Mezzanine, Equity Financing, Pied-à-Terre Taxes Excluding NY Bill

Key points:

  • The proposed taxes on mezzanine and privileged equity financing, as well as a tax on high-value second homes in New York (commonly known as the “pied-à-terre” tax) have not been included among the measures. increased revenue adopted by New York City. York State lawmakers in the final money bill passed on Wednesday April 7.

  • This isn’t the first time these taxes have been proposed and then failed in the New York State Legislature, and their supporters are likely to continue their efforts to revive them.

Late Wednesday, April 7, the New York State Legislature passed the state budget for the 2021-2022 fiscal year. The real estate sector had been following the budget process closely, in large part thanks to two proposed tax measures that would have imposed additional tax burdens on certain real estate assets and transactions: the “mezzanine tax”, which would have private equity financing transactions. mortgage registration taxes (the mezzanine tax) and the “pied-à-terre” tax, which would have imposed additional taxes on high-value second homes in New York (the pied-à-terre tax). Fortunately for the industry, no measures were included in the final budget bill which was ultimately passed by the legislature.

The mezzanine tax would have imposed mortgage registration taxes on mezzanine financing transactions and on preferred shares (up to 2.8% in New York for principal amounts over $ 500,000). Changes were also proposed to the New York Uniform Commercial Code (UCC), which would have been revised to provide that (1) remedies under the UCC would not be available to the mezzanine lender or preferred stock investor at unless mortgage registration tax is paid, and (2) a security interest in such mezzanine debt or investment in preferred shares can only be perfect if a UCC-1 financing statement is filed. In addition, the Pied-à-terre tax would have authorized New York City to impose additional property taxes on certain high-value homes not used as primary residences. Taxes would have been authorized at rates of at least half a percent and at most four percent for residences with one, two and three families, to be assessed on the part of their market value that exceeded $ 5 million), and not less than 10 percent and not more than 13.5 percent on condominiums and co-ops, to be assessed on the portion of their assessed value that exceeds $ 300,000.

Although the mezzanine tax and the pied-à-terre tax are at a standstill for now, the real estate industry will continue to pay close attention to legislative developments, as both of these taxes have been proposed – and failed – previously in the legislature. of New York State, only to get up again. Supporters of the mezzanine tax and the pied-à-terre tax can be expected to continue to push for their passage and, in fact, stand-alone bills for the mezzanine tax (S3074 in the Senate of the l ‘New York State and A3139 in the New York State Assembly of York, both in committee to date) and Pied-à-Terre Tax (S4199 in the New York State Senate and A5736 in the New York State Assembly, both also in committee to date) are active in both houses of the New York State Legislature. Katten will continue to monitor developments regarding the mezzanine tax and the pied-à-terre tax, as they arise.

© 2021 Katten Muchin Rosenman LLPNational Law Review, Volume XI, Number 99

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Carol M. Barragan

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