Our public authorities are financing a rail-yard sale-leaseback and sublease transaction with private lenders, using a leasehold mortgage, a fee mortgage, a collateral assignment, and an eventual assignment of everything to a private trustee. Which of these mortgage recordings, assignments, subleases, and options trigger New York's mortgage recording tax or real estate transfer tax?

Plain-English summary

This 1997 opinion untangles a genuinely complex public-authority financing: the Long Island Rail Road (a subsidiary of the MTA) sold its interest in a 30-acre Queens rail yard -- the "Hillside Maintenance Facility" -- to the MTA, which then leased part of the property to the Triborough Bridge and Tunnel Authority (TBTA) for up to 49 years. TBTA immediately subleased the property back to the MTA (for a shorter term), and the MTA sub-subleased it to the LIRR. To pay the MTA a lump-sum advance-rent payment for the lease, TBTA borrowed money from private lenders, secured by two mortgages on TBTA's leasehold interest ("Leasehold Mortgage and Assignment of Rents") -- but the loan wouldn't actually fund until TBTA assigned essentially the entire deal (the lease, sublease, loan documents, and mortgages) to a private trustee, Fleet National Bank, acting for the real economic parties (Philip Morris Capital Corporation or Grant Transit Co.). The MTA also gave TBTA a mortgage on its own fee interest ("Fee Mortgage") to secure the MTA's obligations, which TBTA in turn collaterally assigned to the lenders. On top of that, the MTA granted TBTA an option to buy other, non-leased parts of the property (the "Support Assets Purchase Option"), which bounced between the two authorities depending on whether the MTA exercised its own option to eventually buy back TBTA's leasehold interest (the "Leasehold Option").

The Department's answer, tax type by tax type:

Mortgage recording tax. Every mortgage recording here is exempt, for one simple reason repeated throughout the opinion: the MTA and TBTA are both state public authorities, and "it is well established that State agencies enjoy an immunity from taxation independent of the language in section 252 of the Tax Law for property utilized in the public interest" (citing the same City of New York v. Tully Waldorf-Astoria line of authority used in the corpus's other MRT immunity rulings). So recording the Leasehold Mortgage (TBTA as mortgagor) is exempt, and recording the Fee Mortgage (MTA as mortgagor, TBTA as mortgagee) is exempt because at least one party is a state agency. Beyond the exemption, several steps in the deal are held not to be taxable "mortgage" events at all under Tax Law §§ 250 and 253: assigning a mortgagor's or mortgagee's rights to the trustee (without more), funding the loan, delivering loan certificates, and simply enforcing or performing under the loan documents. The collateral assignment of the Fee Mortgage to the lenders isn't a "mortgage" as Tax Law § 250.2 defines the term, so it isn't taxable on its own terms, independent of anyone's tax-exempt status. And later assignments, supplements, modifications, or amendments of any of these instruments stay untaxed as long as the secured principal debt isn't increased (Tax Law § 255's supplemental-mortgage rule).

Real estate transfer tax. The MTA's lease to TBTA, and the MTA's eventual exercise of its option to buy back TBTA's leasehold interest, are both exempt under Tax Law § 1405(b)(1) because the grantee receiving the interest (TBTA in the lease, MTA in the buyback) is a state instrumentality -- transfer tax exempts conveyances to the state and its agencies. TBTA's sublease back to the MTA doesn't even need that exemption: its term is under 49 years, so it fails the statutory test for when a lease counts as a taxable "conveyance" of real property at all. The Support Assets Purchase Option -- granted, reassigned, and re-reassigned between the MTA and TBTA -- is likewise exempt each time a state authority is the grantee, and its eventual assignment to the private trustee escapes tax for a different reason: there's no consideration for that particular transfer, and the transfer tax only reaches conveyances with consideration over $500. The same no-consideration logic clears TBTA's broader assignment of the lease, sublease, and reversionary interest to the trustee. And the Collateral Assignment isn't a "conveyance" under Tax Law § 1401(e) at all, because the statute's definition of conveyance expressly excludes the assignment of a mortgage.

What this means for you

Public authorities and government agencies structuring sale-leaseback or synthetic-lease financings

If your agency is a party to a mortgage -- as mortgagor OR mortgagee -- New York's mortgage recording tax generally doesn't apply, independent of any specific statutory exemption, because state agencies performing an essential governmental function are constitutionally/commonly-law immune from the tax. That immunity travels with the recording itself, not just with who ultimately holds the economic risk; here, private lenders and a private trustee were the real parties in interest throughout, and the mortgages were still exempt because a state authority was the named party of record.

