The transaction of real property within New York, and transfer of a controlling interest in an entity owning real property in the state, may require the payment of one or more transfer taxes. New York State imposes a transfer tax of $4.00 for each $1000 of consideration and a “mansion tax” of one percent of consideration on the transfer of property that is or may be used as a one-to-three family residence when the consideration for the transaction is $1,000,000 or more Depending on the location of the property, various county, city and town transfer taxes may also apply, the highest transfer tax rate in the state being 2.625% of consideration for a transfer involving commercial property in New York City. The Peconic Bay area of eastern Suffolk County, which includes the Hamptons, has its own transfer tax. Transfer tax, except for the mansion tax which is payable by the transferee, is generally payable by the transferor; if the transferee pays the tax consideration is grossed-up by the amount of tax computed in the first instance and tax is finally recomputed on the new amount.

The rules applicable to each of the transfer taxes may differ. For example, the State transfer tax applies to the grant of a leasehold which meets certain requirements, to the transfer of real property by or to a not-for-profit corporation, to the grant of an option to purchase or to the execution of a contract of sale when the optionee or vendee has possession, but not to the transfer or real property pursuant to a bankruptcy court Order. New York City’s transfer tax, in comparison, does not generally apply to the grant of a leasehold, to a transfer of real property to or from a eligible tax exempt organization, to the grant of an option to purchase or to a contract of sale, and to a transfer authorized in a confirmed plan of reorganization under Bankruptcy Code Section 1146(c).

There are other differences. The State’s transfer tax on a deed from a referee to the foreclosing lender or to its nominee or on a deed-in-lieu of foreclosure may be limited to the fair market value of the real property even if that amount is less than the judgment of foreclosure and the amount of any surviving liens, provided that the debt secured by the mortgage being foreclosed is fully recourse. Other transfer taxes do not allow for a fair market value limitation on taxable consideration. New York City’s transfer tax rate varies depending on the use of the property, such as whether the property being transferred is for the occupancy of one-to-three families, and whether the consideration for the transfer exceeds $500,000. Consideration for the transfer of more than one condominium unit or cooperative apartment, which is treated as real property for purposes of transfer tax, may be aggregated and, if so, the “bulk” transfer may be subject to a higher rate of City transfer tax. The City of New York will tax the transfer of less than a 50% interest in an entity owning real property as if it is a controlling interest transfer when the property is transferred to a new entity in which the difference in ownership between it and the transferor is only to the extent of a minority ownership interest.

A lien affecting real property does not arise by reason of the failure to timely pay the required amount of tax. However, forms, where required, must be submitted and transfer taxes payable must be paid to record the instrument of conveyance. Interest and penalties will be imposed for the late payment of transfer taxes. The State’s transfer taxes are payable with within 15 days of the date of transfer and New York City’s transfer tax is payable within 30 days of the date of transfer. For the transfer of property in New York City, state and city transfer tax forms must be completed on-line in the City Department of Finance’s Automated City Register Information System (“ACRIS”)

Yes, the application of transfer taxes in New York, and the procedures to follow to file tax returns and make any required payments of tax, can be complicated. Although the payment of transfer tax due is not covered by a title insurance policy, experienced title counsel in New York customarily afford guidance on the application of the various transfer taxes and the forms required to be submitted.