Soon after Governor Hochul floated the idea of a “pied-à-terre” tax in New York City, Albany Sen. Patricia Fahy proposed to expand the concept to the rest of the state.
As with Hochul’s still-sketchy proposal, Fahy says her tax would be levied on homes worth more than $5 million that are not used as primary residences – which, in the upstate context, means vacation homes. The levy would apply only in municipalities that opt to participate.
Half the revenue raised under her scenario would go to local coffers. The other half would be redistributed to other local governments through the state’s Aid and Incentives for Municipalities program.
Fahy says the goal is both to generate revenue for local services and discourage absentee ownership of luxury homes.
“For too long, these properties have contributed to a hollowing out of communities upstate, in Long Island, the Adirondacks, Finger Lakes, and across New York State, in some instances, by turning them into part-time ghost towns,” Fahy told the Albany Times Union.
There are at least four problems with this idea:
Firstly, the second-home market in most of the state looks nothing like Manhattan or the Hamptons.
In the financially distressed cities that Fahy says she wants to help – such as Rochester or her home base of Albany – luxury second homes are virtually nonexistent.
In vacation destinations such as Lake George, Saratoga Springs and Skaneateles, there are a smattering of $5 million-plus properties, but it’s unclear that there are enough to generate significant revenue.
Fahy has indicated that her bill might exempt second homes owned by people who live elsewhere in New York, which would further shrink the number of affected properties.
In Saratoga Springs, for example, the real estate website Zillow shows only a handful of houses have sold for more than $5 million in the past three years. Only one, the so-called Palazzo Riggi, has sold for more than $6 million.
According to county assessments rolls – which would presumably be the basis for levying a pied-à-terre tax – the Palazzo is valued at $12 million. No other house in its North Broadway neighborhood, one of the priciest in the city, has a full-value assessment of more than $5 million.
A second problem with Fahy’s proposal is that high-priced second homes are cash cows for upstate resort areas, not fiscal burdens.
Their owners pay the full amount of property taxes, sometimes amounting to hundreds of thousands of dollars per year, while using local government services for only a few weeks or months per year.
Thirdly, the concept of a statewide pied-à-terre tax glosses over the structural differences between property taxes in New York City and in the rest of the state.
The city’s system divides residential properties into multiple classes that are assessed and taxed in different ways. It also limits how much any given owner’s assessment can increase from year to year. As a result, a newly purchased house might face a higher bill than the similar property next door. And the owner of a luxury condo in Manhattan might pay a lower tax rate, as a percentage of market value, than a middle-class homeowner in Queens.
Because of these complexities, The Wall Street Journal estimated in 2017 that investor Ken Griffin’s $280 million condo – a flashpoint in the current debate – would pay an effective property tax rate of 0.22 percent, while the home owned by a Staten Island garbage collector faced an effective rate of 1.2 percent.
Elected officials have struggled with overhauling the system because that process would be politically divisive. But they have also shied from using property tax hikes to fill budget holes because that would heighten the existing inequities.
In that context, a pied-à-terre tax in New York City can be seen as a Band-Aid on a broken system – a way of raising rates on a sub-group of wealthy property owners without upending the messy status quo.
Upstate and on Long Island, even that dubious rationale falls apart. Local officials in upstate counties assess the value of all residential properties in the same way and tax them at consistent rates within each jurisdiction.
Rates outside the city also tend to be higher, because upstate and Long Island municipalities raise a larger share of their revenue from property taxes. As a percent of property value, the average property tax rates for the five boroughs are less than 0.9 percent, according to the Tax Foundation. Among upstate counties they range from 0.93 percent in Hamilton County to 2.41 percent in Monroe County.
According to tax records, Saratoga’s Palazzo Riggi owes about $157,000 in city, county and school taxes, which was 1.31 percent of its assessed market value – the same percentage that applies to every other homeowner in the city.
The fourth and arguably strongest objection to Fahy’s plan is that it would further add to a tax burden that is one of the heaviest in the U.S.
New Yorkers collectively pay 15.9 percent of their income in state and local taxes, the highest rate of any state, according to the Tax Foundation. They also pay $3,457 per capita in property taxes, which is No. 2 behind New Jersey.
New York’s state and local governments already collect almost one out of every six dollars that their residents earn. Its leaders should focus on living within those ample means instead of imagining new taxes to impose.
