We're a tax-exempt nonprofit buying a condo to house mentally retarded adults. Our purchase contract makes us pay all transfer taxes even though sellers normally pay them, and we'll need a mortgage to close. Does our nonprofit status exempt us from the real estate transfer tax on the purchase, and does it exempt us from mortgage recording tax on our loan?

Plain-English summary

The Guild for Exceptional Children, Inc., a tax-exempt not-for-profit corporation, was under contract to buy a condominium apartment in New York to house mentally retarded adults. Its purchase contract required the Guild — the BUYER — to pay all transfer and conveyance taxes, including the state real estate transfer tax, as part of the deal's consideration. That's an unusual allocation: transfer tax normally falls on the SELLER. To close the purchase, the Guild would also need to execute a mortgage with a lending institution. The Guild asked two questions: does its nonprofit status exempt it from the transfer tax on this purchase, and does that same status exempt it from mortgage recording tax on its purchase-money mortgage?

On the transfer tax, the answer was no exemption at all. Tax Law § 1404(a) puts the transfer tax on the grantor (seller) by default, shifting to the grantee (buyer) only if the grantor fails to pay or is itself an exempt/nonpaying party. Here, because the contract made the Guild responsible for the tax regardless of who's the default payer, and Tax Law § 1405's list of exempt conveyances contains no carve-out for either party being a tax-exempt nonprofit, the purchase was fully subject to transfer tax. The Department added a subtler point: because the Guild's assumption of what would normally be the seller's transfer-tax obligation is itself something of value flowing to the seller, that assumed tax liability counts as ADDITIONAL consideration for the property under Tax Law § 1401(d)'s broad definition — increasing the taxable base rather than simply being a wash.

On mortgage recording tax, the Department drew a much narrower exemption than the Guild likely hoped for. New York's mortgage recording tax under Tax Law § 253 is actually THREE separate components — the basic tax, the special additional tax, and the additional tax — plus a separate local tax NYC and other qualifying cities can impose under § 253-a. Tax Law § 253.1-a(b) exempts only the SPECIAL ADDITIONAL tax portion where the mortgagor is a genuine § 501(a)-exempt nonprofit (with no earnings inuring to any officer, director, or member) — and even then, that exempted portion doesn't just disappear; it flips to being paid by the MORTGAGEE instead. The basic tax, the additional tax, and any NYC local tax remain fully due from the Guild regardless of its exempt status.

What this means for you

Nonprofit organizations purchasing real property

Don't assume your 501(a) tax-exempt status shields you from the real estate transfer tax as a buyer — there's no such exemption in the statute, whether you're the default payer or you've contractually assumed the seller's obligation. And on mortgage recording tax, your exemption covers only ONE of several components (the special additional tax), not the whole bill.

Nonprofit purchase contracts assigning transfer tax to the buyer

Be aware that assuming the seller's transfer-tax obligation as part of your deal doesn't just relocate an existing tax cost — it can be treated as ADDITIONAL taxable consideration for the property, potentially increasing your overall transfer tax exposure beyond what a simple "pay the tax that was already going to be due" framing suggests.

Accountants and real estate attorneys advising group-home and nonprofit-housing purchasers

Model the mortgage recording tax carefully as three (or four, with NYC) separate line items rather than one number — only the special additional tax component drops out for a genuinely qualifying § 501(a) mortgagor, and even that shifts to the lender rather than simply vanishing.

Common questions

Q: Is a tax-exempt nonprofit ever exempt from New York's real estate transfer tax?
A: Not based on its tax-exempt status alone -- Tax Law § 1405's list of exemptions doesn't include a carve-out for nonprofit grantors or grantees.

Q: Which part of the mortgage recording tax does a qualifying nonprofit mortgagor avoid?
A: Only the "special additional tax" component under Tax Law § 253.1-a(b) -- and that component then becomes payable by the mortgagee instead, not simply eliminated. The basic tax, the additional tax, and any NYC local tax under § 253-a still apply.

Q: What qualifies an organization for even that partial exemption?
A: Being organized other than for profit, operated on a nonprofit basis, with no earnings inuring to any officer, director, or member, and holding federal tax-exempt status under IRC § 501(a).

Q: Can another nonprofit relying on a similar purchase structure use this specific ruling?
A: No. It binds the Department only as to this petitioner and these facts, though the underlying statutory scope -- no transfer tax exemption for nonprofits, and a partial mortgage recording tax exemption limited to the special additional tax -- reflects general statutory interpretation likely to apply broadly.

