When it comes to raising revenue, governments usually find it most efficient to follow the immortal advice of bank robber Willie Sutton and go “where the money is.” They turn to income, payroll, property, and sales taxes to fund most of their operations. They’ll throw in the occasional gas tax or sin tax for fun. Most of the time, those “nuisance taxes” don’t amount to much. But that’s not always the case.
In 1989, New York state imposed a so-called mansion tax, a flat 1% on home sales of $1 million or more. Now the state has “remodeled” that tax, adding seven new brackets for sales in New York City beginning January 1, 2020. The rate increases to 1.25% on sale amounts from $2-3 million, 1.75% on amounts from $3-5 million, and steps all the way up to 4.15% on amounts over $25 million. Officials expect the new tax to raise $365 million per year, and plan to use it to finance $5 billion in bonds for public transportation.
So far so good, right? Well, for starters, should a tax on million-dollar homes really be called a “mansion” tax in the first place? Maybe that was true when the Empire State first levied it in 1989. But these days, a million bucks isn’t even “mansion-adjacent,” especially in Manhattan. Right now, you can pay $1,499,000 for a 52nd-floor alcove studio in Hell’s Kitchen. (Hell’s Kitchen!) There’s no separate bedroom, of course. Not even a bathtub! But the bathroom has a very nice marble-lined shower.
Of course, some pads really do qualify as “mansions.” Hedge fund manager Ken Griffin just dropped $238 million for a penthouse at 220 Central Park South, an oligarch-friendly tower on “billionaire’s row.” Griffin’s new pad includes 23,000 square feet sprawling over four floors, with 16 bedrooms and more bathrooms than your mansion. It’s the most expensive home sale in U.S. history — and Griffin plans to use it as “a place to stay when he’s in town” for business. (How’s that for “let them eat cake” moments in American history?)
The extra tax would have cost Griffin $7.2 million if he had waited until next year to buy. Sure, that sounds like a lot to you. But Forbes estimates Griffin’s net worth at $11.8 billion, meaning it probably wouldn’t have stopped the deal. (The place comes unfinished, meaning he’ll have to spend tens of millions more before he can unpack his toothbrush!)
Griffin isn’t the only plutocrat buying pricey real estate he won’t be occupying. So many deep-pocketed foreigners have decided to stash part of their gains in Manhattan condos, without ever moving in, that some high-end buildings stand nearly dark at night. The city even floated a “pied-a-terre” tax for those part-time residents using those condos as safe-deposit boxes without pouring anything else into city goods and services.
Pied-a-terre tax fans pointed out the politically convenient fact that part-time residents don’t vote in New York, which makes it easier to pluck them without making them squawk. But ultimately, real estate insiders shot it down as class warfare. They objected that it would be too hard to determine which owners are truly absentee and deserve to get hit with the tax. And they argued, quite reasonably, that out-of-towners buying $5 million condos aren’t taking up space on city buses and subways.
We don’t care if you live in a mansion, an apartment, or a van down by the river. We’re pretty sure you don’t want to pay more than your legal fair share. That’s where our tax planning service comes in. So call us and see how much you might save. You might free up enough to spend some seriously fun weekends in the city!