Private lenders, trustees, and their counsel in public-private financings

Structuring a deal so that a public authority is named mortgagee or mortgagor (even as a pass-through, with all economic benefits assigned to you later) can eliminate mortgage recording tax on the initial recording. But watch the transfer tax side separately: once your entity (not the public authority) becomes the grantee of a lease, option, or other real property interest, the state-instrumentality transfer tax exemption no longer applies to that step. This ruling shows the assignments to the trustee escaping tax anyway, but only because those particular transfers happened to be made without consideration -- if money or other value changes hands for a transfer to a private party, the analysis would likely come out differently.

Real estate attorneys and accountants structuring multi-instrument public financings

This is a useful map of several distinct "why isn't this taxed" doctrines operating side by side in one deal: (1) state-agency MRT immunity (mortgages with a state party), (2) an instrument simply not meeting the statutory definition of "mortgage" or "conveyance" in the first place (the Collateral Assignment, under both taxes), (3) the RETT's own carve-out for short-term leases, (4) the RETT's exemption for conveyances to the state, and (5) the basic transfer-tax requirement of consideration over $500. Don't assume one doctrine (like state immunity) covers every step of a complex deal -- check each instrument against each tax separately, as the Department did here.

Common questions

Q: Does mortgage recording tax apply just because private lenders are the real economic parties behind a mortgage?
A: Not according to this opinion. What mattered was that a state public authority (MTA or TBTA) was the named mortgagor or mortgagee of record on each mortgage; the private lenders' beneficial interest and the eventual assignment to a private trustee didn't change the exemption analysis for the recordings that already occurred.

Q: Is assigning a mortgage to a new party, or the mortgagee enforcing its rights, a separately taxable event?
A: No, not on these facts. The Department held that assigning a mortgagor's or mortgagee's rights, funding the underlying loan, delivering loan certificates, and enforcing or performing loan obligations are not "mortgage" recording events under Tax Law §§ 250 and 253 at all.

Q: Why was the sublease from TBTA back to the MTA not subject to transfer tax?
A: Because its term was less than 49 years, it didn't meet Tax Law § 1401(e)'s three-part test for when a lease or sublease counts as a taxable "conveyance" of real property in the first place -- so the question of any exemption never even arose.

Q: Why did some of the assignments to the private trustee escape transfer tax?
A: Because those particular transfers were made for no consideration, and the transfer tax under Tax Law § 1402 only applies where consideration for the conveyance exceeds $500. A transfer with no payment or other value changing hands isn't reached by the tax regardless of who the parties are.

Q: Can another public authority or developer rely on this ruling for a similar financing?
A: No. It binds the Department only as to these petitioners and the exact facts described -- the specific chain of leases, mortgages, and assignments. A financing that differs in structure (for example, a different lease term, or consideration flowing on an assignment that was gratuitous here) could come out differently.

Citations and references

Statutes and regulations:

• Tax Law § 250 (mortgage definitions; increased-indebtedness treated as a new mortgage)
• Tax Law § 252 (general rule against MRT exemptions arising from other statutes)
• Tax Law § 253 (MRT imposed on recording of mortgages, measured by principal debt secured); § 253-a (New York City's mortgage recording tax)
• Tax Law § 255 (supplemental mortgage treatment -- no new tax if secured debt isn't increased)
• 20 NYCRR § 644.1(a)(1) (Mortgage Recording Tax Regulations: exemption where mortgagor or mortgagee is New York State or an agency/instrumentality, to the extent immune)
• Tax Law § 1401(d) (definition of "consideration"); § 1401(e) (definition of "conveyance," excluding mortgage assignments); § 1401(f) (definition of "interest in real property")
• Tax Law § 1402 (transfer tax imposed on conveyances where consideration exceeds $500)
• Tax Law § 1405(b)(1) (transfer tax exemption for conveyances to New York State or its instrumentalities, agencies, or political subdivisions)
• Public Authorities Law § 1264 (MTA's purposes; essential governmental function)
• Public Authorities Law § 1275 (MTA's tax-exempt status, including an express carve-out for gift, estate, and transfer taxes)
• Public Authorities Law §§ 552, 566 (TBTA's creation as a public benefit corporation and its tax-exempt status)

Case law and prior opinions cited:

• Matter of City of New York v. Tully, 88 A.D.2d 701 (state-agency mortgagee tax immunity, independent of Tax Law § 252)
• New York State Urban Development Corp., TSB-A-93(4)-R; New York State Urban Development Corporation d/b/a Empire State Development Corp., TSB-A-95(15)-R (state-instrumentality MRT immunity line)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1997.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a97_4r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(4)R
Mortgage Recording Tax
Real Estate Transfer Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M970326A

