We're a public authority helping relocate a major commodities exchange to our development site. Depending on how the construction loan is structured, we might be the named mortgagee, or we might sublease the property back from the tenant and co-sign the mortgage as co-mortgagor on just our leasehold interest. Is recording that mortgage -- however it's structured -- exempt from mortgage recording tax?

Plain-English summary

In August 1994, the New York Mercantile Exchange (NYMEX) merged with the New York Commodity Exchange (COMEX), creating a combined entity responsible for roughly 8,100 jobs and an estimated $1 billion in direct economic activity, with projected state and local tax revenue of about $117 million a year. Because no existing building could house the merged exchange's advanced trading-floor requirements, NYMEX searched New York and New Jersey for a new headquarters site — and New Jersey made an attractive competing financial offer. New York countered: the Battery Park City Authority, the State, the City, the Urban Development Corporation, and the City's economic development corporation reached an agreement to build NYMEX a new roughly 500,000-square-foot trading facility and office building on Site 15 in Battery Park City, and NYMEX's board voted to stay in New York rather than move to New Jersey.

Development costs of $224-235 million would be funded partly by about $129 million in state and city grants, with the balance from mortgage financing secured by NYMEX's leasehold interest in the site. Two financing structures were possible. If the Authority itself provided the loan (which required separate state legislative authorization), it would simply be the named mortgagee. If NYMEX instead borrowed from private lenders, the Authority would still want to be part of the mortgage for public-purpose reasons — accomplished through a "sublease-back" structure: NYMEX would sublease the property BACK to the Authority, the Authority would sub-sublease it back to NYMEX again, and the Authority would then execute the mortgage as CO-mortgagor alongside NYMEX, subjecting only its own leasehold and sub-sublessor interest to the lien (never its underlying fee ownership of the site).

The Department confirmed both structures — sole mortgagee or sublease-back co-mortgagor — are exempt from mortgage recording tax. Although Tax Law § 252 generally bars exemptions arising from statutes other than the mortgage recording tax article itself, the Battery Park City Authority Act (Public Authorities Law § 1981) declares the Authority exempt from taxes on its properties and activities, and grants it the power to mortgage real property (§ 1974(3)) — implying the power to record mortgages too. Since the 1981 Authority Act is a later, more specific enactment than the general 1909/1966 mortgage recording tax statute, it controls under the standard "later specific statute governs" rule (Williamsburgh Power Plant Corp. v. City of New York), following the same reasoning already applied to UDC, NYSERDA, and industrial development agencies. The exemption extends to later assignments, supplements, modifications, or amendments — including the anticipated conversion from construction financing to permanent financing — as long as the secured principal debt isn't increased; if it is increased and the Authority isn't a party to that specific increase, tax would be due only on the increase.

What this means for you

Public authorities structuring "sublease-back" financing for anchor tenants

This ruling is the template for the sublease-back mechanic later used almost identically by Battery Park City Authority (see TSB-A-02(2)R) and by other public authorities and even a federal agency (TSB-A-04(1)R, Fort Hamilton Army housing; TSB-A-06(2)R, Port Authority WTC redevelopment). The core structure: tenant subleases back to the authority, authority sub-subleases back to the tenant, authority co-signs the mortgage on ONLY its leasehold/sub-sublessor interest — never its underlying fee.

Private lenders and developers financing anchor-tenant relocations on public authority land

If a public authority's participation as co-mortgagor is what's making a deal's mortgage recording tax exempt, confirm the sublease-back documents are structured so the authority's fee interest stays unencumbered and only its leasehold/sub-sublessor interest is subject to the lien — that's the specific carve-out the Department relied on here.

Accountants and economic development officials

This ruling is a useful real-world example of how mortgage recording tax exemptions can be part of a competitive economic-development package (here, keeping NYMEX from relocating to New Jersey) — worth citing when evaluating similar high-stakes relocation/retention deals structured through a public authority.

Common questions

Q: Does the exemption depend on which financing structure is ultimately used?
A: No. The Department confirmed both scenarios are exempt: the Authority as sole named mortgagee (if it provides the loan itself), or the Authority as co-mortgagor under the sublease-back structure (if NYMEX borrows from private lenders).

Q: Does the Authority's fee interest in the site ever become subject to the mortgage?
A: No. Under the sublease-back structure, only the Authority's LEASEHOLD interest (created by NYMEX's sublease back to the Authority) and its sub-sublessor interest are subject to the lien — its underlying fee ownership of Site 15 stays unencumbered.

