NY TSB-A-99(4)R Real Estate Transfer Tax 1999-07-27

I bought a $1,175,000 property that includes a vacant, un-modernized one-family house, intending to redevelop it as a residential subdivision or assisted-living facility -- I have no intention of using the existing house as anyone's personal residence, and the seller didn't live there either. I paid the 1% mansion tax at closing but I'm seeking a refund since neither of us actually used or intended to use the house as a residence. Am I entitled to that refund?

Short answer: No refund -- the mansion tax was correctly assessed. Petitioner purchased property in New Rochelle, New York for $1,175,000 that included an existing, vacant, un-modernized one-family dwelling, and paid the resulting $11,750 mansion tax (1% under Tax Law §1402-a) at closing. Petitioner sought a refund, arguing that the dwelling had sat vacant, had never been modernized, that the prior owner had obtained subdivision approval (which is what drove the property's value up from the $500,000 the prior owner paid in 1996), and that Petitioner intended to develop the property as either a residential subdivision or a multi-unit assisted-living facility -- with no intent for anyone to use the existing dwelling as a personal residence. The Department held the mansion tax applies regardless: the property qualified as 'residential real property' under §1402-a because it included a one-family dwelling that COULD have been used as a personal residence at the time of conveyance -- the statute's 'is or may be used' standard doesn't require actual current occupancy. Citing its own Example 1 in the RETT regulations (an unoccupied three-family house sale is taxed the same whether or not the seller lived there), the Department concluded that neither the grantor's non-occupancy of the dwelling nor the grantee's stated intent to eventually redevelop the property changes the analysis -- what matters is that the dwelling itself was a one-family house capable of residential use at the moment of sale.

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This page answers the general question as of 1999. Ezel answers yours, under current New York tax law, with citations.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. New York's Real Estate Transfer Tax (including the additional 'mansion tax') is a state-level tax administered by the Department; New York City and certain other localities separately impose their own additional real property transfer taxes, which this opinion does not address. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Petitioner, Halmar Construction Corp., purchased property at 237 Davenport Avenue in New Rochelle, New York for $1,175,000, paying the resulting $11,750 additional real estate transfer tax ("mansion tax") under Tax Law §1402-a at closing, then applied for a refund. The property included an existing one-family dwelling that had sat vacant and had never been modernized or improved. The prior owner, 466 Main Street Realty Corp., had purchased the property in 1996 for only $500,000 and, after acquiring it, obtained approval to subdivide it into a six-lot subdivision (with the dwelling remaining on one lot). Petitioner argued that it was this subdivision approval -- not any residential value -- that drove the price increase between 1996 and 1999, and that it purchased the property to develop as either a residential subdivision or a multi-unit assisted-living facility, with no intention of using the existing dwelling as anyone's personal residence.

The mansion tax still applies. The Department held that the property qualified as "residential real property" under §1402-a's definition -- which covers any premises "that is or may be used in whole or in part as a personal residence," expressly including a one-family house -- because the property included a one-family dwelling that COULD have been used as a personal residence at the time of the conveyance. The Department found neither of Petitioner's arguments relevant: the fact that the grantor didn't occupy the dwelling at the time of conveyance, and the fact that Petitioner didn't intend to use the dwelling as a personal residence, do not change whether the tax applies. The Department supported this with its own Example 1 under §575.3(b) of the RETT regulations, illustrating that an unoccupied three-family house sold for $1.2 million is taxed the same whether or not the seller occupied any part of it -- occupancy (or lack of it) simply isn't the test; the property's residential CAPABILITY is.

What this means for you

Vacancy doesn't exempt a dwelling from the mansion tax

If you're buying a property with an existing house that's sat empty for years -- whether because it's being held for redevelopment, in probate, or simply unoccupied -- the mansion tax still applies based on the dwelling's residential capability, not on whether anyone was actually living there when you bought it.

Your redevelopment plans for the underlying dwelling don't matter to the tax analysis at the time of THIS purchase

Buying a subdivided parcel that still includes a one-family house, intending to demolish it or repurpose the site for a subdivision or assisted-living facility, doesn't avoid the mansion tax on the purchase itself -- the tax is assessed based on what the dwelling could be used for at closing, not what you plan to do with it afterward.

The value driver behind a price increase (like a subdivision approval) doesn't change what's being taxed

Even though Petitioner argued the price jump reflected subdivision approval value rather than residential value, the Department didn't distinguish between different "components" of the purchase price -- the full consideration for a conveyance that includes a residential-capable dwelling is subject to the mansion tax if it crosses the $1 million threshold.