On March 26, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from the Metropolitan Transportation Authority, 347
Madison Avenue, New York, N.Y. 10017; Fleet National Bank, as Trustee (defined
below) 777 Main Street, Hartford, Ct. 06115; Philip Morris Capital Corporation
and Grant Transit Co., 200 First Stamford Place, Stamford, Ct., 06902; the
Triborough Bridge and Tunnel Authority, 347 Madison Avenue, New York, N.Y.,
10017; and Utrecht-America Finance Co., c/o Rabobank Nederland, New York Branch,
36th Floor, 245 Park Avenue, New York, N.Y., 10167.
The issues raised by Petitioners, the Metropolitan Transportation Authority
(“MTA”), Fleet National Bank (“Trustee”), Philip Morris Capital Corporation
(Capital), Grant Transit Co. ("Grant"), the Triborough Bridge and Tunnel
Authority (“TBTA”), and Utrecht-America Finance Co. are as follows.
1) Whether the taxes imposed by Article 11 of the Tax Law and Chapter 26 of the
New York City Administrative Code (collectively, "the mortgage recording taxes")
are due upon:
(i) the execution, delivery or recording by the TBTA of two mortgages
granted by the TBTA to the Lenders (as defined below) on its leasehold interest
in the Leased Property (as defined below) under a lease (the "Lease") of the
Leased Property by the MTA to the TBTA and an assignment of rents in said
mortgages and in the Loan Agreement (described below) (individually or
collectively, the "Leasehold Mortgage and the Assignment of Rents") under a
sublease (the "Sublease") of the Leased Property by the TBTA to the MTA where (a)
the TBTA is named mortgagor, (b) the loan (the "Loan") secured in part by the
Leasehold Mortgage and the Assignment of Rents will be provided by one or more
persons or entities other than, and unrelated to, the MTA (the "Lenders"), (c)
the documents for and securing the Loan (the "Loan Documents") are executed by
the TBTA, but the Loan is funded only after either (x) the assignment of all of
the TBTA's right, title and interest in the Lease, the Sublease, the Support
Assets Purchase Option, the Loan Documents, the Leasehold Mortgage and the
Assignment of Rents, and the Collateral Assignment (each as described below) to
Fleet National Bank as trustee (the "Trustee") under a trust agreement with
Capital or Grant ("Grantor") and the assumption by the Trustee of all of the
TBTA's obligations (and release of the TBTA) under the Lease, the Sublease, the
Loan Documents, the Leasehold Mortgage and the Assignment of Rents and the
Collateral Assignment ( the "Assignment") or (y) upon the satisfaction of certain
conditions and authorizations relating to the possibility of funding the Loan
prior to the Assignment, which conditions and authorizations are not expected to
occur, and (d) the proceeds of the Loan are used by the Trustee (as the successor
in interest to the TBTA) to fund a portion of the lump sum payment to the MTA,
which sum constitutes prepaid rent under the Lease and the cost for the option
giving the Trustee the right to extend the initial lease term;

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(ii) the assignment by the TBTA to the Trustee of its rights (if any), and
the assumption by the Trustee of the TBTA's obligations, under the Leasehold
Mortgage and the Assignment of Rents;
(iii) the funding of the Loan to (and the execution and delivery of the
Loan Certificates (described below) by) the Trustee only after the Assignment;
and
(iv) the payment and performance by the Trustee of its obligations under,
the holding by the Lenders of, and/or the enforcement by the Lenders of their
rights and remedies under or with respect to any of the loan certificates
evidencing the Loan (the "Loan Certificates"), the Loan Documents, the Loan
Agreement (as defined below), the Leasehold Mortgage and the Assignment of Rents,
or the Fee Mortgage.
(2) Whether the mortgage recording taxes are due upon:
(i) the MTA's execution, delivery, or recording of a mortgage or mortgages
upon the MTA's fee interest (individually or collectively, the "Fee Mortgage")
in the Leased Property given by the MTA to the TBTA to secure the MTA's
obligations under the Lease and the Sublease;
(ii) TBTA's execution, delivery and recording of a collateral assignment
or assignments of the Fee Mortgage to the Lenders (individually or collectively,
the "Collateral Assignment") to secure the TBTA's obligations under the Loan, the
Loan Documents, and the Leasehold Mortgage and the Assignment of Rents;
(iii) the further assignment by the TBTA to the Trustee of the TBTA's
rights and the assumption by the Trustee of the TBTA's obligations (if any) under
the Fee Mortgage and the Collateral Assignment;
(iv) the funding of the Loan to (and the execution and delivery of the Loan
Certificates by) the Trustee only after the Assignment; and
(v) the payment and performance by the Trustee of its obligations under,
the holding by the Lenders of, and/or the enforcement by the Lenders of their
rights and remedies under or with respect to any of the Loan Certificates, the
Loan Documents, the Loan Agreement (as defined below), the Leasehold Mortgage and
the Assignment of Rents, or the Fee Mortgage.
(3) Whether the mortgage recording taxes are due upon the execution,
delivery or recording of the applicable instrument or otherwise if the Leasehold
Mortgage and the Assignment of Rents, the Fee Mortgage, or the Collateral
Assignment is assigned, supplemented, modified or amended, or if Leasehold
Mortgage and the Assignment of Rents, the Fee Mortgage, or the Collateral
Assignment so assigned, supplemented, modified or amended is thereafter from time