Q: What happens if the mortgage debt is later increased?
A: If the secured principal amount increases and the Authority is a party to the instrument evidencing that increase, the increase stays exempt along with the rest. If the Authority is NOT a party to that specific increase, mortgage recording tax is due on the increase alone.

Q: Can another public authority or a different NYMEX-adjacent project rely on this specific ruling?
A: No. It binds the Department only as to this petitioner and these facts, though the sublease-back mechanic it establishes was explicitly reused by the Department in later rulings on Battery Park City Authority and other public authorities.

Citations and references

Statutes:

• Tax Law § 252 (general rule against MRT exemptions arising from other statutes)
• Tax Law § 253 (mortgage recording tax imposition, measured by principal debt secured)
• Tax Law § 255 (supplemental mortgage treatment -- no new tax if secured debt isn't increased)
• Tax Law § 250 (increase in mortgage indebtedness taxable as a new mortgage)
• Public Authorities Law § 1981 (Battery Park City Authority Act -- exemption from taxes on properties and activities)
• Public Authorities Law § 1974(3) (Battery Park City Authority's power to mortgage real or personal property)

Case law and prior opinions cited:

• Matter of Hamilton, 148 N.Y. 310 (state/municipal property held for public purposes isn't a practical subject of taxation)
• Williamsburgh Power Plant Corp. v. City of New York, 255 A.D. 214, aff'd 280 N.Y. 551 (later specific enactment governs earlier general enactment)
• Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 A.D.2d 330 (state agency mortgagee immunity independent of Tax Law § 252)
• Matter of City of New York v. Tully, 88 A.D.2d 701 (state agency tax immunity)
• One Park Place Associates, TSB-A-82(1)M (Industrial Development Agency mortgage exemption line)
• New York State Urban Development Corp., TSB-A-93(4)-R (Mar. 10, 1993) (UDC's own mortgage recording tax immunity)
• Franklin Society for Home Building and Savings v. Bennett, 282 N.Y. 79; Matter of Silberblatt, Inc. v. Tax Comm., 5 N.Y.2d 635 (mortgage recording tax taxes the recording privilege, not the mortgage as property)
• City of New York v. State Tax Commission, 130 A.D.2d 890 (supplemental mortgage treatment under § 255)
• Matter of Rednow Realty Corp. v. Tully, 72 A.D.2d 621 (tax due on increase if indebtedness reduced or lien terminated)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a95_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (1)R
Mortgage Recording Taxes
March 13, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M950228A

On February 28, 1995, a Petition for Advisory 0pinion was received from Battery Park City
Authority, One World Financial Center, New York, New York 102811097.
The issues raised by Petitioner, Battery Park City Authority, are:
1.

Whether the taxes imposed by Article 11 of the Tax Law (hereinafter the
"mortgage recording tax") will be due upon the recording by Petitioner of one
or more mortgages on New York Mercantile Exchange (hereinafter
"NYMEX") leasehold interests in leased property to which Petitioner would
be either the named mortgagee or a named mortgagor, provided that (a) the
proceeds of the mortgage(s) are used for Project development costs, and (b)
either (i) Petitioner is the initial named mortgagee under the Mortgage, or (ii)
Petitioner executes the Mortgage with NYMEX, as co-mortgagor.

2.

Whether mortgage recording tax is due upon the recording by Petitioner or
any other person of an instrument to the extent that the principal amount of
secured indebtedness is increased if a mortgage referred to in issue "1" is
assigned, supplemented, modified and/or assigned (including, without
limitation, any spread, consolidation, substitution, severance, restatement
and/or extension of such mortgages).

Petitioner was formed pursuant to Title 12 of Article 9 of the Public Authorities Law of the
State of New York, as amended (known as the Battery Park City Authority Act), for the public
purpose of improving, replanning, reconstructing and redeveloping the Battery Park City project
area, and the creating in such area a mixed commercial and residential community.
In August 1994, NYMEX acquired the New York Commodity Exchange (hereinafter
"COMEX") in a merger. NYMEX and its member firms are now responsible for approximately
8,100 jobs and approximately $1 billion in direct economic activity. Projected state and local direct
tax revenues from the merged entity are approximately $117 million annually.
Because no existing building could accommodate NYMEX/COMEX and meet its advanced
technological requirements, in early 1994 NYMEX, in anticipation of its merger with C0MEX,
renewed its search in New York and New Jersey for a suitable site on which to construct a new
building. After negotiations between the public sector and NYMEX, (i) NYMEX, Petitioner, the
State of New York (the "State"), the City of New York (the "City"), the New York State Urban
Development Corporation (the "UDC") and the New York City Economic Development Corporation
entered into a letter of understanding dated August 4, 1994, regarding the construction, leasing,
occupancy and equipping of a new trading facility and office building (the "Project"), to be located
on Site 15 in the Battery Park City project area (the "Site") and (ii) the NYMEX Board of Directors

