France gave New York City the Statue of Liberty. Now, the French’s latest contribution to the Big Apple is the inspiration behind a new tax that could not only raise new revenue but suss out a broad swath of residents taking advantage of lower-tax homesteads.
NYC’s new pied-à-terre tax is an annual surcharge on certain high-value homes, condos and more that are not used as their owner’s primary residence. The city’s first new tax in over a decade is now on hold following a lawsuit.
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If the tax is eventually allowed to stand, it could also have some unintended consequences, including a de facto audit of who’s really living in the city and paying their fair share.
New tax
“It has been proposed numerous times, including by other previous legislators and policymakers,” Ana Champeny, vice president for research at the Citizens Budget Commission in NYC, told Straight Arrow. “There has been a concern in the city about the significant amount of real estate that is only occupied on a temporary basis.”
That proposal finally became reality this year under Mayor Zohran Mamdani, who has proposed several taxes since taking office.
However, when it comes to imposing new taxes in the city, Mamdani often needs approval from the state.
“The state government is the entity that has to pass legislation to allow local governments to tax,” Champeny said. “They can’t do that on their own.”
Most of Mamdani’s tax proposals were rejected by Gov. Kathy Hochul but not this one, which officially went into effect on July 1.
The tax fulfills one of Mamdani’s major campaign promises of targeting the wealthy.
In this case, wealthy does not necessarily refer to the owner’s income but rather the value of a home, which has many New Yorkers who may not be considered rich having to discuss options with expensive lawyers.
The tax is on non-primary residences valued at $5 million and up and on condominiums and co-ops valued at $1 million or up. Meaning the people who own that property consider their main residence to be in another state where taxes they pay as residents may be lower.
The nonprofit Tax Foundation ranks New York as the most uncompetitive state in the country in terms of individual taxes. It has a top individual income tax rate of 10.9% and is one of only two states with a type of clawback provision where making $1 over that top income threshold means an individual’s entire income is taxed at that rate. Declaring residency in another state would shield someone from this and other taxes that New York imposes on full-time residents.
Supporters of the pied-à-terre tax say people who are doing that are not paying their fair share for city services they may be using.
However, those on the other side say they’re not using as many services since they’re not full-time residents of the city.
“They do pay property tax,” Champeny said. “They pay other taxes like sales taxes when they’re in the city. So, that’s why I say this is not an analytically resolved issue. But the question is about whether or not they are paying their fair share.”
It’s expected to bring in at least $500 million per year and help close the city’s budget gap.
“It’s really hard to know how much it will raise, how many individuals will challenge the taxes, what will happen with delinquency and non-payment, et cetera,” Champeny said.
Tax suspended
The main challenge came from a group of homeowners, saying the tax has been improperly executed.
They claim the onus is on the property owners to prove they don’t need to pay the tax instead of forcing the city to do due diligence on ownership.
A judge has now temporarily blocked the rollout, meaning the city can not issue any additional notices while the judge’s order is in effect.
Mamdani’s office said they plan to appeal this ruling.
The next hearing is set for Aug. 31.
Possible consequences
While taxing what the administration calls wealthy may raise revenue for the city and state, there may be some other consequences.
The most obvious is that those who own those non-primary properties just sell them.
Unlike California, where a proposed billionaire tax is causing the wealthiest to leave the state, these rich people are already not paying the same property taxes as if they fully lived in New York.
Migration outside the city is already an issue for the state.
However, that could have other impacts as well.
“It could be that people sell and so there’s more units for sale which would bring down prices,” Champeny said. “It could be that because there is an additional tax, buyers will pay less and that reduces prices.”
On the other side of that, it could impact some future development for a city that so heavily relies on tourism.
Despite its strict regulations, New York City remains one of the top markets in the country for companies like Airbnb.
“Do developers decide not to build luxury condos that they primarily market to non-residents, or do they build office buildings, or do they just not build?” Champeny said.
When it comes to enforcing the tax and collecting, it will likely happen like any other tax.
Income tax residency fraud in New York City can come with severe penalties, including fines and even prison time in the most severe cases.
“I don’t think of it as being very different than being delinquent on your property taxes,” Champeny said.
Implementing a new tax anywhere comes with new challenges.
Making sure they get collected is just another part of that.
“The question would be, how would the city pursue collecting those dollars if that chooses to be a significant issue?” Champeny said. “It’s not clear that it will be.”
Unintended consequences
While the main goal of the pied-à-terre tax is to raise money for the state and city, it’s also essentially given them an auditor.
The option for people in New York City now becomes either pay this new tax or pay the city’s property taxes.
“It creates an opportunity for the city and the state in their audit processes to cross-reference the two taxes and look for discrepancies,” Champeny said.
Another area where this could impact people is their vehicles.
If someone claims their multimillion-dollar NYC property is a second home because they live primarily in another state, but the city determines they actually live in NYC, that could raise questions about whether their out-of-state car registration is legitimate.
Like other states, New York requires residents to register their vehicles in the state. The pied-à-terre tax’s residency checks could potentially expose people who are also improperly keeping out-of-state plates and not paying state tax and registration costs.
For now, the consequences will only become consequential once the future of this potential new tax is decided.
“There are likely to be significantly more challenges,” Champeny said.
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