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to time assigned, supplemented, modified or amended to the extent that the then
outstanding principal indebtedness or obligation secured by the Leasehold
Mortgage and the Assignment of Rents or the obligations pursuant to the Lease and
the Sublease secured by the Fee Mortgage or the Collateral Assignment (as the
case may be) are not increased.
(4) Assuming the funding of the Loan occurs after the Assignment, whether
the Real Estate Transfer Tax imposed by Article 31 of the New York State Tax Law
(the "transfer tax") is due upon:
(i) the MTA's entering into the Lease (which includes the Contingent
Purchase Option (as defined below)) with the TBTA;
(ii) the TBTA's entering into the Sublease with the MTA;
(iii) the MTA's issuance of the Support Assets Purchase Option (as defined
below) to the TBTA, as well as upon the TBTA's reassignment (subject to a
reversionary interest) of all of the TBTA's right, title and interest in the
Support Assets Purchase Option back to the MTA, and the MTA's subsequent further
assignment (which will occur in the circumstances described below) of all of its
right, title and interest in the Support Asset Purchase Option, to the TBTA (or
to the Trustee, as the TBTA's successor in interest);
(iv) the Collateral Assignment;
(v) the TBTA's assignment to the Trustee (under the circumstances described
below) of all of its right, title and interest in, and the assumption by the
Trustee of all of the TBTA's obligations under, the Lease, the Sublease, the Loan
Documents, the Leasehold Mortgage and the Assignment of Rents, the Collateral
Assignment, and the TBTA's reversionary interest in the Support Assets Purchase
Option; and
(vi) the MTA's exercising of the Leasehold Option (as defined below).
Petitioner submits the following facts as the basis for this Advisory
Opinion.
The Long Island Rail Road (the "LIRR"), a subsidiary of the MTA,
presently owns fee interest title to a portion of a 30 acre lot of land in
Hollis, New York (Queens County) and the MTA owns fee interest title to the
remaining portion of such lot of land, on which is situated buildings and
equipment (collectively, a/k/a the "Hillside Maintenance Facility" and
hereinafter, the "Property"). The LIRR repairs and maintains rail cars on this
Property.
The LIRR also uses one or more buildings on the Property for
administrative purposes.
The MTA is a public authority that serves as New York State's instrument
for carrying out programs designed to continue and improve commuter services.
It is a body corporate and politic constituting a public benefit corporation.

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The TBTA is a public authority that serves as one of the MTA's instruments
for carrying out its programs and purposes. All the members of its board serve
ex officio. Those members are the persons who from time to time hold the offices
of the Chairman and members of the MTA. The TBTA is a body corporate and politic
constituting a public benefit corporation.
Grantor will be the sole grantor and beneficiary of the Hillside
Maintenance Facility Trust, a grantor trust, the trustee of which will be the
Trustee. Utrecht-America Finance Co. will be the initial Lender and holder of
the Loan Documents.
The LIRR will sell its fee interest in its portion of the Property to the
MTA in consideration for a purchase money note. The MTA will then, pursuant to
the Lease, lease a portion of the Property (the "Leased Property") to the TBTA
for a term of approximately 22 years and grant the TBTA the right to extend the
term of the Lease (the "option to renew") for one or more additional periods
totaling approximately 21.5 years. The aggregate term of the lease (the "Lease
Term") will be not greater than 49 years. The TBTA will be obligated to make a
lump-sum payment to the MTA for advance rent for the initial term and for the
option to renew and such payment will be made by the Trustee after the
Assignment. The MTA plans to use a portion of the lump sum payment to either
redeem some of its outstanding bonds or for capital improvements. The remaining
portion will be used by the MTA to (i) pay the purchase money note, (ii) purchase
treasury securities which will be pledged to the Trustee as security for a
portion of the MTA's payment obligations pursuant to the Sublease and (iii) pay
its transaction costs.
The TBTA will simultaneously sublease the Property to the MTA for a period
shorter than the initial term of the Lease (the "Sublease Term"). The MTA will
then sub-sublease the Property to the LIRR (the "Sub-sublease") for a period
shorter than the Sublease Term. Pursuant to the terms of the Sublease, the MTA
will pay periodic rental payments. Upon the expiration of the Sublease Term, the
MTA will have the option, but not the obligation, to purchase the TBTA's
remaining leasehold interest in the Lease upon payment of a specified lump sum
(the "Leasehold Option").
In the event the MTA does not exercise the Leasehold Option, the TBTA (or
the Trustee as its successor in interest) may elect either to (i) retain the
Leased Property for the balance of the Lease Term and repay the Loans, (ii) cause
the MTA to enter into a renewal sublease for a term of up to 12 years or (iii)
cause a successor sublessee to enter into a replacement sublease. In addition,
upon expiration of either the Lease, the Sublease, or the successor sublease (if
any), the TBTA may elect to purchase the Leased Property from the MTA for its
then fair market value (the "Contingent Purchase Option").
Upon the MTA's entering into the Lease with the TBTA, the MTA will give the
TBTA (or the Trustee as its successor in interest) the right to purchase a
specified portion of the Property that is not subject to the Lease (the "Support
Assets Purchase Option"). Under the Sublease, the rights to this option are
reassigned to the MTA (in such a manner that for purposes of the New York State
Real Property Law, a merger will not occur), which will hold the option unless

