Changes to the Liability Provisions of the New York Real Estate Transfer Tax
Earlier this spring, New York Governor, Andrew Cuomo, signed the fiscal year 2022 budget bill, which included two notable changes to the liability provisions of the New York State real estate transfer tax requirements.
What Is Real Estate Transfer Tax?
New York State imposes a real estate transfer tax (RETT) for the transfer of real property when the consideration exceeds $500. This transfer tax is typically imposed on the grantor (seller) in a standard real estate transaction. However, in the event that the grantor does not pay the tax, the responsibility then transfers to the grantee (buyer). Conversely, in the event that the mansion tax — a tax imposed on a purchaser for real property exceeding $1 million — is not paid by said purchaser in the closing, this liability shifts to the seller.
Although seemingly contradictory, both of these scenarios are true. In real estate transactions, the payment of any related taxes is the joint liability of both the seller and the buyer, and this is what has been drastically amended in the new bill.
Changes to Liability Provisions
First, the budget bill expands the liabilities of payment onto the individuals of an entity. Now, any officer, employee, manager or member of an entity (corporation, partnership, individual proprietorship or LLC) must comply with the transfer tax provisions and can now be held personally liable for the transfer tax.
This is a major change because, usually, the purpose of purchasing a property under an entity is to maintain any liabilities solely to the entity — not to the individual interest holders.
Second, the budget bill also added language to clarify that, although the grantor and grantee are jointly liable for the transfer tax, the responsibility is on the grantor. “Not to be payable, directly or indirectly, by the grantee” (S.B. S2509C, Pt. O, §2) is the specific language used to clarify this misconception.
So, in the event that the grantor fails to pay the transfer tax and the cost falls on the grantee, the buyer now has cause of action to recover from the seller the amount that the buyer had to pay.
Consequently, this provides additional protection for the buyer, thereby ensuring that they can recover the taxes paid from the party originally responsible (the seller) if the buyer is hit with the transfer tax bill.
The provisions from the new budget bill apply to all transfers of real property made on or after July 1, 2021.
Relevant read: Transferring Property to an LLC