Tax Breaks Sought Amid Boom

The booming real estate market is contributing to soaring government revenues, as city and state coffers swell with tax collections from property sales, fueling calls to return some of the money to taxpayers.

The city has estimated it will take in about $1.7 billion in real estate transfer taxes for the fiscal year, up $350 million from 2006 and almost eight times as much as was collected a decade earlier.

The result of a flurry of sales and big real estate transactions over the past year — the first six months of 2007 saw a record-high $34.1 billion of real estate investment sales — the unexpectedly high returns were a key factor in the record $4.4 billion budget surplus. With the added tax revenues pouring in, many on the City Council are calling for greater tax relief, beyond the added cuts the mayor announced in June.

Council Member Peter Vallone Jr. said the surpluses, buoyed by the transfer taxes, are grounds for the city to cut its property tax rate back to what it was before 2002, when the Bloomberg administration increased it to raise additional revenue.

"We can't rest until the entire real estate tax has been returned," Mr. Vallone said yesterday. "These taxes are definitely a hindrance when it comes to buying and selling property," he added, referring to the transfer taxes.

The real property transfer tax imposes a levy on people or businesses selling property, who must pay up to 2.6% of the sale price to the city. The state has a similar tax, which takes in less than 1% of each transaction.

The two taxes take almost $20,000 out of the pocket of the seller of a Manhattan apartment, whose average sale price is currently at around $1.3 million.

Because they take a portion of every sale, the level of revenue from the taxes is heavily affected by the surge in transactions that is characteristic of the city's thriving real estate market, both in the residential and commercial sectors.

Between April and June, the number of Manhattan apartment sales was at its highest point in at least two decades, according to data from the appraisal firm Miller Samuel, as the apartments in the city are still in extremely high demand despite all-time high prices.

Modest interest rates, a weak dollar, and rising office rents have created what many real estate experts deem a perfect storm of opportunity for commercial real estate, which has allowed for a proliferation of mega-deals topping $1 billion. According to the brokerage firm Cushman Wakefield, the level of investment sales between January and June came just $600 million shy of breaking the record for the entire year.

More than 11 years after the repeal of a levy on real-estate gains known as the "Cuomo tax," the high levels of sales have left the city with revenue at levels well beyond what was estimated. Just a single big-ticket deal can net millions in revenue for the city and state: The January blockbuster $1.8 billion sale of 666 Fifth Avenue netted $47.2 million for the city and $7.2 million for the state, for example.

When first adopted more than a year ago, the city's budget anticipated more than $860 million in revenue from the transfer tax, about half of the money that was ultimately realized. Taken with a similar increase from the mortgage recording tax, a large chunk of the city's budget surplus came as a result of the real estate industry.

"They're not the whole story in the city surplus, but each year, they've added at least $1 billion in surprise revenue," a deputy director at the city's Independent Budget Office, George Sweeting, said.

The Bloomberg administration generally pursued a strategy of prudence in dealing with the surplus, as it has rolled over much of they money into future years and put hundreds of millions into the Retiree Health Benefits Trust Fund.

Mr. Bloomberg in June included in the final budget a temporary 7% decrease in the property tax rate, on top of a sales tax cut and a $400 rebate for homeowners.

But others call for more cuts, saying that especially in times of plenty, property owners shouldn't have to carry a high tax burden.

"We could have had a 10% or better property tax cut and it would not have hurt the city," Council Member Vincent Gentile said. "If this strength continues, I think you're going to hear a call for a personal income tax cut as well."

A spokesman for Mr. Bloomberg said it was too soon determine what the fiscal outlook will be for the next year.

Estimates in the budget adopted last month put revenue from real estate transfer taxes at $1.3 billion for the coming year, though the Bloomberg administration generally tends to be cautious in its predictions.

Real estate experts say that at least in the short term, prices and activity are anticipated to stay high, barring a significant change to lending rates or other factors.

"Even with sellers willing to sell at these high prices, there still is a relatively low available supply of property," the chairman of the real estate firm Massey Knakal, Robert Knakal, said.