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and until the MTA defaults under the Sublease or the MTA elects not to exercise
the Leasehold Option. In such circumstances, the Support Assets Purchase Option
will be re-reassigned to the TBTA (or to the Trustee, as its successor in
interest and holder of the TBTA's revisionary interest previously assigned to it)
for no consideration. If the TBTA (or the Trustee as its successor in interest)
exercises such Support Assets Purchase Option, it will pay the MTA the fair
market value (at the time of exercise) of the property subject to the Support
Assets Purchase Option.
The TBTA will enter into a loan and security agreement (the "Loan
Agreement") with the Lenders in which the Lenders will agree to make the Loan to
the TBTA to fund a portion of the lump sum payment owed by the TBTA to the MTA.
The TBTA will execute and deliver to the Lenders as named mortgagees and record
the Leasehold Mortgage and the Assignment of Rents, which will comprise two
Leasehold Mortgage and Assignment of Rents, one payable prior to the other. The
Lenders will not, however, fund such obligation until after either the Assignment
(which under this scenario will be to the Trustee for no consideration other than
the assumption of the TBTA's obligations thereunder and the release of the TBTA
from such obligations) or after the satisfaction of certain conditions and
authorizations relating to the possibility of funding the Loan prior to the
Assignment, which conditions and authorizations are not expected to occur.
Contemporaneously
with the execution and delivery of the Leasehold
Mortgage and the Assignment of Rents to the Lenders, the MTA will give the TBTA
the Fee Mortgage. The Fee Mortgage will secure the MTA's obligations under the
Lease and the Sublease.
Either the MTA or the TBTA will record such Fee
Mortgage. The TBTA will then execute, deliver to the Lenders, and record the
Collateral Assignment.
The TBTA will assign, subject to the lien and security interest in favor
of the Lenders created by the Leasehold Mortgage and the Assignment of Rents and
the Loan Agreement, to the Trustee all of its right, title and interest in and
to the (i) Lease (including the Contingent Purchase Option), (ii) Sublease, (iii)
Collateral Assignment, (iv) Loan Agreement and (v) its reversionary interest in
the Support Assets Purchase Option, and the Trustee will assume the TBTA's rights
and obligations under the foregoing. Upon such assignment (unless earlier funded
pursuant to the conditions described above) the Lenders will fund such Loan, the
Trustee will execute and deliver the Loan Certificates, and the Trustee will pay
the lump sum advance rent and the option to renew from amounts derived from an
equity contribution to the Trustee and the Loan proceeds.
The Leasehold Mortgage and the Assignment of Rents, the Fee Mortgage, and
the Collateral Assignment may from time to time be further assigned,
supplemented, modified, or amended and, in this event, appropriate instruments
reflecting the assignment, supplement, modification or amendment will be
recorded.
The identity of the mortgagor may also change by reason of the
assignment of its interest to either an affiliate or to an unrelated person.

