor" and the "Corporation") is a
cooperative time sharing corporation offering ownership time sharing." Under this regime, the plan
states, that "a purchaser acquires shares of stock in Gurney's Inn Resort and Spa, Ltd., the
Cooperative Corporation owning the entire resort premises, and an appurtenant Internal Proprietary
Lease granting to and regulating the purchaser's right to use a resort accommodation unit for a
specific week reoccurring annually for a fifty year term."
Also, section "A-2, Purposes of Offering" provides that "the principal purpose of this offering
is the sale of cooperative apartments for use (on a regular annual basis depending on the interval
week purchased) as vacation homes by purchasers, for their own use and occupancy during the
vacation periods, with the ordinary concomitants of vacation home ownership subject to unique
features of time share cooperative ownership."
Accordingly, based on the foregoing, since Petitioner is selling time sharing cooperative
apartments in Gurney's Inn, such sales are subject to the Gains Tax.

DATED: September 5, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.