ALBANY — Gov. Andrew M. Cuomo, who faces declining revenues and rising, big-ticket costs such as repairs to the New York City subway system, is considering a new tax that would hit the very rich who keep co-ops and condominiums in Manhattan for when they stopover for business or pleasure.
It’s called the pied-à-terre tax. Pied-à-terre is French for “foot on the ground” and refers to apartments kept away from the primary residence. Some public policy advocates have referred to it as the perfect tax because it can raise billions of dollars from people who are so wealthy that it might not matter much and don’t vote for city or state officials, anyway.
Cuomo’s plan, as with proposals by Sen. Brad Hoylman (D-Manhattan) and the labor-backed Fiscal Policy Institute, would tax property valued at $5 million and more. Hoylman would charge an annual surcharge of 0.5 percent to 4 percent, but Cuomo hasn’t yet settled on a tax rate.
The tax is expected to largely affect overseas and out-of-state owners of Manhattan pieds-à-terre, but it also could be impact pied-à-terre owners whose primary residences are on Long Island or in Westchester, Connecticut and New Jersey, depending on where the property value limit is set.
The State Legislature supports the concept.
Hoylman has sponsored bills to create the tax and the tax has been recommended by the Assembly’s Democratic majority, their spokesmen said Friday. Their budget counterproposals are scheduled to be released next week. Negotiations between legislative leaders and Cuomo, who issued his budget proposal Jan. 15, will be scheduled to try to agree on a state budget that is due in April 1.
“Taxing vacant apartments bought by billionaires as second homes is a no brainer,” Hoylman said in a tweet. “If you can buy a $238 million apartment, you’ll have no problem paying your fair share to help sustain our city.”
The idea started to get a new look after the recent record sale of an apartment on Central Park South for $238 million to a hedge fund manager as a second home, smashing the previous $138 million sale price for a unit.
Last week, Cuomo’s budget director, Robert Mujica, estimated the tax could raise $9 billion over several years, depending on how it’s structured. That would be a substantial new boost to the state’s annual budgets, which Cuomo now proposes to reach $175.2 billion for 2019-20. But the tax may also add to the state’s reputation as the highest-taxed state in the nation.
“The premise of the pied-à-terre tax — get money from wealthy nonresidents — sounds reasonable on the surface,” said E.J. McMahon of the fiscally conservative Empire Center for Public Policy think tank. “The main problem with the idea is the assumption that an entirely new tax is needed in what’s already the nation’s most heavily taxed and wealthy big city, in order to fund the capital plan of a transit system that has yet to demonstrate it can effectively spend the money it already has.”
He said the tax reveals the city’s under-taxation of luxury condos, then ignores the problem “because it’s hard.”
“The pied-à-terre tax is just another rush to find the lowest-hanging money,” McMahon said. The result will be a disruption of the real estate market, he said.
The momentum for the tax comes as Cuomo is facing some opposition in the Legislature for another big revenue idea: A congestion pricing plan that would hit commuters from Long Island, Westchester and the outer boroughs with varying fees to enter Manhattan below 60th Street. Cuomo is also facing some resistance in his plan to legalize marijuana and direct that new revenue to the subways.
“If we lose tax revenue generated by cannabis — then we will either need a 50/50 cash split between the city and state, or the pied-à-terre tax, which could raise as much as $9 billion, and we would still have a shortfall,” Mujica said.
Mayor Bill de Blasio has resisted the 50/50 split in paying bills of the Metropolitan Transportation Authority, which he correctly notes is a state entity. But he likes the pied-à-terre tax, especially after the State Legislature rejected the mayor’s proposal for an additional millionaire’s tax.
“The truth is I believe that we need to tax the wealthy more,” de Blasio said. “Now if the governor is saying he thinks there’s a way to additionally get pied-à-terre tax, I’m all ears. I think that could be a very helpful addition.”