Thursday, October 17, 2013

Two Rulings Concerning New York’s Mortgage Recording Tax

Tax Analysts’ State Tax Today reports on two advisory opinions involving nonprofits and New York’s mortgage recording tax. 

In the first, a municipal urban renewal agency, also deemed a public benefit corporation by state law, contracted to sell real estate to a not-for-profit corporation and extend a purchase money loan to the buyer to facilitate its acquisition of the property.  The agency will also hold a purchase money mortgage on the property.  The general statute imposing a mortgage recording tax contains no exception expressly exempting entities such as the agency.  Nonetheless, New York State’s Department of Taxation and Finance ruled that, because (1) the General Municipal Law provides that the property, income and operations of a municipal urban renewal agency are exempt from taxation; (2) this statutory exemption was enacted after the enactment of the general taxing statute; and (3) the exemption is specific as to municipal urban renewal agencies, the exemption statute takes precedence over the taxing statute.  The ruling is available electronically at 2013 STT 201-20.

The second advisory opinion involves more complicated facts, and is probably more surprising in view of the economic realities of the series of contemplated transactions.  Here, the issue was similar to that in the first opinion: whether a mortgage recorded by New York City Land Development Corporation ("LDC"), a not-for-profit local development corporation chartered under New York law, is exempt from New York’s mortgage recording tax.  The petitioner proposed to lease real property from the LDC and then develop it with funds borrowed from banks.  The bank loans will be secured by mortgages against petitioner's leasehold interest.  The LDC initially will be a named mortgagee and will record the mortgages, but all of the rights under the mortgages will inure to the benefit of the banks.  After recording the mortgages, the LDC will assign to the banks all of its mortgage interests.  The general statute imposing a mortgage recording tax contains no exception expressly exempting entities such as the LDC.  However, the New York Not-For-Profit Law exempts from taxation "[t]he income and operations” of a corporation incorporated thereunder.  The New York Department of Taxation and Finance concluded that the earlier-enacted provisions of the mortgage recording taxing statute “must yield to the exemption provisions contained in the 1969 law creating not-for-profit local development corporations.”  The tax, therefore, “does not apply where LDC as mortgagee records the LDC mortgage, nor does it apply to the recording of the eventual assignment of the Mortgage by LDC to Lenders.”  The ruling is available electronically at 2013 STT 201-21.

JRB

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