New York Enacts Changes to Liability Provisions of New York Real Estate Transfer Tax
On April 7, 2021, the New York State Legislature passed the New York Budget Bill for fiscal year 2022 which was signed by Governor Andrew Cuomo on April 19, 2021 (the “Budget Bill”). S.B. S2509C, 2021 Leg., 2021 Reg. Sess. (N.Y. 2021). The Budget Bill enacted two notable changes to the liability provisions of the New York State real estate transfer tax.
Real estate transfer tax (“transfer tax”) is generally imposed on every conveyance of New York State real property or interest therein when the consideration exceeds $500. N.Y. Tax Law § 1402(a). The transfer tax is imposed on the grantor, defined as “the person making the conveyance of real property or interest therein” although both the grantor and grantee are jointly liable for the tax. N.Y. Tax Law §§ 1401(g), 1404(a).
First, the Budget Bill extends the definition of a person responsible for paying the transfer tax to include any person who is an officer, employee, manager, or member of a corporation, partnership, limited liability company (“LLC”), or individual proprietorship with a duty to act to comply with the transfer tax provisions, or who has so acted. This means that such responsible person can be held personally liable for the transfer tax.
While the concept of a responsible person under the transfer tax is not as broad as under the sales tax, which provides that every partner and LLC member is a responsible person regardless of whether the partner or LLC member is under a duty to act on behalf of the LLC or partnership (with certain exceptions), it still represents a potentially significant expansion of who is liable for the transfer tax under the statute. This change to the law underscores how important it is for those responsible for legal compliance to ensure that transfer tax is correctly filed and paid on transfers of real property as well as transfer of interests in entities that own real property.
Second, the Budget Bill clarifies that while the grantor and grantee remain jointly liable for the transfer tax, it is the grantor that is the party responsible for paying the tax. The bill does this by adding language to the statute giving the grantee a statutory cause of action to recover transfer tax paid by it from the grantor in cases where the grantor fails to pay the tax as required under the statute. This provision protects grantees from being stuck with a transfer tax bill even where there is no contractual agreement between the parties allowing the grantee to seek indemnification from the grantor for unpaid transfer tax.
The above provisions apply to conveyances made on or after July 1, 2021, unless the conveyance was made pursuant to a binding written contract entered on or before April 1, 2021. The legislation does not make corresponding changes to New York City transfer tax.
This article is one in a series of articles written for the May 2021 edition of The BR State + Local Tax Spotlight.