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Relevant Law and Regulations - Mortgage Recording Tax Issues
Section 253 of the Tax Law imposes taxes on the recording of mortgages of
real property measured by the principal debt or obligation secured or which under
any contingency may be secured by the mortgage. The tax imposed in New York City
pursuant to the authority of Section 253-a of the Tax Law is not different for
purposes of this opinion. Section 250.2 of the Tax Law defines the term mortgage
as follows:
every mortgage or deed of trust which imposes a lien on or affects
title to real property, notwithstanding that such property may form
a part of the security for the debt or debts secured thereby. An
assignment of rents to accrue from tenancies, subtenancies, leases
or subleases of real property, within any city in the state having
a population of one million or more, given as security for an
indebtedness, shall be deemed a mortgage of real property for
purposes of this article....A contract or agreement by which the
indebtedness secured by any mortgage is increased or added to, shall
be deemed a mortgage of real property for the purpose of this
article, and shall be taxable as such upon the amount of such
increase or addition.
Section 252 of Article 11 of the Tax Law, which sets forth exemptions from
the mortgage recording tax, provides, with certain exceptions not relevant here,
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 contains this language and does not
provide a specific exemption for the operations of MTA or TBTA, it is well
established that State agencies enjoy an immunity from taxation independent of
the language in section 252 of the Tax Law for property utilized in the public
interest. New York State Urban Development Corp., Adv Op Comm T&F, March 10,
1993, TSB-A-93(4)-R and New York State Urban Development Corporation d/b/a Empire
State Development Corp., Adv Op Comm T&F, December 18, 1995, TSB-A-95(15)-R.
Also, in Matter of City of New York v. Tully, 88 AD2d 701, 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 noted that the State
agency was immune from taxation “and [t]his immunity is enjoyed independent of
the exemptions from taxation set forth in section 252 of the Tax Law...” The
Court reasoned that “[t]he mortgage is similarly property of the immune agency
and thus exempt from taxation...”
Also, Section 644.1(a)(1) of the Mortgage Recording Tax Regulations
(Subchapter N of 20NYCRR) sets forth the following:
(a) The recording of the following mortgages involving the State or
the Federal Government is exempt from the taxes described in Part
642 of this Title:

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(1) mortgages where the mortgagor or mortgagee is New York State or
any of its agencies, instrumentalities or political subdivisions, to
the extent immune from such taxation (Matter of City of New York v.
Tully, 88AD2d 701, lv to app den 57 NY 2d 606);
Section 255 of the Tax Law provides, in pertinent part, as follows:
[i]f 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 ...
The MTA was established by the Metropolitan Commuter Transportation Act
(L 1965 Ch 324). The Legislative Declaration of Purpose, which precedes the
Metropolitan Commuter Transportation Act, provides, in pertinent part, that:
the urgent and immediate need for the stabilization, strengthening
and improvement of commuter services for the transportation of
persons in the metropolitan area can be met by the creation of a
public authority to serve as the state's instrument for the carrying
out of programs designed to continue and improve commuter services.
Public Authorities Law, Section 1264 (Purposes of Authority) states:
(1) The purposes of the authority shall be the continuance, further
development and improvement of commuter transportation...within the
metropolitan commuter transportation district....It shall be the
further purpose of the authority, consistent with its status as the
ex officio board of both the New York city transit authority and the
triborough bridge and tunnel authority, to develop and implement a
unified mass transportation policy for such district.
(2)... The authority shall be regarded as performing an essential
governmental function in carrying out its purposes and in exercising
the powers granted by this title.
Also, Section 1275 of the Public Authorities Law which sets forth the
provisions relative to MTA's tax exempt status provides as follows:

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It is hereby found, determined and declared that the creation of the
authority and the carrying out of its purposes is in all respects
for the benefit of the people of the state of New York and for the
improvement of their health, welfare and prosperity and is a public
purpose, and that the authority will be performing an essential
governmental function in the exercise of the powers conferred upon
it by this title. Without limiting the generality of the following
provisions of this section, property owned by the authority,
property leased by the authority and used for transportation
purposes, and property used for transportation purposes by or for
the benefit of the authority exclusively pursuant to the provisions
of a joint service arrangement or of a joint facilities agreement or
trackage rights agreement shall all be exempt from taxation and
special ad valorem levies. The authority shall be required to pay
no fees, taxes or assessments whether state or local, including but
not limited to fees, taxes or assessments on real estate, franchise
taxes, sales taxes or other excise taxes, upon any of its property,
or upon the use thereof, or upon its activities in the operation and
maintenance of its facilities or on any fares, tolls, rentals,
rates, charges or other fees, revenues or other income received by
the authority and the bonds of the authority and the income
therefrom shall at all times be exempt from taxation, except for
gift and estate taxes and taxes on transfers...
Section 552 of the Public Authorities Law, in describing TBTA sets forth
as follows:
A board, to be known as “Triborough bridge and tunnel authority” is
hereby created. Such board shall be a body corporate and politic
constituting a public benefit corporation.
Section 566 of the Public Authorities Law, in describing TBTA’s exemptions
from taxation, provides as follows:
It is hereby found, determined and declared that the creation of the
authority and the carrying out of its corporate purposes is in all
respects for the benefit of the people of the state of New York, for
the improvement of their health, welfare and prosperity, and, in the
case of some said purposes, for the promotion of their traffic, and
is a public purpose,...and that the authority will be performing an
essential governmental function in the exercise of the powers
conferred upon it by this title, and the state of New York covenants
with the holders of the bonds that the authority shall be required
to pay no taxes or assessments upon any of the property acquired by
it or under its jurisdiction, control, possession or supervision...
Analysis and Conclusion - Mortgage Recording Tax Issues
Pursuant to applicable provisions of the Public Authorities Law cited
herein, MTA and TBTA are agencies and/or instrumentalities of New York State. As
such, and in accordance with New York State Urban Development Corp., New York

