The New York City Department of Finance has released a memorandum revising its position on the real property transfer tax rate that applies to “bulk transfers” of cooperative apartments and residential condominium units in New York City. Finance Memorandum, “Real Property Transfer Tax on Bulk Sales of Cooperative Apartments and Residential Condominium Units,” 00-6REV (N.Y.C. Dep’t of Finance, Sept. 8, 2011).

The issue stems from a two-tiered rate structure under the real property transfer tax (“RPTT”) which applies, in part, to sales of cooperative apartments and condominium units located in New York City. Transfers of an individual cooperative apartment or an individual residential condominium unit are taxed at either 1% of the consideration (where the consideration is $500,000 or less) or 1.425% (if it is over $500,000). For most other types of transfers of real property, the tax rate is 1.425% (where consideration is $500,000 or less) or 2.625% (if it is over $500,000).

The Department applies the higher tax rate to what it refers to as “bulk sales,” that is, transfers of more than one co-op apartment or condominium unit by a single grantor to a single grantee. In 2000, the Department issued Finance Memorandum, 00-6 (N.Y.C. Dep’t of Fin., June 19, 2000), in which it took the position that the transfer of adjacent co-op apartments or condominium units that were physically combined into a single unit prior to the transfer would not be treated as a “bulk sale,” and would be taxed at the lower rates of 1% or 1.425%. However, if the units were not combined until after the transfer, the higher rates of 1.45% and 2.625% would apply.

Subsequent decisions of the New York City Tax Appeals Tribunal have called into question the continued viability of the Department’s policy, and the revised Finance Memorandum cites three City Tribunal decisions holding that certain transfers of multiple condominium units to a single grantee were not “bulk sales” and thus qualified for the lower tax rate. In two of the decisions (the Matter of Cambridge Leasing, TAT(E) 2003-11 (RP), Sept. 12, 2006, Sept. 12, 2006, and Matter of Rosenblum, TAT(E) 2001-31(RP), Sept. 12, 2006), a grantee’s purchases of more than one condominium unit from the grantor, where the additional unit purchased (respectively, a noncontiguous “maid’s room” and a “suite unit”) could only be purchased by a condominium unit owner, was held to qualify for the lower rate. In the third decision (Matter of Gruber, TAT(E) 2003-7 (RP), et al., Sept. 12, 2006), the City Tribunal held that the purchase of three contiguous condominium units on one unfinished floor, which were temporarily made into separate apartments in order to obtain a Certificate of Occupancy, but which the grantee intended to and later did combine into a single unit, also qualified for the lower rate. The Gruber decision, issued in 2006, appears to have rendered the earlier Finance Memorandum invalid to the extent it required that the units be combined prior to the transfer in order to qualify for the lower rate.

However, rather than set out a revised policy in light of those decisions, the revised Finance Memorandum merely states that “the facts and circumstances differ in each case,” and that if it is unclear whether transfers qualify for the lower rate under these decisions, “the Department recommends that you request a letter ruling to get the Department’s opinion.”

Additional Insights. While tax guidance is always welcome, the Finance Memorandum, unfortunately, does not provide much in the way of actual guidance. The only discernable policy is to take recognition of three not very recent City Tribunal decisions, and to advise taxpayers that if their particular facts are not clearly covered by those decisions, they should write in for a letter ruling (which requires payment of a $250 processing fee, and can involve up to a 90-day waiting period to obtain). The revised Finance Memorandum would have been more useful if it clearly set out the Department’s position on what constitutes a “bulk sale” of co-op apartments or condominium units in light of these decisions, and made clear exactly what was being changed from its 11-year-old Finance Memorandum (which, having now been revised, has been removed from the Department’s website). Despite the new Finance Memorandum, the Department’s policy remains unclear as to which tax rate will apply, for example, when a grantee buys two adjoining co-op apartments with the intent of seeking co-op board approval to combine them, or when a grantee buys two condominium units from a seller as an investment.