Is Mansion Tax due under the following facts?
- Agent asked to insure a purchase of $1,225,000 with a Building Loan Mortgage in the amount of $2,400,000.
- Premises was residential vacant land on the date of the conveyance.
- Transfer Tax was paid on the purchase price of $1,225,000.
- No Mansion Tax paid (agent analysis; no Mansion Tax due because premises was vacant and unimproved at the time of the conveyance).
- Unbeknownst to the agent, the parties had simultaneously entered into a Construction Contract for an additional $2 million – purchaser was to pay the seller during the course of construction; seller was a builder.
- More than a year after the deal closed and the deed is recorded the purchaser received a letter from NYS Dept. of Taxation and Finance (“TF”) stating additional NYS Transfer Tax and Mansion Tax were due.
- TF stated additional Transfer Tax was due on the 2 million AND that Mansion Tax was due on the “entire” purchase price of $3,225,000.
Re: NYSTT – not appealed
Re: Mansion Tax – Agent and purchaser appealed and argued that no Mansion Tax was due because the premises was vacant “at the time of conveyance” (see FAQ for Mansion Tax and the TF regulations which so state).
TF denied the appeal stating that Mansion Tax was due even though the premises was vacant at the time of the conveyance for the following stated reasons:
- The economic reality of the entire conveyance must be looked at – not just the “form” of the conveyance; in reality this was a conveyance for $3,225,000 with a house – they further stated “the existence, or lack thereof of a physical dwelling located on the vacant land when a deed is filed is irrelevant when viewing the transaction as an integrated whole.”
- The premises was marketed (by the broker’s listing) as a new construction home for $3,225,000.
- Seller was the builder.
- Per TF – A deed is not the same as a conveyance under Article 31 of the Tax Law.
- A conveyance is a defined term – its definition was broadened in 1989 to capture the conveyance of an economic interest in a real property. A conveyance is broader than a deed.
- Severing the conveyance into steps does NOT exempt the transaction from applicable taxes.
TF viewed the purchase of vacant land and the construction of the house as a single transaction – even though the real estate contract and the construction contract were not cross defaulted. Purchaser was obligated to pay the additional NYSTT and the Mansion Tax plus interest; the TF waived penalties.