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State Urban Development Corporation d/b/a Empire State Development Corp., and
City of New York v. Tully, supra, MTA and TBTA are immune from taxation.
Therefore, as provided in Section 644(1)(a) of the Mortgage Recording Tax
Regulations supra, the recording of a mortgage where MTA or TBTA is either a
mortgagor or mortgagee is exempt from the mortgage recording taxes.
Issue #1(i)
Based on the foregoing, the recording of the Leasehold Mortgage and
Assignment of Rents, under the terms and conditions described in this Advisory
Opinion where the TBTA is the named mortgagor, is exempt from the mortgage
recording taxes. The execution and delivery of the Leasehold Mortgage and
Assignment of Rents are not acts upon which the mortgage recording taxes are
imposed pursuant to sections 250 and 253 of the Tax Law.
Issue #1(ii)
In accordance with sections 250 and 253 of the Tax Law, the assignment by
TBTA to the Trustee of its rights (if any), and the assumption by the Trustee of
the TBTA’s obligations, under the Leasehold Mortgage and the Assignment of Rents
are not events which would cause the mortgage recording taxes to be imposed.
Issue #1(iii)
In accordance with sections 250 and 253 of the Tax Law, the funding of the
Loan and the execution and delivery of the Loan Certificates to the Trustee only
after Assignment are not events which would cause the mortgage recording taxes
to be imposed.
Issue #1(iv)
In accordance with sections 250 and 253 of the Tax Law, the payment and
performance by the Trustee of its obligations under, the holding by the Lenders
of, and/or the enforcement by the Lenders of their rights and remedies under or
with respect to the Loan Certificates, the Loan Documents, the Loan Agreement,
the Leasehold Mortgage and the Assignment of Rents, or the Fee Mortgage are not
events which would cause the mortgage recording taxes to be imposed.
Issue #2(i)
The recording of the Fee Mortgage (where MTA is the mortgagor and TBTA is
the mortgagee) is exempt since at least one party to the mortgage at the time of
recording is an agency and/or instrumentality of New York State. The execution
and delivery of the Fee Mortgage are not acts upon which the mortgage recording
taxes are imposed pursuant to sections 250 and 253 of the Tax Law.
Issue #2(ii)
The Collateral Assignment is not a mortgage under section 250.2 of the Tax
Law. Therefore, its execution, delivery and recording are not subject to the
mortgage recording taxes.

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Issue #2(iii)
In accordance with sections 250 and 253 of the Tax Law, the further
assignment by the TBTA to the Trustee of the TBTA’s rights and the assumption
by the Trustee of the TBTA's obligations (if any) under the Fee Mortgage and the
Collateral Assignment are not events that would cause the mortgage recording
taxes to be imposed.
Issue #2(iv)
In accordance with sections 250 and 253 of the Tax Law, the funding of the
Loan to (and the execution and delivery of the Loan Certificates by) the Trustee
only after the Assignment are not events that would cause the mortgage recording
taxes to be imposed.
Issue #2(v)
In accordance with sections 250 and 253 of the Tax Law, the payment and
performance by the Trustee of its obligations under, the holding by the Lenders
of, and/or the enforcement by the Lenders of their rights and remedies under or
with respect to any of the Loan Certificates, the Loan Documents, the Loan
Agreement, the Leasehold Mortgage, the Assignment of Rents or the Fee Mortgage
are not events which would cause the mortgage recording taxes to be imposed.
Issue #3
The recording of an initial assignment, supplement, modification or
amendment of the Leasehold Mortgage and the Assignment of Rents, the Fee Mortgage
or the Collateral Assignment to the extent that the then principal indebtedness
or obligation secured by the Leasehold Mortgage and the Assignment of Rents or
the obligations pursuant to the Lease and the Sublease secured by the Fee
Mortgage or the Collateral Assignment (as the case may be) are not increased are
either exempt from mortgage recording taxes pursuant to section 255 of the Tax
Law or are not subject to mortgage recording taxes because such action does not
create a mortgage as defined in section 250.2 of the Tax Law. The recording of
any subsequent (following in time to the initial assignment) assignment,
supplement, modification or amendment of the Leasehold Mortgage and Assignment
of Rents, the Fee Mortgage or the Collateral Assignment under the conditions as
described above in the case of an initial assignment, are either exempt from the
mortgage recording taxes or are not subject to the mortgage recording taxes for
the same reasons as in the case of the initial assignment of these instruments.
Relevant Law - Transfer Tax
Section 1402 of the Tax Law imposes the transfer tax on each conveyance of
real property or interest therein when the consideration for the conveyance
exceeds $500.00.