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voted to relocate to the Site instead of accepting a very attractive financial offer from the State of
New Jersey. The Project, which is expected to entail development costs of approximately $224-$235
million, will contain approximately 500,000 square feet of space and will provide approximately
50,000 square feet of state-of-the-art trading floor space plus ancillary and support space, as well as
office space for NYMEX. Office space for member firms may also be provided. The Project will
replace NYMEX's severely overcrowded and outmoded facilities in Four World Trade Center, and
will enable NYMEX to continue to grow over time in New York and compete effectively in the
commodities business.
The Site is owned by Petitioner. The Site, the Project and the equipment to be purchased or
leased for use in the Project and in facilities accessory to the Project (the "Leased Property") will be
leased to NYMEX pursuant to the provisions of a long-term ground lease the (the "Lease") between
Petitioner, as landlord, and NYMEX, as tenant.
Approximately $129 million of the cost of developing the Project will be funded using a
combination of State and City grant moneys. It is anticipated that the balance of the development
costs will be funded in one or more installments from the proceeds of one or more financings
(collectively, the "Mortgage Loan") secured, inter alia, by one or more mortgages on NYMEX's
leasehold interest in the Leased Property with respect to which Petitioner would be either the named
mortgagee or a named mortgagor (collectively, the "Mortgage"). Petitioner's fee interest in the
Leased Property will not in any event be encumbered by the Mortgage.
It is possible that the Mortgage Loan will be provided by Petitioner, in which case Petitioner
will be the named mortgagee under the Mortgage. However, Petitioner's ability to provide the
Mortgage Loan is contingent upon obtaining State legislative authorization. Alternatively, NYMEX
may obtain the Mortgage Loan directly from one or more private sources, In furtherance of the public
purposes described herein, Petitioner intends to undertake in the Lease (and in the Mortgage) to
record the Mortgage in any event, even if it is ultimately determined that Petitioner will not be the
mortgagee under the Mortgage.
If Petitioner is not the mortgagee under the Mortgage, then:
(1)

NYMEX will sublet the Leased Property to Petitioner pursuant to a sublease
(the "Sub-Lease") having a term coinciding with the term of the Mortgage
Loan;

(2)

Petitioner will sublet the Leased Property back to NYMEX pursuant to a sub­
sublease (the "Sub-Sublease") having a term coinciding with the term of the
Sublease; and

(3)

Petitioner will execute the Mortgage, along with NYMEX, as co-mortgagor,
for the purpose of subjecting to the lien of the Mortgage Petitioner's leasehold
estate under the Sublease and its interest as sublessor under the Sub-Sublease
(but not its fee interest in the Leased Property).

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In such event, it is possible that Petitioner, in order to provide credit enhancement for the
Mortgage Loan, might be a co-borrower with respect to the Mortgage Loan (i.e., Petitioner might
execute the note(s) secured by the Mortgage) and might pledge additional assets of Petitioner as
security for the Mortgage Loan.
NYMEX and Petitioner anticipate that the Mortgage will, from time to time, be assigned,
supplemented, modified or amended and that the instruments effecting any such assignment,
supplementation, modification or amendment will be recorded. For instance, in accordance with
customary mortgage financing practices, it is anticipated that the Mortgage will be supplemented,
modified and converted from a mortgage or mortgages securing construction financing to a mortgage
or mortgages securing permanent financing upon the completion of construction of the Project or
upon the expiration of the term of the initial Mortgage Loan.
Further, from time to time, the Mortgage may be assigned from one lender to another
(possibly immediately after it is recorded); and it is also possible that the identity of the mortgagor
will change, by reason of the assignment of the interest of the tenant under the Lease to an affiliate
or to an unrelated person.
With respect to issue "1", Article 11 of the Tax Law imposes taxes on the recording of
mortgages of real property measured by the principal debt or obligation secured by such mortgages.
Section 252 of Article 11 of the Tax Law, applicable to exemptions from the mortgage recording tax,
provides, with certain exceptions not relevant herein, that "[n]o mortgage of real property situated
within this state shall be exempt, and no person or corporation owning any debt or obligation secured
by mortgage of real property situated within this state shall be exempt, from the taxes imposed by
this article by reason of anything contained in any other statute..
Even though section 252 of the Tax Law does not provide a specific exemption for the
activities of Petitioner, it is well established that State agencies enjoy an immunity from taxation
independent of the statutory exemptions listed in Section 252 of the Tax Law for property utilized
in the public interest.
In a March 29, 1913 opinion, the Attorney General opined that no mortgage recording tax
was due when New York State acted as mortgagee and quoted the following passage from Matter
of Hamilton, 148 NY 310, 313-314:
The property held by the state, or by any of its municipal divisions, for public
purposes, is not, and never has been, subject to taxation . . .The end and object of all
taxation is to raise revenue for the purpose of defraying the expenses of government,
and since no revenue could be raised by imposing taxes on property owned by the
state itself, or by any of its political divisions, such property is in no just or practical
sense the subject of taxation.
This principle has been applied to exempt from the mortgage recording tax mortgages on
property when legal title is held by a New York State industrial development agency even though
beneficial ownership of such property is held by private interest. (See 1982 Opns St Comp No. 82­
188,, p. 240; One Park Place Associates, Adv 0p St Tx Comm, May 24, 1982, TSB-A-82(1)M).