Common questions

Q: If I buy land with a vacant house on it for redevelopment, and neither I nor the seller ever plan to live there, do I still owe the mansion tax?
A: Yes, if the price is $1 million or more and the property includes a house capable of residential use -- vacancy and future redevelopment plans don't exempt the transaction.

Q: Does it matter that most of the purchase price reflects land/subdivision value rather than the house itself?
A: No -- the Department taxes the full consideration for the conveyance once the property qualifies as residential real property (by including a one, two, or three-family house), without carving out a separate valuation for the dwelling versus the land.

Q: Can I get a refund of mansion tax paid if I demolish the existing house shortly after buying the property?
A: Not based on this ruling -- the tax is assessed on the property's status AT THE TIME OF CONVEYANCE; a buyer's subsequent demolition or redevelopment doesn't retroactively change that.

Citations and references

Statutes, guidance, and case law:

Section 1401(e) of the Tax Law
Section 1401(f) of the Tax Law
Section 1402-a of the Tax Law
Section 575.3(b) Example 1 of the Real Estate Transfer Tax Regulations

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(4)R
Real Estate Transfer Tax
July 27, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M990524A

On May 24, 1999, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Halmar Construction Corp., 160 W. Lincoln Avenue, Mount Vernon, NY 10550.
The issue raised by Petitioner, Halmar Construction Corp., is whether the purchase of a
residential subdivision which includes an existing one-family dwelling on the property is subject to
the additional real estate transfer tax imposed by section 1402-a of the Tax Law.
Petitioner presents the following facts. On March 17, 1999, Petitioner purchased, for the sum
of $1,175,000, property located at 237 Davenport Avenue, New Rochelle, New York (the
"Property"). The purchase by Petitioner included a one-family dwelling located on the Property (the
"Dwelling"). Petitioner paid $11,750 in real estate transfer tax, pursuant to section 1402-a of the Tax
Law, at the time of the purchase of the Property. Petitioner has since applied for a refund of such
tax.
The grantor of the property was 466 Main Street Realty Corp., which, in turn, had acquired
the property on November 15, 1996, for the sum of $500,000. Subsequent to its purchase of the
Property in 1996, 466 Main Street Realty Corp. applied for and received approval to subdivide the
Property so as to achieve a six lot subdivision, inclusive of the Dwelling which remained on the land.
Petitioner contends that it was the receipt of the approval to subdivide the Property that led to the
increase in the value of the Property, as reflected by the price paid by Petitioner in 1999 versus the
price paid by 466 Main Street Realty Corp. in 1996. Petitioner states that the Dwelling had not been
modernized or improved in any way, and at all times remained vacant. Petitioner further states that
it purchased the Property for development as either a residential subdivision or as a multi-unit
assisted-living development, and that the Dwelling was not intended to be used as a personal
residence.
Applicable Law
For purposes of the real estate transfer tax, the term "conveyance" is defined in section
1401(e) of the Tax Law. Included in the definition of conveyance is the transfer of any interest in
real property by any method.
Subdivision (f) of section 1401 of the Tax Law provides:
(f) "Interest in the real property" 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. . . .

-2
TSB-A-99(4)R
Real Estate Transfer Tax
July 27, 1999

Subdivision (a) of section 1402-a of the Tax Law provides, in part:
(a) In addition to the tax imposed by section fourteen hundred two of this
article, a tax is hereby imposed on each conveyance of residential real property or
interest therein when the consideration for the entire conveyance is one million
dollars or more. For purposes of this section, residential real property shall include
any premises that is or may be used in whole or in part as a personal residence, and
shall include a one, two, or three-family house . . . . The rate of such tax shall be one
percent of the consideration or part thereof attributable to the residential real
property. . . . (emphasis added)
Subdivision (b) of such section 1402-a provides, in part, that "the additional tax imposed by
this section shall be paid by the grantee . . . . If the grantee is exempt from such tax, the grantor shall
have the duty to pay the tax."
Subdivision (b) of section 575.3 of the Real Estate Transfer Tax Regulations provides, in
part:
Example 1:

A three-family house is sold for $1.2 million. The seller did not
occupy any portion of the house. The buyer is required to pay the
additional tax of $12,000 . . . . The result would be the same if the
seller had occupied any portion of the house.

Conclusions
The purchase of the Property by Petitioner was properly subject to the additional tax imposed
by section 1402-a of the Tax Law. The Property qualified as residential real property under section
1402-a because it included a one-family dwelling that could have been used as a personal residence
at the time of conveyance. The fact that the grantor did not occupy the Dwelling at the time of the
conveyance, and the fact that Petitioner did not intend to use the Dwelling as a personal residence,
are not relevant to this determination.

DATED: July 27, 1999

NOTE:

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

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

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