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Section 1401(e) of the Tax Law defines the term “conveyance”, in part, as
follows:
“conveyance” means the transfer or transfers of any interest in
real property by any method, including but not limited to sale,
exchange, assignment, surrender, mortgage foreclosure, transfer in
lieu of foreclosure, option, trust indenture, taking by eminent
domain, conveyance upon liquidation or by a receiver, or transfer or
acquisition of a controlling interest in any entity with an interest
in real property. Transfer of an interest in real property shall
include the creation of a leasehold or sublease only where (i) the
sum of the term of the lease or sublease and any options for renewal
exceeds forty-nine years, (ii) substantial capital improvements are
or may be made by or for the benefit of the lessee or sublessee, and
(iii) the lease or sublease is for substantially all of the premises
constituting the real property.
Notwithstanding the foregoing,
conveyance of real property shall not include a conveyance pursuant
to devise, bequest or inheritance; the creation, modification,
extension,
spreading,
severance,
consolidation,
assignment,
transfer, release or satisfaction of a mortgage; a mortgage
subordination agreement, a mortgage severance agreement, an
instrument given to perfect or correct a recorded mortgage;...
Section 1401(f) of the Tax Law, in defining the term “interest in real
property” provides, in pertinent part, that such term includes:
...title in fee, a leasehold interest, a beneficial interest, an
encumbrance, development rights, air space and air rights, or any
other interest with the right to use or occupancy of real property
or the right to receive rents, profits or other income derived from
real property.
It shall also include an option or contract to
purchase real property....
Section 1401(d) of the Tax Law defines the term “consideration" in
pertinent part, as follows:
“Consideration” means the price actually paid or required to be
paid for the real property or interest therein, including the
payment for an option or contract to purchase real property, whether
or not expressed in the deed and whether paid or required to be paid
by money, property, or any other thing of value. It shall include
the cancellation or discharge of an indebtedness or obligation. It
shall also include the amount of any mortgage, purchase money
mortgage, lien or other encumbrance, whether or not the underlying
indebtedness is assumed or takes subject to....

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Section 1405(b)(1) of the Tax Law, which sets forth the conveyances which
are exempt from the transfer tax, sets forth, in pertinent part, that the
transfer tax shall not apply to conveyances to the State of New York, or any of
its instrumentalities, agencies or political subdivisions (or any public
corporation, including a public corporation created pursuant to agreement or
compact with another state or the Dominion of Canada).
Analysis and Conclusion-Transfer Tax Issues
Issue 4(i)
The MTA’s entering into the Lease (which includes the Contingent Purchase
Option with the TBTA) is exempt from transfer tax pursuant to section 1405(b)(1)
of Tax Law, as the grantee is an agency or instrumentality of New York State.
Issue 4(ii)
The TBTA’s entering into the Sublease with the MTA is not a conveyance
subject to the transfer tax pursuant to section 1401(e) of the Tax Law as the
term of the sublease is less than 49 years. Furthermore, if it was a conveyance
subject to transfer tax, it would be exempt for the same reason cited in Issue
4(i).
Issue 4(iii)
The MTA’s issuance of the Support Assets Purchase Option to the TBTA, as
well as TBTA’s reassignment (subject to a reversionary interest) of all of the
TBTA’s right, title and interest in the Support Assets Purchase Option back to
the MTA, and the MTA’s subsequent further assignment of all of its right, title
and interest in the Support Assets Purchase Option to the TBTA is exempt from the
transfer tax pursuant to the aforementioned exemption provided at section
1405(b)(1) of the Tax Law. In the event the MTA is obligated to assign the
Support Assets Purchase Option to the Trustee, no transfer tax would be due,
since there is no consideration for the conveyance.
Issue 4(iv)
The Collateral Assignment is not a conveyance subject to transfer tax
pursuant to the definition of conveyance provided at section 1401(f) of the Tax
Law, as the Collateral Assignment constitutes the assignment of a mortgage.
Issue 4(v)
The TBTA’s assignment to the Trustee of all of its right, title and
interest in, and the assumption by the Trustee of all of the TBTA’s obligations
under the Lease and the Sublease and the TBTA’s reversionary interest in the
Support Assets Purchase Option are conveyances which will not incur transfer tax
as there is no consideration for these conveyances. The TBTA’s assignment to the
Trustee of the Loan Documents, the Leasehold Mortgage and the Assignment of Rents
and the Collateral Assignment are not conveyances of real property pursuant to
section 1401(e) of the Tax Law.

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Issue 4(vi)
The MTA’s exercising of the Leasehold Option would result in a conveyance
exempt from the transfer tax pursuant to section 1405(b)(1) of the Tax Law.

DATED:

March 28, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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