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Also, in Hotel Waldorf-Astoria Corp. v. State Tax Commission, 86 AD2d 330, 334, in
acknowledging 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, the court stated that "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 court reasoned that imposition of a tax upon a mortgage held by a New
York State agency was tantamount to tax upon the agency itself. The court, thus, concluded that the
tax, on the recording of the mortgage securing the loan, in this case amounted to an unlawful
assessment of the agency's property in violation of its general immunity from taxation. (See also,
Matter of City of New York v. Tully, 88 AD2d 701).
In an October 19, 1970 opinion, Department of Taxation and Finance Counsel Best stated
with reference to the Town of Wallkill Industrial Development Agency's creating statute that:
"In this situation, the later statute specifically exempts from tax the activities of the
Agency, one of which is the power to execute mortgages. The power to execute
mortgages implies that the Agency may also perform the activity of recording the
mortgage. Therefore, in my opinion, the later statute takes precedence over section
252 of the Tax Law."
Counsel, therefore, opined that the mortgages of the Wallkill Industrial Development
Agency, organized pursuant to Article 18-A of the General Municipal Law, and remaining subject
to such Article, were exempt from the mortgage recording tax imposed pursuant to Article 11 of the
Tax Law. (emphasis added)
In New York State Urban Development Corp., Adv 0p Comm T&F, March 10, 1993, TSBA-93(4)-R the Commissioner advised that the petitioner as an agency of the State of New York was
immune from taxation and could record mortgages as part of its New York Exchanges Headquarters
Land Use Improvement Project where it was a mortgagee, without the payment of the mortgage
recording tax.
Section 1981 of the Battery Park City Authority Act (hereinafter the "BPCA Act") provides
as follows:
Exemption from taxes

1. It is hereby determined that the creation of the authority and the carrying out of
   its corporate purposes is in all respect for the benefit of the people of the state of New
   York, the county of New York, and the city, and is a public purpose, and the
   authority shall be regarded as performing a governmental function in the exercise of
   the powers conferred upon it by this title and shall be required to pay no taxes upon
   any of the properties acquired by it or under its jurisdiction or control or supervision
   or upon its activities