Citations and references

Statutes:

• Tax Law § 1401(d) (real estate transfer tax -- definition of consideration, including assumed obligations)
• Tax Law § 1404(a) (real estate transfer tax -- grantor pays by default; grantee pays if grantor fails to pay or is exempt)
• Tax Law § 1405 (real estate transfer tax exemptions -- no exemption for nonprofit grantor/grantee)
• Tax Law § 253 (mortgage recording tax -- basic tax, special additional tax, additional tax)
• Tax Law § 253-a (New York City and qualifying cities' local mortgage recording tax)
• Tax Law § 253.1-a(b) (special additional tax exemption for § 501(a) tax-exempt organizations; tax shifts to mortgagee)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a90_3r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(3)R
Mortgage Recording Tax
March 3, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M891215F

On December 12, 1989, a Petition for Advisory Opinion was received on behalf of The Guild
for Exceptional Children, Inc., 280 68th Street, Brooklyn, New York 11220.
The issue raised by Petitioner, The Guild for Exceptional Children, Inc., concerns the
application of the Real Estate Transfer Tax (hereinafter the "transfer tax") in situations where a tax­
exempt, not-for-profit corporation is either the seller or purchaser of real property situated in New
York State. In addition, a second issue is raised as to whether a tax-exempt, not-for-profit
corporation is exempt from Mortgage Recording Tax.
Petitioner, which is a tax-exempt not-for-profit corporation, is about to enter into a contract
for the purchase of a condominium apartment. The apartment will be used to house mentally retarded
adults. The proposed contract of sale provides that all transfer and conveyance taxes, including New
York State Real Property Transfer Taxes, are to be paid by the purchasers as part of the consideration
for the conveyance. Petitioner contends that although the transfer tax is usually paid by the seller,
in the case of new construction it is the custom for the tax to be passed on to the purchaser.
Further, in order to purchase the aforementioned condominium apartment, it will be
necessary for the Petitioner to execute a mortgage with a lending institution.
Section 575.2 of the Transfer Tax Regulations provides that the transfer tax is imposed on
each conveyance of real property or interest therein, including the conveyance of shares in a
cooperative housing corporation, when the consideration exceeds $500.00. The rate of tax is $2.00
for each $500.00, or fractional part thereof, of such consideration or value.
The term "consideration" is defined in Section 1401(d) of the Tax Law, in pertinent part, to
mean the price actually paid or required to be paid for the real property or interest therein.
Consideration is also defined to include the cancellation or discharge of an indebtedness or
obligation.
Moreover, Section 1404(a) provides, in part, that the transfer tax shall be paid by the grantor.
If the grantor has failed to pay the tax imposed by Article 31 of the Tax Law at the time required by
Section 1410 or if the grantor is exempt from such tax, the grantee shall have the duty to pay the tax.
Section 1405 of the Tax Law, which sets forth the conveyances for which the tax shall not
apply, does not provide exemption from the transfer tax on the basis that the grantor or grantee is a
tax-exempt, not-for-profit corporation.
TP-9 (9/88)

-2­
TSB-A-90(3)R
Mortgage Recording Tax
March 3, 1990

Accordingly, the Petitioner's purchase of the condominium unit will be subject to transfer tax. In
addition, since the Petitioner is required to pay the grantor's obligation for the transfer tax as a
condition of the contract, such payment of tax will be deemed to be additional consideration for the
real property.
As for the application of the mortgage recording tax to the proposed transaction, Article 11
of the Tax Law imposes a mortgage recording tax on all mortgages recorded in New York State.
In accordance with Section 253 of the Tax Law, the mortgage recording tax is made up of
three parts: the basic tax, the special additional tax and the additional tax. In addition, Section 253-a
imposes a further tax on mortgages recorded in any city in New York State having a population of
one million or more.
Section 253.1-a(b) provides exemption from the special additional tax where the mortgagor
is an organization organized other than for profit which is operated in a non-profit basis, no part of
the net earnings of which inures to the benefit of any officer, director or member and which is
exempt from federal income tax pursuant to section 501(a) of the Internal Revenue Code. However,
in such instances, the special additional tax must be paid by the mortgagee. The statute does not
provide exemption to tax-exempt not-for-profit corporations for the portion of mortgage recording
tax which represents the basic tax, the additional tax and the tax on mortgages recorded in cities
having a population of one million or more.
Therefore, if the Petitioner is an organization that has established exemption pursuant to
section 501(a) of the Internal Revenue Code, the Petitioner will be exempt from the portion of the
mortgage recording tax which represents the special additional tax, but will be subject to the basic
tax, the additional tax and the tax on mortgages recorded in cities having a population of one million
or more.

DATED: March 3, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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