The Fight Ahead Over the Pied-à-Terre Tax

The so-called pied-à-terre tax launched by Mayor Zohran Mamdani and Governor Kathy Hochul may have faced a setback in court, but the levy’s legal travails could be just beginning. A judge on Staten Island, Wayne Ozzi, on Monday paused the tax, pointing to the flawed rollout of the surcharge on second homes. The pause is lifted pending appeal. Yet the homeowners filing the suit aren’t contesting a more consequential legal question, the validity of the tax law itself.The homeowners contend that the city’s flawed implementation of the tax has “arbitrarily and capriciously foisted onto New York City residents the burden of proving they are not subject to the Surcharge.” That echoes a point made by GOP gubernatorial candidate Bruce Blakeman who notes that the city is forcing owners “to prove they don’t owe the government more money.” If the suit succeeds, the city could well be required to delay imposing the levy.Mr. Mamdani says he is “confident” that his effort to tax the rich to bolster the bloated budget will survive the court challenge. “There are few things more certain in New York City than death, taxes and Randy Mastro filing a lawsuit against this administration,” he said, mocking a lawyer on the case. Yet past mayoral administrations had hesitated to impose a tax on second homes, pointing to a Supreme Court precedent from 2015 against double taxation.There are plenty of policy reasons, too, for New York to reconsider its attempt to tax second homes. The pied-à-terre tax, the American Enterprise Institute’s Howard Husock has warned, “will further distort a city housing market” that has been made “inefficient by rent regulation and affordable housing requirements.” It will, he adds, “discourage new investment, including by buyers who will pay high taxes but use few city services.”During Mayor Bill De Blasio’s tenure at City Hall, calls to impose a tax on second homes were rejected in part due to concerns over the Supreme Court’s ruling in Maryland v. Wynne. Mr. De Blasio backed “a pied-à-terre tax,” the real estate publication Brick Underground reported, but hesitated due to concerns “that a 2015 Supreme Court ruling on double taxation presents a legal barrier.” Mr. Mamdani and Mrs. Hochul seem to have no such qualms.Wynne, to be sure, is not necessarily a lead-pipe cinch when it comes to the question of a tax on second homes. The Nine, though, in the case ruled against a Maryland tax policy that ended up taxing differently the income of residents and nonresidents. The constitutional objection, Justice Samuel Alito wrote for the majority, was that this created an “incentive to engage in intrastate rather than interstate economic activity.” Legal analysts have suggested similar concerns could bear on a second-home tax. The Wynne ruling, Forbes reported, could amount to a “victory to rich folks who have second homes in NewYork and face double taxation on investment income.” A real estate attorney, Arthur Rosen, argued that Wynne showed that a “statutory residency test is unconstitutional” when it comes to the idea of taxing the income of non-residents with second homes. Concerns over taxes that discriminate between residents and non-residents can be traced, too, in the precedents of Bacchus Imports v. Dias, from 1984, and McKesson v. Florida, from 1990. The Nine in these cases ruled against Hawaiian and Floridian taxes that were higher on liquors made outside the two states. The doubts over a discriminatory levy could well emerge as a challenge that would not just derail, but torpedo, New York’s pied-à-terre tax.

The Fight Ahead Over the Pied-à-Terre Tax

The Fight Ahead Over the Pied-à-Terre Tax

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