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2. All bonds, notes and other obligations issued pursuant to this title, together with
   the income therefrom, as well as the income and property of the authority, shall be
   exempt from taxation, except for transfer and estate taxes. (emphasis added)
   Section 1974(3) of the BPCA Act provides that "[t]he Authority shall have power . . . to
   acquired lease, hold, mortgage and dispose of real property or personal property or any interest
   therein for its corporate purposes." (emphasis added)
   An apparent inconsistency exists between the Tax Law and the BPCA Act. Accordingly,
   where a conflict exists between two enactments relating to the same subject matter, the latter specific
   enactment governs the earlier general enactment. Williamsburgh Power Plant Corp. v City of New
   York, 255 App Div 214, affd 280 NY 551.
   Since Section 252 of the Tax Law was enacted in 1909, and last amended in 1966, it must
   yield to the exemption provisions contained in the law creating Petitioner which was enacted in
3. Therefore, if the provisions of the BPCA Act exempt from the recording tax the mortgages
   created pursuant to the Project, such exemption provisions will prevail.
   The BPCA Act gives Petitioner the power to execute mortgages. Having such power implies
   that Petitioner may also perform the activity of recording mortgages. It is noted that the taxes
   imposed by Article 11 of the Tax Law are not imposed on the mortgages themselves, as property,
   but on the taking of an action, that is, on the exercise of the privilege of recording a mortgage.
   Franklin Society for Home Building and Savings v Bennett, 282 NY 79; Matter of Silberblatt, Inc.
   v Tax Comm, 5 NY2d 635; One Park Place Associates, Adv Op St Tx Comm, May 24, 1982, TSBA-82(1)M; New York State Urban Development Corp., supra.
   An informal opinion of the Attorney General, dated March 7, 1956, states that:
   It should be noted that section 257 of Article 11 of the New York State Tax Law is
   silent as to which party to the mortgage shall pay the tax. Under its terms the taxes
   shall be payable on the recording of each loan subject to tax so that the party who
   records is the one upon whom tax is imposed . . .1956 Atty Gen [Inf Opns], at 28.
   In the instant case, since Petitioner will be the named co-mortgagor or mortgagee in one or
   more mortgages on NYMEX leasehold interests and will be the party who records such mortgages,
   in view of the Attorney General's opinion, Petitioner would be the party required to pay the taxes
   imposed by Article 11, if such taxes are due.
   Moreover, Section 1981 of the BPCA Act specifically provides that Petitioner shall pay no
   taxes upon any of the properties acquired by it or under its jurisdiction or control or supervision or
   upon its activities. Pursuant to Section 1974(3) of the BPCA Act, Petitioner, as one of its activities
   has the power to execute mortgages. Accordingly, since the power to execute mortgages would imply
   that Petitioner has the power to record mortgages, pursuant to Sections 1974(3) and 1981 of the

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BPCA Act, it is concluded that Petitioner can record Mortgages in connection with the Project
without payment of the mortgage recording taxes imposed under Article 11 of the Tax Law.
It is noted that Petitioner's authorized activities presently do not include the ability to provide
the Mortgage Loan. However, Petitioner will seek legislative authority to obtain the ability to
provide the Mortgage Loan, and, thus, obtain the ability to act as mortgagee.
Concerning issue "2", Section 255 of the Tax Law, which contains the supplemental
mortgage provisions, provides, in part, that:
"If subsequent to the recording of a mortgage on which all taxes, if any, accrued
under this article have been paid, a supplemental instrument or mortgage is recorded
for the purpose of correcting or perfecting any recorded mortgage, or pursuant to
some provision or covenant therein, or an additional mortgage is recorded imposing
the lien thereof upon property not originally covered by or not described in such
recorded primary mortgage for the purpose of securing the principal indebtedness
which is or under any contingency may be secured by such recorded primary
mortgage, such additional instrument or mortgage shall not be subject to taxation
under this article, unless it creates or secures a new or further indebtedness or
obligation other than the principal indebtedness or obligation secured by or which
under any contingency may be secured by the recorded primary mortgage . . ."
Section 250 of the Tax Law provides that a contract or agreement by which the indebtedness
secured by any mortgage is increased or added to, shall be taxable upon the amount of such increase
or addition.
Once a mortgage has been given and recorded, the recorded primary mortgage may be
changed by a supplemental mortgage and, under the provisions noted above, no additional recording
tax will be due as long as the amount secured remains the same. City of New York v State Tax
Commission, 130 AD2d 890, 891. Of course, were the indebtedness secured by the lien to be
reduced or the lien terminated for any reason, tax would be due on any increase on the new
obligation. (See Matter of Rednow Realty Corp. v Tully, 72 AD2d 621, 622)
Both Sections 253 and 255 of the Tax Law require that only a mortgage on the principal debt
or obligation, or a new or further indebtedness other than the principal obligation should be subject
to the recording tax. (Matter of Park and 46th St. Corp. v State Tax Commission, 295 NY 173, 178­
179; Matter of Bay View Towers Apts., Inc. v State Tax Commission, 48 AD2d 86, 89, affd 40
NY2d 856.) (emphasis added)
Accordingly, for purposes of issue "2", to the extent the principal amount of secured
indebtedness is not increased, the recording of any assignments, modifications, amendments,
spreaders, consolidations, substitutions, severance, restatements, and extensions of the Mortgage is
exempt from the mortgage recording tax, under current law, either because such action will not
create a new mortgage subject to tax under Section 253 of the Tax Law, or because such action
constitutes a "supplemental mortgage" under Section 255 of the Tax Law. Where the principal

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amount of secured indebtedness of the Mortgage is increased, and Petitioner is not a party to the
recorded instrument evidencing such increase, the mortgage recording tax is due with respect to the
amount of the increase.

DATED: March 13, 1995

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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